The Cap and Trade Scam

Alright, it's time to understand the global warming debate, and who's selling what.  And basically, the state of the policy world is pretty bad.  The urgency on the problem is high, and paradoxically, Bushnik's refusal to admit the problem exists has obscured the choices we'll have to make post-2009.  But the choices exist, and all the major Presidential candidates are pushing policies that are not only ineffective, but subject to massive corporate corruption.  Like with Iraq, it's time for us to engage. Thankfully all of them are bad on this, so I don't want to hear any secret agenda whining, though I do have an emerging secret agenda in favor of Chris Dodd, as you'll soon see.

Economist Robert Shapiro has a very important and readable paper on different ways to deal with the carbon problem.  I've seen private polling on energy that shows overwhelming support, even in UAW-strong or coal mining regions, for reducing carbon output.  The public believes that individuals and governments are best suited to deal with the problem.  This means that in 2009, we're going to have to think about actually solving problems.  There are two basic schemes proposed for this.  One is a straightforward carbon tax, which will raise the price of carbon-intensive energy use.  The upside to this is that it is simple to manage, handles volatility, can works globally, and can be administered using current taxation mechanisms.  The downside is that there is no firm cap on carbon emissions.  Al Gore has floated this idea by suggesting the reduction of payroll taxes offset by a carbon tax.  Chris Dodd has also put this forward as his climate change plan.

The 'cap and trade' system is the other model, and the main sponsors are Joe Lieberman and John McCain.  This system sets an overall cap on carbon emissions, creates a fixed set of carbon credits which add up to this cap level, and then allows companies to trade credits with each other. There really is no upside to this system, though proponents will argue that it does have a firm cap on carbon emissions.  The downsides are that industries will cheat, price volatility will be really high, counties will cheat and the system privileges insiders:

By creating tradable financial assets worth tens of billions of dollars for governments to distribute among their industries and plants and then monitor, a global cap-and-trade program also introduces powerful incentives to cheat by corrupt and radical governments. Corrupt governments will almost certainly distribute permits in ways that favor their business supporters and understate their actual energy use and emissions.

As far as I know, Obama, Clinton, and Edwards are all in favor of cap and trade systems.  Both systems can be used at the same time, and that's what a lot of experts recommend.  It's time for us to engage in this critical debate, because the corporate elite is way beyond denying global warming, and is already planning how to steal the right to emit carbon from the rest of us.  One of their most effective arguments is that previous cap and trade systems on specific types of pollutants have worked, which they have because you can substitute away from these pollutants if necessary.  That's how we dealt with acid rain, for instance.  These examples don't apply in the case of carbon.  If you use energy in any concentrated form, you basically can't substitute away from carbon output.  Taxes make sense for these kinds of common denominators.

Here's a simple way of understanding the climate debate.  Being able to emit carbon is a public resource.  A cap and trade system allows governments to allocate this resource, while a carbon tax forces everyone who uses carbon to pay the resource they are using.  

Still, so far, every leading Democratic contender has bought 'the centrist' solution (Edwards has a better version of it).  I think in the next poll I'm going to vote for Chris Dodd.  He's the only one who actually has the courage and intelligence to deal with this problem.

Update [2007-4-24 12:26:48 by Matt Stoller]:: Europe has a carbon cap and trade system, and it's not working so well.

Given these numerous drawbacks, cap-and-trade’s principal justification appears to its political feasibility. Many environmental activists assume that a global cap-and-trade program is more achievable politically than global carbon taxes, because most of the world agreed to Kyoto and most people resist higher taxes. On close analysis, the Kyoto agreement is too weak to signify a meaningful consensus for an effective cap-and-trade system. As we will see, numerous analyses of Kyoto have found that it would have very little effect on climate change even over a 60-year period; and the first effort to apply it in an enforceable way, the European Emissions Trading Scheme, is expected to have virtually no effect on emissions.

Tags: Barack Obama, Chris Dodd, Global Warming, Hillary Clinton, John Edwards (all tags)

Comments

89 Comments

Re: The Cap and Trade Scam

Correct me if I am wrong, but Obama has co-sponsored the same bill as McCain and Lieberman.  There is a picture of the three together at the top of this MSNBC article on the bill.

by juls 2007-04-24 07:55AM | 0 recs
Re: The Cap and Trade Scam

Matt, you're wrong about this in a number of ways. I'll get to you with the reasons why when I take my lunch break.

by clarkent 2007-04-24 08:03AM | 0 recs
C'mon

This is completely false: "The 'cap and trade' system is the other model, and the main sponsors are Joe Lieberman and John McCain."

The main sponsors of a 'cap and trade' system are Al Gore, Jim Jeffords, Barbara Boxer, Bernie Sanders, Environmental Defense, NRDC, Bingaman, Kerry, Snowe,  etc. etc.

In other words, pretty much everyone favors cap and trade.

It's not a scam. It's certainly not perfect, and there are economic inefficiencies, but as Gore said, it's incorrect to believe that a carbon tax must be exclusive of a cap-and-trade system.

You're barking up the wrong tree here.

by The Cunctator 2007-04-24 08:08AM | 0 recs
Re: C'mon

It's certainly not perfect, and there are economic inefficiencies, but as Gore said, it's incorrect to believe that a carbon tax must be exclusive of a cap-and-trade system.

Which is exactly what I wrote.  

by Matt Stoller 2007-04-24 08:21AM | 0 recs
Wow

You have an interesting definition of "exactly".

by The Cunctator 2007-04-24 09:59AM | 0 recs
Re: Wow

"Both systems can be used at the same time, and that's what a lot of experts recommend. "

That is from my post.  

by Matt Stoller 2007-04-24 10:27AM | 0 recs
Re: Wow

You wrote:

" The downside is that there is no firm cap on carbon emissions.  Al Gore has floated this idea by suggesting the reduction of payroll taxes offset by a carbon tax.  Chris Dodd has also put this forward as his climate change plan.

The 'cap and trade' system is the other model, and the main sponsors are Joe Lieberman and John McCain. "

The only reasonable interpretation of what you wrote above is that Al Gore is opposed to a cap and trade system.

by The Cunctator 2007-04-24 11:08AM | 0 recs
Re: Wow

The only reasonable interpretation of what you wrote above is that Al Gore is opposed to a cap and trade system.

I wrote that the two models can be used at the same time.  I didn't write that Gore was opposed to cap and trade, nor did I write that Lieberman/McCain are opposed to a carbon tax.

by Matt Stoller 2007-04-24 02:12PM | 0 recs
Al Gore

Again, your post above falsely implies that Al Gore supports a carbon tax instead of a cap-and-trade system.

Gore's #1 suggestion is a carbon cap-and-trade system.

From his testimony before Congress:

"I think the first step should be a cap-and-trade system that starts with a freeze. I also support the Sanders-Boxer bill."

by The Cunctator 2007-04-24 08:11AM | 0 recs
Re: Al Gore

Gore supports both.

by Matt Stoller 2007-04-24 08:21AM | 0 recs
Good of you

It's good of you to recognize this now. You failed to do so in the above post.

by The Cunctator 2007-04-24 09:59AM | 0 recs
Re: Good of you

Gore was tangential.

by Matt Stoller 2007-04-24 10:34AM | 0 recs
On pollution

Polluting isn't a right.

This statement: "If you use energy in any concentrated form, you basically can't substitute away from carbon output" isn't true.

by The Cunctator 2007-04-24 08:13AM | 0 recs
Re: On pollution

Oh really?  Explain to me how we're going to get off carbon.

by Matt Stoller 2007-04-24 08:21AM | 0 recs
What?

What does that question have to do with your claim?

by The Cunctator 2007-04-24 10:00AM | 0 recs
Re: What?

Everything we do uses carbon.  Everything we do does not use CFCs, for instance.  

You can substitute other industrial products for CFcs.  You can reduce the use of carbon but you cannot substitute some other non-carbon based energy source for the foreseeable future.

by Matt Stoller 2007-04-24 10:26AM | 0 recs
Re: What?

The statement "Everything we do uses carbon" just isn't correct (at least in the net emissions sense). Nuclear, hydro, geothermal, tidal, solar, wind, etc. don't use carbon.

This statement: "If you use energy in any concentrated form, you basically can't substitute away from carbon output" is incorrect.

What's frustrating is that you're combining nuanced economic arguments that are extraordinarily complicated and highly debated (the theoretical cost/benefits of different carbon regulatory regimes) with sweeping and inaccurate statements ("Everything we do uses carbon" for one example) and misleading political statements (implying Gore supports a carbon tax but not cap-and-trade, implying that cap-and-trade is primarily supported by John McCain and Joe Lieberman, who you consider to be execrable).

I would consider such statements as "everything we do uses carbon" to be acceptable hyperbole in a post that was in the main meant to be an emotional missive, but not in one that is intended to be a rational apologia for dismissing cap-and-trade proposals en masse.

by The Cunctator 2007-04-24 11:29AM | 0 recs
think lifecycle carbon output

"Nuclear, hydro, geothermal, tidal, solar, wind, etc. don't use carbon."

oh really? then try setting up a solar plant, including the factories to build the solar cells, and the silicone crystals, etc, without emitting any carbon.  try the same with wind, try importing the ore, and then fabricating the windmill propellers and trunks out of steel and hauling all the parts and workers out to the remote wind farms to be installed without emitting any carbon. you have to think in terms of LCA--lifecycle analysis.  there is no such thing as an LCA carbon output of zero. not right now anyway, and now is what matters here.

the point is, if credits are rewarded to politically connected industries with a large existing capacity of carbon emissions--which is likely--then that automatically raises the floor for everyone else who wants to do anything, giving a huge financial advantage to the biggest offenders.

by colorless green ideas 2007-04-24 12:04PM | 0 recs
Re: think lifecycle carbon output

If Matt was talking about lifecycle carbon output, then he should have said that.

I'm in full agreement that we have a fossil-fuel dependent civilization.

But if someone wants people to engage in a serious economic debate, as Matt claimed, then that person should avoid hyperbolic or vague pronouncements.

by The Cunctator 2007-04-24 12:54PM | 0 recs
Re: think lifecycle carbon output

Not saying that I'm perfect on that front myself.

by The Cunctator 2007-04-24 01:33PM | 0 recs
Re: think lifecycle carbon output

My point was that we live in a carbon-emissions dependent society.  We do not live in an SO2 dependent society.

by Matt Stoller 2007-04-24 02:13PM | 0 recs
Substituting away and toward carbon ...

... happens all the time.

The only way we are going to substantially reduce our use of carbon is to provide an incentive to both consumers and industry to make those substitutions away, and stop making those substitutions toward.

That's not the whole policy ... but its got to be a big part of the policy. Edwards has been telling his audiences for more than a year that we can't get to Energy Independence on new technology alone, real sacrifice is required, and we need to be able to be patriotic about something other than war.

That, of course, stumbles directly into Obama's speech, which seems to suggest that we need to be patriotic about war in a smarter way than we have been in the past.

by BruceMcF 2007-04-24 10:21AM | 0 recs
Re: On pollution

The only countries I know of successfully relying on hydro-electric power are Iceland and Norway, both of which have unique geologies and small populations.

Wind energy isn't efficient enough yet and has terrible problems with NIMBYism.

Solar energy is more efficient than plants, but still not efficient enough and it's expensive to install.

Nuclear energy isn't going to be able to replace carbon-based power without a hell of a lot of new power stations (which is unlikely, would be unpopular, would face its own political problems - see Iran and might have its own associated security risks) or a sudden discovery of cold fusion (which has been five years away for about 50 years).

What exactly are we meant to replace fossil fuels, biofuels and oil with in the short term?

by Englishlefty 2007-04-24 08:37AM | 0 recs
Re: On pollution

The ultimate solution to the global warming problem is that human beings would use a whole lot less carbon-based energy sources (coal, oil, gas). Since these sources have been and still are relatively cheap, moving away from them will, obviously, mean that energy will be more expensive. This will mean big changes in the way society runs: travel will get more expensive so we'll probably do less of it; leaky buildings will be tightened up or replaced with more efficient ones; other energy-intensive endeavors will be cut back or eliminated; lots of inefficient systems will be replaced with more efficient ones (for example, small, light cars instead of big, heavy SUVs).

One relatively easy change: in industrial areas, install small gas-fired turbines that produce electricity and then route the waste heat into industrial processes and then into heating buildings. This "cogeneration," as it is known in the literature, requires a lot of coordination between electric utilities, industry, and building owners, but it can be done and is very efficient, utilizing something like 30% more of the energy in the natural gas.

Another energy saver: drill wells in the parking lot of buildings and circulate a liquid through the ground to heat/cool the buildings. Ground temperature 10 feet down tends to stay pretty constant year-rround in most of the world, so you can tap into this free heat/coolth.

Also, our sources of energy will have to shift. I hope we move to passive solar heating, wind electric, solar photovoltaic electricity, and other decentralized renewable sources. These cost a lot more than current sources and have some environmental side-effects, but overall they are pretty benign. Yes, they cost more so we'll have to get used to it (and figure out how to allocate the costs so that poor people/countries aren't screwed. But that is better than having to get used to hurrcanes, flooded low lands, and all the other problems scientists see in our future.

by RandomNonviolence 2007-04-24 09:08AM | 0 recs
Re: On pollution

The big question to my mind is this:

There are more than six billion people in this world. That's still increasing rapidly, almost entirely in the Third World, so that by 2050 (probably before then, I forget the exact year it's predicted for) more than 98% of the world's population will be located in these countries and we'll have around ten billion humans on the planet.

Considering that US levels of consumption couldn't be achieved for the whole world right now, how do we a) reduce energy consumption sufficiently in the First World
b) manage the industrialisation of the Third World (stopping it because there aren't the resources not being an option).

The suggestions you make aren't bad, but they don't provide the seismic shift we're likely to need.

by Englishlefty 2007-04-24 09:44AM | 0 recs
We have to be the change we are calling ...

... on them to make.

We have to be developing the renewable resource technologies and the urban development systems and the transportation systems and the industrial technology to reduce the massive impact on the earth as people across the globe aspire to the lifestyle that we ceaselessly propagandize worldwide.

And, on the side of direct action, with a cap and trade system in place, we can require importers to purchase carbon permits for the carbon emitted in the production of the products.

by BruceMcF 2007-04-24 10:32AM | 0 recs
Re: On pollution

What you wrote is accurate. What Matt wrote is not.

by The Cunctator 2007-04-24 10:00AM | 0 recs
Re: On pollution

You're smarter and more knowledgeable than this.  If you have other sources on this I'm open to it, but you keep alleging that I'm saying things that aren't true without bothering to explain yourself.

by Matt Stoller 2007-04-24 10:28AM | 0 recs
Re: On pollution

Contrary to your claim, in my first post on this thread, I "alleged" you said something that isn't true and I explained myself.

You're smarter and more knowledgable than that.

This is completely false: "The 'cap and trade' system is the other model, and the main sponsors are Joe Lieberman and John McCain."

The main sponsors of a 'cap and trade' system are Al Gore, Jim Jeffords, Barbara Boxer, Bernie Sanders, Environmental Defense, NRDC, Bingaman, Kerry, Snowe,  etc. etc.

In other words, pretty much everyone favors cap and trade.

by The Cunctator 2007-04-24 12:57PM | 0 recs
Re: The Cap and Trade Scam

I definitely agree about the need for the carbon tax, but I'm not willing to dismiss the Cap and Trade approach quite yet.

A few of your concerns:  companies will monopolize the right to pollute.  I guess that means a large utility, for example, purchases all the carbon rights in a state, meaning individuals don't have the ability to create pollution because they don't have any of the carbon stocks needed to do so.  But does c&t apply directly to everyday consumers?  Not from what I understand.  Consumers would only pay higher costs when purchasing from companies that were inefficient in producing high carbon output products.  Which would be the same effect as a tax.

You state:  "A cap and trade system allows governments to allocate this resource."  Isn't the market really allocating the resource? As with the tax, competitive advantage would be the determining factor.

Also, how would a company cheat at c&t and not be able to do the same by cheating carbon taxes?  Wouldn't the c&t approach use the same matrix to measure carbon output as a tax?

In all honesty, I agree that a carbon tax would be far more effective, just because it IS much simpler to administer, but I don't think the two have to be mutually exclusive...and politically, one can be the stepping stone to ther other.

by Nasara 2007-04-24 08:19AM | 0 recs
Re: The Cap and Trade Scam

Read the paper.  There's a strong incentive to cheat with a cap and trade.  

by Matt Stoller 2007-04-24 08:22AM | 0 recs
Re: The Cap and Trade Scam

There's a strong incentive to cheat with a tax. Or a system of taxation. There are also strong incentives to not cheat with a cap-and-trade system that don't exist with a carbon tax.

by The Cunctator 2007-04-24 10:01AM | 0 recs
Re: The Cap and Trade Scam

That's an interesting premise - do you have materials on that?  I found Shapiro's arguments compelling, but I'd be happy to hearing about other arguments.

by Matt Stoller 2007-04-24 10:23AM | 0 recs
Re: Cap and Trade

See the testimony from the congressional hearing Climate Change: Lessons Learned from Existing Cap and Trade
Programs
.

My live blog of the hearing is here.

Of course, it's possible that the contrarian position pushed by the right-winger on the panel, to which you subscribe, is correct, in a happy coincidence.

by The Cunctator 2007-04-24 01:02PM | 0 recs
Re: The Cap and Trade Scam

Even the Economist has published excellent articles in the past that have criticized the pitfalls in cap-and-trade systems.  On the surface, they seem kindly enough, but the potential for price volatility seems to make this system easy to play with.

In terms of electoral politics, this is the best thing going for Chris Dodd.  And frankly, if he's got the guts to push a progressive solution with some teeth to it, I'll vote for him too.  I like Obama, and I like Edwards, but we need to scare these guys away from neoliberal tendencies, cap-and-trade systems, and anything else that the Rubin crowd likes, while we have a choice.  I'm not going to sit through 2 terms of GWB just to get a more responsible Bill Clinton.

by IrishCatholicDemocrat 2007-04-24 08:19AM | 0 recs
Re: The Cap and Trade Scam

I was in grad school as the 1990 Clean Air Act was being implemented (I am starting to feel old) and my econ professors loved the trading rights around pollution limits.  One example that always stood out was a clean company could trade its credits to a dirty company as long as everyone was under the limits.  It fit really nicely into the graphs but I frankly never got it.  I always thought we should be forcing the dirty company to become cleaner rather than allowing them to buy credits but then again I am not an economist and don't want to be one.  

Last I had heard which was 5-6 years ago, the trading of pollution rights under the Clean Air Act wasn't working so well b/c not many companies were buying the credits.  Any word recently?

by John Mills 2007-04-24 08:20AM | 0 recs
Re: The Cap and Trade Scam

It has worked reasonably well though there has been excessive price volatility.  The difference is that you can substitute away from the pollutants outlined in the Clear Air Act, you can't substitute away from carbon.

by Matt Stoller 2007-04-24 08:23AM | 0 recs
Re: The Cap and Trade Scam

Ok, but I still think you're being overly pessimistic on cap-and-trade. Are you saying that reducing US carbon emissions by 80% in 2050 by a C&T is not going to work, is not enough, or will be a horribly corrupt process as it is implemented?

by adamterando 2007-04-24 08:31AM | 0 recs
Re: The Cap and Trade Scam

Very true.  

Non sequitor - interesting you posted this today b/c we have been talking in my household the last few days about how we can reduce our carbon footprint.  

by John Mills 2007-04-24 09:15AM | 0 recs
In what sense can't you substitute away ...

... from carbon?

Living in Ohio, if I switch a incadescent bulb for a flourescent, I am switching away from carbon. If I substitute driving to work for walking to the bus stop and taking the bus, I am switching away from carbon. If they start putting wind generators in those locations in Ohio that were just recently identified as having utility-grade wind resources, that is switching away from carbon.

Any time you do a carbon emitting activity more efficiently, or switch from a carbon emitting technology to a non-emitting technology to do the same task, you are substituting away from carbon.

by BruceMcF 2007-04-24 10:06AM | 0 recs
Re: In what sense can't you substitute away ...

but it still takes carbon to do all those things.  in an extreme example, if all the carbon permits are allocated to the carbon heavy "status quo" industries, then when new ways of doing things will cost disproportionately more, even if they use less carbon.  let's say the incandescent bulb industry was allocated all the permits, then the cfl company wants to build a factory--they will have to buy their carbon rights from the current polluters, rather than from the public, or the commons, or whatever.

it's all about allocation. unless permits are auctioned off, or allocated evenly to each individual citizen, politically biased allocation can be expected.

by colorless green ideas 2007-04-24 12:13PM | 0 recs
Re: In what sense can't you substitute away ...

I have been trying to provoke someone into Googling around for more information on the McCain-Lieberman bill that Obama backs, and finding out how they allocate permits would be of interest.

Edwards system auctions the permits, that's how they raise the $10b annually for the investment in New Energy R&D.

by BruceMcF 2007-04-24 12:38PM | 0 recs
here's a summary of their 2005 bill

the McCain-Lieberman Climate Stewardship and Innovation Act of 2005, which is  a almost the same as the one they introduced in 2003. so i think we can assume that the latest is similar enough to use text from the previous ones in order to analyze it.  here's the bill itself

fwiw, it's worth, it's full of grandfathered carbon emission allowances, and i think it subsidizes nuclear, but i just skimmed. anyway, how can anything sponsored primary by LieberMcanCain be any good?

by colorless green ideas 2007-04-25 11:47PM | 0 recs
Here's a pocket guide to all the 2007 bills

Since then I found the summary of the National Resource Defence Council fact sheet on legislation (pdf) of seven pieces of global warming legislation before the 110th Congress.

The two that the place a medal by are Sanders-Boxer (S.309) and Waxman (H.R.1590):

  • multi-sector
  • start date 2010, declining cap, 14% by 2020, 83% by 2050
  • Declining pollution cap rated Excellent
  • Sound market design rated Excellent
  • Promotes clean energy rated Excellent
  • Consumer and labor protections rated Excellent

In the ranking, Lieberman-McCain (S.280) is 5th of 7:

  • multi-sector
  • start date 2012, declining cap, 14% emissions by 2020, 65% by 2050
  • Declining pollution cap rated Good
  • Sound market design rated Fair ("30% offsets from outside the cap")
  • Promotes clean energy rated Poor ("Scale of incentives undetermined, No performance standards, Large nuclear subsidies")
  • Consumer and labor protection rated Good ("Share of incentives uncertain")

The poor rating in promoting clean energy is a real area of concern, as are the 30% offsets from outside the cap. The first undermines the development of New Energy industries in the US, and the second opens the door to the gaming of the system that is an ongoing concern with Kyoto.

by BruceMcF 2007-04-26 04:43AM | 0 recs
Re: The Cap and Trade Scam

The main reason cap-and-trade would be a failure when it comes to carbon emissions is that when it comes to carbon, there are millions (!) of emission points -- including every vehicle on the road.  How would cap-and-trade cover them?  It can't.  A cap-and-trade system would only cover fixed emission points like electric generating plants and perhaps factories:

Carbon taxes address emissions of carbon from every sector, whereas cap-and-trade systems discussed to date have only targeted the electricity industry, which accounts for less than 40% of emissions.

http://www.carbontax.org/issues/carbon-t axes-vs-cap-and-trade/

If your goal is to reduce carbon emissions, a gradually implemented, progressive carbon tax is the fairest and most effective way to do it.  This is one case where market forces can be highly effective, once the cost of fuel includes the "negative externality" of its carbon output.

This isn't 2001 any more.  Global warming's a reality that most voters accept as real and are willing to pay to reduce.  At this point, cap-and-trade would be more of a sham, to give the feel good appearance of doing something without affecting most of the emissions and emission sources actually out there.

by Johnny66 2007-04-24 08:31AM | 0 recs
Re: The Cap and Trade Scam

Which is why a cap and trade system alone wont work. You need a comprehensive plan that includes other types of things such as mandated fuel efficiency standards, some type of carbon tax or auction (as in the Edwards plan), tighter factory emission standards, etc.

It has to be a comprehensive approach that hits the problem from all sides. Which is why at the moment the Edwards plan seems to me the most pragmatic and workable at this point.

by okamichan13 2007-04-24 08:53AM | 0 recs
Re: The Cap and Trade Scam

A carbon tax is not a part of Edwards' plan, but he spoke on Meet The Press at the beginning of the campaign and said (I am paraphrasing) it may be an idea whose time has come, even if it is not popular, we may just have to do it to address the issues).

I thought that was pretty bold at the time, and together with his comprehensive plans shows a seriousness about the issue and being willing to do what it takes.

(I think Matt was unaware of these comments when he wrote his post and I wish I had the time to go hunt down the clip on NBC's site).

by Orlando 2007-04-24 10:16AM | 0 recs
Re: The Cap and Trade Scam

its not that hard to find if Matt wants to - it is on the Edwards site.

For Edwards plan, I was refering to the auction idea that is part of his plan, and also includs a carbon cap that is ratcheted up over time.

the point is, cap and trade alone won't work, though its only a scam if someone says that alone will get us where we need to go. Edwards at least isn't saying that.

by okamichan13 2007-04-24 11:45AM | 0 recs
A cap and trade system on its own will work ...

... but it will be inefficient in some things. One of those is in encouraging private investment in sustainable energy R&D. In Edwards plan, the combination of the public investment in R&D and the 25% renewable energy requirement from utilities address that weakness of a cap and trade system alone. From what I understand it, in the McCain-Lieberman bill that Obama supports, there is more reliance on promotion of nuclear power.

This is from the National Resource Defence Council March 19 responses to questions from Chairman Dingell (Comm. Energy and Commerce) and and Chairman Boucher (Subcomm. Energy and Air Quality), page 6:

NRDC supports legislation to establish an economy-wide cap-and-trade program together with complimentary performance standards that will help reduce costs and assure the early deployment of technologies needed to make emission reductions on the necessary scale over the coming decades.

The cap-and-trade program should cover all sectors of the economy that contribute significantly to global warming pollution. These include:

  • electric power generation,
  • transportation,
  • other major emitting sources (categories and individual sources above an emissions threshold), and
  • natural gas distribution.

Together, these sectors account for more than 80% of U.S. emissions.

All of these sectors should be included in the legislation from the beginning and should be subject to controls on the same effective date. (The program should cover carbon dioxide, methane, nitrous oxide, and high-GWP gases including hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride, as discussed below.)

It is essential to have a hybrid program that combines the "cap-and-trade" system with performance-based standards and incentives. Performance-based standards, in combination with complementary incentive policies, can reduce costs and accelerate the deployment of needed technologies. These additional policies - performance standards and incentives - should be targeted at key low-emitting and energy-efficient technologies. Without such policies, the cap-and-trade system alone runs the risk of producing unnecessarily high allowance prices and inadequate technological progress in key sectors, especially in the near- and mid-term.

by BruceMcF 2007-04-24 12:54PM | 0 recs
Re: The Cap and Trade Scam

If the refiner has to buy the carbon emission permits for their producers, as well as the importer, then it captures every emitter downstream, no matter how mobile the source.

This is one thing that makes carbon distinctive from pollutants, since the emission of carbon is a side effect of the main thing you are doing with a combustible fuel ... burning it to create energy.

by BruceMcF 2007-04-24 10:09AM | 0 recs
Re: The Cap and Trade Scam

If the refiner has to buy the carbon emission permits for their producers, as well as the importer, then it captures every emitter downstream, no matter how mobile the source.

Why not just tax it?

by Matt Stoller 2007-04-24 10:21AM | 0 recs
Re: The Cap and Trade Scam

Because you cannot be sure that the tax will cut emissions down to your target level. If you want to meet a quantity target, control the quantity.

Both cap and trade and carbon taxes levied at the same points are subject to the identical gaming of the system by those trying to evade the cost. In addition, taxes are subject to gaming of the process of predicting what tax rate is required to meet a target, which cap and trade is not subject to.

Plus, the tax will drain a very substantial amount of purchasing power and weaken worker's bargaining power in labor markets. ...

... unless the tax is returned directly in some form. If the tax is set to replace payroll taxes, that guarantees that the tax will not be set at the level required to meet some carbon reduction target, so that not a first-best approach.

Which is why I prefer the recirculation of purchasing power drained by a carbon tax be in the form of a Social Dividend.

(naturally, a flat Social Dividend would provide a moderate strengthening of bargaining power, by making it slightly easier to go on strike)

by BruceMcF 2007-04-24 11:13AM | 0 recs
No, Edwards plan is a comprehensive ...

... cap. You deal with point source emitters by going upstream to the fuel that they burn.

That specific criticism is not about cap and trade versus carbon tax generically but rather about specific carbon tax and cap and trade proposals.

It would be handy if someone could find out if the Obama-backed McCain-Lieberman cap and trade system is a comprehensive cap or just applies to utilities.

The portion of Edwards plan that is focused on utilities in particular is the requirement to produce 25% of power through renewable resources.

by BruceMcF 2007-04-24 10:36AM | 0 recs
Re: The Cap and Trade Scam

Any system can, of course, be a scam, if you don't do it right.

1. Global cap and trade.
There is a lot of literature on this, because this was a main focus of Kyoto and there was a lot of proxy-warring for and against Kyoto via the literature.

However, the cap and trade proposed by Edwards and from what I understand the Lieberman/McCain cap and trade that Obama co-sponsors are national caps. So the issue of whether a corrupt national government implements it in a corrupt manner than favors entrenched interests, boils down to whether our government will do it in a corrupt way.

2. Cheating.
People will cheat on a tax as well ... people cheat on taxes all the time. No matter what the instrument for pushing emission costs up, once it starts to bite, there will be time and effort devoted to coming up with ways to cheat the system.

However the biggest cheat on a tax is setting the tax rate at a level that "does not harm the economy" ... and in the process does not mitigate carbon emissions by nearly enough.

Bear in mind that the elasticity of demand for carbon emission is quite often very, very low, so a very, very high tax may be required to get things moving. Given that, there will be constant pressure to be over-optimistic in the estimated impact in order to justify a low tax rate.

The biggest gaming by industry-captured regulators on air pollution cap and trade is to set the original cap above the current level of emissions, and then when the cap begins to start biting, to expand the number pollutants covered by the cap and trade, with the new pollutants again brought it at over the current level of emissions to push the permit cost down again.

If you have a national cap on all carbon emissions, assessed as far up the production stream as possible, set the cap at current levels of emissions and progressively reduce the cap, then that prevents the most serious forms of abuse that we have experienced in the US of cap and trade systems. That seems to be the Edwards proposal.

It will be interesting for those who like burrowing into legislation to hear how the Obama-backed McCain Lieberman bill stacks up on that score.

3. Price Volatility
The price volatility argument is important, of course. If you are an existing carbon emitter, like a coal plant, it certainly is advantageous to you to have the reliable cost factor of a carbon tax compared to the risk that the carbon permits you require to operate may cost more than you expected. And a company looking to build a new coal-burning power plant can include the carbon tax into their planning, without including it as part of the risk assessment for their financiers, while a company looking to build a new coal-burning power plant under a cap-and-trade must include a risk-management system and their financiers may demand that it is included as part of their risk assessment.

I'm not seeing where that Price Volatility is a bad thing. It further increases the market appeal of sustainable sources of electricity like wind power.

4. Giving away rights that are presently being stolen.

The argument about giving away rights is that there is no existing right to use the atmosphere as a dump to the harm of someone else. That industrial habit was simply a matter of doing the harm, sometimes unknowingly, and nobody knocking on the door to say, "you are dumping stuff that is spilling out across to other people's airspace, you have to stop".

I am not surprised if the Obama-backed McCain-Lieberman version works by giving away the right to dump CO2 at current levels, and then slowly reduces that right. The Edwards bill auctions permits, and that is the revenue source for $10b of the $13b fund for New Energy Economy R&D.

by BruceMcF 2007-04-24 08:32AM | 0 recs
Re: The Cap and Trade Scam

Interesting.

by Matt Stoller 2007-04-24 08:36AM | 0 recs
Re: The Cap and Trade Scam

OK, so I wait for my lunch break to post my comments, and Bruce does the heavy lifting in a more articulate manner than I probably could muster.

One thing that concerns with a neutral carbon tax (Dodd, to his credit, has not proposed this) is that it's a conservative Trojan horse for reducing government revenues. After all, we would be taxing carbon emissions to decrease them.

by clarkent 2007-04-24 09:43AM | 0 recs
Re: The Cap and Trade Scam

That's one worry about a carbon tax ... that if its used for revenue, then the incentive for governments is to ratchet it up to the revenue maximizing level, and keep it there.

And the revenue maximizing level probably does not involve cutting carbon emissions by 80% by 2050.

Once we stake the financial viability of social security on carbon taxes, then we have to make sure that we continue to use enough carbon in order for the tax to fund social security.

I do support a Social Dividend, where the point is to return the purchasing power that the tax took out ... either with a flat amount per resident citizen, in proportion to payroll taxes paid, or both.

by BruceMcF 2007-04-24 10:02AM | 0 recs
Re: The Cap and Trade Scam

Once we stake the financial viability of social security on carbon taxes, then we have to make sure that we continue to use enough carbon in order for the tax to fund social security.

That's not going to be a problem.  We will be using lots of carbon for the foreseeable future, regardless of whether it's cap-and-trade or a carbon tax.

by Matt Stoller 2007-04-24 10:33AM | 0 recs
Re: The Cap and Trade Scam

Either the target is an 80% reduction by 2050, or its not ... and if so, then definitely more than 50% by 2040. In terms of generating "crises" for Medicare and Social Security, 2040 is considered part of the forseeable future.

However, I certainly do agree that any carbon tax that can get through Congress will see us using far more than 20% of current levels of carbon through to 2050.

by BruceMcF 2007-04-24 10:58AM | 0 recs
Re: The Cap and Trade Scam

Matt... I'm glad some of these comments have challenged your original view.  It needs that.

Both systems, a cap and trade and a carbon tax would serve to find the "right prices" for goods in the market.  So consumers will have incentives to buy fewer pollution intensive products and will shift consumption, thus reducing overall emissions.

When choosing a system, it is necessary to understand the imperfect information you have about the market.  Thus, an economic theorem, the Weitzman Theorem, has emerged.  It states that if you're more concerned about steep environmental costs (as many environmentalists are - especially in global warming), you should favor a quantity instrument (a cap and trade policy that absolutely controls total emissions).  However, if you are more worried about abatement costs (as many economists are), you should favor a price instrument (a tax that absolutely controls per unit costs).  Thus, it would seem that if we are concerned about the immense environmental damages from global warming - including its catastrophic and irreversible effects - we should favor a cap and trade system.  Either way, a system putting value on the right to pollute is preferrable to what we have now.

If we are to give away the emissions permits for free we are giving up the opportunity to offset deadweight loss producing taxes elsewhere in the economy or to use those deadweight loss saving revenues to fund important projects.  Thus, we should demand that any cap and trade system auction off the rights to pollute.

One last thought - the EU ETS is working fairly well for such a large and groudnbreaking system.  It's just now finishing its first phase and about to enter its first 5 year term.  Companies in Europe are internalizing the costs of pollution and factoring these costs into their decisions to research and develop new cleaner technologies.  Give it some time and I think the system will turn out to be just as successful as our own cap and trade model (the sulfur dioxide system from the 90s).

by umcpgreg 2007-04-24 08:56AM | 0 recs
Re: The Cap and Trade Scam

It states that if you're more concerned about steep environmental costs (as many environmentalists are - especially in global warming), you should favor a quantity instrument (a cap and trade policy that absolutely controls total emissions).  

Why?  If the temptation to cheat is high, why are quantity instruments in anything but wishful thinking?

by Matt Stoller 2007-04-24 09:22AM | 0 recs
Re: The Cap and Trade Scam

Cap and trade can be monitored as easily as a tax: the presumptive measure of a site's carbon output is based on the carbon content of the fuel they purchase (just like a tax). The burden to prove that they somehow abate is on the company.

There is also self-policing in a trading regime: people buying and selling credits have a monetary interest in transparency.

by demondeac 2007-04-24 09:28AM | 0 recs
The temptation to cheat on a tax is less ...

... because the tax is not doing as much to reduce carbon emissions.

That's the "price volatility" argument ... that a cap and trade system is bad because it pushes the risks of fluctuating emission prices onto the emitters.

Of course, if the tax system is set to ratchet up the tax when it falls short of achieving its target ... this is not required in the economic modelling, because the modeller simply sets the rate that hits the target for his or her model, and assumes that the government will do the same for the real world economy ... then it performs better in hitting the target ... and at the cost of more price volatility.

by BruceMcF 2007-04-24 10:15AM | 0 recs
Re: The Cap and Trade Scam

{note: I am not Congressman Kennedy. I blog on climate change at BlueClimate}

Matt said:

This system sets an overall cap on carbon emissions, creates a fixed set of carbon credits which add up to this cap level, and then allows companies to trade credits with each other. There really is no upside to this system, though proponents will argue that it does have a firm cap on carbon emissions.

No upside? The upside is the overall cap that puts some certainty in the emission reductions.

A cap and trade approach to putting a price on carbon is a legitimate approach. So is a carbon tax.

But isn't it funny how the proponents of the carbon tax always envision some simple tax with no exemptions or loopholes? How realistic is that? Once the lobbyists get done with a carbon tax it won't be so simple anymore.

The fact of the matter is that both approaches to putting a price on carbon, tax or cap and trade, depend on one fundamental factor to make either of them work as they are intended. That factor is political will. The political will to face up to the large reductions in greenhouse gas emissions we need to make over the next 50 or so years, starting now. The reason the European cap and trade had problems in their first commitment period (2005-2007) was because the individual countries in the European Union gave their industries too many emission allowances. The countries lacked political will.

The European Commission is now going through the painful process of forcing the countries to reduce their industry emission allocations for the second commitment period (2008-2012). By the way, for purposes of compliance with the Kyoto Protocol, it is this second commitment period that counts. The first period was established to work the kinks out of the system.

A cap and trade approach can work but it needs the political will to put good policy in place. If you want to read up on what constitutes good policy, check out some of the comments that are now up on the website of the House Committee on Energy and Commerce. Chairman Dingell asked for comments from industry and NGOs on how congress should design climate change legislation. Some of the NGOs in particular (e.g. Pew Center, Environmental Defense)provided good comments.

As a final thought I would say that those of us who support taking strong action on climate change should not underestimate the power of the "no new taxes" argument to throw a difficult road block in our way. Lets not make it easier for the climate change deniers.

by Patrick Kennedy 2007-04-24 09:30AM | 0 recs
Re: The Cap and Trade Scam

No upside? The upside is the overall cap that puts some certainty in the emission reductions.

No, there is no certainty here, unless you can deal with the cheating and the millions of emission points.

But isn't it funny how the proponents of the carbon tax always envision some simple tax with no exemptions or loopholes? How realistic is that? Once the lobbyists get done with a carbon tax it won't be so simple anymore.

This is a political problem unrelated to climate change.  

As a final thought I would say that those of us who support taking strong action on climate change should not underestimate the power of the "no new taxes" argument to throw a difficult road block in our way. Lets not make it easier for the climate change deniers.

The climate deniers aren't relevant here, though no, I don't beat my wife.  

Cap and trade makes cheating easy, with millions of transmission points.  Taxing carbon uses the already existing channels to tax oil and coal, channels which work.

by Matt Stoller 2007-04-24 09:45AM | 0 recs
Re: The Cap and Trade Scam

Cap and trade makes cheating easy, with millions of transmission points.  Taxing carbon uses the already existing channels to tax oil and coal, channels which work.

I don't understand this argument as reaching the conclusion it seems to be aiming at.

If you applied the cap and trade further upstream, and applied the carbon tax at the retail level, then the conclusion flips, and by the same argument cap and trade becomes superior to carbon taxation.

The real argument is that the control is easier to manage if it operates upstream than if it operates downstream, and if either ... carbon cap and trade or carbon tax ... is focused too far downstream, we should ask for sharp questions why it is being designed badly.

by BruceMcF 2007-04-24 10:40AM | 0 recs
Re: The Cap and Trade Scam
No, there is no certainty here, unless you can deal with the cheating and the millions of emission points.

Cap and Trade is applied to large stationary sources that can be monitored for compliance. It is not applied to every gas station and automobile tailpipe. I have heard no one argue that it should be used on facilities that cannot be monitored. In a comprehensive climate change bill, measures like efficiency standards and encouraging green building codes would be needed as well.

This is a political problem unrelated to climate change.

Of course the political problem is related to climate change. If tax policy is used to fight climate change, political problems that go along with tax policy come into play.

The climate deniers aren't relevant here, though no, I don't beat my wife.

It is hopelessly naive to think that the majority of the Republican party wouldn't use the "no new taxes" argument to demagogue a carbon tax. The primary reason a carbon tax is not getting greater consideration in climate bills currently in congress is the political fear factor.

P.S. I am glad to hear you don't beat your wife.

by Patrick Kennedy 2007-04-24 11:37AM | 0 recs
Re: The Cap and Trade Scam

Matt,

Like many people here, I have to disagree with you about the benefits of cap-and-trade. The main benefit of a cap is the very important benefit that it allows the enforcement of a schedule for CO2 emissions. Carbon taxation is a blunt instrument; by itself, it would require regular tinkering to keep the country on an emissions schedule.

The challenge with cap and trade is determining how credits get issues for each year. A cap and trade system where carbon credits are auctioned for each year is effectively a carbon tax where the tax level is automatically set at the appropriate level for reaching an emissions goal. In order to limit the initial economic impact, you might phase in an auction system, with some of the credits for the first couple years allocated based on a baseline; but the auction system is key to establish the proper price signal.

by bobkopp 2007-04-24 09:42AM | 0 recs
Re: The Cap and Trade Scam

The main benefit of a cap is the very important benefit that it allows the enforcement of a schedule for CO2 emissions.

No, it doesn't, unless you can figure out a system to regulate all the transmission points in every country in the world, including China, which already is cheating on cap and trade to generate foreign currency.

by Matt Stoller 2007-04-24 09:46AM | 0 recs
Re: The Cap and Trade Scam

But China is not inside a national cap and trade, and in a national cap and trade it is our decision whether or not to grant any concessions against the level set for carbon credits required for imports.

Again, this is a critique of the Kyoto system that you are translating to a national cap and trade system without verifying whether the critique translates over.

I am not saying that a national cap and trade is immune to this problem, but that its susceptibility to this problem depens on how the system is designed.

A national carbon tax is equally hard and/or easy to design to avoid carbon-shifting from domestic production to imports.

by BruceMcF 2007-04-24 10:44AM | 0 recs
Re: The Cap and Trade Scam

Yet another subject about which Stoller knows nothing about, yet deems himself capable of pontificating upon and, more importantly to him, using to smear his political opponents.

by Disputo 2007-04-24 09:50AM | 0 recs
Re: The Cap and Trade Scam

In over your head here, Matt.

The internets are full of good policy blogs and especially full of arguments about cap and trade versus carbon taxes.

Stepping back from the details,

1) Political feasibility does not count for nothing. Even if a carbon tax could get passed, could you pass one at a tax rate high enough to actually freeze or reduce emissions? A tax by itself establishes neither a target nor a timetable.

2) Trading regimes have some efficiencies (incentives) that a tax does not: the inventor of affordable sequestration technology, for instance,  is rewarded in the former but disincentivized in the latter. Pricing the actual emmission that you want to reduced optimizes incentives.

3) A mix is optimal. As many have pointed out, large point sources are relatively easy to put into a cap and trade system. You and your car? No.  A gasoline tax is clearly the best that can be done there.

MyDD surely does have a role to play if we develop better information to answer the crucial political feasibility questions.

Rent seeking behavior is another one of the policy/politics interfaces that needs more work. Yes, some cap and trade schemes unfairly grandfather emissions permits while others auction them. But taxes, too, are likely to be a mess. The trucking industry will lobby hard (with teamsters on board) to pay less than their share. The wider public, motorists, will likely pay more since we are not so good at lobbying. Fuel taxes are regressive. Is it really likely that the poor and lower middle class will win the day and get payroll tax relief? Or is it more likely that the chemical or steel industry will?

by demondeac 2007-04-24 09:54AM | 0 recs
Re: The Cap and Trade Scam

In over your head here, Matt.

That's not necessary.

Rent seeking behavior is another one of the policy/politics interfaces that needs more work. Yes, some cap and trade schemes unfairly grandfather emissions permits while others auction them. But taxes, too, are likely to be a mess. The trucking industry will lobby hard (with teamsters on board) to pay less than their share. The wider public, motorists, will likely pay more since we are not so good at lobbying. Fuel taxes are regressive. Is it really likely that the poor and lower middle class will win the day and get payroll tax relief? Or is it more likely that the chemical or steel industry will?

Without the ability to levy taxes or enforce laws, there's no point in talking about addressing any of these issues.

by Matt Stoller 2007-04-24 10:20AM | 0 recs
Re: The Cap and Trade Scam

Sorry, "in over your head" is relative -- this is an awesome politics blog. Politics, political strategy, political tactics, etc. I did not mean to make it sound so mean. Sorry. You are right. Not necessary.

Your other reply is unclear. ("Without the ability to levy taxes or enforce laws, there's no point in talking about addressing any of these issues.") We have the ability to levy taxes and enforce laws. And as one of my responses noted, enforcing cap and trade far from impossible (enforce like you would a tax plus self-policing incentives).

The paragraph and issues you say there is no point talking about concerns distributional effects of the carbon policy choice. The Democratic party is the only one that can be trusted to even care about just distribution. But it will be a tough fight, potentially pitting labor against the poor. Industrial states against those more reliant on services.

But, like I said, that part of your reply is unclear to me, so do not take my attempt to address what I guess to be your point as stupidity or unwarranted criticism. Just trying to stay productive.

by demondeac 2007-04-24 10:46AM | 0 recs
A car is easy to put into a cap and trade.

Simply require all petroleum refineries and fuel imports to puchase carbon permits equal to the carbon content of their fuels.

Any carbon source that a carbon tax can capture, a carbon permit system can capture. When its easy, its equally easy for both, when its hard, its equally hard for both.

However, we do have to be aware that people wanting to pretend to accomplish something without doing anything will have an incentive to loudly announce a cap and trade system with targetted reductions, with the fact that it only covers some carbon emissions and that the reductions are benchmarked from a level above current levels hidden in the details.

So somebody does have to go through the details and ferret out that kind of cheating.

by BruceMcF 2007-04-24 10:48AM | 0 recs
Re: A car is easy to put into a cap and trade.

True, though that would not go under the heading cheating. Just a flimsy plan to begin with.

Basically you are describing what is known as upstream permits. Again, they do not incentivize sequestration (like a tax doesn't) and are as easy (or hard) to administer as a tax.

by demondeac 2007-04-24 01:40PM | 0 recs
Re: A car is easy to put into a cap and trade.

In what sense is it impossible for them not "incentivize sequestration"?

Which, for any English speakers reading, means "give incentives for sequestration".

For a permit system, a downstream user that buys a fully permitted carbon fuel and can show that it sequesters a percentage of the carbon gains permits for the sequestered carbon that it can sell on the market.

For a carbon tax, a downstream user that buys fulled taxed carbon fuel and show that it sequesters a percentage of the carbon gains a tax credit for the sequestered carbon.

And, yes, the incentives for conserving on carbon-emitting technologies and switching to non-carbon-emitting technologies are automatic while incentives for sequestration are on a "show me" basis, but since convservation and switch to non-emitting technologies is where the big gains are to be made, that's fine by me.

by BruceMcF 2007-04-24 01:54PM | 0 recs
Oh, cheating by the people who wrote the ...

... plan, labelling it as a policy solution, IF they know perfectly well that it has that weakness.

In today's policy environment where so much legislation is written by industry groups, that kind of political cheating is increasingly common.

by BruceMcF 2007-04-25 08:06AM | 0 recs
Re: The Cap and Trade Scam

We could do a carbon tax, but the problem is that Gore is asking to substitute it for the payroll tax.  That wouldn't punish companies who pollute, for switching one tax for the other would just be an offset.  You have to make a carbon tax mean something and you have to fit companies that pollute where it hurts: In the pocketbook.

That's why I advocate for a cap and trade system.  I think if you set a hard cap and make companies meet it, by natural selection the top polluters will die.  I think you have to let the market settle this, a) because they are dying to settle it if you read how many companies want a cap-and-trade and b) political feasibility in a world of divided government.

by KDJ 2007-04-24 10:23AM | 0 recs
Cap and trade creates winners and losers ...

... while carbon taxes create lose-smallers and lose-biggers.

For a political wedge, a mix of winners and losers from the interest group that will throw up the biggest political road blocks is better than a mix of difference sizes of losses.

by BruceMcF 2007-04-24 10:54AM | 0 recs
Re: The Cap and Trade Scam
A couple links to other articles on cap-and-trade
vs. carbon taxes, both from the venerable Grist:

"Cap and trade: More effective than a
carbon tax" from the chief scientist at
Environmental Defense
"Don't Trade Carbon, Tax It"

I should also point out that the National
Wildlife Federation, Sierra Club, NRDC, WWF,
Environmental Defense, EarthJustice, USCAP... so on
and so forth all support cap-and-trade as a major
part of the equation and more so as a necessary
first step.  Most, if not all, have scientists on
staff.	All have experts on climate policies.

Also, the heavily referenced Stern Review, headed by
Sir Nicholas Stern, Britain's Chief Economist,
says carbon trading is one of the most important
tools.
by mwilli 2007-04-24 11:51AM | 0 recs
Re: The Cap and Trade Scam

Matt et al. - I think a carbon tax is the best idea in theory, but it is difficult to imagine it passing when raising the gas tax, which would have a similar effect on carbon-intensive activity, has been anathema.

I wrote some papers on cap and trade programs while in college. I can't comment on cheating, but a major problem with the SO2 cap and trade problem is that certain of the richer, more polluting companies can hoard credits for their worst plants. So while overall pollution decreases, intense pockets of pollution remain unchanged. This shouldn't be a problem with CO2, because it is the overall effect rather than the local that causes global warming.

Overall however, cap and trade programs are successful because the government should, over time, buy up (or retire on schedule) the credits it sold away in the first place, causing pollution to decrease.

This is what has occurred with the SO2 cap and trade program. SO2 levels have decreased by about 50% since 1980. You don't hear about this very often, but then acid rain doesn't get the coverage that it did in the 80s and 90s because it simply isn't so much of a problem anymore.

Thank you, Matt, for another stimulating post.

by ariely 2007-04-24 12:54PM | 0 recs
by EdB 2007-04-24 02:35PM | 0 recs
Re: The Cap and Trade Scam

I'm sorry, I know it's a troll, but I just couldn't leave that as the last post... The 'great global warming swindle' is propaganda produced by known deniers with an underlying agenda, a background in p.r. and almost no genuine scientific credentials. Anyone who doubts me, feel free to check Desmogblog which gives the facts on these 'experts'.
It was produced by Channel 4 in my own illustrious home, the UK, in an attempt to appear controversial, because everyone over here accepts what 99% of scientists say is so. This documentary has also revealed to me the truly seductive force of denial, as the only people I know who watched it and cling to its spurious and desperate claims are all oil-workers and geologists.
This is the only issue I can think of, where I fervently wish that those opposing me were right. Unfortunately, I find myself burdened with a need to listen to reason....

Oh, and our only genuine option is Concentrated Solar thermal, but that is for another post another day.

Good luck out there.

by Danothebaldyheid 2007-04-24 03:57PM | 0 recs
Re: The Cap and Trade Scam
Thanks for the excellent discussion of carbon taxes vs. cap-and-trade. A few points have not been fleshed out adequately.
First, the "certainty" provided by cap-and-trade is illusory.  Don't forget that most cap-and-trade proposals provide a safety-valve, so if the price of a carbon allowance exceeds a predetermined level additional allowances are allocated. Guess what?  No more certainty.
Second, the importance of volatility cannot be overstated.  A properly designed carbon tax should initially be set at a relatively low level, the Carbon Tax Center recommends $37/ton of carbon, and then increased with a steady and inevitable trajectory so that energy users can make rational investments to choose less carbon-intensive and less expensive alternatives. A cap-and-trade system, by contrast, inevitably produces volatile prices since quantity is limited and changes in weather or the strength of the economy will result in dramatic price swings.  Look at what has happened in the European carbon trading market.  If prices are volatile, consumers (large and small) will not see the price signals necessary to encourage long-term investment in more efficient appliances, equipment, vehicles and renewable energy such as wind and solar.  
Third, a carbon tax will help rather than hurt the economy.  The carbon tax should be revenue neutral, with the revenues used to offset the payroll tax or provided as a rebate to all Americans.  Instead of dollars going out of the country, the dollars will stay at home where they will strengthen our economy.  
For more details, please take a look at the Carbon Tax Center web site.
by DanCTC 2007-04-24 04:25PM | 0 recs
Re: The Cap and Trade Scam

Matt,
with all due respect, you are waaaaayyyyy off base here.  Cap and trade is absolutely essential, even more so than a straight tax.

1. Your first argument against cap and trade: "it's mccain and lieberman's position, so it must be bad."  This is misleading -- it's al gore's position, first and foremost.  LOTS AND LOTS of progressives feel the same way.

And this isn't even a real argument, just an ad hominem attack linking a policy to certain personalities.

2. Your second argument: "it tempts corruption."  This is more interesting, but i don't think it ultimately holds water.  With the proper implementation, corruption can be held to a minimum.  And after all, corporations cheat on their taxes too, you know!!!

3. As you admit, without a cap and trade system, (tax only) there is no limit on carbon emissions.  They could continue to climb.  Cap and trade makes this impossible.

4. You don't give the strongest argument in favor of cap-and-trade:  incentives for innovation.  If there's just a limit on emissions, companies will have to get below that limit, but that's it.  There's no incentive for them to reduce emissions further.  With cap-and-trade, anyone who figures out ways to significantly lower emissions stands to make serious, serious money.  It makes game-changing innovations in energy technology much more likely!

5. The additional costs for doing business in a dirty way, plus the additional benefits for doing business in a clean way, will mean dirty plants go out of business.

If we just have a carbon tax, the status quo will be maintained, just a little more expensively.  Cap-and-trade could change everything.

The debate shouldn't be "cap-and-trade, or carbon tax?"

The debate should be "merely cap-and-trade?  or cap-and-trade PLUS carbon tax?"

by grimm 2007-04-24 10:18PM | 0 recs
Re: The Cap and Trade Scam

Also:  I'm a fan of your writing, but frankly i feel that your framing of the issue here is very dishonest.  It makes me angry!

by grimm 2007-04-24 10:35PM | 0 recs
Re: The Cap and Trade Scam

As many others have said, the question is not whether cap-and-trade itself is a problem, it's how you implement it, who is covered, and where they are covered.

Every system to reduce emissions has its problems and advantages, but the best one based on the research I've done (and no, I can't produce cites right now because my computer was stolen.  I'll try and recover the documents and post a diary later) is the upstream permit system mentioned above.  The end-goal should be for all permits to be auctioned, though a hybrid system which "grandfathers" some in could be better in order to minimize the transition costs.

The advantage of such a system is that it effectively is the hybrid permit+tax system.  By placing a cap on "emissions" at the source, the government controls precisely how much is ever able to enter the economy.  In practice for most consumers, this has almost exactly the same effect as a tax.  The producers absorb the cost of paying for the permits and then pass on that cost to energy-consumers, just as they would with a carbon tax.

However, as many people have noted, it has a distinct advantage in that taxes are notoriously poor at controlling demand in a predictable way.  Desire to use energy is relatively inelastic and while you can obviously overcome this simply by raising the tax until it reaches the desired target, the administrative costs and difficulty in  holding consumption at anything close to a stable level is enormous.  Placing a firm cap avoids this problem.

Of course, as others have noted, this runs into a problem of price volatility.  If you cap emissions, what happens when people need/want to use more?  Prices fluctuate rapidly and potentially you suffer a modest price-shock.

That's the main difference here.  You gain some benefits economically in exchange for losing some certainty in actually reducing consumption.  Neither one is "right" or "wrong" per se - it's just a question of priority.

And I do think it's important to note that the political viability of "cap and trade" is quite a bit higher than a "carbon tax."  Maybe that just means we should do the latter in order to force people to really face up to what is at stake, but I personally think that when facing the choice between two systems that do approximately the same thing, picking one that does so without tapping into politically costly terminology and strategy is probably better.

Of course, such an upstream system loses some of the economic viability of less strict downstream systems, precisely because it imposes its cost at the level of entry into the economy and thus forecloses a lot of the trading by utilities downstream which mainstream proponents of a cap and trade policy like.  So maybe the point there is moot.  And, of course, the fact that this has more cap and less trade is also why it resolves many (not all, but many) of the concerns about cheating.

Two other issues, which I don't think anyone else has mentioned.  First, a permit system is far easier to integrate into an eventual global trading system.  There are a lot of people who argue (once again, I don't have the cites but please trust me that they exist) that serious CO2 reductions on a global scale will only be possible if we can create a global regime which establishes a framework for a cap across all markets.  This, of course, does not prove a carbon tax would be bad, but does at least argue for the importance of building hard caps into whatever system we do deploy.

Second, there are many kinds of waivers, loopholes, etc. which fit extremely well into a cap and trade system in a positive way.  For example, companies can petition for waivers on meeting their required emission reductions if they can prove that they are in the process of developing technological methods (alternative energies or simply efficiency measures) which will enable them to provide substantial long-term emissions reductions.  This is extremely important because, ultimately, the point of any of these systems is to provide incentives for the development of an economy based on things other than carbon.  Taxing or forcing companies to trade for carbon emissions are really just the means to force R&D into new measures that transcend the problem.  Reducing emissions now really doesn't mean anything.  It's far more important to reduce them by 80% over 50-75 years than it is to reduce them by 5% now.  In fact, if holding emissions steady (or even letting them increase) now makes it easier to create a substantial reduction later, it is undoubtably worth it.

Innovation waivers recognize this.  And while something along these lines certainly could be incorporated into a tax regime, my fear would be that the loophole problem would be far harder to manage there.  I would love to hear anyone who knows more about this chime in.

Finally, on a rhetorical note, let me say that it's frustrating that you consistently call people out for saying what you consider to be inflammatory things, but post something encouraging a debate on this question which refers to cap and trade as a "scam" in the title.

by Baldrick 2007-04-24 10:48PM | 0 recs
Re: The Cap and Trade Scam

Oh, and one other thing, as I hope was clear from what I just wrote (and from what grimm and others have said above), I think the essential debate here really has very little to do with who is calling for a tax or permits or whatever.  Both systems are designed to incentivize carbon reduction and impose economic costs on those who choose not to make reductions, or are unable.  Just because one makes the cap clear and one makes the tax clear doesn't really change that.

In fact, these systems are so similar that I think focusing about the choice between the two is far less useful than focusing on whether the system we do settle on (whether tax, cap and trade, cap+tax, or any permutation on those) is designed to cover all emissions, is designed to minimize loopholes, and is designed to encourage innovation.

A well-designed cap or tax can accomplish those goals.  Let's make the debate about how to accomplish it, not just about which general category our strategy falls into.

by Baldrick 2007-04-24 10:55PM | 0 recs

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