Eric Pooley writes about the consensus amongst economists on global warming. While they disagree on exactly what we should do, they agree on two things: the cost of inaction is much greater than the cost of action, and the cost of action is only about 1% of GDP. He concludes:
Journalists have missed the economic consensus partly because economists are such a querulous bunch--they argue bitterly among themselves even when they agree. When I asked Stavins about the Stern Review, for example, he criticized Stern's methodology and didn't mention that he concurs with most of Stern's broad conclusions.
That sort of quarrelling masks the underlying consensus and communicates a greater degree of discord and uncertainty than actually exists. "One of the strangest things about the Stern Review was that some of the most vociferous comments came from those who drew the most similar conclusions to us," says economist Dimitri Zenghelis, a lead author of the Stern Review. "In fact, most economists are surprisingly consistent in arguing for early and coordinated action, including cap-and trade-mechanisms." But because of the intramural vitriol, he says, "journalists and policymakers detect a fog of disagreement and contention and, so, justifiably hold back from setting the record straight." Economists aren't likely to change anytime soon. So journalists need to get better at looking past their arguments and seeing where they agree. The consensus is out there.
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Lovely thing about the economy and economists: You can never know with any sort of certainty that they are or are not full of crap. You only get one shot at the economy, and there's no real way to find out what would have happened if you'd done x instead of y. E.g. Was the New Deal good or bad for the economy in the short and long run? Nobody knows.
Similarly, what will be the costs of inaction on AGW? Nobody knows. Although we could sit back and do nothing and see if the world ends. If it doesn't well then someone was wrong about something. If it does end, then someone else was wrong. On the other hand, if we do something about it, we'll never now what would have happened had we done nothing. So the something doer's can claim success if things go well, and they can claim that they "didn't do enough" if things go badly, since there will be no control against which to measure the results.
This is not an argument against doing something, it's only an argument against being to keen to claim success, or a need for more government action should things not work out as planned.
Similarly with the US bail-out. I think it's a terrible idea and that the US would be much better off if the Federal government just ignored the problems instead of enacting this particular bail-out scheme. But the only way we'd ever have any idea of the truth of this is if they actually did nothing and then everything worked out just fine anyway. My claim is that this is what would happen. But of course the government doesn't know how to sit back and do nothing, even if that's the right thing to do.
"One of the strangest things about the Stern Review was that some of the most vociferous comments came from those who drew the most similar conclusions to us,"
Yes.
Really, there is a lot of arguing about course corrections as if these corrections were swinging the boat around on crazy new courses. The differences are all about where specifically we go between 135º and 150º. But the denialists are sure making hay.
Best,
D
> This is not an argument against doing something, it's only an argument against being to keen to claim success,
As Mark Twain once said, you never know whether you won't look less like an idiot, if you just shut up and say nothing.
"Was the New Deal good or bad for the economy in the short and long run? Nobody knows. "
A quick look at US GDP and employment figures over the 1930's would set this canard aside.
A quick look at US GDP and employment figures over the 1930's would set this canard aside.
No, Barry, it would not. What would have happened without the New Deal? What would have happened if the government had done nothing out of the ordinary? You don't know. I don't know. And by "good or bad" I mean on a relative scale, in case that was too difficult for you to figure out.
But is the consensus right enough? or fast enough? or good enough to avoid the off-thepeak-oil-cliff enough?
I worry, as here at Deltoid.
I've been poking and asking, and still haven't seen a good answer to the issues raised there. It is still completely unclear to me, even after a lot of study, looking at models, asking on econ blogs, to understand how (most) economic models of the next 100 years can ignore the fact that we've gotten a century of economic boost from cheap fossil fuels.
Companies often invest profits from an existing line of business that they know is going to go away, investing in the next line of business. If they don't do that soon enough, they downsize or go bust.
Can anyone point to a clear refutation of the Ayres references I mentioned in that other post? Or to any of these econ models that include peak oil+gas (i.e., the way Kharecha & Hansen combined peaks+climate). I'd sleep better.
GDP grew well except for 1937, when FDR got more conservative on spending. Yes it wasn't until WW2 that the Depression finally ended as today's revisioinists like to say, but I think that has more to do with the depth of the depression than anything else.
Without the New Deal? There would be no such thing as workers in a middle class. The middle class as we know it was literally created by the New Deal.
John Mashey:
As far as economics has been retarded by the monopoly Austrian-tinged neoclassical theorists had on it, worldwide, and as far as it is from being empirical or scientific, I think it's also in a state that Thomas Kuhn would call pre-revolutionary (in the paradigm sense). It's at a point where, while no one alternative is able to overcome institutional inertia, the idea that something must does have that kind of momentum
I would ask what you think of http://www.paecon.net, particularly http://www.paecon.net/PAEReview , and also of the WELL (Willits, CA Economic Localization organization). http://www.willitseconomiclocalization.org/
The "post-autistic economics" movement started in France, but (post-oil) economic localization is an American, specifically Californian project so far.
For the cultural sensibilities of it, I might refer you to people like Frank Herbert (who wrote his Dune books after working with a sand-reclamation program using switchgrass near Florence, OR) and Kim Stanley Robinson (both his Mars books and his California books, and also his books on global warming).
The right-wing "Paladin Press" has been preparing with its publications and supplies for a post-oil world for almost 40 years now. Theirs is, unfortunately, a coal-fired Victorian technology world of devil-take-the-hindmost where massive warming is simply another disaster to adapt to. Still, post-peak-oil and post-readily-available scarce materials society is their explicit agenda.
The neutral/libertarian world of the Whole Earth Catalog/POINT Foundation, etc., which has spilled over a bit to the Wired crowd, was also heavily into alternatives to an oil economy, with a strong free market emphasis
"Was the New Deal good or bad for the economy in the short and long run? Nobody knows."
And nobody will know as long as the alternative is not specified. If not the new Deal, then what? You have to compare it with an alternative other set of policies, otherwise the question is meaningless.
Without the New Deal? There would be no such thing as workers in a middle class. The middle class as we know it was literally created by the New Deal.
Good luck proving that.
Gaz, the alternative I would suggest, if we had two identical earths and we could use one as a control, would be to have to government simply do nothing at all in response to the economic situation. If, in the long term, the economy does better with the New Deal, then the New Deal could be claimed to be good. Otherwise it was bad.
So ben's argument is, since we don't have two identical earths to play around with, therefore we should always do nothing in response to anything.
> But is the consensus right enough?
Or, to put it a bit more bluntly, is the consensus anything more than a pile of papers making speculative self-serving assertions? Is it any better than the consensus among intelligence experts about Iraq WMD?
The possibility that the entire activity is a way to promote the economists' hobbyhorse, i.e. cap-and-trade, suggests itself.
I was interested to find this blog. 20 years ago I had a book published on different economic concepts to point the way to a sustainable world economy. Someone who liked the book contacted me this year to suggest that I update and re-publish it as a blog. She set up the blog, and the book is now complete on the blog in a series of postings. There are now also additional pieces on global warming and other subjects. Here is the link:
http://www.economicsforaroundearth.com
With all good wishes,
Charles Pierce
Well, the middle class, as we understand it today, didn't exist before FDR.
And after FDR, it did exist.
It's up to you to prove that FDR's policies to improve the economic well-being of those who became the middle class played no role.
And then you get to prove that right-wing attacks on that success - the fact that the attacks have been a constant in RW politics would make one think that perhaps the right perceives success even when they argue against it ... hasn't contributed to the increasing gap between the best-off and normal people.
And you, of course, are a self-hating normal person, but that's no big deal. Those of us who aren't are glad that you accept your position, even if we'd like to drag the country forward so you wouldn't have to suffer it in the future...
"Or, to put it a bit more bluntly, is the consensus anything more than a pile of papers making speculative self-serving assertions? Is it any better than the consensus among intelligence experts about Iraq WMD?"
During the Great depression, American GDP fell by around 1/3; close to one third of mortgages were foreclosed and unemployment exceeded 25%.
In the 19th and early 20th Century the United States experienced depressions every 20-30 years which were of a similar scale to the Great Depression.
In the 70 years since the Great Depression, unemployment has mostly stayed below 10% even during recessions; there has only once been two consecutive years of economic contraction and the maximum fall in GDP over the course of a recession has been less than 5%.
Fairly obviously something changed fundamentally.
Of course it could be a coincidence that that change just happened to coincide with the application of Keynesian macro-economics
It could be a mere coincidence that there would be a crash in the securities, credit and equity markets ten years after a Republican Congress repealed certain provisions of the Glass-Steagall Act.
It's also possible that if the WPA and CCC hadn't kept millions of people working and fed, and if Roosevelt had just allowed the poor to starve to death, that the bankers and industrialists might have been made whole much sooner.
Well, the middle class, as we understand it today, didn't exist before FDR.
And after FDR, it did exist.
Ah, you are using Homer Simpson reasoning:
It's up to you to prove that FDR's policies to improve the economic well-being of those who became the middle class played no role.
Er, isn't there something about not being able to prove a negative?
The other major change, that had to do a lot more with Henry Ford and a lot less with FDR? Industrial mass production, and credit. Why wasn't it that that lifted people into the middle class? Oh right, because only government programs, run by incompetent bureaucrats can do that.
Wow. So mass production improvements introduced in the teens and twenties caused recovery in the late 30s and 40s but were irrelevant to the earlier depression because ...
Ben's ideological blinders trumps all data?
So, when faced with an economic crisis, the cranks simply go deeper and deeper into la-la land.
What's new?
ben,
Imagine Washington State if Roosevelt hadn't built the Grand Coullee Dam.
There'd be a lot more Chinook salmon, since the lack of passage facilities has closed off about half of their pre-Grand Coullee Dam spawning habitat.
(pet peeve - there were some things we were very naive about back in the 1930s).
dhogaza,
Too true.
Maybe we can get into some specifics: after the great, cheap emissions reduction policy is implemented, will the US residents still be driving [over 14,000 vehicle-km per year per person in private cars](http://www.bts.gov/publications/national_transportation_statistics/html…)? If so, how will the emissions be eliminated? If not, how will the reduction in vehicle-miles be achieved without major changes in the life of the average American?
Ben: "that had to do a lot more with Henry Ford and a lot less with FDR"
dhogaza:
"Wow. So mass production improvements introduced in the teens and twenties caused recovery in the late 30s and 40s"
Nope:
The model T is from 1908.
Thus Ford clearly was the cause of the prosperity of the 50s and 60s, while having nothing to do with the depression of the 30s. If it werenât for long and variable lags, conservatives wouldnât have any arguments at all.
In similar line of âreasoningâ, they see that ARM (created in the early 70s) was the cause of the sub-prime meltdown while not having any effect for the previous 35 years. Never mind the fact that 6% of the sub-prime loans fell under the ARM umbrella and that the % of the Mortgage-writers which fell under the ARM umbrella dropped sharply just as the sub-prime-mortgage-madness was taking off, or that the default rate of ARM was no worse than average.
They except as gospel P=> Q without even checking to see if ~P => Q is a better fit.
From:
http://bradhicks.livejournal.com/422902.html
"But you know what? There's a funny thing about that, something I'm pretty sure Grampa Hicks never thought about. First of all, if it weren't for the WPA, we Hickses would still be bums. Grampa Hicks was desperate to get out from behind that wheel barrow and that shovel, but was too drunk to do plumbing. So he took to hanging around when the electricians were running wire, and managed to get himself a totally useless job as a sort of human Vice-Grip. "Here," says the skilled electrician who was himself out of work, yelling over to my grandpa because the WPA wouldn't spring for proper tools, "you there -- hold these two wires together while I tape them together." By following that guy around and watching over that guy's shoulder, Grampa Hicks taught himself basic electrical wiring. And when the WPA was over, he was able to lie with a straight face to employers that he was a skilled electrician, and that got him his first real job, one his son learned from him, and that I learned from my dad that paid my way through college: electrical sign erector, IBEW local 1."
"But you know what? Over the course of the 1930s and 1940s, almost every area that turned the WPA down on the outhouse project and other sanitation projects suffered major cholera outbreaks. Areas where the WPA built sewage treatment and sanitary outhouses escaped, saving tens of thousands of children's lives, and probably millions of dollars in hospital costs and lost wages."
re: #8 marion
Thanks for the pointers. I'll take a look at the ones I didn't know.
Willits: HQ of Ecology Action, John Jeavons' "How to Grow More Vegetables". One project is nearby (a little handier than Willits):
Common Ground in Palo Alto, recommended.
Still, despite sympathy for such efforts, I don't think it's too late (yet) to keep a technology-based civilization on the planet, as there really could be enough energy for (some number, probably <9B) people to lead reasonable lives without burning fossil fuels.
As to why it might be good to keep a tech-based civilization, and since science-fiction authors were mentioned, see Carbon Targets I - Fermi Paradoz Solved? over at Brave new Climate, in which Barry Brook & I and others went off into sci-fi-land, with some tongue-in-cheek, but with some serious comments, including a longer discussion of Ayres&Warr, Hall, etc.
Anyway, I'm still worried about the macro-economics side of this, because the energy cliff is potentially far worse than the current financial cliff.
The GI Bill.
In the 50s and early 60s, we took a generation of farm kids and gave them easy access to higher education - turned them into doctors and lawyers and engineers and other kinds of professionals. We gave them easy access to their first home purchase, turned them into homeowners. And it transformed what our economy looked like.
It is far from the only reason for the prosperity of the 50s and 60 - but it is a primary reason we were to take advantage of all those other factors that made the 50s and 60s so prosperous.
We seem to have forgotten that lesson.
John Mashey said
Flush toilets
"Is it any better than the consensus among intelligence experts about Iraq WMD?"
What consensus was this? Perhaps the consensus that, in the UK and US at least, they had better toe the government line if they wanted to keep their jobs - the existence of this consensus is well documented and the experts were correct as shown by the fate of those who stepped out of line.
The Minoans had flush toilets 3-4,000 years ago, but I don't think they were up to detecting (early enough) and fending off the next errant comet / asteroid, which is my idea of a minimal long-term sustainable tech level.
Of course, the next arrival is totally unpredictable, except to see it's not likely in the next few years, according to JPL. Elsewhere there say there are 1025 current known PHAs (potentially hazardous asteroids), but fortunately, astronomers' ideas of close approaches give breathing space, and over the next few months, only two come closer than 2M km.
ben #10 "..the alternative I would suggest, if we had two identical earths and we could use one as a control, would be to have to government simply do nothing at all in response to the economic situation."
Simply do nothing?
WTF do you mean "simply do nothing"?
Just what would a government simply doing nothing entail?
No taxes? No police, army, roads, etc? Oh, but that would mean a change in policy, which wouldn't be "nothing".
Or do you mean, do the same as before? Which isn't "nothing" either.
Do you mean, for example, keeping the budget balance the same in the downturn as before it? No, that can't be it because it would mean an adjustment in fiscal policy to keep the budget balance the same.
Keeping a budget balance the same through an economic downturn would mean choosing to alter the cyclically adjusted budget balance, ie hardly doing "nothing".
Or do you mean allowing the budget balance to change as revenue and spending change? Would that passive Keynesian approach qualify as doing "nothing"?
ben, I think I liked you better when you were talking crap about climate change.
I strongly doubt the Minoans had anything other than a simple wash down, which, as anyone who has taken a crap in Germany knows, doesn't match siphonic action. From an individual pov, toilets, good water purification and supply are much more likely to make a difference than comet protection.
>> Is it any better than the consensus among intelligence experts about Iraq WMD?
> What consensus was this?
John, [we've covered similar ground before](http://crookedtimber.org/2007/12/29/science-and-anti-science-in-action/).
Sure, there was significant pressure to toe the line, but the consensus existed. I have not heard of any prominent dissenters among academics, for example, who were not under an immediate threat of being sacked.
Within any community there are always pressures to conform to certain views. An economist who rejects the "cap-and-trade consensus" would be incurring significant risk as well.
By the way, I am still waiting for someone to engage on the substantive matter of the validity of the economic claims. Since [we've also discussed these matters before](http://crookedtimber.org/2008/04/17/food/), I am wondering whether you still stand behind [your analysis](http://johnquiggin.com/index.php/archives/2006/11/15/stern-on-the-cost-…). Do you still claim that the elasticity of demand for fossil fuels is 1 to 2? If so, how you reconcile this with the [recent historical record of US gasoline price and consumption](http://probonostats.wordpress.com/2008/05/29/price-elasticity-of-the-co…)?
"The other major change, that had to do a lot more with Henry Ford and a lot less with FDR? Industrial mass production, and credit. Why wasn't it that that lifted people into the middle class?:"
Well first off the timing isn't really right - mass production started well before the 1930's and the major expansion in consumer credit didn't really start until the 1950's.
Further you can't really create a dichotomy between the New Deal because one of the major parts of the New Deal was to encourage private lending via deposit insurance (which let banks cut their capital reserves and lend more) and mortgage insurance.
There are als plenty of counter-examples of countries where mass industrialisation didn't lead to the emergence of a middle class.
"Maybe we can get into some specifics: after the great, cheap emissions reduction policy is implemented, will the US residents still be driving over 14,000 vehicle-km per year per person in private cars?"
Miles travelled have already fallen over the last couple of years and public transport use has grown significantly.
That's precisely what economists would predict would happen as a result of higher oil prices.
Relative prices will likely determine how many miles the average American travels by private car in the future - and whether those cars are powered by petrol, biofuels or electricity.
"I strongly doubt the Minoans had anything other than a simple wash down, which, as anyone who has taken a crap in Germany knows, doesn't match siphonic action.'
I think the Minoan palaces had continuous flow systems - meaning they diverted a stream to under the crapper.
> Miles travelled have already fallen over the last couple of years and public transport use has grown significantly.
Could you substantiate these claims with data?
The data for 2008 US gasoline consumption is not yet available, as far as I am aware. [The data over the decade ending in 2007 shows no downward trend, despite a price increase of over 2x](http://probonostats.wordpress.com/2008/05/29/price-elasticity-of-the-co…).
[Total US per capita energy consumption has remained constant over the last decade](http://probonostats.wordpress.com/2008/03/19/us-energy-consumption-per-…) as well (it has actually been going up if the trend of offshoring manufacturing is taken into account).
This thread is centered on the economic side of the issue and certainly the New Deal was about economics, spending a lot to keep the economy going and the poor more or less in the lifeboat before spending a lot more during WW2. WW2 being the biggest spending and jobs program to date with better than 100% employment as the very definition of employable worker was expanded to include those previously excluded.
But not included so far is the political side of the situation. People forget that socialists and communist parties had rapidly gained supporters. We were looking at the US version of the Fascist versus Communist fight that was seen in Germany except the Communist were going to win. There were anti-capitalist riots in many major cities and considerable numbers of people advocating tearing down Wall Street, tossing the rich out on their ear, and reorganizing the nation along the lines of a worker's state.
FDR offered up the New Deal to prevent the torchlight of the disgruntled masses from getting any closer. The concessions that have been resented since that time were, in effect, extracted under duress. Unions, the GI bill and the New Deal combining to allow the post-war middle class and economic boom.
> But not included so far is the political side of the situation.
No, because at the end of the day, it has zilch to do with the key question: did the New Deal work?
And it has zilch to do with the original topic of this thread: will greenhouse emissions cap-and-trade work?
Tim, yes, there`s long been a general agreement among economists that implementing some type of carbon-pricing scheme (domestically and internationally) makes sense (with some dissenters who worry about whether the costs of actual policies may outweigh actual benefits), but economists actually - and obviously - have little sway over policy or politicians, who have many constituencies and favor-seekers to cater to.
As a result, rather than talking about an "economists` consensus", the key for policy action has always been in finding policies that satisfy the bulk of those interests that influence the politicians - including, of course the fossil fuel firms and power cos.
There is actually a fair amount of middle ground, as I continue to note:
Iain Murry: http://mises.org/Community/blogs/tokyotom/archive/2008/06/17/iain-murra…
Bruce Yandle: http://mises.org/Community/blogs/tokyotom/archive/2008/04/04/bruce-yand…
Rebated carbon tax: http://mises.org/Community/blogs/tokyotom/search.aspx?q=carbon+tax
Smart grid regulation: http://mises.org/Community/blogs/tokyotom/archive/2009/02/08/paul-jostr…
By the way, on the economists` consensus, the recent discussion by Harvard`s Martin Weitzman - that "fat tail" risks make the case for policy action even stronger than that acknowledged by Nordhaus - should not be overlooked:
http://mises.org/Community/blogs/tokyotom/archive/2009/02/13/quot-fat-t…
Regards, Tom
And it has zilch to do with the original topic of this thread: will greenhouse emissions cap-and-trade work?
Right, and my conjecture is that we'll never really know because the system is so complicated that we'll never know what would have happened had we acted differently. In the end, whatever course we choose, those in favor of that course will use any and all good news to support their opinions and policies, and those against will use any and all bad news to attack support theirs.
Which really sucks, when you think about it. Textbook cases are few and far between when it comes to economics and very complicated physical systems. Except maybe for the whole East Germany / West Germany comparison of free market vs. command economy thing. That was pretty much the last nail in the coffin for the idiot commies.
Traffic Jams - THEY call them a PROBLEM.
WE call them OUR LIFESTYLE
A message from the council for telling you things like this in this manner.
Which really sucks, when you think about it. Textbook cases are few and far between when it comes to economics and very complicated physical systems. Except maybe for the whole East Germany / West Germany comparison of free market vs. command economy thing. That was pretty much the last nail in the coffin for the idiot commies.
well, the recent crash of the financial markets looks like a textbook case on uncontrolled capitalism to me.
good that east germany practised communism/sozialism in exactly the way it was envisioned by those who seriously thought about it...
easy test: you get the sahara and try capitalism, i ll take kuweit and experiment with socialism. then we ll take a second look in 30 years.
on topic:
skiing resorts and economists agree on a fight against global warming. the hints don t get more clear....
Sortition;
http://www.apta.com/research/stats/factbook/documents08/2008_overview_f…
"In 2007, Americans took 10.3 billion trips using public
transportation. Since 1995, public transportation ridership
in the U.S. grew by more than 32 percent, faster than
highway travel or the U.S. population.1 APTA estimates
that approximately 34 million trips are taken each weekday
in the United States."
http://www.apta.com/research/stats/ridership/riderep/documents/08q3cvr…
Total US public transport numbers were up 6.5% between Q3 2007 and Q3 2008. That probably understates the rate of increase July and september were up 8-9%, August was up under 2% but there were 5 weekends in August 2008 versus 4 in August 2007.
http://www.eia.doe.gov/steo
Total petroleum products consumption in 2008 declined by almost 1.2 million bbl/d, or 5.8 percent, from the 2007 average, the largest annual decline since 1980
> Right, and my conjecture is that we'll never really know
"We'll never really know" is not a "conjecture". It's just ignorant bullcrapping bluster.
> Textbook cases are few and far between when it comes to economics and very complicated physical systems.
So your political theory only allows you to study "textbook cases" and forces you to throw everything else out. You don't sense that there's something totally wrong with this?
Why does ben keep priding himself on his ignorance?
"In the 13 months ending Nov. 30, Americans drove an estimated 112 billion miles fewer miles than the previous similar period, a drop of about 3.4% and far outpacing the 49.9 billion-mile decline during the oil embargos of the 1970s, according to the Federal Highway Administration."
http://www.usatoday.com/news/nation/2009-02-04-traffic-deaths_N.htm
"In the 13 months ending Nov. 30, Americans drove an estimated 112 billion miles fewer miles than the previous similar period, a drop of about 3.4% and far outpacing the 49.9 billion-mile decline during the oil embargos of the 1970s, according to the Federal Highway Administration."
nice article. oil price increased by a factor 5 leads to a 3% reduction in car traffic.
it is obvious, that petrol is about 5-10 times too cheap at the moment.
apart from fixing major problems in the world, this would also significantly reduce the horrible number of people killed by traffic.
The fact that US dollars were spent to rebuild West Germany, but not East Germany, proves that government intervention doesn't work, right?
Just a warning - in his otherwise excellent and reader-friendly book The Undercover Economist, Tim Harford has not a clue on climate change, being of the "we should help the poor now rather than leave them with a livable environment later" school.
Other than that, I'd recommend his book, but because of it, I don't.
Tokyo Tom,
You are a gem among the dross of idiots that cling to Right Libertarian nonsense.
Common ground?
I suspect you are drifting toward Mutual Aid.
> Motor gasoline consumption in 2008 declined by 320,000 bbl/d, or 3.4 percent.
So a 50% spike in gas prices and the hardest recession in decades result in a decline of 3.4% in gas consumption. How high would gas price have to go, or how high would unemployment have to rise, before we achieve even a 2x reduction in gas consumption? Is this consistent with the pain-free message "the economists' consensus" is peddling?
We have to face reality: it is unlikely that significant reductions in emissions can be achieved without significant changes in entrenched life habits. The insinuation that the implementing a "cap and trade" system or a carbon tax would lead to a simple solution to AGW in which life would continue mostly undisturbed is likely false.
I am sure that Ben will claim that Bush made the world 'safer' with his war on terror, but that is a specious argument. Sceptics will claim anything to âproveâ their point, even if they say no black is white and down is up.
Re: 51
"How high would gas price have to go, or how high would unemployment have to rise, before we achieve even a 2x reduction in gas consumption?"
Sortition, under a cap and trade system, the rise in price is a consequence of restricted supply, not the cause of reduce demand.
Referring to "a 'cap and trade' system or a carbon tax" as if they are the same thing is unhelpful.
It also makes you sound as if you don't know what you're talking about.
So does your implied assertion that restricting the supply of some forms of energy will necessarily cause rising unemployment.
It will reduce growth in measured GDP per capita in the current period, but only because the real costs of various forms of energy will be embodied in their current price, rather than passed on to future generations.
However there is no reason, practical or theoretical, why this should cause unemployment to rise in aggregate aside from the results of short-term structural adjustment.
Tautologies like "We have to face reality: it is unlikely that significant reductions in emissions can be achieved without significant changes in entrenched life habits" are equally unhelpful.
Try phrasing it this way for clarity: "It is unlikely that significant changes in entrenched life habits can be achieved without significant changes in entrenched life habits."
Your argument that people are claiming it is a "simple solution" or that "life would continue mostly undisturbed" is a straw man argument.
Yes, we will have to adjust to life without gas-guzzlers and coal-fired power stations or suffer major adverse environmental consequences.
Well, duh!
Does the consensus stretch to Can and Trade vs Carbon Tax?
http://bravenewclimate.com/2009/02/14/carbon-tax-or-cap-and-trade-the-d…
wrt Australias new investigation of Cap n Trade announced by the Rudd govt last week?
sortition,
Rush hour traffic is an entrenched life habit I would not particularly miss.
well, the recent crash of the financial markets looks like a textbook case on uncontrolled capitalism to me.
Uncontrolled? Bwa ha ha!
So your political theory only allows you to study "textbook cases" and forces you to throw everything else out. You don't sense that there's something totally wrong with this?
Of course my political theory does not allow that. I'm just being reasonable and stating the obvious, that you can claim to know which approach to a situation would be better, but you'll never really know.
I am sure that Ben will claim that Bush made the world 'safer' with his war on terror, but that is a specious argument.
1. a claim is not an argument, but only a component of an argument.
2. I claim no such thing.
We have to face reality: it is unlikely that significant reductions in emissions can be achieved without significant changes in entrenched life habits. The insinuation that the implementing a "cap and trade" system or a carbon tax would lead to a simple solution
Ah.
So the costs of BAU are better than of doing something, even though it is likely that BAU costs would be much greater.
Got it. You are a haytur of th' paypul. No wonder you are marginalized. How does your mommy feel about you sitting in the basement all day, marginalized, not talking to girls?
Best,
D
Actually, the bits that collapsed were uncontrolled.
God, you're stupid.
Do I really need to excplain to people:
1. That short-term and medium-term price elasticities are different; and
2. that price/demand curves are called curves precisely because they're non-linear?
Do people have even the slightest comprehension of substitution effects?
Gas prices don't need to rise 10-fold, they just need to rise far enough to make electric cars cheaper than IC cars.
Gaz,
Before addressing any substance in your comment, it seems appropriate to address your tone: your case does not, of course, become more convincing as a result of your argumentative and blusterous tone. In general, such tone is not conducive to constructive discussion. Why then do you choose to use such tone? A reasonable possibility is that the use of such maneuvers is an easy way to avoid making an unbiased evaluation of your position. Whatever is the motivation, it is clearly misguided â such tone serves no useful purpose and does not reflect well on you.
Substantively:
> under a cap and trade system, the rise in price is a consequence of restricted supply, not the cause of reduce demand.
I donât see your point. Whether in cap-and-trade system (C&T) or in a carbon tax system, if the system is to have any effect in reducing AGW, the price must be increased to the point where demand drops significantly.
> Referring to "a 'cap and trade' system or a carbon tax" as if they are the same thing is unhelpful.
Despite all the noise, the effects of those systems on the average person would be very similar: a very large increase in energy prices. There are differences (namely, that C&T is ripe with potential for corruption and manipulation), but they are secondary to the main effect of the systems, which is the same.
> your implied assertion that restricting the supply of some forms of energy will necessarily cause rising unemployment.
I made no such assertion, explicitly or implicitly. I referred to the fact that unemployment is probably a major contributing factor to the minor reduction in gas consumption in 2008.
> Tautologies like "We have to face reality: it is unlikely that significant reductions in emissions can be achieved without significant changes in entrenched life habits" are equally unhelpful.
This is not a tautology. One could try to claim (and indeed the âeconomistsâ consensusâ implies this is the case) that changes in technology could reduce emissions without changing life habits. For example, if emissions-free cars were technologically feasible, emissions could be reduced significantly while maintaining our habit of driving thousand of vehicle-miles per year per capita.
> Your argument that people are claiming it is a "simple solution" or that "life would continue mostly undisturbed" is a straw man argument.
> Yes, we will have to adjust to life without gas-guzzlers and coal-fired power stations or suffer major adverse environmental consequences.
Interestingly enough, the second sentence here demonstrates the âlife would continue mostly undisturbedâ attitude that the first sentence claims does not exist. The use of âgas guzzlersâ and coal-fired power stations are not entrenched life habits. Eliminating âgas guzzlingâ cars would not be a significant life change (as long as other cars are available), and eliminating coal power stations would not even be noticed by most people (as long as alternative sources of electricity are available).
If these changes (and similar ones) were the only ones necessary, then life habits would remain essentially the same. This is exactly the implication of the discourse of the âgreen economistsâ and others of their ilk. In fact, there is a good chance this is not the case. Are you ready to adjust to life without private cars, or at least life in which the average per capita per year vehicle-miles count is less than 1000? Are you ready to adjust to life in which the average person spends, say, 50% of their income on carbon tax?
Actually, the bits that collapsed were uncontrolled.
You are wrong.
God, you're stupid.
Never short on kind words, dhogaza.
The incredible hostility toward anyone who espouses free market views is incredible in this group, especially with certain commentators.
Pretending as if we had "uncontrolled capitalism" is just a bold faced lie. The last major deregulation was the repeal of part of Glass-Steagal by a Republican congress and a Democratic president in 1997.
Free market people do not argue that all government allocation of goods is ineffective. It simply suffers from a high incidence of moral hazard and inefficiency, and if it does not account for the market (which it has little incentive to do as it is mostly about politics) any growth from it will likely be unsustainable.
Ad hominem attacks among adults is a bit much ladies and gentlemen. Questioning theory ought not to be treated like heresy. Refute ben's points if you like, but you don't have to attack him as the Great Satan, or continually use the red herring of associating him with whatever political theory you love to hate.
Sortition (#60):
"Whether in cap-and-trade system (C&T) or in a
carbon tax system, if the system is to have any
effect in reducing AGW, the price must be increased
to the point where demand drops significantly."
No, not exactly. Under a cap and trade system, if you emit greenhouse gases without a permit, you will be punished. (I am amazed that the denialists have not made more of this, but who am I to encourage them?) The scarcity of permits will drive up the price, which will encourage substitution, but ultimately the reduction in emissions will be the result of legal restrictions.
Under a cap and trade system, the market will tell you the price that is consistent with the lower level of emissions.
Under a carbon tax, you have to estimate it and hope for the best.
"C&T is ripe with potential for corruption
and manipulation".
I have yet to see a justification for this statement, in particular in comparison to a tax. (google "tax evasion" - 4 million hits.)
"I made no such assertion (restricting the supply
of some forms of energy will necessarily cause
rising unemployment), explicitly or implicitly.
I referred to the fact that unemployment is probably
a major contributing factor to the minor reduction in
gas consumption in 2008."
I stand corrected. Please accept my apologies.
And I guess we'll have to disagree on our definition of "entrenched life habits". I'm sure many people would put giving up their SUV for a Prius on the same level as gender reassignment surgery. And I'm sure coal miners would consider their jobs "entrenched life habits".
However I do take your point that a low carbon lifestyle may not look much like our current set-up.
On the other hand, I have studied enough economic history to know that we will be surprised at how the market encourages the development of alternatives and how much better those alternatives will be compared with what we have available right now.
Finally, I'd like to respond to your question "Are you ready to adjust to life in which the average person spends, say, 50% of their income on carbon tax?".
This is something of a misrepresentation of how a carbon tax should work. Under a both carbon tax or a cap and trade, the revenue can and should be returned to the taxpayers. It is a shift in relative prices that is necessary to prompt subsitution.
Imagine, for example, OPEC quadrupling the price of crude oil, either by restricting output ( = cap and trade) or fixing the price ( =carbon tax) and then dividing the excess profits among citizens of all energy-using countries. No net change in income, but still an incentive to switch.
Would I give up private motoring? If the alternative is unmitigated global warming, yes. Wouldn't you? I have spent enough of my life without a car to know it wouldn't kill me. And of course in that situation, you'd think public transport would be just a bit better than it is now, wouldn't you?
luminous beauty,
> Rush hour traffic is an entrenched life habit I would not particularly miss.
Most people, apparently, prefer enduring rush hour traffic to the available alternatives (with you, it seems, included). Of course, if different alternatives were created, people may happily abandon the car, but there is no reason to believe those alternatives will suddenly materialize simply because of the institution of a carbon tax system. The superior alternatives have to be part of the plan.
Craig Dennis (#62):
"Refute ben's points if you like, but you
don't have to attack him as the Great Satan.."
But Craig, ben IS the Great Satan.
And he loves it.
And we love him.
And I'd have to disagree that there's "incredible hostility toward anyone who espouses free market views".
I've been in favour of a cap-and-trade system to harness the awesome power of the market to fix global warming and there's been no hostility to me that I've noticed. Even when I've come on all blustery to Sortition, all I got was a kind of "steady on old chap".
Uncontrolled? Bwa ha ha!
funny, the financial industry just had the chance to raise accusations in a very public hearing.
their silence was deafening!
as is the silence of the mainstream economist academics. a simple "we were all completely wrong" would be a good start...
Dano,
> So the costs of BAU are better than of doing something, even though it is likely that BAU costs would be much greater.
I am very much in favor of doing things, but that doesn't mean I have to believe the C&T fairy tale. Note, by the way, that it is in fact the "economists' consensus" that is a "BAU" notion. The "consensus" claim is that our current way of life can (and should be) preserved, if we just institute a C&T (or carbon tax) system.
Gaz,
> Under a both carbon tax or a cap and trade, the revenue can and should be returned to the taxpayers.
It looks like we are finding some common ground. I am all in favor of a tax-and-refund system (I take it that it is understood that the refund will be divided equally among all residents). I think, however, that for many people (including most of the economists), carbon tax (or C&T) doesn't mean tax-and-refund.
The difference between tax-and-refund and tax-without-refund is critical. Since the tax would have to be set at very high rates in order to achieve a significant reduction, tax-and-refund would create in effect something very close to a personal carbon quota system. Tax without refund, on the other hand, will translate income inequalities to inequalities in access to energy.
> Would I give up private motoring? If the alternative is unmitigated global warming, yes. Wouldn't you?
Of course. In fact, I am not much of a fan of private motoring as it is. I wouldn't however be willing to be denied access to private motoring if the rich can still use it, which is what would happen in a tax-without-refund scenario.
> Under a cap and trade system, if you emit greenhouse gases without a permit, you will be punished. [...]
I am interested in discussing C&T vs. carbon tax, but it is getting late here. Let's do this tomorrow.
Sortition - yeah lets get some cap n trade v tax discussion happening.
People don't get the refund thing... there is a "common sense" conclusion that if you give people the money back then there is no incentive to change as they can afford the more expensive thing. Try as I can I explain that yes but now that carbon is in the price of goods you may well make the economic choice to go the low-carb option and pocket some cash...
Any way I vote cap n trade for what it's worth. just not what Rudd is offering which is a tax in sheeps clothing with a whole heap of freebies totally distorting the market.
Sortition, not realizing the self-parody, writes:
Sortition, read what he said again. "Consequence of restricted supply" means the supply is restricted to begin with. Demand can stay exactly the same, but if the supply curve moves to the left, the quantity bought will decrease. The price will go up, too. Have you ever seen a supply-demand chart for a market? Want a quick primer?
ben is the Great Satan
Can't agree.
Ben might be a good Satan, but no way is he a great Satan.
Ben states views that are very close to that.
but no way is he a great Satan.
oooh- good point E. He's about a C student Satan, as commonly his participles dangle and his tenses are inconsistent, and his tendency to give cute nicknames after looking you in the eye is middling at best.
Best,
D
> Free market people do not argue that all government allocation of goods is ineffective. It simply suffers from a high incidence of moral hazard and inefficiency, and if it does not account for the market (which it has little incentive to do as it is mostly about politics) any growth from it will likely be unsustainable.
Or in short:
We don't know, therefore we know.
We don't know, therefore we know.
We don't know, therefore we know.
We don't know, therefore we know.
We don't know, therefore we know.
We don't know, therefore we know.
Levenson,
Sorry - our past discussions ([here, for example](http://scienceblogs.com/deltoid/2008/06/gore_decrease_his_energy_usage…)) indicate that there is nothing to be gained by engaging with you. Your present tone and lack of any meaningful substance show that this has not changed.
Gaz, MattB,
Regarding tax-and-refund (T&B) vs. tax-without-refund (TWB), see what [Stanvis](http://ksghome.harvard.edu/~rstavins/Papers/Stavins%27_Article_on_US_Ca…) (p. 306) - who was linked to by Pooley as representing the consensus - has to say about spending any revenues of his suggested C&T scheme.
First, of course, he is making noises about the desirability of free distribution of some allowances - which would mean there might not be much revenue to distribute.
In the case there is any revenue, Stavis suggests it may be used to "reduce the costs of the existing tax system or fund other [_sic_] socially beneficial policies."
The idea of refunding the tax on an equal-shares basis is nowhere mentioned in this paper as far as I could tell. (Admittedly, I couldn't stomach reading the whole thing.)
Are you aware of anyone within the "economists' consensus" who supports T&R?
Oops - somehow I managed to misspell "Stavins" twice in #76. This was unintentional.
Ezzthetic:
"Ben might be a good Satan, but no way is he a great Satan."
Well, yes, I was thinking in terms of a local maximum.
Sortition:
"Are you aware of anyone within the "economists' consensus" who supports T&R?"
Well, I'm not aware of anyone who isn't.
I mean, why would anyone think the government should use a cap & trade (or carbon tax) scheme to restrict domestic demand? Any government leader suggesting all, or even most, of the revenue should be kept and not returned to the community somehow would be a laughing stock.
The formula by which and in what form the revenue is returned is always going to be subject to some arbitrariness, but that's a secondary issue. Chapter 16 of Garnaut's final report goes into this.
There will be winners and losers - there have to be, otherwise no-one will change their economic behaviour.
The problem will be mitigating the pain without hampering the substitution and innovation required to reduce GHG emissions.
Ben, by an economy of words, FDR's policies can be shown to have worked. Have a look at a graph of total debt to GDP, private debt to GDP and public debt to GDP through the 30's. The himalayan peak in total and private debt is pretty much bang on the onset of the New Deal (although Hoover was well headed in this direction by the time he was through). If you don't know why this is relevant, look up the term, 'the paradox of thrift'.
Secondly, as dhogaza notes, you're going to have to look very hard to find a regulation that precipitated or even contributed to this crisis. Utter the words, community or reinvestment or act, and you will have trumpeted your ignorance from a mountaintop (that and the source for your news, which is of course redundant). By contrast, I could list for you a dozen acts of deregulation and market failure off the top of my head that unambiguously did. I'll leave it to the reader to draw conclusions.
That's not to say there's absolutely no there there- the scale of this crisis largely still unbeknownst to most, especially conservatives, required some public-private partnership. However, you'll need to look away from Barney Frank or even the Barney Franks, overseas and to the keepers of the currency to have any hope of getting there. Deleting bookmarkes to Drudge and whatever other godforsaken conservative outlets are there is a good place to start...
Gaz,
> Sortition: "Are you aware of anyone within the "economists' consensus" who supports T&R?"
> Well, I'm not aware of anyone who isn't.
As I wrote, Stavins is an example of someone who isn't. Do you have any citations of economists who suggests refunds?
> Any government leader suggesting all, or even most, of the revenue should be kept and not returned to the community somehow would be a laughing stock.
Of course the money would not be "kept". It would be spent somehow - reducing existing taxes would be a way to spend the money, for example. Giving it as free allowances to the energy companies would be another way of spending it. The effects of both of those schemes would be very different from T&R.
Gaz,
Regarding C&T vs. tax: You wrote,
> Under a cap and trade system, if you emit greenhouse gases without a permit, you will be punished. [...] The scarcity of permits will drive up the price, which will encourage substitution, but ultimately the reduction in emissions will be the result of legal restrictions.
This is really not very different from a tax system. In a tax system if you emit without paying the tax you will be punished.
> Under a cap and trade system, the market will tell you the price that is consistent with the lower level of emissions. Under a carbon tax, you have to estimate it and hope for the best.
The carbon tax could be very easily adjusted over time to attain any desirable emissions level. Under the C&T method, energy companies would have to estimate how much money they can extract from customers in exchange for the emissions. If they underestimate, they make windfall profits, if they overestimate they go bankrupt.
> "C&T is ripe with potential for corruption and manipulation".
> I have yet to see a justification for this statement, in particular in comparison to a tax. (google "tax evasion" - 4 million hits.)
I can easily think of three corruption and manipulation issues associated with C&T:
First, there is the issue of free allowances to existing polluters - this is corruption built explicitly into the system.
Second, why should we believe the market for emission allowances would function any differently than the financial markets, and with similar or worse results? The case of Enron and the CA energy crisis showed that this could easily be what would happen.
Third, in exchange for paying for the allowances, the energy companies would be given exclusivity to emissions. This would give those companies veto power over the government's energy policy. If, in an emergency, for example, the government decides to allow more energy generation, it would have to "compensate" the energy companies for the "devaluation" of their allowances.
As for tax evasion - what scheme of carbon tax evasion could not also be a scheme for evading the use of emissions licenses?
To conclude, I see no advantage for C&T over taxing, and many possible disadvantages, some of them severe.
Sortition: "Do you have any citations of economists who suggests refunds?"
Sorry, Sort, I misunderstood you.
Of course, no-one suggests all the revenue should be refunded to the people who pay it, in proportion to the amount paid. That would mean an effective tax rate of zero and it would therefore have no effect.
What I meant was that the consensus is that the revenue should be returned to the community in some form.
Even if this was in the form of tax cuts it could not be linked to individual consumption of cabon-based energy otherwise it would simply negate the effect of the higher cost of carbon.
In other words it has to be returned in some arbitrary form and you couldn't really call it a refund in that case.
Stavins has his views on how the revenue should be allocated, Garnaut has his, etc etc.
I agree with you that handing out free emmissions permits corrupts the scheme but it's important that this does not mean the scheme will not work.
As long as the permits add up to the desired level of emmissions then the effect will not be to reduce the rate of emissions reductions but to make the path toward lower emissions less efficient, ie by distorting price signals screwing up the proper working of the market.
I fully expect our friends at the Lavoisier Group to weigh into this debate soon, by calling for a free and fair auction of permits with no handouts so the market can do what it does best, allocate scarce resources in the most efficient manner.
Speaking of coal miners, if it turns out that special interests do indeed gut an ETS, then by all means a carbon tax would be the way to go.
I agree with Garnaut: "The superiority of an emissions trading scheme over a carbon tax depends on the formerâs good design. In Australiaâs circumstances, a well-designed emissions trading scheme is superior to a carbon tax. A carbon tax is superior to a poorly designed emissions trading scheme."
Of course a carbon tax would no doubt draw trenchant criticism from the Lavoisier Group and like-minded folks on the basis that estimates of the price elasticity of demand for carbon-based energy would be derived from computer models.
GAz... unfurtunately Rudd ignored him and is introducing a poorly designed trading scheme:)
Free market people do not argue that all government allocation of goods is ineffective. It simply suffers from a high incidence of moral hazard and inefficiency, and if it does not account for the market (which it has little incentive to do as it is mostly about politics) any growth from it will likely be unsustainable.
Well said, Craig; commonsense examples of moral hazard and inefficiency can be seen in:
- our oversupply and overuse of our "defense", e.g., Iraq & Halliburton, Homeland Security, domestic spying, military-industrial stuff generally;
- our agricultural pork: price supports, ethanol, sugar;
- the government's provision of "war on drugs" to save us from mad reefer smokers, etc., resulting in Prohibition-like crime/corruption/stifled inner city growth, trampled stae and local rights and troubles in all supplying/conduit countries;
- cheap oil/gas/hardrock mineral/timber/grazing leases;
- an oversupplied but underperforming levee system;
- huge bonuses and huge risks generated ad Freddie and Fannie;
- an FDA and Ag Dept that notes bad peanut butter mfg but says nothing, yet prohibits small dairy and meat producers from advertizing hormone-free milk and mad cow disease-free beef,
etc.
Who couldn't want more of this?
Sortition,
You're still confusing a shift in the supply curve with a shift in the demand curve.
Gaz,
> Of course, no-one suggests all the revenue should be refunded to the people who pay it, in proportion to the amount paid. That would mean an effective tax rate of zero and it would therefore have no effect.
Clearly. What I am talking about is refund which is distributed _eqaully_ among all residents, so that whoever emits more than average pays to whoever emits less.
> What I meant was that the consensus is that the revenue should be returned to the community in some form.
As I wrote before, clearly, the money is not going to be "kept". The issue is how is it going to be spent. If it is not divided up to equal shares and returned as cash to the citizens, calling it "a refund" is a misnomer.
Because of the inelasticity of energy demand and because of the lack of substitutes for fossil fuels, any scheme to reduce demand for fossil fuels (or, if you wish, Levenson, "to reduce the amount of fossil fuel the public seeks to buy") will result in a very significant increase in the price of energy. We may have the average household spending 50% of its income on energy, and poorer household spending more than 50%. Therefore, anything but a true refund will create very significant inequalities in the amount of energy accessible to households. Do you think this is fair, desirable, or politically viable?
> I agree with Garnaut: "The superiority of an emissions trading scheme over a carbon tax depends on the formerâs good design. [...]"
What are the supposed advantages of (well-designed) C&T over tax? Also, having acknowledged the problems with C&T with free allowances, you did not respond to the second and third points that I made about potential avenues for corruption/manipulation in C&T schemes.
Sortition: " you did not respond to the second and third points that I made about potential avenues for corruption/manipulation in C&T schemes."
There are potential avenues for corruption/manipulation. If the government gets it wrong there will be big problems and there is no guaranteee this will not happen. I see no reason to be dogmatic. How's that?
However I still think the major issue with a carbon tax is that price is only one driver of demand for carbon energy. Setting the right tax rate will be devilishly difficult.
As for refunds, you make it sound so simple.
Refund the tax equally per capita? Per household? Per taxpayer? In proportion to tax paid? What about companies? Unincorporated enterprises?
Whatever you do, virtually everyone is going to be paying a different amount than they're being refunded.
The concept of "fairness" is not an easy one to pin down.
It could be argued that spending all the cash on alternative energy would be the fairest way of doing it, because everyone would benefit in proportion to their enrgy use/carbon tax paid.
This is hardly a trivial issue.
Main advantages of C&T over CT? You know in advance what your emissions will be. You don't have to guess the price elasticity of demand for carbon energy. You know who's getting a freebie.
As for market issues (a la Enron) - it's not an analagous situation. It's like arguing we shouldn't have banks because Lehman's went bust. There's already an electricity market in Australia that sems to be working OK.
Craig Dennis wrote:
Uh, yeah. Incredible stuff tends to be incredible. You get a gold star for that one. Mind if I quote you?
> There are potential avenues for corruption/manipulation. If the government gets it wrong there will be big problems and there is no guarantee this will not happen. I see no reason to be dogmatic. How's that?
The issue here is that it looks like there is really no way to "get it right", or even if some theoretical way exists, there is no reason to assume that way will be implemented.
> However I still think the major issue with a carbon tax is that price is only one driver of demand for carbon energy. Setting the right tax rate will be devilishly difficult.
I don't see why. You start hiking the tax rate by, say, 20% per year, until emissions drop to the desired level. A steeper rise in energy prices would be very problematic anyway, and any uncertainties in the target tax rate would also be reflected in uncertainties in the value of allowances, which would mean energy companies buying allowances would be exposed to huge risks, something for which society will pay one way or another (either through higher prices or through failures of energy companies or, most likely, both).
> As for refunds, you make it sound so simple. Refund the tax equally per capita? Per household? Per taxpayer? In proportion to tax paid? What about companies? Unincorporated enterprises?
Some of those questions are simple: Companies and other enterprises should get no refund. The refund will not be proportional to tax paid. Others can be more thorny: per capita or per household? will there be geographical differentials to offset climate effects? etc.
However, while we could argue over some of the details, any such scheme, even the simplest one such as "equally per capita w/o any adjustments" is going to be superior to TWR.
> It could be argued that spending all the cash on alternative energy would be the fairest way of doing it, because everyone would benefit in proportion to their energy use/carbon tax paid. This is hardly a trivial issue.
So it is fair that a household living on the median income of ~$50K per year pays, say, $25K, while a household at the 99% percentile of the income distribution, making ~$400K per year (and consumes, say, twice as much energy) pays $50K? This would be an even more regressive tax than the ones we have now. This is exactly the problem I am pointing at. I find this suggestion outrageous. No - the carbon absorption capacity of the eco-system should not be sold to the highest bidder, it "belongs" to all and should be shared equally.
> Main advantages of C&T over CT? You know in advance what your emissions will be. You don't have to guess the price elasticity of demand for carbon energy.
As I pointed out above, this is hardly true (companies have to guess the elasticity), and hardly a major advantage if it were true (a gradual increase of the tax would do very well).
> As for market issues (a la Enron) - it's not an analogous situation. It's like arguing we shouldn't have banks because Lehman's went bust. There's already an electricity market in Australia that seems to be working OK.
The cases of Enron, Lehman, the CA energy crisis and the current global financial crisis show how badly things can go wrong. Things may work reasonably well for a while, but there is little reason to trust that they will not occasionally break down disastrously when the major incentive in the system is that of personal profit. When it comes to something as critical as energy, it makes no sense to take that risk, especially when there is no clear advantage to be gained.
The difference btw Tom and Eli is that Tom still thinks maximizing efficiency is everything, and Eli believes that a bit of sand in the gears is needed to slow the geniuses up before they get enthusiastic.
Tom still thinks maximizing efficiency is everything
I never thought this, Eli. My main focus is on maximizing my own preferences, and then looking for institutional (organizations, markets, rules etc.) settings that are most conducive to other most people being able to find ways to maximize their own (which involves understanding and sometimes catering to others' preferences, while not stepping too many toes), and observing disfunction: how others game the system, what happens to unowned/unprotected resources, etc.
a bit of sand in the gears is needed
On climate, I'd argue that rather than carrying sand around, we need to build and install some brakes and maybe even a steering wheel.
But as far as Wall Street and the economy goes, surely smart people ought to take note of how the Great Sand Throwing Machine in Washington has actually steered us wrong (see examples above), and note the alternative Peoples' Sand - expressing our preferences by buying/using/joining what we like - that otherwise has been quite effective at favoring some and slowing down those who aren't doing a good job of satisfing us.
Things may work reasonably well for a while, but there is little reason to trust that they will not occasionally break down disastrously when the major incentive in the system is that of personal profit.
Sortition, the major incentive in EVERY biological system is self-interest (at least at a genetic level).
But in any case, understanding that everyone else is greedy while I'm merely logically looking out for my legitimite self-interests tells us only that we should be striving toward systems that dampen not self-interest, but damaging self-interest that captures gains but shifts losses to others.
On the climate policy level, it seems clear to me that carbon taxes are much less subject to gaming than C&T.
Are you aware of anyone within the "economists' consensus" who supports T&R?
Sortition, I've addressed this in posts:
here: http://mises.org/Community/blogs/tokyotom/archive/2009/01/10/neocons-co…
here (referring to GAO survey of economists that noted "On average, the panelists rated using the revenues to reduce the tax burden for low-income individuals as the most important way to distribute the revenue"): http://mises.org/Community/blogs/tokyotom/archive/2008/06/19/gao-releas…
and here: http://mises.org/Community/blogs/tokyotom/archive/2009/01/10/neocons-co….
the major issue with a carbon tax is that price is only one driver of demand for carbon energy. Setting the right tax rate will be devilishly difficult.
Price and quality (BTUs, ease of transport/us, costs of catching pollutants, and consumer preferences) are naturally the main drivers of demand. But what has this to do w/ the choice between C&T and T&R?
As for the tax rate, the important thing is just to get the system up; the rate can be adjusted later - and will need to be anyway, as we coordinate with other nations and as climate changes and the desire for a higher rate kicks in.
What's devilishly difficult is trying to set up a C&T system with a pain threshold (cap) that no one is really willing to bear, so everyone knows the whole system is a scam. This makes it more appetizing for everyone simply to kick the can further down the road. This is the chief reason why Kyoto failed, BTW - because the nations that agreed to it weren't willing to bear real pain while the US/China etc. opted out.
> Sortition, the major incentive in EVERY biological system is self-interest (at least at a genetic level).
That's just dogma. I don't think there is any meaningful interpretation of this statement that is true.
> On the climate policy level, it seems clear to me that carbon taxes are much less subject to gaming than C&T.
As I wrote above, I fully agree.
>> Are you aware of anyone within the "economists' consensus" who supports T&R?
> Sortition, I've addressed this in posts: [...]
Thanks, I read through some of the links - that was quite informative. I would be happy with clarification on various details of the suggestions of the various authors, but in general I am delighted to see that positions similar to mine have such well-placed supporters, even if many of whom are people I hold with very low regard. It is interesting to see how things don't always fall into predictable patterns.
I wonder people like Krauthammer realize that the carbon tax may need to be so high that for a large part of the population, a significant amount of income would accrue from the tax refund.
Eli believes that a bit of sand in the gears is needed to slow the geniuses up before they get enthusiastic.
Eli, referring to yourself in the third person is so Bob Dole. And weird.
To bad the dems in congress don't have a little, or preferably a lot, of sand in their gears. They seem to be their own worst enemies. Two and out...
Sortition writes:
Note that a cap-and-trade scheme (put in by the Bush I administration) worked in reducing acid rain in the US. Note that effluents taxes work well in Germany and, I believe, a couple of other European countries. Note that, taken literally, Sortition's objection here means we should not trust free markets. Don't take risks based on the profit motive. What's the alternative? Five-year plans?
Just a though on all this.
It seems that big oil and coal businesses tend to favour a carbon tax rather than cap and trade. I wonder why?
I have my vaguely-formed opinion on this, but I'd be interested to hear what others think.
One more thing - TokyoTom's blog refers to a C&T system as "massive rent seeking".
Well, it's only rent, in the economic sense, if you don't pay the market price for the permits.
It doesn't have to be that way, of course, although the spectacle of oil/coal firms with their hands out for freebie permits should not surprise anyone. They wrote the book on rent-seeking.
One thing that is bugging me is that comparisons with other cappings and trading systems appear to be based in the economic aspects of the structures.
The actual pollutants being capped and traded have rather different physical properties in terms of their residence times, their geographical ditributions (for some), and the natures of their impacts, in comparison to carbon dioxide.
Do these physical variations impact upon the effectiveness of a cap and trade strategy?
Do these physical variations impact upon the effectiveness of a cap and trade strategy?
Yes, Bernard, of course they do. In order for any market to function, what's being bought and sold has to have a discernable value, and where that is not so easily dtermined or where trades are not immediate, parties need to be able to judge counterparty risk to be able to use institutions to enforce the trades. It's much easier to run any market within a smallish community of well-acquainted users; as the size of the market grows, sophisticated insitutions and services are needed for smooth functioning.
As a practical matter, it is far easier to run a market for SO2 permits in a particular affected air shed like LA, than it is to create an international market for GHGs that effectively binds the whole world. It's too hard to monitor & too easy to cheat. E.g., the EU can have ETS, but if US, China, India, Australia, S Korea, Brazil etc. remain free riders, there's little incentive for them to have strict limits or actually comply, and it's too easy for the "Clean Development Mechanism" that allows offsets (to permit limits) with developing countries to devolve into funding of unproductive/counterproductive activities (like the scam of having the Chinese produce CFCs that western countries pay them to destroy).
For the time being, agreeing on and monitoring common tax policies (and emissions) is much easier.
Gaz,
> It seems that big oil and coal businesses tend to favour a carbon tax rather than cap and trade. I wonder why?
The reason seems straightforward. As I already pointed out, C&T exposes energy companies to huge risks due to the considerable uncertainties in the elasticity of demand for emissions, which translate to considerable uncertainties in the value of the emission allowances.
These same uncertainties would be a bonanza for financial companies who will offer various "risk management schemes" (similar to the schemes used in the subprime mortgage market) at great profit to themselves, as long as things work out, and at great loss to society when they do not.
Sortition (#102)
"..considerable uncertainties in the elasticity of demand for emissions.."
Glad we got that one sorted out. Your solution is to subject the environment, rather than polluters, to the uncertainty.
Gaz,
> Glad we got that one sorted out. Your solution is to subject the environment, rather than polluters, to the uncertainty.
That's unfair. You asked a question, I gave you an answer. If you don't like the answer, don't blame me.
As for "my solution" - I described it above. By gradually adjusting the tax rate, the same reduction can be achieved without creating artificial risks.
Sorition:
1) "By gradually adjusting the tax rate, the same
reduction can be achieved without creating
artificial risks."
a) You don't know how gradually or rapidly you will have to adjust it.
b) An unknown future tax rate is an artifical risk. That uncertainty will be reflected in, for example, the share prices of energy companies. Uncertainty will create the potential for windfall gains or losses in financial markets. There's no getting around it.
You just have to choose which version is most consistent with achieving a reduction in GHGs with certainty. That certainty applies to a cap and trade, even if it is made inefficient by allowances for special intersts. It doesn't apply to a carbon tax unless you accept the potential for large and unpredictable changes in the tax rate and all the economic disruption that would cause.
2) "If you don't like the answer, don't blame me."
I'm not blaming you, I just don't agree with your answer. Nothing personal.
> a) You don't know how gradually or rapidly you will have to adjust it.
The scheme I already suggested (tax is increased by 20% per year until emissions targets are achieved) is quite predictable.
> b) An unknown future tax rate is an artifical risk. That uncertainty will be reflected in, for example, the share prices of energy companies. Uncertainty will create the potential for windfall gains or losses in financial markets. There's no getting around it.
This is grasping at straws. There is a big difference between energy companies having to stake their economic viability on guessing how the public is going to react to significant price changes and people having to make a (very educated) guess whether a year from now energy will cost 20% more.
I don't think, for example, that anyone can estimate with any reliability how much would energy prices have to go up before energy consumption per capita drops to, say, 90% of what it is now. Would 100% price increase be enough?
> That certainty applies to a cap and trade, even if it is made inefficient by allowances for special intersts. It doesn't apply to a carbon tax unless you accept the potential for large and unpredictable changes in the tax rate and all the economic disruption that would cause.
This is wrong on both sides. First, there is no complete certainty in C&T (or any scheme) unless you go to the length of implementing the draconian measure of allowing utility companies to change prices at very short notice and disconnect customers who are behind on their payments at very short notice. Second, on the tax side, you can achieve approximate goals reliably - which is all that matters since 10% difference, say, between emission goals and achieved emissions matters very little.
Sortition: "I don't think, for example, that anyone can estimate with any reliability how much would energy prices have to go up before energy consumption per capita drops to, say, 90% of what it is now."
I couldn't have put it better myself.
>> Sortition: "I don't think, for example, that anyone can estimate with any reliability how much would energy prices have to go up before energy consumption per capita drops to, say, 90% of what it is now."
> I couldn't have put it better myself.
Ok, so if we agree on that, please tell me what are the poor energy companies to do, when the government sells off allowances that toal 90% of the current total. Should they bid 3 cents per kWh worth of emissions, or 10 cents or 30 cents? With a 10x worth of uncertainty, any choice is likely to result either in windfall profits or in devastating losses.
Of course, this huge uncertainty is also translated directly into similar uncertainty in the cost of energy, subjecting consumers to much higher uncertainty than my suggested adjustable rate tax scheme.
An unknown future tax rate is an artifical risk. That uncertainty will be reflected in, for example, the share prices of energy companies.
Gaz, this is a feature of carbon taxes, not a bug. Just implementing a carbon tax, regardless of what the tax rate is, will - via uncertainty about future tax rates - send a strong signal to markets.
Of course the same is true for cap and trade, but it`s much more difficult to adjust the cap. Further, the short-term price volatility of permit prices bears no relation to the long-term goal of lowering emissions.
Sortition:
"Ok, so if we agree on that, please tell
me what are the poor energy companies to
do, when the government sells off allowances
that toal 90% of the current total. Should
they bid 3 cents per kWh worth of emissions,
or 10 cents or 30 cents?"
Why do you have such a lack of confidence in the ability of energy companies to estimate the demand for their product?
These "poor energy companies" operate in energy markets. That's what they do. Volatility is their middle name. These businesses have been operating in markets where they have had to bid for scarce resources for centuries. Our society is based on this idea.
The possibility of some volatility in the price of emissions permits is not an argument against an ETS, any more than it is an argument against markets for bananas or foreign exchange or pork bellies or shares or whatever.
TokyoTom:
"Just implementing a carbon tax, regardless
of what the tax rate is, will - via uncertainty
about future tax rates - send a strong signal
to markets."
What signal - that the tax rate is subject to uncertainty?
"Of course the same is true for cap and trade,
but it's much more difficult to adjust the cap."
Oh really? What basis do you have for that assertion? Do you mean politically difficult or administratively difficult?
"Further, the short-term price volatility of
permit prices bears no relation to the long-term
goal of lowering emissions."
You think so? I'd disagree, but if so, so what?
Energy prices have been volatile for centuries yet trends in the price level have still informed producers. Oil still got drilled, coal still got dug up.
Under an ETS the average price level will send a signal to energy producers that permits are becoming scarcer and that other approaches are becoming relatively more profitable.
> Why do you have such a lack of confidence in the ability of energy companies to estimate the demand for their product?
Just one comment ago you enthusiastically agreed that no one can know what price raise would be sufficient to cause even a 10% reduction in demand. Yet, now you accuse me of being of little faith when I point out the consequence of this statement.
> These "poor energy companies" operate in energy markets. That's what they do. Volatility is their middle name. These businesses have been operating in markets where they have had to bid for scarce resources for centuries.
The cost of energy has been variable, but [demand has been stable](http://probonostats.wordpress.com/2008/03/19/us-energy-consumption-per-…). If energy companies face rising costs, they simply pass on those added costs to the consumers. So stability in demand used to work for the companies. Under C&T, the same stability in demand is working against them. This is a completely new situation.
Of course, as I pointed above, any uncertainties that are being faced by the energy companies will be translated into uncertainties for the consumers who may face wildly unpredictable and possibly fluctuating energy prices.
> The possibility of some volatility in the price of emissions permits is not an argument against an ETS, any more than it is an argument against markets for bananas or foreign exchange or pork bellies or shares or whatever.
A person can live without bananas or pork bellies or even foreign currency, but a person cannot live without energy. That is why elasticity of demand for energy is so low and that is why introducing volatility into the cost of energy is dangerous. Furthermore, it is a risk with no benefit - you have yet to point at a single real advantage of C&T over tax.
re: #99 Gaz
"It seems that big oil and coal businesses tend to favour a carbon tax rather than cap and trade."
Without implying any position whatsoever on carbon tax vs cap-and-trade:
1) Businesses like favorable tax treatment, preferably 0% :-), or even better, subsidies.
2) If unable to get that, everyone likes *predictable* tax treatment so that one can plan. In particular, oil companies especially have to plan long-term investments.
3) BUT, it is also possible that someone who wants 1) might argue *for* a carbon tax, hoping either that
a) People will propose high-enough carbon taxes to be meaningful, but the political flak will make them impossible for legislatures.
OR
b) They will pass a carbon tax, but it will be too low to be a bother ... think of paying a traffic ticket once in a hundred illegal parkings...
Such misdirection arguments were described in discussion of Lomborg.
4) SUGGESTION: from outside, if the only bit of data is "supports a carbon tax", then you really don't know much. What you need to know is:
a) What's the starting rate, and when does it start?
b) What's the shape of the rate curve, is it fixed by time, or otherwise computed?
There are corresponding, but different, questions about cap-and-trade, like free-versus-auction, escape hatches, etc.
Anyway, on either side, the devil is in the details, so it's hard to know offhand the actual wishes.
Sortition: "Just one comment ago you enthusiastically agreed that no one can know what price raise would be sufficient to cause even a 10% reduction in demand. Yet, now you accuse me of being of little faith when I point out the consequence of this statement."
Nice comeback, but actually I didn't say they'd get it right all the time, just like anyone operating in any commodity market. They have to forecast demand for their product under conditions of changing price and supply now, they will in the future, under whatever scheme we have
Actually I think this is a bit of a red herring - there's actually no reason to suppose carbon-based energy prices will be much more volatile under a cap'n'trade system than the are now.
The supply of fossil fuels is already limited. Look at how oil prices behave. All that a cap'n'trade setup does is tighten the limit to a perfectly predictable timetable.
Anyway, the objective of either scheme surely is not to guarantee price stability for energy companies but to reduce the output of GHGs. I suspect this is why the energy companies seem to prefer a carbon tax.
As you said, "If energy companies face rising costs, they simply pass on those added costs to the consumers."
Under a carbon tax regime this creates an enormous incentive for energy companies to engage in anti-competitive behaviour, eg gas distribution company buying wind farm company to freeze out the competition, that sort of thing.
If they succeed in that effort, then they can continue to pass the cost of the tax on to consumers in conditions of the low price elasticity of demand for their product that you have identified.
Under a C&T, eliminating the competition won't help so much - you can still only produce so much carbon energy.
Re volatility: you are of the view that the price of carbon-based energy would be much more stable under a carbon tax versus a cap'n'trade.
I don't think this is necessarily true.
I think your view is based on the assumption that the plan to raise the tax in step-wise fashion, say 20% at a time (I assume you mean 20% in year one, 40% in year 2, 60% in year 3, but correct me if I misunderstood you) would do the trick.
But what if you did this and after 5 years it turned out that emissions were reduced at only a third of the rate you expected?
Do you double the tax rate in the next year? Triple it?
Do you try and catch up and risk a recession or just resign yourself to being 5 years behind schedule.
There is clearly potential for a lot of volatility there. I am not saying it would happen, but I just don't think you can be so sure that it won't.
Another way of looking at the price voaltility question.
In either case, the price of caerbon based energy could be seen as consisting of the raw material (eg oil) which is already very price volatile, production costs which are fairly stable, and the additional cost of a tax or the permit prices.
If it turns out that the amount of tax or the price of a permit is less volatile than the current price of oil or coal, then either of these schemes could make energy prices more predictable rather than less predictable.
But my point is that there's a great potential for simply missing the emmissions target by a big margin if you get the tax rate wrong.
That's what I think is the main advantage of a C&T.
There are others - eg Garnaut thinks it would be better for international trade in emissions rights, which is more economically efficient, if you believe in that sort of thing.
I also think a permit system is more transparent, in that you know how many permits there are and the price of a permit is known (which is important both to fossil fuelers and aternative producers).
With a carbon tax, I suppose the tax commissioner might publish how much carbon tax he collected.
> Nice comeback [...]
It's not a comeback, that was my point all along.
> there's actually no reason to suppose carbon-based energy prices will be much more volatile under a cap'n'trade system than the are now.
As I already pointed out, the reason is the inelasticity of demand for energy.
> I think your view is based on the assumption that the plan to raise the tax in step-wise fashion, say 20% at a time (I assume you mean 20% in year one, 40% in year 2, 60% in year 3, but correct me if I misunderstood you) would do the trick.
20% per year means the price for the consumer after n years of increases would be p0 * 1.2^n, where p0 is the price before the tax is introduced. The tax rate is therefore 1.2^n - 1. Thus, as long as the emission targets are not met, the price grows exponentially.
> But what if you did this and after 5 years it turned out that emissions were reduced at only a third of the rate you expected?
The price will continue going up at the 20% per year steps until the targets are achieved. Of course, the targets have to be adjusted depending on how long it takes to get there, but the rate of increase of energy price is limited to 20% per year. Note that after 5 years, if the targets were not met, the price will have gone up by 150%, after 10 years the price will have gone up by over 500%, and by 15 year by over 1400%.
> But my point is that there's a great potential for simply missing the emmissions target by a big margin if you get the tax rate wrong.
As I already wrote multiple times, by adjusting the tax rate over time, that possibility is eliminated. It may take a few years, but the targets (properly adjusted to account for the time that has elapsed) will be achieved.
Thanks for the response, Sortition.
I just want to make sure I understand your preferred carbon tax mechanism as you explained it in the previous post.
Please correct me if I have misinterpreted your formula.
The amount of tax paid is a fraction of the price prior to the introduction of the tax, yes?
In that case the tax would be more like what the Australian tax system refers to as an excise, like we pay for petrol - so many cents per litre. The tax amount per tonne paid would not vary according to changes in the market price of fossil fuels.
Let's say as an example, the pre-tax price of emissions starts off at $40/tonne.
Then in the first year the tax would be 20% of that, which would be $8, right?
So the final price would be $48.
In the second year, the tax rate would be (1.2^2 - 1) = 0.44.
And 0.44 or 44% times $40 = $17.60, so the final price of emissions is whatever the pre-tax cost is plus $17.60.
So far so good?
If that's right, then in year three we get 1.2^3-1 = 0.728 ir 72.8% and the price of emissions is pre-tax cost plus $29.12.
Now if we follow that through, and take 2010 as year 1, then by 2020 the tax per tonne would be $40 times (1.2^11-1) = $257.20, ie more than six times the pre-2009 price.
By 2050 by my calculations we'd have a tax per tonne of $70,509.
Yes I can see how you have confidence that a carbon tax would be effective, but the exponential formula means your choice of an initial rate is important.
If you took 10% as the tax rate, you have $1951/tonne by 2050. A rate of 15% would mean $12,282/tonne in 2050.
Am I barking up the wrong tree?
This is the great thing about the economics debate... at least with the climate there is science to fall back on. But they were all interesting comments Gaz and Sort. Cheers.
Gaz,
Yes - that is what I am proposing. Just to be clear, in your example, the 2020 price will be $257.20 per ton only if emission targets were not met by then. When the emission targets are met, the price increases stop.
And, yes, the yearly rate of increase matters a lot. I suggested 20% because I believe that 20% yearly increase is both high enough to reduce demand in the time frame needed, and gradual enough so people can adjust to it without unnecessary hardship. (Of course, reducing carbon consumption will not be easy, but there is no need to make things more difficult than they have to be.)
I emphasize again that the tax revenue must be refunded to the residents by being divided between them equally.