"I Have to Disagree with Mark Thoma"

Disagreement:

Carbon Taxes, by Kevin Drum: ....Carbon taxes are clearly a more efficient way of reducing greenhouse gases than a growing hodgepodge of environmental regulations, so it would make sense to quit adding regulations to the pile and instead enact a carbon tax, right? But we don't. Mark Thoma is puzzled:

Despite the economic superiority of taxes over mandates in terms of the efficiency properties, there is substantial public support for mandates such as CAFE standards over taxes, and mandates continue to garner enough votes in the legislature to pass and be signed into law.

Why might that be? In thinking about efficiency as the primary reason for promoting one policy over the other, I think we might be missing something important: equity. More choice is best most of the time, but when it's a matter of being constrained, of not being able to do something you want or need to do, people want that constraint on behavior to be shared equally — especially when it involves something as essential to daily life as energy.

....I don't think policies that allow certain segment of the population to "buy out" of the constraint will find much popular support. If the poor are passed by roaring, gas guzzling, sports cars on the freeway as they drive their gas saving, small hybrid, they won't feel that is fair.

Hmmm. There's probably something to this, but I wonder if the initial assumption is really correct? According to the boffins at the Carbon Tax Center, a couple of recent polls suggest otherwise: A Field poll in November showed 72% of Californians in favor of a carbon tax (though, amusingly, "this declines to 53% if the tax were to result in Californians' paying higher prices for goods and services") and a BBC poll found 74% of Americans in favor of taxing coal and oil as long as the revenues are earmarked for energy research. So Americans may actually be pretty open to the idea of a broad-based carbon tax.

Republican politicians, of course, are a whole different story. Greg Mankiw can yell "Pigou Club" until he's blue in the face, but as a Republican himself he knows perfectly well that it won't do any good because Grover Norquist and the Wall Street Journal editorial page will cheerfully eviscerate any Republican who dares to raise any tax of any kind, regardless of how efficient it is, what it's funding, or whether it's revenue neutral. So while transforming public opinion is always important, in this case a salutary drubbing at the polls for the GOP is probably more likely to move us in the direction of a sensible carbon policy. It certainly can't hurt, anyway.

And:

Taxes, Mandates and Rebates, by Peter Dorman: I have to disagree with Mark Thoma regarding the equity advantage of mandates (like CAFE standards) over taxes on carbons and other bads. I think he misses two points: equity can be credibly built into the tax, and mandates and taxes (or permits) are not mutually exclusive.

For simplicity, let’s assume that the policy on the table is a carbon tax, overlooking the advantages (in this case) of a tradeable permit system. Requiring 100% auction of permits would be equivalent to a tax under full certainty, but in an uncertain world—the one I woke up in this morning—a permit system would nail down the atmospheric impacts at the expense of price volatility, while taxes would do the opposite. But we will ignore this for now and talk only of taxes.

My first point is that a tax system could be introduced with the stipulation that all (or a very, very high percentage of) proceeds be rebated to citizens on a per capita basis. As Boyce and Riddle show, this would be highly progressive, benefitting a solid majority of us on a net basis (even after subtracting higher prices from rebate income). Yes, the rich could still whiz by on the freeway in their supersized guzzlers, but ordinary folks could take comfort in their ability to buy more of the non-carbon-emitting stuff. They might even think, as the behemoth roars by, “That’s another dollar in my pocket.”

Thoma worries that low income people might worry that a future administration and congress might tinker with the rebate formula. Maybe, but it’s our job to nudge perceptions as close as possible to reality. Consider Social Security: we have seen multiple attempts in recent years to eviscerate the program, but they have been turned back every time, for a simple reason: most of us benefit from SS and would lose out if it were privatized. The same goes for a rebate plan. If it is written in as a basic entitlement, once the rebates start rolling the program will be virtually impregnable.

Second, I am sensing an emerging competition between tax (or permit) advocates and those pushing higher standards. There is no reason for this to happen, and each should stand or fall on its own merits. For instance, students of energy efficiency, like Gar Lipow, tell us that there is lots of low-hanging fruit—big improvements in efficiency at no net cost or even producing a net benefit. The purpose of a standard would be to circumvent information gaps, coordination failures and the like. A tax doesn’t change any of this; on the contrary, by enlarging the pool of innovations that can ultimately pay for themselves, a tax can justify an even more stringent efficiency standard. On the reverse side, a well-designed efficiency standard can help the public better cope with the demands of a tax. True, a bad standard can be an efficiency-loser, but we don’t want this beast with or without a tax.

Keeping an eye on the bottom line, once we get a new congress and a new president in 2009, a national climate change program will be on the table. We are likely to get a carbon cap: a permit system that limits carbon emissions, with the cap going down on a yearly basis. We have to stay very focused to avoid fine print that will weaken the effect of the program or steer the huge amount of money involved into the pockets of the upper class. But we should also use the opportunity to look for regulations that target bottlenecks and irrationalities in the market: better energy efficiency in transportation, land use, the built environment.

Why either/or?

One more:

Environmental Mandates Versus Carbon Taxes, by Josh Patashnik: Via Kevin Drum, Mark Thoma has an interesting post asking the question: If it's universally acknowledged that carbon taxes are a better means of fighting global warming than clunky mandates like CAFE standards, why is it that mandates seem to have far more political viability? Mark thinks it might have to do with concerns about equity:

I don't think policies that allow certain segment of the population to "buy out" of the constraint will find much popular support. If the poor are passed by roaring, gas guzzling, sports cars on the freeway as they drive their gas saving, small hybrid, they won't feel that is fair, not unless our transportation infrastructure changes dramatically. ... A mandate, done properly, may have poor economic properties, but I think people support them because at least there's a chance that a mandate will force the luxury cars to abide by the same mpg restrictions as the lower price cars driven by the typical household.

There could be something to this, although it seems like a bad idea to use climate-change policy as a vehicle for redistribution. But I think the real explanation is simpler: politicians are loath to vote for a carbon tax because it's easier for their opponents to blame them when people are forced to make lifestyle changes. (Which also explains why a cap-and-trade system is more attractive to politicians than a carbon tax.) What frightens the average voter isn't the thought that fat cats might still be able to drive around in Hummers--it's the thought that they might have to give up their own beloved vehicles for more fuel-efficient models. Now, of course, things like CAFE mandates have the practical effect of forcing them to do this. But most folks aren't quite that rational: because the effect is further removed from the vote in Congress, it's all but impossible to pin the blame on the political system--so representatives feel like they can cast a vote for the environment without forcing voters to confront trade-offs. So we wind up with policies that everyone agrees are inferior to the alternative of a carbon tax.

The blame, I'd suggest, lies primarily with opponents of a carbon tax. Presumably, the ideal outcome for carbon-tax opponents would be to have neither a carbon tax nor environmental mandates. But that isn't an option: it's clear that there's enough political support for global-warming mitigation--it just happens that the political support is for the (relatively) economically inefficient kind of global-warming mitigation. If they genuinely cared about implementing a sound climate-change policy, carbon-tax opponents at this point would relent, since the alternative is a set of policies--environmental mandates--that they claim to like even less. But, as Kevin notes, a lot of carbon-tax opponents are more concerned with pushing broader ideological agendas.

Comments

[Worker]

I'd add to Josh's argument (pols' blame shifting preference) two other political rationales Strategic Incompetence and Gravy Train Riding, defined below.

1) Strategic Incompetence:

The pols will vote for mandates expecting the mandates to be ineffective in controlling mass market consumer behavior. Cafe standards and 55 mph speed limits fall into this category. The enforcement mechanisms required to make these policies effective would not be politically feasible even though the policies are (ie. cars that only drive 55mph). Are we planning on banning wood burning fireplaces or licensing consumer coal purchases? If not, look for diversion of carbon intensive fuels from the plant to the home.

2) Gravy Train Riding:

The pols support the least efficient mechanism because the inefficiency generates lobbying and litigation that benefits the pols. With cap + trade, there is some political authority that will determine what is capped and what is a credit-worthy projects. Bonanza for lobbyists.

PS. Does anyone know once we get cap + trade, can I get paid for planting trees? Just wondering because I was thinking about clearcutting some acreage.

[anne]

These 20 and more years, we have continually underused energy efficiency and conservation requirements as a results of mad by successful lobbying by corporations, so that I happily dirve round and round in my Japanese Prius and never think of an American Hummer without a sneer. Why then should I suffer for decades of miserable management from General Motors to Exxon?

The more I hear tax fiends telling me I need to suffer for my carbon, the more I am tempted to quadruple bag my groceries...in plastic. (Whole Foods is actually giving over plastic, but I can always swipe bags from Safeway to use at Whole Foods just for tax spite.)

[Valuethinker]

Anne

Reframe.

'If I keep emitting carbon at the rate I do now, there is a non-zero probability that the planet will become uninhabitable for the human race by around 2100'.

And

'Even if that does not occur, there is a significant possibility that it will be 5 degrees centigrade warmer, a level which could trigger mass extinction of species, mass migrations of humans (like from Mexico, Haiti, Cuba to the United States), and possibly nuclear wars over water resources, as well as mass starvation as agriculture collapses'.

And

'All science can tell us is that if we stop emitting carbon at the current rate now, these things might not happen. But we won't know, until at least 20 years after the emission of carbon. The carbon we emit now can sit around the atmosphere for hundreds of years'.

Put it that way, and without considering the thousands of sea turtles and millions of sea birds that die each year eating plastic bags like yours that blow into the sea,

doesn't that make cutting down our carbon emissions a price worth paying?

[paine]

why i stay away from environmemtal and health policy

academic economists
(as opposed to think tankers )
rarely talk folly and ragtime
on either topic

which seriously reduces
the entertainment value

given a "moral " consensus
on goals
logic gets applied to means
and results
not
the far more fun amusement park
attractions one finds on
class subjects
where the construction
of clever illusionary real world like tromp l'oi
ie
magic boxes and assorted tricks and detours
keps the idle mind in a jolly mood

[anne]

Worried about taxes, not me. We will be quite a while in reviving decent growth and job creation in America, so I am not interested in listening to tax fiends just now. Also, let the fiends get us out of Iraq and use $200 billion or so for green infrastructure development in America (some for the Iraq we are still busily bombing as well). Suppose we just stop dropping bombs on Iraq each day, and call that carbon saving? Suppose?

[anne]

Valuethinker:

I actually agree completely (and would not think of using plastic bags, even for spite).

[paine]

anne

the wall street conjecture I:

those bombs bring added value
to your global portfolio

wall street conjecture II:

uncle hegemonic is all cosmo-rentiers best friend

[paine]

val-think

beware reckless use of irony
and other swiftian gimmicks
'round these comment cages

[bakho]

The classic example of a tax being effective is freeway tolls to reduce congestion. However, is there any clear example that taxes have EVER worked for energy conservation? Or pollution reduction? Or ANY environmental problem?

ALL the examples that I can think of (energy efficiency standards for appliances, pesticide regulation, clean air act, water pollution discharge, etc) All work by regulation. Or are fines considered taxes? Or is a rebate on a hybrid like a reverse tax on gas guzzlers?
Where is the evidence that people have applied a tax and it has been effective policy?

[gordon]

Equity can apply to suppliers/manufacturers too. George Monbiot reported a couple of instances where industry actually sought regulation.

In the construction industry, Monbiot reported that executives believed that any design change which promoted carbon efficiency would be costly, so that only if all builders were forced to comply with a low-carbon code would necessary design changes be made. Monbiot also reports calls for regulation from energy companies (including United Utilities, British Gas, Scottish Power and the National Grid).

And yet it has been pointed out more than once that carbon-efficiency gains are profitable (Dorman quotes Lipow in the post; I am more familiar with the Rocky Mountain Institute's work - they have been banging away for years about this). So why would firms desire regulation? Surely competitive builders and energy companies should be constantly reaching for this "low-hanging fruit"!

There are a couple of possible explanations for such behaviour by firms. One is the simple desire to avoid competition. If everybody is required to comply with a new, carbon-efficient code, nobody has to bear the risks of innovation. Another possibility is just that firms can't find the gains identified by Lipow and Rocky Mountain Institute. This is quite likely in the case of firms with poor management accounting systems. How many firms are really able to allocate overheads, for example, to production costs per unit? For that matter, how many firms accurately know their variable costs of production? Firms with poor management accounting may really be unable to bring carbon-efficiency gains onto their books.

Could it be that the single most effective regulatory measure that Govts. could take would be to mandate better management accounting?

[Bruce Wilder]

"Where is the evidence that people have applied a tax and it has been effective policy?"

First, define effective.

In the late 1970's and early 1980's, I worked on CAFE standards.

My interpretation of the CAFE policy at that time was that Congress wanted the automobile industry to be prepared for a second run-up of oil prices, but did not want to actually impose higher gas prices on consumers. CAFE was a way of pressuring the automakers to be prepared, with more fuel-efficient designs, so that if higher oil prices forced high gas prices on the country, the whole auto industry did not melt down in the process.

When gas prices were low, the auto industry anticipated huge problems with achieving the mandated CAFE standards. As prices rose, not surprisingly, the anticipated problems faded away.

A key factor, which I think also arises with the hybrid Prius, is that, if gas is cheap, people want their cars to perform well, and accelerate sharply. Prius buyers like the idea of fuel economy, but what they actually buy is performance enhancement, and consequently, a Prius as sold is actually geared toward performance over fuel economy. Just so, as gas prices rose sharply in 1979-80, people paid attention to how they were driving. There were lots of helpful "tips" on the news about how to improve gas mileage, and people lost interest in acceleration in the showroom. The projected CAFE (Corporate Average Fuel Economy) of G.M. and Ford that we policy analysts tracked, began to skyrocket. Not because of design changes, but because people were willing to drive differently to save money. Just driving differently was worth 5-15%. Regearing and reducing horsepower made that 20-50%.

People hate taxing something they love. But, it tends to be very effective policy, for all the reasons economists usually give.

[Bruce Wilder]

gordon: "Could it be that the single most effective regulatory measure that Govts. could take would be to mandate better management accounting?"

Honest financial accounting and reporting is critically important, for a variety of reasons.

Score-keeping always matters.

There is so much specious propaganda about the "burdens" of regulation, that attention to the critical role regulations in helping firms, investors and the public separate signal from noise is often neglected.

For example, the U.S. has a world-leading pharmaceutical industry BECAUSE of FDA regulation, which forces companies to do serious, scientific investigation of the efficacy of new drugs.

[anne]

Paine:

"the wall street conjecture I:

those bombs bring added value
to your global portfolio

wall street conjecture II:

uncle hegemonic is all cosmo-rentiers best friend"

Yes; and I have no personal resolution for the problem being unwilling, let alone unable, to become a Priest (not that that would be a complete solution). Robes are not "me."

[vorpal]

They use CAFE standards precisely because they don't work while at the same time they appease lame-brained people who co-opt the "environmentalist" identity.

The economics is extremely simple. IF you want more of something you subsidize it, if you want less you tax it.

The reason they don't want it to work is because pols need growth. Less consumption of fossil fuels means less growth. They can't have that. So they do something that seems like it's something... but really isn't.

Take a look at electricity usage. Every appliance is more efficient than 30 years ago, but do we consume less electricity that 30 years ago? No, we don't. Why would gasoline and oil be any different?

[foo]

There's an article in the latest issue of the APEGBC magazine (http://www.apeg.bc.ca/resource/innovation/archive/2008/2008janfeb.pdf)
that provides another good reason for mandates over taxes. (The mandate in this case being so-called "intensity targets" for industry). Mandates force the environmental benefit to be local - ie if there's a polluter/GHG generator/evil corporation in your neighbourhood, and they are mandated to clean up their act, you benefit directly - your water is cleaner, your air is less smoggy etc.

If there's just a general carbon tax, who knows where the environmental benefits accrue - we're still saving the planet, but it's not nearly as visible, and hence is less likely to have significant support when the pain starts to be felt.

[anne]

Well, I suggest finding a way to elect a Congress self-destrcutive enough to set gasoline at $5 dollar a gallon. Care to try for $10 dollars, say $15? Me, I like my Prius.

[ds]

Efficiency standards make sense from a political stanpoint because they divert the blame. In essence, CAFE standards imply that auto-manufacturers are the cause of our pollution problems. Raising these standards is a way for politicians to address enviornmental issues without having to argue for indivudual sacrifice.

In reality, there is of course a cost to raising CAFE standards, but it is indirect and hard to quantify. By raising CAFE standards, politicans can avoid any fallout associated with the implicit tax.

I think it is important to recognize that this is not the fault of politicians. The truth of the matter is that people are just not willing to sacrifice. What happened to Jimmy Carter when he asked people to wear sweaters and turn their lights off? He was the last person to ever dare suggest such a thing. Can you imagine someone asking us to drive half as much as we do, using cars half the size as we have now?

A growing number of scientists suggest that in order to stabilize global temperatures, the industrialized world will need to reduce their carbon emissions by 80 percent. There is absolutely no way this can be done without a serious conservation effort.

The obstacles to such a conservation effort are almost insurmountable. One one side, many conservatives don't even believe in global warming, so they will naturally oppose any measures to reduce energy consumption. Liberals, on the other hand, are too preoccupied with issues of fairness, even though conservation will always be more of a burden for the poor than for the rich. And both sides are overly optimistic with regards to technology. Whether its solar, wind, hydrogen, corn or switchgrass, everyone seems to believe the magical answer is just around the corner.

CAFE standards alone will not reduce our energy consumption. If anything, improved efficiency will encourage us to drive more, just as it did in the 1980's. Because it directly addresses conservation, a carbon tax would be an essential component of a program to prevent global warming, but let's face it, none of us are really prepared to significantly reduce our energy consumption. Until we are (or are forced to), all of this talk about carbon taxes is hypothetical debate.

[anne]

The problems with a carbon tax that really changes consumption patterns is discrimination against lower income people in an economy with considerable and increasing inequality and the political impossibility of imposing a meaningful tax. Can any sane person imagine car depending Californians happily being willing to pay twice as much for gasoline or northerners happily having heating bills already high double because of a tax?

The tax fiends are effectively against dealing with climate change problems by direct corporate requirements.

[Jay]

Bruce:

"For example, the U.S. has a world-leading pharmaceutical industry BECAUSE of FDA regulation"

Could you please supply the evidence for such a claim. Post hoc ergo proptor hoc won't cut it.

"There is so much specious propaganda about the "burdens" of regulation,"

There is also not enough honest debate about how corporations (Carnegie comes to mind) use government regulation to construct insurmountable barriers to entry that are vital in protecting their monopoly power (the pharma companies come to mind).

[anne]

"In essence, CAFE standards imply that auto-manufacturers are the cause of our pollution problems."

Precisely so, along with all sorts of corporations that can and should be working on energy efficiency and conservation. Many people are working along privately just as well, and more will as the opportunities are there. The business of America is business, so let business lead on climate responsibility and I at least will happily follow. I am already following all sorts of examples, actually, but I am not about to be punished for my virtues.

[Michael Cain]

"However, is there any clear example that taxes have EVER worked for energy conservation?"

Gasoline and diesel taxes at roughly $5/gal for decades have nothing to do with the significantly lower per-capita petroleum usage in Europe compared to the US? However, it certainly appears to be the case that (a) taxes must be high enough to make the large expenditures necessary to achieve increased efficiency attractive and (b) similarly for the length of time those taxes are applied.

[Jay]

Michael Cain:
"Gasoline and diesel taxes at roughly $5/gal for decades have nothing to do with the significantly lower per-capita petroleum usage in Europe compared to the US?"

Don't forget, one of the first things you will want to do is control for the effects of vastly different population densities.

[James Killus]

Let me add this to anne's point about fairness: many objections to carbons taxes could be reduced (and some would, of course, increase) if those taxes could be made at least somewhat progressive.

That could, for example, mean an surcharge on airline tickets, large motor vehicles, and so forth.

I also tend to look askance at "carbon uptake" credits. Planting trees does not necessarily offset burning fossil fuels, for example, and pretending that it does may lock in poor carbon management practices.

[david]

This whole thread and no agency problems. The magic of prices, no friction, no horizons, just prices and pencils.

I vote for massive infrastructure investment and the heavy hand of gov't. Too bad for me; it's the "we all know" huffers that people will listen too; too little, too late, too removed.

[Jay]

"I vote for massive infrastructure investment"

But infrastructure spending doesn't win "American Idol Votes", and that is the ultimate goal of politicians, winning a popularity contest.

[Valuethinker]

Vorpal

We do use less electricity (per capita) if we live in California or Japan. California about the same over that time period since 1980.

The Jevons 'rebound effect' has been measured (income elasticity overwhelming price elasticity) but it's not 100%.

So yes, conservation can work.

Jay

Wander around Europe. Cars are far smaller in general than in America. Even big cars are diesel powered, making them significantly more fuel efficient, a function of government policy to make gasoline more expensive than diesel. In France 70% of new cars are diesels. In the UK (where the diesel price is still higher) nearly 40%.

Yes density has an impact on Vehicle Miles Travelled (VMT). But the price of fuel (remember average incomes are generally lower, too) has an impact on what we drive. And, of course, the cost of driving partly determines the density.

The US fleet average is only c. 22mpg, the European one is over 30.

It's a fair point that the price effect is not large enough, and you need regulation as well. Britain with $7/gal gasoline (gas is now about 108p/litre) does not have twice the fuel economy of the US, only about 60% more.

[mik]

The more I hear tax fiends telling me I need to suffer for my carbon, the more I am tempted to quadruple bag my groceries...in plastic. (Whole Foods is actually giving over plastic, but I can always swipe bags from Safeway to use at Whole Foods just for tax spite.)

Babe, are you listening - dare I say this - to Rush Limpo?

Is voting for crazy old John in the cards?

[reason]

gordon...
Good post.

And yet it has been pointed out more than once that carbon-efficiency gains are profitable (Dorman quotes Lipow in the post; I am more familiar with the Rocky Mountain Institute's work - they have been banging away for years about this). So why would firms desire regulation? Surely competitive builders and energy companies should be constantly reaching for this "low-hanging fruit"!

Two issues come to mind - up front investment costs (i.e. the gains require investment and financing it may be a problem in a competitive market) and uncertainty (it may be that gains are only apparent ex-post).

[reason]

Jay

Don't forget, one of the first things you will want to do is control for the effects of vastly different population densities.

I don't understand this meme. Most journeys are short. People in Europe may live in compact cities but they often commute between them. Prove to me that it makes a difference.

[anne]

"Babe, are you listening - dare I say this - to Rush Limpo?"

Notice the language of crazed prejudiced intimidating viciousness; understand what crazed vicious intimidating prejudice is about.

[anne]

Politically:

There is no chance of a significant carbon tax with a Republican President and reasonably divided Congress, especially with a reasonably divided Senate. Should there be a Democratic President and far more Democratic Congress, an attempt to double the already high price of energy with a tax would lead to another Republican Congress at the following election and likely a Republican President after.

Socially:

Artificially doubling already high energy prices would be intensely harmful for tens of millions of people, and other people for whom the doubling would mean little would nonetheless resent being punished no matter how they may care about and for the environment. (I do not care for punishment, by the fiendish tyaxing likes of a Greg Mankiw.)

Practically:

Looking to corporations to work on changing consciousness of environmental concerns and respond to the concerns is precisely the way that most gains will be made. I am not likely to be able to make my own conserving light bulbs or refridgerators.

[anne]

"A Field poll in November showed 72% of Californians in favor of a carbon tax (though, amusingly, 'this declines to 53% if the tax were to result in Californians' paying higher prices for goods and services')...."

This is destructive rubbish, beyond comical. Simply ask Californians how much they would like having to pay $6.50 a gallon of gas, to begin with.

[bakho]

I am still not seeing any cut and dried examples of raising taxes to effect conservation. Where's the beef? If it works so well, why don't people try it more often? The idea has been around for decades. My thought is that a variety of factors make it impractical policy. During WWII gas shortages, did they use taxes? No. They rationed.

As for energy consumption and some of the underlying issues, take a look at Diamond and Moezzi.

http://epb.lbl.gov/homepages/Rick_Diamond/LBNL55011-trends.pdf

Why is CA consumption so much lower than the rest of the US?

http://www.energy.ca.gov/electricity/us_percapita_electricity_2003.html

Higher price? Better conservation standards?

CAFE standards have a lot of chicken and egg arguments. A reasonable approach would be to impose CAFE AND start pushing the price of gasoline upward to reinforce support for CAFE. From 1978 to 1983 oil use in the US dropped by over 20% creating huge excess refining capacity in the US. Big Oil pushed back against higher CAFE in order to protect its market and investment.

[The Baron]

Hehe... environmentalist, anti-carbon folks are so silly.

anne has it right when she says:

The problems with a carbon tax that really changes consumption patterns is discrimination against lower income people in an economy with considerable and increasing inequality and the political impossibility of imposing a meaningful tax.

Does anyone in this forum really, truly believe that any form of tax/mandate/cap+trade /whatever is going to result in a single less gallon of fossil fuel being burnt on a global scale? Or a single ton of CO2 not being dumped into the air? Even considering very short time scales?

anne can hustle around in her Prius all she wants. Making combined trips and carpooling with as much efficiency as she can manage in her lifestyle. Every single gallon of gas that she doesn't use will get used by someone, quickly. Even if, through some magic of political backbone and economic wizardry, we were able to drastically reduce U.S. energy usage without completely tanking the world economy, every single gallon of fossil fuel pumped will still get burned. China, India, Africa, all are expanding consumption as fast as supply can be expanded. All that every single possible "reduction" scheme can possibly accomplish is shifting large sums of money around, mostly from poor people to rich people, and changing who gets to burn the fossil fuels that are going to get burnt anyway.

You really care about the environment? You really want to actually accomplish something meaningful? How about mandates for auto manufacturers or oil companies that provide sequestration of an equal number tons of CO2 to the amount of CO2 that their product will release into the air over it's projected lifetime? How about a mandate (amounts to the same as a tax) that every vehicle registration include a fee that the government can only use on carbon sequestration or R&D to find a truly viable alternate energy source for transportation? How about tax breaks for folks who buy carbon sequestration credits (and I'm not talking about carbon credits from someone who just hasn't been able to 'burn' their 'fair' share ala Kyoto).

Yes, all of these cases, and I'm sure a dozen more that smart people can come up with, result in taxes, higher prices, or both, but the key difference between them and all of the fluff being bandied about in this and the other thread, is that they actually help reduce the effect of human emissions of carbon. Until everyone wakes up and realizes that no matter what they do on a personal level, or we do as a single nation, every bit of carbon that can be released is going to be released, and that if we really want to offset the effects of that, we must actually freaking offset the effects of it, not just shuffle green paper and the right to burn around!

[reason]

The Baron,
actually in spite of your first paragraph, your post is very good.

[Worker]

Baron, good point that conservation isn't the answer. Technology is.
Conservation is an interim solution until technology is feasible.

No one in the world willingly will go without sufficient heat in their home to prevent global warming. Nor should they, imo. Likewise, when gas goes to $10 or $20 a gallon do you think the Sierra Club will keep oil companies from drilling wherever they want, including ANWR?

I think the assumption that ultimately most every fuel hydro-carbon will be burned is a reasonable one.

[anne]

Baron, now that was excellent.

[Valuethinker]

Bakho

Both. ie California has relatively expensive electricity prices, but it also has the most demanding standards in the US for energy efficiency: housing, commercial building etc.

It also has big consumer awareness programmes on electricity savings

and it has long standing programmes that encourage the utilities to invest in energy efficiency with their customers.

thanks for the web URLs by the way.

[Cynthia]

Prof. Thoma, you make a good argument for carbon taxes!

Maybe if Americans can get beyond the myth that taxes (just like sex) are dirty, then they can quickly come to the realization that mandates (just like virtual sex) are nothing more than smoke and mirrors!

[Jay]

Cynthia:

I'm not sure I follow your argument. Sex (excluding rape) is a trade made by two or more parties VOLUNTARILY. Taxes on the other hand are in the nicest way put theft, because they are COERCED trades between two or more parties.

You could drive a mac truck between the chasm that seperates sex and taxes.

[James Killus]

This is just one little quibble to some generally reasonable comments. Plastics, once manufactured, tend to stay around for a long time. That is what "sequestration" means. The giant floating Sargasso of plastic in the Pacific is indeed an environmental problem, and there are plenty of other environmental problems associated with plastics, but choosing paper over plastics, or even bringing your own cloth bag (do you ever wash that bag, thereby using energy to heat the water, etc.?) has little or no impact on CO2 emissions and global warming.

But, as the Baron, mostly says correctly, individual choices have little to do with global problems, and the idea that individual "choice" is what drives the matter is silly. How people live and what they consume is far more a matter of institutions than individuals, and the only people who pretend otherwise are those with a vested interest in those current institutional choices.

[Bruce Webb]

Drum: "Carbon taxes are clearly a more efficient way of reducing greenhouse gases than a growing hodgepodge of environmental regulations,"

On paper perhaps but do we have real world evidence that in this particular area of environmental protection that market solutions are better than command and control? It all seems very faith and theory based to me. You may recoil from command and control on principle but the Clean Air Act and the Clean Water Act were not based on incentives, nor were the early CAFE standards. I am someone old enough to remember the general urban air quality during the sixties, a dead Lake Eire and the Cuyahoga River repeatedly catching on fire because 'best industry practices' were to pour all waste into rivers untreated and leave the downstream user to deal with the consequences. In places like LA you could go literally months without realizing that a good part of the City is backed by snow topped mountains. Huge amounts of progress was made by the government stepping in and saying 'Stop, Treat, Remediate'.

Kevin like a lot of other younger 'progressives' have simply been trapped in a narrative prepared by the Right, that markets are by nature more efficient. Well sometimes they are and sometimes they aren't, the efficiency advantages of market solutions being mostly apparent to those who benefit. Repeat after me: private market solutions are not always more efficient than governmental solutions when measured on pragmatic greatest good principles (i.e. equity) and the case can often only be made when issues of equity are for one reason or another discounted to zero generally on mumbo-jumbo 'explanations' about how all that equity stuff is being handled by the Invisible Hand. "The reason being that you can't see it in action is because it is invisible silly. Now sit down and shut up while we explain a huge tax on gas that sucks up ever more of your paycheck is a great idea."

The plural of anecdote isn't data, which doesn't mean stories can't illustrate real truths. I walked into a bar and found an acquaintance at the end of his rope. His grown daughter had received a $101 parking ticket and simply did not have the resources to pay it, and he was already working two jobs and literally living paycheck to paycheck, this unexpected expense put him right at the brink of despair. As for me at the time I had a nice job and in the same situation would only wonder idly what this would do to my insurance rate. If I were wealthy I would turn the ticket over to my secretary or personal assistant and not even think about it again, that $101 would not even rise to the level of economic friction.

In my region we have horrible traffic in large part because Seattle shares one feature with Manhattan, most of the city including the downtown is surrounded by water on all four sides, at some point you need to take a bridge or a ferry, there is no 'long way around'. One of our major bridges from Seattle to the Eastside needs to be replaced and the proposal is to fund the replacement with a toll not only on that bridge but the Interstate to the South. The initial toll is set to be about $3-5 each way or about $150 a month for the typical commuter. Add to that a carbon tax on gasoline and you could be talking about as much as 10% of the total income of a minimum wage worker. Sure there are workarounds like buses, car pools, and rebates, or God help us prebates but they all work by throwing the inefficiency burden down the ladder while keeping the benefits for the guy driving the Mercedes.

I live on the fringe of a world where working class people know they would be vastly better off giving up cigarettes altogether, they are not stupid in that sense, but for all kinds of reasons they just can't or won't quit. The practical result of raising cigarette taxes by large amounts in Washington State? Well three. One a huge proliferation in cheaper off brands (which of course have the same tax per pack), two an increased reliance on buying cigarettes on the Indian Reservations (legal enough if you smoke them there, but most people are not going to smoke eight cartons before nightfall), or getting friends to smuggle them off Military Bases (where cigarettes are exempt from state taxes). The near term result of raising cigarette taxes is a huge regressive tax on the working poor along with policies that turn them all into minor criminals.

On the other hand Washington State instituted a series of command and control policies over the last few years that ultimately prohibited smoking in almost all indoor spaces including restaurants and bars and any outdoor space within 25' of a door or air intake. End result people smoke more selectively and on balance in smaller quantities just by having smoking become a conscious decision. If you took every cigarette regulation passed around this country then 'hodge podge' wouldn't begin to describe it, but just on personal observation if the goal is to decrease smoking generally that hodge podge has been a hell of a lot more efficient than a consumption tax approach.

Policy types tend to approach the world as if people really were simply Homo Oeconomius and make all fundamental decisions based on the results of calculations on the internal abacus. Well people are people and make life decisions based on all kinds of considerations other than money. Due to how our society is structured financial considerations can never be totally absent, but you can't reduce daily decision making to pure pocket book calculations however tempting that may be to sell your policy prescriptions, people are just not that simple to figure out.

[gordon]

Bruce Webb would probably approve of the Foreign Policy in Focus item "A New Standard For Preventing Global Warming" (Oct.2006) which provides a good discussion of the pros and cons of regulation vs. cap-and-trade.

The Baron would probably not approve of offset sceptics like the Financial Times, which found:

"■ Widespread instances of people and organisations buying worthless credits that do not yield any reductions in carbon emissions.

■ Industrial companies profiting from doing very little – or from gaining carbon credits on the basis of efficiency gains from which they have already benefited substantially.

■ Brokers providing services of questionable or no value.

■ A shortage of verification, making it difficult for buyers to assess the true value of carbon credits.

■ Companies and individuals being charged over the odds for the private purchase of European Union carbon permits that have plummeted in value because they do not result in emissions cuts".

And any economist should, I think, approve of examining and eliminating existing subsidies on the use of fossil fuels before imposing a consumption tax on users. The IISD's "Global Subsidy Watch" issue on energy subsidies found:

"Few studies have attempted to quantify energy subsidies for the world as a whole, because of data deficiencies and the sheer scale of the exercise. The most prominent global study, carried out by the World Bank in 1992, estimated annual fossil-fuel consumption subsidies at around USD 230 billion per year. An OECD study the same year estimated global energy consumption subsidies at USD 235 billion per year, with USD 254 billion of net subsidies in non-OECD countries offsetting USD 19 billion in net energy taxes in the OECD. In 1997, the World Bank estimated annual fossil-fuel subsidies at USD 48 billion in twenty of the largest countries outside the OECD and USD 10 billion in the OECD. A 1999 International Energy Agency study put the total value of energy subsidies in eight of the largest developing countries at around USD 95 billion".

The article goes on to note that global subsidies probably declined in the late 1990s after the collapse of the USSR and satellite regimes, but anybody familiar with the 2005 US Energy Bill (I'm not familiar with later bills) would know that subsidies to fossil are still big. And Stern (which is pretty recent) suggested that "distorting energy subsidies" are running at about $US250b. annually (Exec. Summ.).

[bakho]

Wow- Great comments from Bruce, James and Baron.

We would all benefit if we did not take claims about carbon taxes on faith alone and actually demand better modeling and analysis. Get busy. There is less evidence that the carbon tax approach would work than proponents are willing to admit.

[baileyman]

Sure you can tax carbon, measuring it, applying the tax, collecting it. Better to use something like a royalty, though. You can't extract carbon or import it without paying the royalty. then the costs flow through the supply chain easily.

But, at $10 per gallon, people will eventually adjust and still drive too much, since the road capacity is in place. It's built, they will come. So, in addition to carbon costs, we also need to destroy capacity, like closing lanes on multi lane roads, etc.

[reason]

Baileyman...
Make some lanes restricted to buses and bicycles? Surely that is a consequence of your analysis?

[reason]

Bruce Webb...
Your analysis reminds me of fishing discussions. The most effective method found is to set up fish breeding reserves. One of the major reasons is enforcement. The reserves are to an extent self-enforcing, all of the fishermen know that it hits them if someone else cheats and it is easy to see if someone is cheating by crossing into the prohibited area. So I suspect that the authorities will be tipped off by other fishermen. But how can they control catch and quotas?

[The Baron]

Gordon, actually I mostly agree with the FT article. The current state of carbon credits is a pathetic joke. It is precisely because no one takes it seriously that it is a joke. Yes, I bought carbon offsets, mostly for the cool bumper sticker to put on my SUV. *sarcasm* But in reality even the verification services that most carbon offset providers subscribe to, are themselves not verified. Kinda like counting on Moody's to rate SIVs, and we see where that got us. And the whole idea of a carbon credit that is bought from someone who wasn't able to burn their 'fair share' or from someone who doesn't burn 10% more than he can, because you pay him not to, just boggles my mind.

My main point is that every effort I see in the anti-CO2 arena is based on faulty assumptions that increases in efficiency and decreases in demand can result in lowering the global impact of human carbon release. There is no evidence to support this, and, in reality, massive evidence that the best possible outcome using those two efforts alone can only slightly lower the rate of increasing damage on a global scale. Anyone who is really serious about improving the environment must focus on demanding government mandates for verified carbon sequestration that are imposed on industries that result in dumping that carbon into the air.

As an analogy, if a community had a lead smelter pouring toxic metals into the air, we would stand incredulous, or laugh in ridicule, at protesters outside the front gates demanding that the smelter use filters to reduce the amount of toxic chemicals released by 20%, and demanding that citizens of the community breath 20% less air so that they are doing their 'fair share'. Yes, both of those efforts would result in some benefit, no doubt. But wouldn't the protesters, and the people, and the smelter, be better off with demands to immediately clean out of the air the same amount that is being pumped into it, and to start doing remediation on the toxins that have already accumulated in the surrounding area?

Especially if some significant amount of the toxins are generated by smelters in neighboring communities that this smelter has no control over?

By the same token, if we can scrub carbon out of the air faster than global industry and population can pump it in, it doesn't matter, from a global warming and pollution perspective, how efficient or 'green' we can make the world economy and people. Oil prices, resource wars, and economic impacts still would benefit greatly from increased efficiency, so there is still plenty of incentive to pursue greater efficiency. But when it comes to planetary climate change and extinction of species, including possibly the human one, efficiency doesn't matter if we aren't able to get the carbon out faster than we are putting it in, and it doesn't matter if we are able to, either.

The other possible benefit is that carbon sequestration could become a major industry and economic engine, that can be located in some of the poorest regions of the world. It doesn't really matter where the carbon comes out of the air, we all benefit, just as we all suffer no matter where it is put into the air. (Yes, there are north-south hemispheric caveats). But, done correctly, pollution remediation could actually improve the economy, rather than being a drag on it.

[anne]

Baron:

"As an analogy, if a community had a lead smelter pouring toxic metals into the air, we would stand incredulous, or laugh in ridicule, at protesters outside the front gates demanding that the smelter use filters to reduce the amount of toxic chemicals released by 20%, and demanding that citizens of the community breath 20% less air so that they are doing their 'fair share.' "

Brilliant.

[baileyman]

Reason:

Yes.