© 2011 Joshua Stark
My title should have been the title to this article out today at California Watch. Unfortunately, they picked a title with a tad less specificity, and in doing so have picked a side in the debate between the two ideas. Their title: Free cap-and-trade system beats carbon tax, study finds.
That study, Inducing Clean Technology in the Electricity Sector: Tradable Permits or Carbon Tax Policies?, by UC Merced & the University of New South Wales, compares the possible impacts of a carbon tax vs. a cap-&-trade system using a model of a single, small firm that owns a coal-fired power plant. In the abstract, the authors claim to find that, due to the inherent uncertainty of a tradable permit system, a small firm will more likely hedge its bets by investing in some hybrid form of clean tech. + coal than it would under a system with a more stable carbon price.
Now, I don't have $20 to put down on a copy of this study (chalk it up to microeconomics, both literally and figuratively), but I do have some questions - especially to California Watch:
-The study's abstract says nothing of a "free cap-and-trade system", and in fact, I don't have a clue as to what a "free" cap-&-trade system would look like. People pay when carbon is priced, period. So, California Watch, where did "free" come in?
-The study's abstract also explains that other ideas associated with C&T (e.g., offsets) are also more expensive than just a tradable permits system without them. California Watch, why did you not include this little gem of news?
-And for the researchers: Why study a particular scenario that is unlikely to have much of an impact on carbon? If energy companies were as the authors envision - small firms owning one coal plant - then uncertainty may lead to hedging. However, we are talking about creating a contrived, government-mandated market with a number of very, very large firms. These firms move markets, they tend to suppress volatility (which is why companies want to be big), and they unduly influence political economy in their favor (hence, offsets & free permits to them). This last point cannot be understated, especially because any carbon price is going to be the result of a government regulation and it will be much easier to "game" the system if it has elements of contrived uncertainty in it.
Also, consider this: A clear government regulation pointing to a relatively quick increase in carbon prices will also lead a small firm to switch to clean tech. In fact, if the price looks high enough, that firm will leave coal completely, thus saving lives. This regulation will also lead big firms to switch.
Never forget that, no matter how we price carbon, it will be through a government regulation.
Uncertainty in carbon prices may, indeed, lead many companies to hedge their bets, although current history (carbon prices are surely uncertain right now) does not completely bear this out. And if carbon prices were a commodity, rather than a priced-in externality, I'd be more inclined to allow some uncertainty. But the fact is that any carbon price will be contrived, because it doesn't have to have a market price. Since the price for carbon will come out of regulations (even a C&T price) and an artificial scarcity, since large companies can thrive on creating their own certainty and influence shifting and uncertain regulations to a greater extent, and since a clear sign that carbon prices will go up will also induce a strong shift toward clean tech., it is imperative that we have a clear and certain regulatory framework.
Showing posts with label carbon. Show all posts
Showing posts with label carbon. Show all posts
Monday, July 11, 2011
Friday, February 4, 2011
California Cap & Trade loses its court fight, and salt ponds show quick rebound
© 2011 Joshua Stark
A couple of unrelated news items, but both timely and interesting.
The California Air Resources Board's adoption of a cap & trade program was shut down by a judge yesterday, due to CARB's inadequate analysis of alternatives, a CEQA (California Environmental Quality Act) requirement.
CEQA requires state agencies to analyze alternative ways of achieving a project's goal, choosing the most environmentally appropriate way to accomplish it. In the case of cap & trade, a coalition of environmental justice (EJ) advocates, led by the Center on Race, Poverty and the Environment, successfully argued that CARB didn't adequately analyze the alternatives to cap & trade that they'd put forward. And, they have a point.
Many EJ folks have a serious problem with cap & trade. While on the large scale, C&T could lower total carbon emissions, it does it in a way that favors particular regions (usually rich ones), and hurts others (usually poor ones). For carbon, this isn't a problem, because carbon doesn't, say, cause asthma near where it is emitted. However, impacts to industries that would cut back on carbon emissions would also lead them to cut back on "co-pollutants", those pollutants that come out with carbon, and these are typically very harmful to local communities.
The way C&T gains economic efficiency over other methods is by allowing companies to choose whether it is cheaper to cut their emissions (by lowering output or installing cleaner tech.), or cheaper to buy emissions credits on a market. By doing this calculation, the price of carbon becomes clear in a market-like manner, and we see cuts to carbon emissions.
It is a simple leap, then, to understand that, if company A wants to buy carbon emissions credits instead of cleaning its emissions, then it will continue to emit carbon, and whatever else comes out of that smokestack. In fact, if California's cap & trade is tied to a larger market-like mechanism, California could theoretically see increases in its own air pollution, including carbon.
It's the "whatever else" that bothers EJ advocates and the judge. CEQA's job is to ensure that state activities consider the most environmentally appropriate actions. In addition, CARB is mandated to decrease air pollution, and if its activities actually increase pollutants, it may well be in violation of its own mandate.
Stay tuned for more in this arena, for sure.
In other, happier news, recovered salt flats in the South San Francisco Bay are returning to their natural state at a very fast clip. As a Son of the Delta, I am always thrilled to see wetlands recover so quickly, especially considering just how cautious scientists have been due to concerns over water pollution.
My favorite line from that report: "A similar study done in 1,400 acres of former Cargill ponds in the North Bay near the Napa River also found a wide abundance of bay fish had come back, including striped bass, tule perch and even a chinook salmon, some only weeks after the ponds had been breached."
A similar scene has been taking place for the last seven years in Iraq, too - if you are interested in that one, head over to Nature Iraq.
A couple of unrelated news items, but both timely and interesting.
The California Air Resources Board's adoption of a cap & trade program was shut down by a judge yesterday, due to CARB's inadequate analysis of alternatives, a CEQA (California Environmental Quality Act) requirement.
CEQA requires state agencies to analyze alternative ways of achieving a project's goal, choosing the most environmentally appropriate way to accomplish it. In the case of cap & trade, a coalition of environmental justice (EJ) advocates, led by the Center on Race, Poverty and the Environment, successfully argued that CARB didn't adequately analyze the alternatives to cap & trade that they'd put forward. And, they have a point.
Many EJ folks have a serious problem with cap & trade. While on the large scale, C&T could lower total carbon emissions, it does it in a way that favors particular regions (usually rich ones), and hurts others (usually poor ones). For carbon, this isn't a problem, because carbon doesn't, say, cause asthma near where it is emitted. However, impacts to industries that would cut back on carbon emissions would also lead them to cut back on "co-pollutants", those pollutants that come out with carbon, and these are typically very harmful to local communities.
The way C&T gains economic efficiency over other methods is by allowing companies to choose whether it is cheaper to cut their emissions (by lowering output or installing cleaner tech.), or cheaper to buy emissions credits on a market. By doing this calculation, the price of carbon becomes clear in a market-like manner, and we see cuts to carbon emissions.
It is a simple leap, then, to understand that, if company A wants to buy carbon emissions credits instead of cleaning its emissions, then it will continue to emit carbon, and whatever else comes out of that smokestack. In fact, if California's cap & trade is tied to a larger market-like mechanism, California could theoretically see increases in its own air pollution, including carbon.
It's the "whatever else" that bothers EJ advocates and the judge. CEQA's job is to ensure that state activities consider the most environmentally appropriate actions. In addition, CARB is mandated to decrease air pollution, and if its activities actually increase pollutants, it may well be in violation of its own mandate.
Stay tuned for more in this arena, for sure.
In other, happier news, recovered salt flats in the South San Francisco Bay are returning to their natural state at a very fast clip. As a Son of the Delta, I am always thrilled to see wetlands recover so quickly, especially considering just how cautious scientists have been due to concerns over water pollution.
My favorite line from that report: "A similar study done in 1,400 acres of former Cargill ponds in the North Bay near the Napa River also found a wide abundance of bay fish had come back, including striped bass, tule perch and even a chinook salmon, some only weeks after the ponds had been breached."
A similar scene has been taking place for the last seven years in Iraq, too - if you are interested in that one, head over to Nature Iraq.
Sunday, January 9, 2011
The future of federal climate change work
© 2011 Joshua Stark
Though I do not consider myself an expert, I have had the honor of advocating for efforts to fight climate change on-and-off for the past four years. I do have a perspective that is not tainted by decades in the trenches, political or financial connections to powerful people with a dog in the fight, or even a personal history of traditional environmentalism, and with that in mind, and considering this is a new year with new challenges and government leadership, I'd like to offer some general suggestions for folks looking to get our governments to work fixing climate change:
1) Don't spend a dime on getting any kind of positive climate change legislation passed in the House of Representatives
All of our House efforts need to go to supporting only the staunchest allies in climate change, and in fighting the horrific legislation that will come out of a House leadership, especially the Natural Resources Committee Chair who has specifically singled out the EPA's Supreme Court-mandated regulation of greenhouse gasses.
2) Turn some federal energies to the EPA
For the past ___ years (fill in the blank with the number of years you've been working on climate change legislation), the federal legislature has refused to acknowledge carbon as a pollutant. Meanwhile, due to a Supreme Court decision, the Environmental Protection Agency is mandated to regulate carbon as precisely that. Focus all your efforts on EPA decisions about carbon. My specific recommendation? Look at the "cumulative impacts" condition that the EPA (and other federal agencies) must address through NEPA (the National Environmental Protection Act). It is reasonable to assume that any government activity resulting in net carbon emissions into the atmosphere may exceed the cumulative impact threshold for carbon in the atmosphere. At the least, this should cause the EPA to pick a number, and it may effectively eliminate Environmental Assessments (a common shortcut in NEPA) for a time, as agencies are forced to determine their carbon footprint per project. The idea should be to get the EPA to enact actual regulatory measures. We have frightened and imagined ourselves out of straight regulation, believing that we need a consensus in the House and Senate before we can accomplish anything. But we can't achieve a system-wide trust in regulations unless we have regulatory agencies willing to regulate. The environmental communities can help rebuild that trust by going to the EPA to get the ball rolling.
Bottom line: Don't waste time on the House and Senate. Focus on where you have leverage.
3) Turn the rest of your federal energies to get training from your state-level allies and advocates, to improve state and regional climate change efforts
Two regions are putting in place carbon prices and markets, and California has already set limits, determined many of its industries' carbon emissions, and begun enforcement of carbon-cutting programs. Get on board here, and lobby and cajole other states to sign on to regional efforts. I've been beat over the head with the "don't let the perfect get in the way of the good", and I've got one in response: Don't let the dream of being in the room when the President signs carbon-capping legislation get in the way of actually cutting carbon emissions. The current regional proposals are far from perfect, but if everybody were fighting on those fronts to improve them, we'd have better proposals and actions.
It all comes down to this: While the federal legislature fiddles, the executive has been ordered by the judiciary to regulate carbon. Meanwhile, state and regional efforts are actually debating the numbers - tons of greenhouse gasses, allocation of allowances, etc. - that will determine the course of action in just a few months. Many advocates who've been working on state and regional carbon regulations now have tremendous knowledge concerning actual working numbers. The federal advocates can really learn from their knowledge and experience, and can bring extra weight to bear on getting the best possible decisions out of local and state policymakers.
In California, for example, we have a new governor who is probably much more amenable to reading the vital economic analysis of our state's proposed carbon allowance trading program. Considering CARB's recent decision, its staff still believes itself too vulnerable to follow the economically (and frankly, ethically) preferable action of auctioning allowances right away. However, we probably have a Governor now who understands that this is really a carbon fee, and if we give away allowances, then we hand over fee collection to the companies who pollute the most, and this isn't right. The environmental communities need to let the Governor know, every day, that there are better ways to cut carbon emissions, and every day spent in the House of Representatives is a day not spent in the Governor's office.
It is time for the environmental communities to consider where the work is being accomplished, and focus our energies there.
Though I do not consider myself an expert, I have had the honor of advocating for efforts to fight climate change on-and-off for the past four years. I do have a perspective that is not tainted by decades in the trenches, political or financial connections to powerful people with a dog in the fight, or even a personal history of traditional environmentalism, and with that in mind, and considering this is a new year with new challenges and government leadership, I'd like to offer some general suggestions for folks looking to get our governments to work fixing climate change:
1) Don't spend a dime on getting any kind of positive climate change legislation passed in the House of Representatives
All of our House efforts need to go to supporting only the staunchest allies in climate change, and in fighting the horrific legislation that will come out of a House leadership, especially the Natural Resources Committee Chair who has specifically singled out the EPA's Supreme Court-mandated regulation of greenhouse gasses.
2) Turn some federal energies to the EPA
For the past ___ years (fill in the blank with the number of years you've been working on climate change legislation), the federal legislature has refused to acknowledge carbon as a pollutant. Meanwhile, due to a Supreme Court decision, the Environmental Protection Agency is mandated to regulate carbon as precisely that. Focus all your efforts on EPA decisions about carbon. My specific recommendation? Look at the "cumulative impacts" condition that the EPA (and other federal agencies) must address through NEPA (the National Environmental Protection Act). It is reasonable to assume that any government activity resulting in net carbon emissions into the atmosphere may exceed the cumulative impact threshold for carbon in the atmosphere. At the least, this should cause the EPA to pick a number, and it may effectively eliminate Environmental Assessments (a common shortcut in NEPA) for a time, as agencies are forced to determine their carbon footprint per project. The idea should be to get the EPA to enact actual regulatory measures. We have frightened and imagined ourselves out of straight regulation, believing that we need a consensus in the House and Senate before we can accomplish anything. But we can't achieve a system-wide trust in regulations unless we have regulatory agencies willing to regulate. The environmental communities can help rebuild that trust by going to the EPA to get the ball rolling.
Bottom line: Don't waste time on the House and Senate. Focus on where you have leverage.
3) Turn the rest of your federal energies to get training from your state-level allies and advocates, to improve state and regional climate change efforts
Two regions are putting in place carbon prices and markets, and California has already set limits, determined many of its industries' carbon emissions, and begun enforcement of carbon-cutting programs. Get on board here, and lobby and cajole other states to sign on to regional efforts. I've been beat over the head with the "don't let the perfect get in the way of the good", and I've got one in response: Don't let the dream of being in the room when the President signs carbon-capping legislation get in the way of actually cutting carbon emissions. The current regional proposals are far from perfect, but if everybody were fighting on those fronts to improve them, we'd have better proposals and actions.
It all comes down to this: While the federal legislature fiddles, the executive has been ordered by the judiciary to regulate carbon. Meanwhile, state and regional efforts are actually debating the numbers - tons of greenhouse gasses, allocation of allowances, etc. - that will determine the course of action in just a few months. Many advocates who've been working on state and regional carbon regulations now have tremendous knowledge concerning actual working numbers. The federal advocates can really learn from their knowledge and experience, and can bring extra weight to bear on getting the best possible decisions out of local and state policymakers.
In California, for example, we have a new governor who is probably much more amenable to reading the vital economic analysis of our state's proposed carbon allowance trading program. Considering CARB's recent decision, its staff still believes itself too vulnerable to follow the economically (and frankly, ethically) preferable action of auctioning allowances right away. However, we probably have a Governor now who understands that this is really a carbon fee, and if we give away allowances, then we hand over fee collection to the companies who pollute the most, and this isn't right. The environmental communities need to let the Governor know, every day, that there are better ways to cut carbon emissions, and every day spent in the House of Representatives is a day not spent in the Governor's office.
It is time for the environmental communities to consider where the work is being accomplished, and focus our energies there.
Wednesday, December 15, 2010
The Air Resources Board is poised to make a bad decision... help them see the light!
© 2010 Joshua Stark
Contact the California Air Resources Board (CARB) and tell them to vote down the current cap & trade proposal before them tomorrow.
I haven't written on cap & trade in quite a while, but here's a quick run-down of my views:
1) Carbon pricing must be collected by the government - giving away carbon 'credits' is tantamount to allowing companies to tax consumers for the companies' pollution;
2) Carbon offsets are too costly to monitor and too easy to get around - if you don't trust that California can pay for adequate monitoring of its carbon offset projects, do you really believe Brazil or Chiapas can?;
3) Cap & trade can work, but only if it is fairly expensive, and only if the revenues are given back mostly to the people via a direct rebate, and the rest only used to mitigate or adapt to climate change.
(If you are interested in my more extensive writings on the topic, click here, here, here, and/or here.)
Keeping in mind that there is no such thing as a "carbon market" - it isn't a good or service with any consumption value, and any scarcity of carbon will be contrived by the government - it is easy to remember that any attempt to put a price on carbon emissions will be a tax of some sort. This is not bad! Taxes are not always bad! However, they are bad if they are allowed to be collected by private parties, and the latest proposal, by giving away carbon credits to the companies and industries that pollute the most, will do exactly that.
In addition, the forest rules in the latest proposal will most likely provide incentives for timber companies to clear-cut, and they will definitely subsidize wood products in California, with the subsidies, again, being paid by consumers directly to the companies that pollute the most (those getting the free credits). Look for California oil companies to start buying a lot more wooden chairs and tables than you'd think they'd need. Also look out for giant chair bonfires at your local refinery...
This is a bad proposal, and its complexity makes it ripe for gaming. It is also probably going to be so cheap that it will do very little to curb actual carbon emissions, with the result being a nominal tax on consumers given directly to polluting companies. What an interesting way to save our planet!
For more information, start with this article at California Watch; to contact CARB about the cap & trade proposal, click here.
Contact the California Air Resources Board (CARB) and tell them to vote down the current cap & trade proposal before them tomorrow.
I haven't written on cap & trade in quite a while, but here's a quick run-down of my views:
1) Carbon pricing must be collected by the government - giving away carbon 'credits' is tantamount to allowing companies to tax consumers for the companies' pollution;
2) Carbon offsets are too costly to monitor and too easy to get around - if you don't trust that California can pay for adequate monitoring of its carbon offset projects, do you really believe Brazil or Chiapas can?;
3) Cap & trade can work, but only if it is fairly expensive, and only if the revenues are given back mostly to the people via a direct rebate, and the rest only used to mitigate or adapt to climate change.
(If you are interested in my more extensive writings on the topic, click here, here, here, and/or here.)
Keeping in mind that there is no such thing as a "carbon market" - it isn't a good or service with any consumption value, and any scarcity of carbon will be contrived by the government - it is easy to remember that any attempt to put a price on carbon emissions will be a tax of some sort. This is not bad! Taxes are not always bad! However, they are bad if they are allowed to be collected by private parties, and the latest proposal, by giving away carbon credits to the companies and industries that pollute the most, will do exactly that.
In addition, the forest rules in the latest proposal will most likely provide incentives for timber companies to clear-cut, and they will definitely subsidize wood products in California, with the subsidies, again, being paid by consumers directly to the companies that pollute the most (those getting the free credits). Look for California oil companies to start buying a lot more wooden chairs and tables than you'd think they'd need. Also look out for giant chair bonfires at your local refinery...
This is a bad proposal, and its complexity makes it ripe for gaming. It is also probably going to be so cheap that it will do very little to curb actual carbon emissions, with the result being a nominal tax on consumers given directly to polluting companies. What an interesting way to save our planet!
For more information, start with this article at California Watch; to contact CARB about the cap & trade proposal, click here.
Wednesday, January 13, 2010
Cap & Squander Strikes Back! (or, the economic mantra: incentives matter)
© 2010 Joshua Stark
The Economic and Allocation Advisory Committee (EAAC), organized to provide an economic study of California's cap & trade carbon regulation, has come back with a recommendation: Rebates!
flx1247rg
Let me step back a year and explain both my title and the concepts and controversy. Last year, I attended a session, organized by a coalition of environmental groups, on cap & trade at the federal level. One member of a national enviro. group, who will remain nameless (hint: we have a subscription to their kids magazine) described the various ideas surrounding the revenues from a cap-&-trade regulation. He first started with the one he thought the least of: a cap & rebate, where the funds from the carbon price are returned directly to individuals in the form of checks. He derisively labeled it, "cap & squander", and pointed out the obvious (to him) problem of people blowing their money on big-screen televisions. Then he moved on to describe all the great things that would happen with the money if it were used by the federal government to protect wild lands and clean our air and water.
I was dumbfounded. I understand people wanting control over the gigantic sums of money that will be generated through a carbon regulation, but again, I had to sit in stunned silence while an "expert" was allowed to railroad basic economics. The words "paternalistic", "regressive taxation", and "really?!?", repeatedly flashed through my mind.
So to quickly debunk the gentleman's concern, let me ask you, dear reader, this (rhetorical) question: Where will all this money come from?
This money will come from our economy, and in our economy, most markets are oligopolies (markets with very few producers). Now, it is not true that all new costs to businesses are automatically shuffled off to consumers; where the final cost winds up depends on a number of factors. But, it is true that one of the biggest factors in determining where that cost will settle is the number of competitors in a market. The fewer the competitors, the more the costs can be given to consumers. In monopolies and oligopolies, then, the vast majority of that additional cost is paid by consumers.
So when a carbon price hits, the prices of televisions and electricity will depend on the ability of the producers to limit their carbon emissions. "Dirtier" TV's and electricity will be more expensive, cleaner ones will be cheaper. The consumer will get a check from the carbon price, but this consumer will be playing in vastly different marketplaces, and will have many new incentives in her purchase decisions.
Now, a nationally recognized group of economists who are far more intelligent than I am (or that feller I saw last year) have suggested the same thing. They don't recommend a rebate of everything, (nor do I), but they do recommend a big rebate (me, too).
With the remaining amount, I recommend funding the parts that can't play in our market system: Wild lands, wildlife, etc. But, that's for another post. Also, I must iterate that a carbon price must be expensive (or a cap tight - same difference), or else it will not be effective. The only way to alleviate the disproportionate burden on poor folks, then, is to issue a rebate of equal amount to everybody.
Go cap & squander, everybody!
The Economic and Allocation Advisory Committee (EAAC), organized to provide an economic study of California's cap & trade carbon regulation, has come back with a recommendation: Rebates!
flx1247rg
Let me step back a year and explain both my title and the concepts and controversy. Last year, I attended a session, organized by a coalition of environmental groups, on cap & trade at the federal level. One member of a national enviro. group, who will remain nameless (hint: we have a subscription to their kids magazine) described the various ideas surrounding the revenues from a cap-&-trade regulation. He first started with the one he thought the least of: a cap & rebate, where the funds from the carbon price are returned directly to individuals in the form of checks. He derisively labeled it, "cap & squander", and pointed out the obvious (to him) problem of people blowing their money on big-screen televisions. Then he moved on to describe all the great things that would happen with the money if it were used by the federal government to protect wild lands and clean our air and water.
I was dumbfounded. I understand people wanting control over the gigantic sums of money that will be generated through a carbon regulation, but again, I had to sit in stunned silence while an "expert" was allowed to railroad basic economics. The words "paternalistic", "regressive taxation", and "really?!?", repeatedly flashed through my mind.
So to quickly debunk the gentleman's concern, let me ask you, dear reader, this (rhetorical) question: Where will all this money come from?
This money will come from our economy, and in our economy, most markets are oligopolies (markets with very few producers). Now, it is not true that all new costs to businesses are automatically shuffled off to consumers; where the final cost winds up depends on a number of factors. But, it is true that one of the biggest factors in determining where that cost will settle is the number of competitors in a market. The fewer the competitors, the more the costs can be given to consumers. In monopolies and oligopolies, then, the vast majority of that additional cost is paid by consumers.
So when a carbon price hits, the prices of televisions and electricity will depend on the ability of the producers to limit their carbon emissions. "Dirtier" TV's and electricity will be more expensive, cleaner ones will be cheaper. The consumer will get a check from the carbon price, but this consumer will be playing in vastly different marketplaces, and will have many new incentives in her purchase decisions.
Now, a nationally recognized group of economists who are far more intelligent than I am (or that feller I saw last year) have suggested the same thing. They don't recommend a rebate of everything, (nor do I), but they do recommend a big rebate (me, too).
With the remaining amount, I recommend funding the parts that can't play in our market system: Wild lands, wildlife, etc. But, that's for another post. Also, I must iterate that a carbon price must be expensive (or a cap tight - same difference), or else it will not be effective. The only way to alleviate the disproportionate burden on poor folks, then, is to issue a rebate of equal amount to everybody.
Go cap & squander, everybody!
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