Recommended.

Thanks Scare, extremely accessible for those of us who are just coming up to speed on these critical issues.

I’ll throw this link in also

From War Bonds to Environment Bonds.

I think this kind of thing could open up all kinds of opportunities for various kinds of carbon sequestration. That in turn means all kinds of quality control to insure that those who are receiving compensation, are really taking carbon out of the equation.

Thanks for the link Boo, and good morning.

“[i]f emission permits were auctioned off — as they should be — the revenue thus raised COULD be used to give consumers rebates or reduce other taxes”

Emphasis is mine. No way Fed is giving us back that $ as poor as they are going to be paying for TARP, health care expansion, etc. Energy prices climb which helps put the brakes on recovery of all industries not involved in greenhouse gas reduction tech.

There are competiting claims on those $$, to be sure, but most proponents of cap and trade, and the Markey bill, all provide rebates back to consumers in one way or another. And given the controversy about potential impacts on prices, it seems politically unlikely that any cap/trade proposal would be adopted without a rebate feature.

of course the economy suffers when energy prices rise — we’ve been seeing that for 30 years, whenever oil prices spike, or there are gas shortages, as during the early 2000 and after Katrina. In recent years, fuel costs — coal, gas, even uranium — for electricity rose steadily until last year, and that had nothing to do with trying to reduce C02. The economy absorbs these, redirects investments towards less energy use/more efficiency or alternatives. That needs to happen, because continued huge reliance on carbaon-based fuels is not sustainable. The cap and trade is just, the economists argue, an efficient way of allocating how that occurs.

as far as i can tell, cap and trade is a big giveaway to polluters and i don’t see how it is going to work. sometimes krugman can be so fracking lame.

please read this latest (4/24) from hansen (pdf 200KB):

The situation is this: many Australian, United States, and other scientists, among those who are
aware of the urgent need for actions to defuse the climate danger, are sorely disappointed in
specific strategies for emission reductions that our governments are aiming toward. These
directions seem to have been strongly influenced by special financial interests, rather than being
designed in the best interests of the public and other species on the planet. It is not surprising
that scientists have reacted with chagrin – my Sword of Damocles op-ed being a case in point.

On the other hand, the recently elected governments compare favorably with others of the past.
The present governments are likely to be as amenable to reason as any that we will see soon, at
least within the brief period during which we must move onto a different emissions pathway.

Still, we cannot let polite discourse cloud the fact that the cap-and-trade approach favored by governments and special interests does not have a snowballs chance in Hades of achieving a carbon reduction path consistent with the path dictated by science.

my bold.

i agree with you. isn’t krugman one of the free traders who told us that the losers from trade agreements COULD be compensated by the winners?

how did that work out?

yeah, exactly, it didn’t.

still, this is so very serious a threat to all of us, we have to find a way to address it.

my current take is that what we need is a very SIMPLE system so everyone can see and monitor what is happening – contra all the complicated opaque plans that seemed designed to confuse us while ripping us off to benefit big financial interests (see geithner’s bailout plans and even more the ideas being put forward for public/private health insurance reform).

that’s why hansen’s proposal makes the most sense to me – and he does say the following: “the public will not
allow a sufficient carbon price unless the carbon fee is returned 100% to the public.”

here’s what i heard hansen talk about a couple of months ago when he appeared before the house ways and means committee to testify on “Scientific Objectives for Climate Change Legislation“

i highly recommend reading hansen’s entire prepared statement (it’s short and clear). here is a bit from it

The most honest effective way to achieve a carbon price capable of driving our economy and our society to the clean world of the future is “Carbon Tax with 100% Dividend”[3]. For example, a carbon price equivalent to $1/gallon of gasoline (about $115 per ton of CO2), for 2007 rates of fossil fuel use in the United States, generates $670B. If we give one share to each legal resident age 22 and over, one half-share to college age youth (18-21), one half-share to the parents of each child up to two children per family, that yields about 224 million shares in 2007 (this could be off by ~10%; I could not find optimum census data). So the 100% Dividend for a $1/gallon tax rate ($115 per ton of CO2) is:

Single share: $3000/year ($250 per month, deposited monthly in bank account)

Family with 2 children: $9000/year ($750 per month, deposited monthly in bank account)

The tax rate and dividend should increase with time.[4] This approach would reduce demand for fossil fuels, driving down the price of fossil fuels on the open market. The next time the price of gasoline reaches $4/gallon most of that $4 should be tax, with 100% of that tax returned to the public as dividend. Instead of our money going to the Middle East and other foreign places, most of it would stay at home.[5]

and another bit on cap and trade:

‘Cap & Trade’ increases costs to the public as does ‘Tax & Dividend’, but without the dividend. Thus it should be termed ‘Tax & Trade’.[9] Part of the reason for the pseudonym is to avoid the stigma of a tax, under the presumption that the public is too gullible to figure it out. Other parties support ‘Cap & Trade’ because they hope to profit – it is a give-away to special interests, who feel, based on extensive empirical evidence, that they will be able to manipulate the program through their lobbyists. Except for its stealth approach to taxing the public, and its attraction to special interests, ‘Cap & Trade’ seems to have little merit.

Of course the proponents of ‘Cap & Trade’ are not all special interests and their lobbyists, or people who hope to make millions on Wall Street from price volatility and manipulations. That is surely right. Many, without looking closely at the details, assume that the successful ‘Cap & Trade’ used to help solve the acid rain problem, might be a good model for the climate problem. Acid rain was much simpler, partly because it was a program that required existing facilities to employ a relatively simple low-cost solution. Unlike climate change, the acid rain problem did not require massive investments in new infrastructure and innovation. Instead it required a group of existing facilities, with accurate emissions measurement, to make minor burner modifications and use readily available low-cost low sulfur coal. A few new rail lines were built and some facilities purchased more efficient scrubbers.[10]

Caps have not generally been applied at the mine or well-head, rather further downstream. Proponents of ‘caps’ say they will try to push them upstream. That would open up consequences that now should be unacceptable to Americans: volatility, manipulation, and trading floor millionaires. Where would the millions come from – the common person, of course, the rate payer, the public.

I’m sorry, but I think it’s a huge mistake to pit Hansen vs Krugman, as though they have fundamentally different views. Krugman is NOT opposed to a carbon tax or a rebate system, AFAIK, the essence of what Hansen prefers.

If you work through the mechanics of typical cap and trade proposals versus tax and refund/rebate proposals, you’ll find all the same elements. And to suggest that cap/trade is susceptible to political dilution, but Hansen’s proposal is not and somehow has a better chance of enactment without compromise is unconvincing. So the argument is false: you can’t compare the likely compromised cap and trade versus an unrealistic assuption of a non-compromised alternative approach.

Cap and trade is an implicit tax system, with the tax driven by the cap; and most cap/trade proposals come with rebate mechansisms — see the USCAP proposal. I’m not endorsing that or any particular approach, let alone criticizing Hansen; I’m only pointing out that these common elements tend to be standard, albeit described differently, in all approaches.

Hansen’s rebate is clever, but there is nothing about a cap and trade system that inherently rules out Hansen’s approach for rebating/refunding revenues. Moreover, there is nothing about Hansen’s approach that would be incompatible with a trading system that allows reallocation of allowances (or exemptions from the tax), which is the Hansen equivalent.

A cap and trade system can be criticized because it will be politically compromised. Welcome to the real world. Compromises take the form of “free” allocation of allowances and future credits/offsets, etc. But the same concepts would, I suspect, show up in Hansen’s approach. Why should we assume that the political reality that demands a free allocation of allowances to, e.g., regulated utilities, would somehow disappear if instead we had Hansen’s approach? Why wouldn’t we expect the same political realities to demand “tax credits” or exclusions for the same utilities for the same reasons?

Hansen argues that current government approaches don’t get us to where we want to be. No debate there. But why should we assume that, given that political inadequacy, governments will thus adopt Hansen’s approach 100%, in detail? The comparison between where we need to get to and what we’re likely to adopt is going to leave a gap, no matter what the approach.

And to suggest that cap/trade is susceptible to political dilution, but Hansen’s proposal is not

i never said that.

there are three issues:

1) the science.
2) the economics.
3) the politics.

if we agree, based on issue 1, that current government approaches won’t work – then why don’t we advocate for an approach that WILL? that i think, ought to be the first criteria – on that basis i object to krugman’s advocacy

my reply to CBash is about issue 3. from krugman:

But suppose that Congress were to mandate gradually tightening emission limits, starting two or three years from now. This would have no immediate effect on prices. It would, however, create major incentives for new investment — investment in low-emission power plants, in energy-efficient factories and more.

one of the main things krugman is missing is that for something to be politically viable it needs to have a strong constituency. mandating a future limit does not create a constituency strong enough to balance the very strong and very entrenched (coal, etc) constituencies.

hansen’s approach is, imo, an attempt to create a such a strong supporting constituency – one strong enough to do battle with big coal et al. and win – by enlisting the support of every american receiving a tax rebate. people like CBash who are skeptical (rightly imo).

a complicated system would be very difficult for the public to monitor and therefore support. hansen’s proposal as it stands has the benefit of being simple enough to help us do that. if you can propose a cap and trade system that will work and that has the potential to be as simple, i’m all for it. just haven’t seen such a thing.

We’re closer. Let’s assume the correct “tax” to achieve our CO2 reduction objective generates about $670 billion each year. Hansen’s proposal very cleverly reallocates all the revenues back to consumers/tax payers. It thus creates a political constituency in favor of the mechanism, because voters/consumers know that if the tax has to increase (because we’re falling short of the goal), then they’ll get the money back through the dividend mechanism. Creating this support constituency and calling it a “dividend” is smart framing. All good features.

You can achieve the same effect with a cap correlated to the goal, which then uses an auction to allocate the incidence of the tax that achieves, more or less, the same revenue = about $670 billion per year. You then rebate that revenue to the same people, in the same percentages, as in Hansen’s “dividend” proposal. Combine the approaches. Nothing in Krugman’s column prevents that from being the “rebate” mechanism he assumes. They’re not talking about different approaches. However, note this from Krugman:

If emission permits were auctioned off — as they should be — the revenue thus raised could be used to give consumers rebates or reduce other taxes, partially offsetting the higher prices. But the offset wouldn’t be complete. Consumers would end up poorer than they would have been without a climate-change policy.

I think he’s explaining a macro effect (probably wrong word; I’m not an economist). The revenues collected don’t fully offset the total economic effect of the tax on the economy — prices will go up in lots of ways, and we have to pay that, not just in higher gasoline taxes, etc. It simply costs more, under current technologies, to be cleaner. Does Hansen avoid this? I don’t think so; he just doesn’t talk about it in the segment you quote.

But Krugman is not arguing against any particular scheme to return the revenues, including Hansen’s clever mechanism. Instead he’s saying, even if you can’t make everyone whole — through rebate or dividend — the total economic impact is not unreasonable; we can afford to do this. And it also has other macro investment effects that are worthwhile.

I don’t see a divergence on fundamentals between the two men.

selise, just a quick drive by (I’ll come back later to read the thread), but I think it is very important to read up on the success of the SO2 Cap and Trade Program. It has significantly reduced acid rain in the Northeast. Here is a link to the Environmental Defense Fund’s site that talks about the SO2 program. When I have more time I can share some links to the National Acid Deposition Program (NADP) site that has maps that clearly show how well SO2 Cap and Trade worked.

As with all things the devil is in the details. If done properly Cap and Trade will work. The more familiar we are with a success story, the better equipped we will be to ensure that a CO2 Cap and Trade program is structured properly.

thanks – i don’t have much time right now either (will try to return before the comments close) but want to say that i don’t think i would have a problem with cap and trade if it was 1999 instead of 2009 – it’s just that i don’t see how it can work fast enough (or if it fails that we will have time to try something else), that’s why i think we have no choice but to push for a carbon tax at this point.

look forward to more discussion (with you and scarecrow and whoever wanders by) later…..

Footnote – while Krugman’s column appears today [May 1], it was published April 30.

as we’ve been saying here at the lake for some time, create jobs and everyone benefits

here’s where the devide of reasoning finds it’s epicenter;

oil concerns like koch industries and the karlye group count on petroleum for their profit

when we find alternative solutions the profit model of petro must go down

they therefore buy our lawmakers and law to create false science telling us investing in our future costs money

investing in this future pays exponential dividends to the majority however people like the koch brothers aren’t interested in anything but their own personal bottom line

Let’s assume the correct “tax” to achieve our CO2 reduction objective generates about $670 billion each year.

this reminds me of wigwam’s diary: Assume the Existence of a Can Opener: a FAQ about the Meltdown

is this for when oil is at $140 per barrel or $40 per barrel?

from stiglitz and nicolas stern (of the Stern Review on the Economics of Climate Change) oped in the financial times in march:

Providing a strong, stable carbon price is the single policy action that is likely to have the biggest effect in improving economic efficiency and tackling the climate crisis. Clarity on policy and prices is all the more important now, with companies facing such uncertainty because of the financial crisis: the two risks compound each other, damping investment.

my bold.

is there a way a cap and trade system can give a stable and predictable price signal to spur the kind of investment that is needed? especially nowadays when there is so much economic uncertainty that very few are willing or able to risk making big investments? i think a carbon tax is much more flexible in dampening price volatility and far less likely to introduce price volatility. am i wrong about that?

and then there is the issue of what do we do if our predictions are off – ie what if the level of tax or the auction price doesn’t result in the expected co2 reduction? again, i think changes in tax rates would be much easier and quicker to implement (and less opaque for the public to understand) than an annual (?) auction.

i have other problems with cap and trade (compared to a tax) and will try to make a list tomorrow (and respond to the rest of your comment. thanks for it). yikes – and i haven’t even looked at markey’s proposal yet.

One thing is certain: our predictions now will be off and we’ll have to change them.

This means the tax will need to be adjusted, if that’s the route we take, or the cap that drives the prices will need to be adjusted, if we take that route.

To be clear, I’m not arguing for either approach over the other, but rather trying to point out the theoretical equivalence. Perhaps my title is misleading, since it suggests krugman supports a cap and trade (and opposes a tax without the trade/auction of cap and trade). I don’t know that.

I think Krugman’s main point is not on that issue; it’s that taking on global warming will have a cost, but it’s a cost that is not as bad as opponents contend and one we can afford, and taking on the effort has some macro investment benefits.

I wish Krugman had commented on other criticisms of cap and trade like this one which describes the gaming of a cap and trade regime by the same people who brought us the subprime mortgage industry.

http://www.carbontax.org/bloga…..he-planet/

Then there’s the goof by MIT Professor John Reilly over his calculation of the cost of cap and trade which made the cost anything but clear but added fuel to the right-wing attacks on it. I’m reserving my judgment on cap and trade until I hear a much more satisfactory explanation that it’s going to work and not be a speculator’s paradise.

I have never understood how Cap-and-Trade was supposed to help anything.

The inequity that always drives international environmental policies into the ground is that emerging markets feel like they should be allowed access to polluting as much as advanced economies did during their rise. Advanced markets don’t want to give up any ground on the issue by taking on their own restrictions while allowing emerging economies to pollute, because of the competitive advantage it provides to emerging markets. Whatever is doing to work has to either resolve, or nullify, that disequilibria.

- Advanced economies already pollute, and industrialized at a time where there was no penalty for doing so, and they already have lots and lots of capital as a result.

- Emerging economies don’t pollute much, and will be forced to industrialize at a time where there are high penalties for doing so, and they already don’t have very much capital at all.

How is Cap-and-Trade supposed to create anything other than a perverse market where the advanced economies keep on polluting by leveraging their existing advantage to buy up all the necessary credits, and emerging economies end up with nothing but a savings glut, and no way to pollute enough to advance without paying extremely high premiums to advanced economies to do so?

It looks just like the liberalized capital flows problem, where emerging economies have to buy very, very expensive industrial equipment from advanced economies just so they can produce things to sell back to those same advanced economies for very, very cheap.

It just exacerbates the problem, fundamentally concentrating the capital (in the case of Cap-and-Trade; the right to pollute) back into the advanced economies.

Fundamentally I view the problem with these myriad schemes as wrongly treating a scientific issue as an economic issue. The idea should be to perform the analysis on what will work according to scientific analysis, and then do that. Economics should be involved only so far as it doesn’t gut the efficacy of the scientific solution.

krugman wrote (this time) about “Limits on the amount of CO2 we can emit ” so i think your title is fine (unless i misunderstood krugman’s post?). but if krugman is writing about cap and trade (as i understood) then i do think hansen is in opposition given his continued warnings against cap and trade.

also, i don’t think cap and trade is equivalent to a carbon tax.

I agree that cap and trade is not equivalent to a carbon tax. Cap and trade as I understand it is a carrot and stick approach. Not only is there a stick (if you pollute above your set allowance, you have to buy credits from someone who pollutes less (and if those credits are scarce, they would be more expensive, so the polluter has a financial incentive to curtail their emissions). Meanwhile, those polluters whose emissions are below the limit can sell their excess credits (this is the carrot part) and if they have the ability to reduce emissions further they have a financial incentive to do so because then they would have more credits to sell.

There are three key things to beware of… 1) there must be a hard and meaningul cap to emissions (the worry here is the cap will be set too high to do any good), 2) the cap must decrease over time sufficiently quickly to hit our targeted goal by 2050 (I think that goal is an 80% reduction in emissions), and 3) the credits must be auctioned off. I’ve heard there is a push to give a bunch of credits away for free. That would be counter-productive to say the least.

I think if properly structured a cap and trade system can work. It can also inspire innovation. I’m not certain that a carbon tax would have that effect. It seems to me that it’s all stick and if all of the rebate goes to the public, then that money can’t be used by innovative new companies creating and implementing new technologies.

I’m not sure why Hansen thinks the SO2 cap and trade model is inapplicable to CO2. Yes, CO2 is more complicated because it involves a lot more emitters than SO2, but I don’t see where the model itself is doomed to failure if it is done correctly.

As promised here are the NADP maps I mentioned earlier… Sulfate deposition in 1994 and in 2007. The reductions have been significant. And just so it’s handy here is the Environmental Defense Fund link again, if you look at their figures the costs of cap and trade were significantly less than forecasts suggested.

On the “equivalence” issue, a CBO study says it depends on the assumptions. A useful discussion of the relative efficiency of cap versus tax concepts is provided by a Feb. 2008 CBO study, to which Hansen refers. It shows that where assumptions about the costs emission reductions are correct, the two can be equivalent, but when the assumptions are not correct — i.e, the costs of reductions turn out to be higher or lower than exected, the tax is more efficient.

http://www.cbo.gov/ftpdocs/89x…..ml#1077003

It absolutely makes perfect sense to implement a cap and trade policy, the problem is will Obama cave to political pressure?

We all know that Republicans, despite their myriad of deficiencies, they are masters at framing arguments. It is incumbent upon progressives, and Obama, to start the PR push now for cap and trade.

Here is a short article that gives Dems a head start on winning this battle.

http://progressnotcongress.org/blog/?p=440