Someone on the Internet is Wrong...

Tyler Cowen defends Robert Samuelson:

Cap and trade vs. carbon tax, by Tyler Cowen: Robert Samuelson writes:

Unless we find cost-effective ways of reducing the role of fossil fuels, a cap-and-trade system will ultimately break down. It wouldn’t permit satisfactory economic growth. But if we’re going to try to stimulate new technologies through price, let’s do it honestly. A straightforward tax on carbon would favor alternative fuels and conservation just as much as cap-and-trade but without the rigid emission limits. A tax is more visible and understandable. If environmentalists still prefer an allowance system, let’s call it by its proper name: cap-and-tax.

Mark Thoma gets upset at this passage, here is Ryan Avent, Brad DeLong and Matt Yglesias, all upset. Avent was the fount of the opposition:

Yowza. As any economist worth his or her salt will tell you, a cap and trade plan with auctioned permits is essentially identical to a carbon tax. That also happens to be exactly what Barack Obama is proposing. So, another way for Samuelson to have written this column would have been to title it, “Barack Obama has a good plan to reduce carbon emissions."

But Samuelson is correct here and Avent is misleading. When there is uncertainty about the location of the social optimum, and uncertainty about elasticities, a carbon tax and cap-and-trade are by no means equivalent. If you see very high costs from setting the binding cap too low and choking off growth -- as Samuelson mentions -- you should prefer the carbon tax. The price of carbon is more certain and you bear less risk from uncertainty about how fast solar power and other technologies will develop. Alternatively, you might say that risk is transformed into price risk rather than "you can't exceed this cap no matter what" risk.

Of course the postulated uncertainties are realistic in this context and you don't have to invoke uncertainty about the science of global warming.

If there is very high environmental risk to having emissions above a certain level, and we are unsure about the relevant elasticities (again, uncertainty about the pace of technological development can drive this), that militates in favor of cap and trade. It is then easier to ensure that emissions do not exceed a particular level.

You can see that we are comparing the "growth threshold problem" to the "environment threshold problem." Samuelson is apparently more worried about the former than the latter. Maybe he shouldn't be so sure he is focusing on the right problem, but on the economics he is on the mark in the criticized passage.

Addendum: Here is Mark Thoma with more on the topic, here is Megan McArdle on same.

I'll let Ryan respond to the parts directed at him (update - see here). My main objection wasn't the passage above, it was Samuelson's claim that environmentalists are deceiving the public, i.e. my objection was to Samuelson's attempt to "bash environmentalists for proposing a cap-and-trade system" when "there's no foundation" to his arguments. For example, Samuelson says:

[C]ontrolling greenhouse gas emissions ... promises to be hard and perhaps futile, but there are good and bad ways of attempting it. One of the bad ways is cap-and-trade. Unfortunately, it's the darling of environmental groups and their political allies.

The chief political virtue of cap-and-trade ... is its complexity. This allows its environmental supporters to shape public perceptions in essentially deceptive ways. ... It would regulate economic activity, but it's promoted as a "free market" mechanism. ...

Samuelson is the one who is being deceiving here. Cap-and-trade is promoted by environmentalists as market based regulation, the term is meant to distinguish it from command and control type regulation. Samuelson seems to think cap-and-trade is command and control type regulation, but the whole point of market-based regulation is to move away from older style command and control policy regimes since market based regulation has better incentive properties. This is one of the reasons I didn't think he fully comprehended the economics underlying these proposals.

Here's more of Samuelson trying to make the case the environmentalists are deceiving the public by claiming that regulation will be painless:

Carbon-based fuels (oil, coal, natural gas) provide about 85 percent of U.S. energy and generate most greenhouse gases. So, the simplest way to stop these emissions is to regulate them out of existence. Naturally, that's what cap-and-trade does. ...

Even better, their disappearance would allegedly be painless. Reviewing five economic models, the Environmental Defense Fund asserts that the cuts can be achieved "without significant adverse consequences to the economy." Fuel prices would rise, but because people would use less energy, the impact on household budgets would be modest. ...

Here's what the EDF actually says:

How would Americans be affected by a carbon cap?

• Total job loss would be minimal;
• The new carbon market would create new jobs;
• The manufacturing sector is projected to see some job losses, but the models show that losses due to an emissions cap would be minimal.
• The effect on household consumption is expected to be one percent or less.
• American households will be most affected by energy costs, but even here the increases would be modest. Overall costs would be small enough to allow us to expand programs to offset the burden for low-income households.

They do tend to minimize the costs in the language used in the write-up, but they don't say there is no cost at all, and the studies they rely upon in their meta analysis are well documented. And it's not exactly clear why the criticism Samuelson is making is specific to a cap-and-trade proposal, which is the case he is trying to make (he's saying that  environmentalists are hiding behind cap-and-trade rather than being honest and proposing a carbon tax). That is, if the EDF provided cost estimates for a carbon tax, how different would the cost estimates be? Probably not very different since most of the same incentives to substitute toward alternatives would still exist, or, according to Samuelson, be even larger. So this point has little to do with using a cap-and-trade proposal to (supposedly) deceive the public.

One reason Samuelson thinks the analysis is misleading is that he objects to the assumption that consumers would substitute away as they face higher prices:

The idea that higher fuel prices will be offset mostly by lower consumption is, at best, optimistic. The Congressional Budget Office has estimated that a 15 percent cut of emissions would raise average household energy costs by almost $1,300 a year.

If environmentalists hide all the costs of cap-and-trade like he claims, what motivates the higher prices and substitution in the study? Anyway, he's really contesting the ability of consumers to substitute, the direct costs aren't hidden, they are out in the open as he implicitly acknowledges with his statement about higher prices (and it's technology too, not just cutting back).

And, in any case, the estimates of little change in energy bills that Samuelson ridicules are not without foundation. As the paper says:

To illustrate the fundamental difference between energy prices and energy bills, we can take a look back at actual household spending patterns. The average American household's monthly electricity bill was virtually the same in 1990 as in 2005 (after adjusting for inflation) -- even though the average residential electricity price was 24% higher in 1990 than in 2005. In other words, even though electricity rates were substantially higher fifteen years ago, the average American family spent no more on electricity than they do today.[14] In the same way, looking forward in time, a given percentage rise in energy prices will lead to a much smaller change in energy bills. This principle is evident in the EIA's projections of future household energy expenditures. The EIA projects electricity prices in the year 2020 to be 9% higher than business as usual under the Lieberman-McCain legislation.

Thus, the EDF estimates are evidence based.

As for lower GDP growth, one of Samuelson's worries, I think his discussion misses this:

And this brings me to a final point that is often overlooked by both sides: the economic indicators that we currently use do not measure societal welfare. When many conservatives point out the lost GDP from a cap-and-trade system or a carbon tax, they typically ignore the fact that GDP does not include the lost welfare from environmental damage done by production. And while figures quoting the lost GDP from imposing a cap-and-trade system are useful, they rarely mention, even in passing, the environmental gain. Any first-year student of macro 101 is taught this difficulty when introduced to national income accounting... The purpose of the income earned from GDP itself is to increase consumption and ultimately utility, but GDP does not measure everything that affects one's well-being.

If there was a government policy instituted for 3 months that said every person must work at least 16 hours per day in that time period, GDP would temporarily increase dramatically. But leisure would be essentially non-existent, and actual societal well-being would fall dramatically. The same can be said for the environment. Due to the tragedy of the commons, lower output (as measured by GDP) could actually improve societal well-being because, after all, the tragedy is a result of overproduction from the perspective of society's welfare as a whole.

On the other side of the aisle, we often hear talk of the number of "green jobs" that would be created by such a policy. Such talk is ridiculous too. The purpose of environmental regulation is not to create jobs. It's to improve societal well-being by reducing emissions. Of course, any time a tax (or its equivalence) on one item is imposed, it will alter behavior. (It's nice to see some liberals finally acknowledge that.) But in the short-to-medium-run the number of green jobs added from cap-and-trade would likely be lower than the number of total jobs lost due to the fact that production overall will fall (which as pointed out isn't necessarily bad), although sector-specific changes would depend upon production functions.

So my doubts about the column remain.

Update: Brad DeLong says "I think that Tyler Cowen has misread Robert Samuelson."

Update: Ryan Avent replies.

Comments

[save_the_rustbelt]

My doubts about cap-and-trade remain.

It takes some hubris to predict the benefits of a a system that, to the best of my knowledge, has never been tried on any large scale.

[Chuck Roast]

Couple comments:
One of the things never mentioned in C&T is that the US (and I believe the Lieberman Bill) would permit international trading. So, mega-polluters like Southern Cos. and their coal fueled power plants could keep on keeping on by buying permits from Sudan and Sierra Leone while Rome burns.
As for command and control provisions, the Clintonoids had Southern Cos and their cohorts on the ropes in '99-2000 under the New Sources Review (NSR) provisions of the Clean Air Act - they were ready to sign consent decrees to spend billions on technology upgrades for emissions reductions. When it was obvious that Bush was going to win, the corporations dawddled and finally walked away from the agreements. We are now blessed with Bush's Clear Skies Initiative, and I'm breathing so much easier.
A strengthening of NSR would improve the health of millions of Americans.

[bakho]

A power plant built today will still be in operation 50 years from now. Power companies need to project to the future what the investment returns will be over the life of the plant. The most direct way of influencing the process would be to subsidize those options that leave the lowest carbon footprint and underwrite research on non-carbon-emitting energy generation. Planning can reduce energy inefficiency in the future. A lot of energy is wasted as a backstop for poorly planned communities. The external costs of continued carbon emissions are rapidly increasing. How successfully and effectively can supply and demand forces (cap and trade or carbon tax) possibly lower carbon emissions compared to other more direct market structures?

For example, if government X decides to build a non-carbon emitting energy generating plant that can have subsidized operations, then how does that affect the investment risk of a private company building a coal fired plant?

[Larry]

There is no amount of reduction in carbon emissions that the US could make that would improve the US quality of life. We might have a few less coal mines, but that's about it. And of course, we'd need more nuclear power plants if we want to get serious.

US emissions are only about 20% of the global total and are quickly dwindling as higher prices drive reductions. Alone, we can't affect AGW to any measurable degree.

Therefore GDP is the valid measure of the costs of these changes.

[Alex Tolley]

STR: It takes some hubris to predict the benefits of a a system that, to the best of my knowledge, has never been tried on any large scale.

Cap and Trade is already in place in the EU. It turned out to be poorly conceived due to industry lobbying for credits, but it certainly can be made to work better.

[Alex Tolley]

Despite Mark's showing that the 2 systems are statically equivalent, I think the dynamics are very different.

Carbon taxes allow for increased supply, so over time, emissions may still increase, despite the need to reduce emissions by ~80% by 2050. C&T on the other hand can be set to drive emissions reductions by reducing the cap. If anything, high and uncertain carbon energy price spikes could drive development for more certain, non-carbon energy sources.

[Jon]

This is a question for science, not Economics.

If GHG emissions do fairly constant marginal damage to the environment near our current general equilibrium, then we should set a carbon tax (and adjust it regularly as economic conditions change). If, on the other hand, there is rapidly increasing Economic damage from emissions above a certain point, then we should cap at that point and use cap-and-trade.

Some scientists suggest the latter. i.e. they see a "tipping point" and assume that certain feedback mechanisms will act to exacerbate the effects of emissions beyond a certain point. Other scientists don't see a radical tipping point. If the former is the case, we really have no choice but a cap and trade. If the latter, than a carbon tax would be preferable.

[Lafayette]

Fuel Taxation

The carbon molecule, in all its forms (petroleum products or coal), in most countries already contains a separate carbon tax (apart from Sales Tax). In the US, both state and federal taxes at the beginning of 2008 amounted to 47 cents a gallon for gas, or 54 cents for diesel feul. (See here)

This taxation is significantly lower than in Europe where it can easily be seen at more than 100% of the product's retail price. So, this tax is a sizeable tax revenue for governments. So, increasing this Carbon Tax to diminish usage should have the effect inevitably of decreasing tax revenues.

I doubt governments are going to surrender readily this loss of tax revenues. At the first sign of revenue decreases (from an increase in the petroleum tax) they will compensate by increasing taxes elsewhere.

Or, government spending necessarily must be cut. That may be goodness in the US, but not all countries would think likewise.

Besides, France is already ablaze with strikes, as I write this, because the total cost to certain large-users of fuels are feeling the hit most. The entire European fishing industry is on strike this week. Truck drivers and farmers are also blocking refineries. It's a mess.

[Alex Tolley]

Nice article by Reich on C&T in todays WSJ

[Alex Tolley]

lafayette: So, increasing this Carbon Tax to diminish usage should have the effect inevitably of decreasing tax revenues.

The low price elasticity of oil usage would suggest that you are wrong on this. If you were correct, the solution would be to lower taxes on fuel to increase government revenues. There is a reason taxes on fuels have increased not decreased for well over 50 years.

[save_the_rustbelt]

Alex:

Thanks for the info and the link.

"but it certainly can be made to work better."

And the odds of that in the US are _____?

[Alex Tolley]

STR: And the odds of that in the US are _____?

I suppose that depends on whether our congress critters can actually learn from others and stop playing games. They might.

[Jas Jain]

--
"Someone on the Internet is Wrong..."

It is a safe bet that everyone is wrong. For example, among partisan Americans, and liberals vs. conservatives, both sides are wrong. Economists are in the propaganda business. That is why there are ten sides to every economic isuue.

Jas

[btg]

I must be confused, and I would appreciate it if someone would correct me - as I understand it, cabon taxes and cap and trade are quite different... though in terms of industry, they might produce a similar result as far as heavy industry is concerned.

Cap and trade deals with the output - emissions, from large companies - it is "command and control" in the sense that it would not apply to everyone - small business and consumers would not be included, and the caps would be set by government. a carbon tax, on the other hand, would by its nature affect everyone - it taxes inputs regardless of who purchases them - much like a gasoline tax, and then the revenue is redistributed through changes in tax policy.

and if demand rises with a carbon tax, emissions might increase, whereas with cap and trade, total emissions (from those covered) are fixed - companies might have to offshore all or part of the production process to countries if permits becaome scarce or too expensive.

I am unclear how a carbon tax or cap and trae deal each with imports and exports, but obviously this is a major issue for any system to be effective in controlling GHG rather than just shifting them to other countries.

[ken melvin]

Why the trade wrapped in the markets?

[mookie]

As a non-economist all of this debate about the details is interesting but I think it misses the point about what Samuelson and George Will (http://www.washingtonpost.com/wp-dyn/content/article/2008/05/30/AR2008053002521.html) have been doing in recent columns. I think it's become clear to them that they won't be able to dismiss global warming as bad science any longer and it's inevitable that U.S. policy will change to try and do something about it. From a political standpoint we all know that any policy with the word "tax" in it will be more difficult to realize than other policies. I think they believe that "cap and trade" is more politically feasible than "carbon tax" and that this is an attempt to kill or limit carbon based legislation by stamping it with the "tax" term.

[Cynthia]

Looking back, we, as Americans, made the mistake of assuming that there's a near infinite supply of fossil fuels in the ground. Because of this wrong-headed thinking, we in turn made the mistake of not heavily taxing fossil fuels to not only encourage conservation, but to also heavily fund mass transit and research into energy alternatives.

And even though we've pretty much woken up to the fact that the end of the fossil-fuel era is in sight, we are still very much living the fantasy that the Invisible Hand will magically hand us a full-fledged mass transit system and a shopping cart full of energy alternatives, fully capable of meeting, if not exceeding, our transportation and energy needs.

[Lafayette]

Pollution Surcharge

Article (Avent): a cap and trade plan with auctioned permits is essentially identical to a carbon tax.

Well, "essentially" it isn't. All this is much ado about nothing, except semantics. One fact is nonetheless clear: Present carbon taxes on various fuels and petroleum products are tax revenues to the state.

The Cap & Trade mechanism is NOT a tax that the state obtains as revenue. It is therefore identical to an additional operating cost for those companies who must purchase them for operational purposes - because it is specifically linked to a quantity of effluents emitted.

It therefore, if anything, is a kind of Pollution Surcharge. Those who pollute reward those who do not. Incentivizing, isn't it?

Of course, cows emit large quantities of methane (very BIG on SO2); so farmers will soon be paying a similar surcharge, one should think.

[Bruce Wilder]

jon: "Other scientists don't see a radical tipping point."

Mankiw's insight basically comes down to whether we think GHG emissions lead to a Global Warming tipping point.

But, it doesn't follow that "uncertainty" about whether there is a tipping point points to a carbon tax.

Scientists are pretty certain that there is a tipping point at some level of GHG concentrations and global temperatures -- the uncertainty is mostly about what that tipping point is and, therefore, when we might reach it. But, the nature of tipping points is such that we cannot afford to find it.

As a practical matter, I kind of expect that human beings will have to find the tipping point, cross it, and expend enormous resources backing off from it. So, basically a weak carbon tax is a policy to find the tipping point, ensuring that there's a crisis where Republicans stand around counting their accumulated bonuses, advising against regulation and marvelling, hoocodenode?

Since Mankiw is basically OK with that sort of policy -- witness the Bush deficit, the current banking crisis, the War in Iraq -- I'm not surprised that he wants to repeat the pattern in the case of Global Warming.

[JV]

But . . .Samuelson is correct. Environmentalists ARE deceiving the public. Anthropogenic global warming is NOT validated and CO2 impact on global temperatures is not quantified against any other parameter. There is no correlated data and accepted set of analyses that put CO2 effects into a verified model that can be used to explain and predict past, present, or future global temperatures. In fact there is no accepted value for the global temperature that is agreed to and accepted by most as a set of data to use for any analysis or modeling.

We are talking hard engineering and science here not modeling based on second order proxies to guessitmates of past temperatures (like tree rings and glacier ice). Nor assumptions of the impact of a single variable, like CO2, out of context without valid comparisons to other variables to put it in it proper context -- which has not been done. When that is done then it can be discussed rationally and policy developed from there on.

Using CO2 as a stalking horse for something else is a bad idea, because when it is disproved it invalidates the good results it might produce.

Yes, we do need to manage energy and in particular carbon energy use across the globe. Yes wee need economic policies to support rational decisions as to consumption of that limited resource. Yes humans have a huge impact on the environment and carbon energy is a huge impact in many ways to that environment. Just please do not use conjecture and emotion about CO2 and the weather to develop that policy. That is a bad idea when it is disproved and will turn people against it when they feel that they were mislead by it.

[Bruce Wilder]

JV: "Just please do not use conjecture and emotion about CO2 and the weather to develop that policy. That is a bad idea when it is disproved and will turn people against it when they feel that they were mislead by it."

I'm confused. You tell us we, basically, don't have anything "validated", we have "no correlated data and accepted set of analyses". So, what are we going to base policy on?

What do you think the policy should be, based on what?

[Roger C]

I have been very involved in cap and trade programs for SO2 and NOX and with the proposed programs for CO2. One key point is that the proposed CO2 program is not the same as the very successful SO2 and NOX programs because the government wants to auction off a significant portion of the allowances and use the proceeds for what it thinks should be done. So it is not cap and trade, it is at least cap and auction.

At this point I am convinced that the best “free market” response would be a carbon tax and the analysis by William Nordhaus is a good summary (http://nordhaus.econ.yale.edu/dice_mss_072407_all.pdf) of that approach.

We will spend the next few years arguing who gets what out of the cap and trade pie when the real purpose is to set a price for carbon. It would be far better to set the price of carbon with a tax that replaces other taxes.

[Larry]

Did anybody notice that we already have a carbon tax of about $2.50 and rising? We just send the revenues to Venezuela instead of Washington. Most carbon tax advocates were talking about carbon taxes way below that amount for this decade to give people time to adjust. And of course that tax is having the desired effect of reducing our carbon footprint - by more than the amount envisioned by the C/T bill in Congress.

@btg = Cap and trade is less command and control than its predecessors, because permits are tradeable. There are many ways to set it up. The right way is for it to apply to all outputs of carbon, and for sell all permits at auction. So far the Congress is taking an in-between approach where half the permits are auctioned and half are handed out as pork.

Increased offshoring is likely, unless we go against the WTO and put tariffs on imported goods in accordance with their carbon footprint.

@Cynthia - There is a near infinite supply. It just gets more expensive to dig up. E.g., in Colorado and Wyoming there is 5x as much fossil fuel as in Saudi Arabia. Saudio oil casts ~$5 to pump up. The stuff in the Rockies is oil shale, which costs $30-$50 to turn into oil in the ground and pump out.

@Lafayette - If C/T is done with auctions, then the state makes about the same revenues as under a tax. Farmers should have to buy permits just like everybody else.

@Bruce Wilder - The IPCC isn't talking about tipping points. Their models expect linear behavior over the next century. At this point, it's anybody's guess whether there will even BE a Republican party in 2100.

[Patricia Shannon]

Larry,
If you think we have a "near infinite supply" of oil, you obviously are not a mathematician :)

This is the way the world ends
This is the way the world ends
This is the way the world ends
Not with a bang but a whimper.
From "The Hollow Men" by T.S. Eliot

[Patricia Shannon]

http://www.sciencedaily.com/releases/2008/05/080528140255.htm

Large Methane Release Could Cause Abrupt Climate Change As Happened 635 Million Years Ago

ScienceDaily (May 29, 2008) — An abrupt release of methane, a powerful greenhouse gas, about 635 million years ago from ice sheets that then extended to Earth's low latitudes caused a dramatic shift in climate, triggering a series of events that resulted in global warming and effectively ended the last "snowball" ice age, a UC Riverside-led study reports.
...
"Our findings document an abrupt and catastrophic means of global warming that abruptly led from a very cold, seemingly stable climate state to a very warm also stable climate state with no pause in between," said Martin Kennedy, a professor of geology in the Department of Earth Sciences, who led the research
...
Also called marsh gas, methane is a colorless, odorless gas. As a greenhouse gas, it is about 30 times more potent than carbon dioxide, and has largely been held responsible for a warming event that occurred about 55 million years ago, when average global temperatures rose by 4-8 degrees Celsius.

When released into the ocean-atmosphere system, methane reacts with oxygen to form carbon dioxide and can cause marine dysoxia, which kills oxygen-using animals, and has been proposed as an explanation for major oceanic extinctions.

[Patricia Shannon]

Larry, I realize I should have been more detailed for the sake of non-mathematicians.

There is no such thing as "near infinite". No matter how big a number you pick, there is a larger number. That is the definition of infinity. Eg., no matter the number, there is a number twice (or a million) times as big, and it is just as far from "infinity" as the first number.

[Patricia Shannon]

It is amazing how often people post claims that are easily refuted by reports on easily accessible general or scientific news sites within the previous few days. But these people apparently keep on getting their news and putting their faith in Fox news or whatever their source of misinformation.

[Bruce Wilder]

Larry: "The IPCC isn't talking about tipping points. Their models expect linear behavior over the next century."

Their consensus approach to compiling the results of other people's modeling tends to filter out non-continuous behavior, positive feedback acceleration and interaction effects, as idiosyncratic elements. I think this is generally recognized as a shortcoming; the obviously unrealistic estimates for sea-level rise, which were a result of the limits of this kind of consensus filtering, have come in for a lot of criticism, some of which has addressed these meta-issues regarding consensus modeling for policy support.

The November 2007 report was pretty explicit and direct in asserting the idea that at least 2 degrees warming is inevitable.

[Cynthia]

Larry,

Not to burst your (oil) bubble, but oil shale has at best an EROEI of one. So, oil shale is at best snake oil.

[Alex Tolley]

Patricia: The postulated CH4 release event at the beginning of the Cambrian when the planet was almost completely covered in ice is probably not relevant to the state today. It is true there are methane clathrates in the oceans and even projects to mine it, but I know of no model that suggests we could get an explosive release if the earth warms a few degrees on average. If you have a science reference that says otherwise, I would be interested in reading it.

[paine]

mark:

"the whole point of market-based regulation is to move away from older style command and control policy regimes since market based regulation has better incentive properties"

exactly

and the pigou presumption lacks flexible updating
multiple permitting
ie for various emission types and emission sources

prices remain responsive to market conditions
taxes don't
a permit retrade policy allows permit prices
to flex in value/cost

obviously this is not anything i've thought thru
specifically
but here's my 5 cent conjecture

the more one thinks into it
the more the cap trade approach
begins to dominate the tax approach

[btg]

"Large Methane Release Could Cause Abrupt Climate Change As Happened 635 Million Years Ago"

what would constitue a large abrupt methane release now? all the world's cows farting at once?

[paine]

"It takes some hubris to predict the benefits of a a system that, to the best of my knowledge, has never been tried on any large scale.
"

lets plunge in rusty and find out

in either case
with a carbon tax
or a carbon cap
we still must openly argue
thru the social cost/benefit
of the targeted
carbon reduction amount x

with the cap we control the amount of carbon
with the tax we control the cost of carbon

at this level given the uncertainty of
how it will work its way out
neither path looks like the sure winner

to me the crucial point
given such an inevitable medley
of local knowledge and direct immediate feed back
vs intial global ignorance
and cumbursome global adjustments
this uncertainty
leads to a premium on flexibility and adjustability
so which has more f and a potential here

steering quantity thru a tax
with the correction in tax
if the target is not hit
or
after setting the quoat reduction schedule
directly changing the quota
if the real cost in higher prices
exceeds the estimated benefit

either way we'll need a path here
a sequence of changes
a series of quantity reductions
or a tax rate that changes to get to those quantity reductions

up front there'll be
big time calculations
complex
and full of assumptions
prolly
subject to wild swings

oh ya

if non linearity exists in the optimal incentives
the pigou tax as some simple linear rate
will be a poor second best

and if cross elasticity works its usual
unexpected magic
ramifications will surprise one and all

[paine]

all this wild morphing
of mother earth's skin
over the last billion years
makes me hanker for a big one
like that abrupt snow ball to mud ball
methane gig

[Patricia Shannon]

http://www.sciencedaily.com/releases/2008/05/080528140255.htm

"Once methane was released at low latitudes from destabilization in front of ice sheets, warming caused other clathrates to destabilize because clathrates are held in a temperature-pressure balance of a few degrees," Kennedy said. "But not all the Earth's methane has been released as yet. These same methane clathrates are present today in the Arctic permafrost as well as below sea level at the continental margins of the ocean, and remain dormant until triggered by warming.

"This is a major concern because it's possible that only a little warming can unleash this trapped methane. Unzippering the methane reservoir could potentially warm the Earth tens of degrees, and the mechanism could be geologically very rapid. Such a violent, zipper-like opening of the clathrates could have triggered a catastrophic climate and biogeochemical reorganization of the ocean and atmosphere around 635 million years ago."

Today, the Earth's permafrost extends from the poles to approximately 60 degrees latitude. But during the last snowball Earth, which lasted from 790 to 635 million years ago, conditions were cold enough to allow clathrates to extend all the way to the equator.

"One way to look at the present human influence on global warming is that we are conducting a global-scale experiment with Earth's climate system," Kennedy said. "We are witnessing an unprecedented rate of warming, with little or no knowledge of what instabilities lurk in the climate system and how they can influence life on Earth. But much the same experiment has already been conducted 635 million years ago, and the outcome is preserved in the geologic record. We see that strong forcing on the climate, not unlike the current carbon dioxide forcing, results in the activation of latent controls in the climate system that, once initiated, change the climate to a wholly different state."

Alex, I have to admit I sometimes agree with you that the human species is not worth worrying about, and going to any trouble to preserve it. Why should we worry about something that might not happen. Just smoke, overeat, take drugs, drag race in your neighborhood, overspend, and relax.

[Alex Tolley]

Patricia: Alex, I have to admit I sometimes agree with you that the human species is not worth worrying about, and going to any trouble to preserve it.

How did I ever give you that impression. Quite the reverse, I would prefer humans to green the universe. Of course it may be our descendant species, that that is good enough.

[Cynthia]

Patricia,

I heard a couple of paleo-guys on BBC Radio 4 the other day chatting about the (P-T) extinction (AKA "The Great Dying"), which took place some 250 million years ago. One of them mentioned that it's looking more and more like methane hydrate was to the (P-T) event as an asteroid was to the (K-T) event.

[James Parsons]

Greg Mankiw argues that Cap-and-Trade = Carbon Tax + Corporate Welfare.

I think the whole CAFE standards vs. Carbon Tax vs. Cap-and-Trade is silly. They all have their strengths and weaknesses. The best solution is a combination of all three.

Any cap-and-trade emissions permits should be auctioned off, as Barack Obama advocates.

[James Killus]

The only group that has a worse prediction record than those who tout environmental catastrophe from ongoing human actions is the group that consistently predicts economic catastrophe from environmental regulations. The former group can at least point to regulations and suggest that said regulations have averted catastrophe. The latter group is simply wrong and/or lying. Or "deceiving the public" to use JV's revealing phrasing.

I will give a special tip of the hat to oil industry shills who calculate Energy Return on Energy Investment (EROEI) and always come up with the result that a given alternative fuel will consume more fossil fuel than it replaces. That would include the EROEI calculations about oil shale, incidentally. I'm no fan of the shale, but in sutu retorting, for example, has been a viable technology for over 30 years. A low EROEI for in situ retorting just reduces the fuel yield. But more to the point, EROEI calculations have become a deliberate shell game and aren't to be trusted unless you go through the entire exercise yourself.

[save_the_rustbelt]

How would Americans be affected by a carbon cap?

* Total job loss would be minimal;

Where have I heard that before?

[Patricia Shannon]

James Killus says...

The only group that has a worse prediction record than those who tout environmental catastrophe from ongoing human actions is the group that consistently predicts economic catastrophe from environmental regulations. The former group can at least point to regulations and suggest that said regulations have averted catastrophe. The latter group is simply wrong and/or lying. Or "deceiving the public" to use JV's revealing phrasing.

Since global warming has been accelerating much faster than predicted, your statement may not be true for long (depending on what one considers "long").
Also, it depends on how one defines "environmental catastrophe". With species becoming extinct, frog and honeybees dying off, rates of childhood cancer increasing, fish stocks plummeting, it does not look promising.

[Patricia Shannon]

save_the_rustbelt

Do you have any examples of environmental protection causing economic catastrophe?

There are plenty of examples of environmental damage causing economic problems. Eg., overfishing has caused economic hardship for people who fish for a living. Cutting down forests has caused landslides in populated areas.

[Larry]

@Patricia Shannon - I use "near infinite" as the original poster did, to mean "more than we have a reasonable likelihood to need", you nit-picker, you.

Consensus approaches are "best science". Let's stick with that. It is quite possible that the consensus will move to predict a tipping point. But the AGW debate is confused enough without making things up.

I agree that we're conducting an experiment on the earth, but the driver of the experiment is evolution. The earth has been through many different climates. Change is the real constant there.

Global warming has not been accelerating much faster than predicted. In fact, there has been no increase in global temps for the last 8 years! That doesn't disprove the AGW theory, but your statement is way off.

@Cynthia - Why would Shell be investing big bucks in oil shale if you are even close to correct? I thought they were greedy scumbags who just want to get rich. No riches @ EROEI = 1.

An asteroid may be what creates earth's next climate. Keep an eye out.

@paine - we don't need source-specific rates, although we could easily have them. energy prices will do all the responding to market conditions that we need. And of course, we can adjust the tax.
Posted by: Patricia Shannon | Link to comment | June 04, 2008 at 03:05 PM

@James Parsons - Obama is on the right page with C/T auctions. CAFE is stupid. We can do everything it will accomplish without its inefficiencies and inequities.

@James Killus - nice symmetry to your argument. Given that we appear to be moving toward a test of the cost enviro regs, I hope that your rule still holds true. The very rapid advances in energy tech, from algae to batteries to solar and even fusion are most encouraging.

[Patricia Shannon]

certainly melting of polar ice caps and glaciers is occuring much faster than predicted.

I don't have more time to look for temperature trends.
This is not a good day to argue against global warming in Atlanta, because where I live, in the northern area of the metropolitan are, when I checked the temperature earlier, it matched the high of 93F, which was set in 2002, which is 12 degrees higher than normal. Of course, if it keeps getting warmer, "normal" will get higher, :)
I do know that I often compare the previous days temperature extremes to historical extremes, and most of the time, the highest extreme was more recent than the lowest extreme.

I don't know of anybody who said global warming means the earth will get hotter (on average) every year, any more than the start of summer means the local temperature will get hotter every day until autumn. Of course, it's the greenhouse effect that causes the earth to temperatures to rise while the length of the day is decreasing.

The facts of physics are that there are certain gases that have a greenhouse effect, and that human activity is causing an increase in them. The surprise would be if the earth did not get warmer. A certain amount might have been beneficial, warding off the next ice age. Avoiding hypothermia is good, but that doesn't mean being boiled would be good.

http://www.sciencedaily.com/releases/2008/01/080124121218.htm
2007 Was Tenth Warmest For U.S., Fifth Warmest Worldwide

http://www.sciencedaily.com/releases/1998/01/980113062713.htm
1997 Warmest Year Of Century, NOAA Reports

http://www.sciencedaily.com/releases/2000/02/000222103553.htm
ScienceDaily (Feb. 23, 2000) — WASHINGTON - Researchers at NOAA's National Climate Data Center (NCDC) have found evidence that the rate of global warming is accelerating and that in the past 25 years it achieved the rate of two degrees Celsius (four degrees Fahrenheit) per century. This rate had previously been predicted for the 21st Century.

http://www.sciencedaily.com/releases/2008/01/080104091616.htm
2008 Likely To Be One Of The Top-ten Warmest Years

http://www.sciencedaily.com/releases/2007/01/070105080024.htm
see graph at this link

[ken melvin]

I remember a fat salesman (don't remember what it was he sold) in a bar in Idaho in 1963 telling me that technology would provide solution to any and all our problems.

[Cynthia]

Larry,

More than likely, Shell is using oil shale as a tax write-off, not as an investment with legs.

[Winslow R.]

Paine wrote:

"the more one thinks into it
the more the cap trade approach
begins to dominate the tax approach "

One of those rare times we may disagree.

I've reached the conclusion cap trade is economics reaching into the political sphere. Too often economic complexity is used to fool the electorate into doing something against their own interests.

I'd say economists stick to their knitting. Fix the broken monetary transmission mechanism that is sitting in their own backyard before venturing over into the neighbor's yard.

Prove themselves worthy of the political process.

[James Killus]

Patricia, and others,

I consider "catastrophe" to be more severe than what we have generally seen in the way of environmental degradation. The appearance of the ozone hole over the Antarctic was unforeseen, and very bad, but a similar loss of ozone over temperate and tropical areas would have been catastrophic (you could get a lethal sunburn in about 15 minutes under those circumstances, and crops failures would be assured). Similarly, the current rate of sea level rise, and even accelerations of that rise, are very bad, but not catastrophic. I realize that the idea of losing Florida, Lousiana, and similar land masses over the course of several centuries is a Very Bad Thing, but having it occur in a decade would be catastrophic. There are also people who suggest that a "runaway Greenhouse" is possible, which would leave Earth with an atmosphere similar to Venus. It is those folks that I am referring to.

I do take your point about species extinction; it's just that so much of that has already occurred and was not labeled as a catastrophe at the time. So I'm trying to adapt to common usage here.

Rustbelt, on the other hand, seems to be of the usual opinion: if someone loses their job and can blame environmentalists, that's catastrophic. The fact that there are numerous studies that demonstrate that environmental regulation is a net creator of jobs will cut no ice with someone who has already had their opinion fed to them by industry propagandists. Moreover, such people will get very huffy when confronted with the idea that their opinions were pre-fabricated in industry PR mills. The very first part of the pre-fab is the hook, which always says, "Hey, you look like an independent minded sort of fellow." Once the hook goes in, the rest is easy, all those independent minds marching in lockstep, spouting the same rhetoric, and smugly certain of their own immunity from groupthink.

[Patricia Shannon]

James Killus
You have a point. The word "catastophe" will mean different things to different people.
When I talk about environmental damage causing catastrophe, I'm talking about things like widespread famine, which global warming might already be causing in some parts of the world. Possibly the use of lead by the Romans, leading to brain damage, contributing to the fall of their culture.