From the gutter yesterday to the atmosphere today, since we do more than dick and fart jokes here (note: if you're only here for dick and fart jokes, 1) I don't begrudge you for it and 2) I promise a Ruins/Jersey Shore post will be forthcoming soon in addition to Mike having a post in the making about catching beats in the shower or by the time I finish this, having already posted it). Since studying for the bar this summer, I feel way less informed than I should, particularly with regard to health care and climate change proposals. Yesterday however, I came across this op-ed in the Times and was intrigued by the idea. For those too lazy to read it, the piece essentially bashes cap and trade and advocates for something he calls fee and dividend. Fee and dividend would impose a tax on all carbon emitting materials that are produced. The proceeds from that fee would then be given back to the consumer in the form of a rebate. Innovation would be spurred in the same manner as cap and trade (increased fossil fuel cost). I don't think the op-ed was particularly well written or argued, but the idea made inherent sense to me. In looking up more about the idea, I came across Paul Krugman's take on it, who it should be noted has been advocating for cap and trade since day one. Being a nobel prize winner and all, Krugman makes some decent points and I found myself being swayed by parts of his argument. At least as I see it, fee and dividend has two main shortcomings. First, the goal from either system is to reduce carbon emissions to a certain level. Cap and trade achieves this directly by capping total emissions, while fee and dividend is forced to do this indirectly by taxing emissions with the idea that increased prices will reduce consumption. Obviously, there is a fair amount of guesswork involved in setting the appropriate level for that tax, even if you can create demand models based on historical price/consumption data. This isn't to say that the tax couldn't be adjusted to get this right, but I question how politically feasible this would be to do continually. I also acknowledge that cap and trade assumes that we'll eventually have to adjust output ceilings downward to continue to incentivize innovation, but it seems to make more sense to be able to directly control that than through a system of guess and check, given the general incompetence of our legislation/regulation processes.
In that same vein, Hansen's point about the bastardized version of cap and trade being inferior to fee and dividend is off-base. Sure, in its intellectual purity the idea may be superior to what we have now after Congress has mangled cap and trade, but if he thinks fee and dividend won't be similarly bastardized after going through committees, he's insane. This only serves to dilute his point about offsets. In an intellectual vacuum, many of his problems with cap and trade wouldn't exist, and those that do don't make a ton of sense (who really cares that another market is created on Wall Street? We should've learned by now that they're going to create markets regardless of what government creates for them as fees from new products are increasingly a larger portion of their revenue both trading and advisory). Plus it ignores the possibility of reforming the offset issues after legislation has been enacted in response to particular abuses in the short-rum. That said, his point about the cap and trade market transferring wealth is a valid one as Wall Street's profit would come at the expense of higher energy prices. However, these same higher prices are the exact means by which innovation is brought about in his proposal, so it's unclear how much harm would really be wrought.
Criticism aside, I think his plan would be less susceptible to Congressional dilution, but what does it say about our political process when that is a key benefit to any particular proposal? I also think the notion of providing a rebate directly to taxpayers makes it an easier sell in Congress. But, by structuring it as a tax, the bill might be doomed before it even gets on the floor, because god knows what Republicans would conjure up in the face of an actual tax. They may be so speechless they don't have to be intellectually dishonest in trashing environmental reform that they don't do anything. Even if cap and trade essentially is a tax, at least you can dress the wolf up in sheep's clothing. As for the refund portion of it, I haven't read much as to where the money from the permit sales in a cap system would go, but regardless, it would seem a dividend would be a more effective way of keeping Congress from screwing it up. On the other hand, individuals would not be able to subsidize private research in any measurable way as compared to government so neither is perfect. The mere fact that so much of this turns on "Congress not screwing it up" has me depressed, so on that note, I'm going back to the realm of dick and fart jokes and comparing pop culture to vulgar topics.
I like fee and dividend too but it has a fatal snag. The national government can give the loot from auctioning permits back to the deserving voters. But we need a universal international system because, unlike sulphur emissions where cap and trade worked well before, carbon dioxide spreads all over the globe and stays there.
ReplyDeleteThere must be a global production limit and some sort of agreement on how to share the trillions from auctioning off the permits. The problem doesn’t go away even if the global limit is simply the sum of lots of agreed national caps (and agreeing them is a nightmare in itself). There can only be one auction or the cost of carbon will be different in every country and import tariffs (and armies of civil servants to calculate, negotiate and collect them) will spring up everywhere to stop the unfair competition.
We do not want the UN to collect our money and decide how to spend it. Senator Cantwell’s plan to distribute the revenue from a US auction equally to all US residents is workable and probably acceptable. But I doubt if distributing the revenue from a global auction equally to all the world’s inhabitants would be workable in many corrupt countries or acceptable in many rich ones. It would represent a massive transfer of wealth from those living in the big per capita emitters like USA, Australia, Canada, the EU and Russia to those living in Nigeria, Pakistan, Indonesia, India, Bangladesh etc.
I have a better solution. Make fuel producers contract for the capture and burial of a quantity of carbon dioxide equal to a proportion of that produced when their fuel is burnt. The proportion would start at a few percent and build up over the years. This will gradually increase fuel price encouraging energy saving, renewables etc. The International Energy Agency (an intergovernmental organisation whose founding members include the USA, UK, Canada and Japan.) has concluded that tackling climate change with carbon capture is 70% cheaper than not using the technology. If we accept that carbon capture is a big part of the solution somebody has to pay for it, so why not all those burning fuel? For details on how it works, what it costs and why all nations would join in see my blog.
http://jemsavestheplanet.blogspot.com/