back to article Cap, trade, subsidise - Obama's energy plan goes off piste

One of the huge surprises of the way that climate change is being discussed and the way we ought to try to deal with it, is that the orthodox economists have won. We don't have crazed Naderites screaming that carbon must be regulated and legislated out of business, as we did only a couple of decades ago with chlorofluorocabons …

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It's not entirely insane

Such a cap-and-trade system would still contain an incentive for major CO2 producers to find ways to reduce their emissions, since it would lower their permit costs, thus enabling them to maintain their prices at the market level and yet make larger profits (at least in the short term). Alternatively, they could sell unused permits on. That was the basis for the cap-and-trade systems which just distributed emission permits for free.

However, shifting the overall tax burden from work/investment to consumption is essential to reduce profligate energy use. Even in the US, I would have thought that using increased fuel taxes to lower income tax would be politically viable.

I really hope it's a misquote.

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Good Read

That was one of the more clear and succint articles I've read on the subject of carbon trading.

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Alert

How is this a surprise?

We (or our rulers) have spent years spouting hot air and doing nothing, while pursuing resolutely counterproductive policies[1]. And our meeja bleat about "the poor" when anyone talks about "green taxes", conveniently ignoring the fact that the poor suffer not from high fuel prices, but from living in a society that marginalises non-drivers. Etcetera.

But americans - of all political persuasions - have a much better record than us of appreciating that social tinkering can't fix problems like this. That leaves two options: hide in your bunker (Dubya), or do something meaningful with market forces. I expect either side would rightly laugh at the kind of tokenism we have here in .uk[2] masquerading as anything more than rearranging deckchairs on the Titanic.

What's needed is the political courage to follow through. If John Major's fuel price escalator hadn't been dropped by his idiot successor, we'd be better placed to face current and future cold turkey as oil supplies tighten.

[1] Winter fuel allowance forsooth! If there is a budget to keep old people warm, then spend it on improving thermal efficiency of their homes! And get a bloomin' fleece or pullover. Etcetera, etcetera.

[2] Don't leave appliances on standby, drop tax on smaller cars, please don't use plastic carrier bags, etcetera, at the same time as refusing to mandate universal broadband, closing local facilities while subsidising car parking, working to ghettoise cyclists onto substandard psychlepaths, hugely expanding aviation, etcetera.

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Anonymous Coward

A black comedy

I find it bazaar in the extreme the idea that pushing little pieces of green paper about (or more likely, as this is the modern age), changing numbers in a bank's computer system can somehow avert an environmental disaster. I just don't get it.

If an oil tanker starts pouring oil into the sea then the tried and tested way to deal with it is (a) plug the leak and (b) try and clean up the mess. Ok, you may also fine the tanker operator for screwing up and the lawyers will get their pound of flesh too, but generally, nobody suggests that moving money about for the sake of it will do one jot of good in such a situation.

For some reason, this pretty obvious idea doesn't seem to extend to other environmental concerns; deforestation, global warming, and the general relentless raping the world of its natural and irreplaceable resources. Instead, we either do nothing at all or we push some money about.

Take the idea of "carbon trading"; it's a joke worthy of the blackest of comedies; it runs on the lines of "Rich Country 'A' gives Poor Country 'B' lots and lots of little pieces of green paper and that somehow magically makes it OK for Rich Country 'A' to carry on polluting". How does this help again? Nope - it makes no sense to me either!

The ONLY way to stop an environmental disaster (of whatever type) is to STOP doing whatever it is you are doing to cause it. It's that simple. If that means that we can't go out and hand over some of our little pieces of green paper in exchange of an iPod or a car or whatever, then so bit it. Tough. We made the mess. It's up to us to clean it up.

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Go

Not as bad as it sounds at first...

Generally, I agree. Refunding the proceeds of the cap and trade to the utility customer will reduce its efficiency in cutting CO2 because some of the tax will be returned as subsidy thus decreasing the incentive to reduce electricity consumption.

It is not as crazy as it sounds at first, however, if the refunds are given to all utility customers regardless of the source of the electricity. That results in a net tax on CO2 emitting generation while subsidizing non-emitting generation. It will not result in a short term increase in prices across the board. Instead clean generation costs will actually decrease while dirty ones increase. It is bound to get additional support that way. Not as bad as it sounds at first...

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@Simon Ball

"Even in the US, I would have thought that using increased fuel taxes to lower income tax would be politically viable."

This *should* be viable, but it the two sides are too dug in... the dems see any reduction in the income tax as a reduction in wealth redistribution and the GOP sees any new tax as bad because once a new tax exists it is easier to increase both taxes in the future. Neither side seems willing to budge. Both stances are short sited at best, but that seems to be the political reality.

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Boffin

Certainty Principle

"Personally I value the known price because I think we know what the social cost of carbon is better than we know what the perfect level of emissions is, but everyone's free to disagree on that point."

The social cost of carbon is the degree to which it increases heat retention. The degree to which it increases heat retention is directly related to the level of emissions above that which Earth's ecosystem can naturally absorb (i.e, the "perfect level of emissions"). If we assign the variables thus:

s = social cost

r = heat retention increase per unit of emission

e = amount of emissions the ecosystem can absorb (perfect level)

A = level of actual emissions (observed)

then the equation is

s = r(A-e)

This is a simple, direct relationship. So if you know the factor R and the observed variable A, you can determine factor e from s:

e = A - s/r

So, if you know r, and you know s, then you MUST be able to know e.

Given that, your claim only works if you don't know r. But the problem with that is that s is the derived variable, while A is the observed variable. So to find s, you must have known the factors r and e to apply them to A, and therefore you must know e. So either we don't really know the social cost of carbon emissions, or we do know the perfect level of emissions.

I'm certain of it.

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Re: A black comedy

"If an oil tanker starts pouring oil into the sea then the tried and tested way to deal with it is (a) plug the leak and (b) try and clean up the mess. Ok, you may also fine the tanker operator for screwing up and the lawyers will get their pound of flesh too, but generally, nobody suggests that moving money about for the sake of it will do one jot of good in such a situation."

Er, you've pretty much just suggested that. Your oil slicks will recur unless the tanker operator is fined (since otherwise he manages to externalise the costs of not looking after his tanker) so you are proposing to deal with wayward oil tankers by threatening to move money around.

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I think Tim misses a point here...

And that's no matter what the scheme, it's the end consumers who will pay for it. Even now, most if not all electrical producers here in the states directly pass on the cost of fuel to their end users. All taxes are likewise passed on.

So the end result is that ANY program or scheme that increases the cost of producing electricity will be passed on and that will affect the public at every level, not just the cost of heating/cooling the home.

Given that the economy is already in the toilet, just how do you think adding more (government mandated) costs will go over with public? Not very well. Whether you call it a tax (and it is one) or cap and trade it still amounts to another federal tax on energy consumption. And what do economists say about removing money from an economy already in distress?

I wouldn't worry too much about the promise of subsidies. Washington is very good at making sure money coming in gets wasted on as many boondoggles as necessary for congresscritters and senators to get re-elected. Those "subsidies" will evaporate like mist on a hot griddle once the tax money starts rolling in.

If you're going to regulate emissions, regulate. Let there be a debate about the social and economic costs both for and against. These pseudo-capital games are just that, games. You're creating an artificial market for non-existent goods.

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Anonymous Coward

But you need to Cap & Trade ALL sources of CO2!

Including the biological ones. So:

Tax on Domestic pets (they breathe!)

Tax on Humans (they breathe too!)

Now about a tax on livestock as well. They generate methane which is worse than CO2!

Of course, the easy way to do all of this is to just re-distribute wealth, as that is the underlying objective (but politicians don't want you to know!). The problem with this is that once the suppliers of wealth figure it out, they won't any more.

"Change", it looks like you are taking all my "Change" from my pocket!

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Dead Vulture

RE: A black comedy

We already know the reduce, recycle, reuse mantra. You can generate new ideas on how to directly achieve the extension and renewal of our resources, but all that does not matter if people cannot be encouraged to do so before a breaking point. That is why a lot of the plans we see are indirect in order to steer the direction of our self termination. What better incentive is there for a capitalistic society than the all mighty dollar/pound/paper?

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There's a problem with this...

most people don't realize that lobbyists, years down the road, will influence politicians to insert language in US law to create loopholes to create "carbon tax rebates" for large corporations, and we're back to square one. This idea is the stupidest thing I've heard in a long time. Government regulation is necessary, not self-regulation. Love Canal, Enron, Bethlehem Steel, Exxon (specifically the unresolved Valdez disaster)...the list of corporate evils perpetrated in the name of self-regulation is endless. Once again, the lack of corporate responsibility proves that firm government controls are needed. Once Bush is out of office, maybe the Environmental Protection Agency and other governmental regulatory agencies (including the Department of Justice) will begin to be used again - I haven't heard a peep out of EPA since hurricane Katrina went through.

@Simon: remember, once the government (under Bush) deregulated the energy sector, they thought this would promote competition and price drops. That was a bald-faced lie on their part, as what happened was collusion, not competition (and thus the price of everything has nearly doubled in the past 3 years). Note: electricity prices went up sharply BEFORE the oil prices jumped through the roof. The administration was completely complicit in this, too - to what end other than kickbacks, I have no idea. If there's some sort of master plan to give America a better tomorrow by sacrificing today, I don't see it.

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Taxation never decreases

It only shifts about while someone in gov't figures out how to hide the tax from you. If you get a tax break from the Fed, the state steps in and raises taxes because you're used to the higher rate aren't you? If the state and the fed were to find the miracle acorn and lower taxes at the same time... Your city council and school board would step up with their dildonic money siphon and push it twice as far.

The speculators are doing a great job of creating artificial scarcity right now. That pressure will cause the consumer to move to a viable model of energy efficiency.

How do I know the scarcity is false? Consumption continues to rise. Supply continues to be discovered. Here in oil country we're pulling down serious change. Thank god for idiotic energy policy.

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It GENIUS!!!

So, we set a maximum cap on emissions, sell the rights in auction, which of course the worst producers (coal plants and heavy industry) will have to pay for. On the back end, we ENCOURAGE more utility use, thereby INCREASING demand (or at least not reducing it). They key is that the subsidies won't start rolling in until quite some time after the caps are set, so demand will increase, but only after capacity can't, at least, NOTWITHOUT INVESTMENT IN GREEN ENEGY :D

Basically, we give people incentive to use power without fear, then limit the power that can be produced "dirty", leaving only clean power to fill the gap. If the electricity prices remain regulated as they are in most places, and because the power industry is now mostly deregulated (meaning I can buy power from anyone, not just the local company), they'll have no choice but to either build more clean power plants to fill the gaps, or buy power from their competitors who generate clean power on their own already. Prices won't be able to be simply raised at will to accomodate the cost, so power companies who invest the most quickly will have more power to sell to others. Since most power companies are regionalized, in order to resell clean power across great distances, they'll be incentivised to add superconducting lines to the grid, further improving our infrastructure and efficiency.

As years go by, caps reduce, thereby eventually requiring all power to be clean. With proper incentives, say additional rebates for those who use electric powered cars, demand will further increase while also reducing the number of fuel burning cars. (additional legislation on engine makers can also help this process). As the grid expands to accomodate competitive power sharing, and as clean power (mostly only able to be generated in specific regions, mostly low in poulation by nature except for nuclear) becomes more common, shifting power from place to place as demad sees fit becomes easier and cheaper. Concentrated power farms will be able to resell power cheaper than regional co-ops, and the power companies that can't afford to go green will be absorbed into larger, cheaper to operate, more efficient major firms. ...and joe public really can't get screwed out of this because and power price increases can be offset by rebates via fines, auctions, and taxes.

This is a pure genius system. Without legistlating power companies to make specific improvements in a timely fashion, and dealing with fighting the beuarocracy of it, we're getting a simple law passed, one that Califirnia companies are mostly familiar with already, and as a side effect, market pressure to become green will be unsurmountable, and the timeline will likely be accelerated far beyond what we can do in congress.

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The problem with tax and cap

Is that the poorest amongst us are always those that end up with little or nothing.

The rich can afford the larger tax and therefore continue to use and abuse power as they always have. The rich, don't forget, are the ones with huge, power consuming TVs, multiple power hungry computers, fuel inefficient sports cars, even planes or helicopters at the extreme end. In other words, similar to the fact that the tiny (by comparison) population of the US uses a hugely disproportionate amount of the world's carbon releasing energy, you get the same thing with the small percentage of wealthy consumers using far more energy than their less well off (and far more numerous) counterparts.

So the answer is to set fuel taxes so high that we can't afford to pollute? Well all that does to the rich is they spend less on sports cars and helicopters. And yes that means they end up polluting less.

However when you look at what that does to the poor, it SHOULD give you pause. $300 gas bill to heat your home, or risk getting cut off and delay paying the bill for a month because you need prescriptions and food?

So while taxing fuel would help reduce green house emissions, the cost to humanities most vulnerable is too great.

Instead what should happen is the huge producers of energy, those that currently are earning billions of dollars in profit every year, ought to help fund the research and development of renewable and clean energy.

Their industry is after all the cause of the problem. With no affordable alternatives, only the smug middle class gits of the world will suggest pushing that bill onto those struggling to pay mortgages and utilities, those struggling to balance groceries with medical bills or petrol to drive to work, is a good thing.

Instead why not enable serious research into alternative energy with serious dollars. Billions of dollars coming from the world's most valuable resource. Fuel. It's not like these people would hurt from it. If they profit enough to become some of the world's richest people at $20-$26 / barrel, what harm is there in taxing them down to only 4 times the profit they used to make?

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re a black comedy

"I find it bazaar in the extreme the idea that pushing little pieces of green paper about (or more likely, as this is the modern age), changing numbers in a bank's computer system can somehow avert an environmental disaster. I just don't get it."

pushing little green pieces of green paper about seames to work for every other type of thing we need excluding praphs happyness and even that is debatable

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Other options

If the rebate is given at the end of the year, rather than on a month-by-month or quarter-by-quarter basis, it will impact consumer’s cash flow, even if it doesn’t impact their net income, and thus will give them some incentive to reduce consumption. It could be timed for just before christmas, thus also making it a form of enforced saving for the holiday season.

@Andy Bright

If the rebate is an equal absolute amount to all consumers, rather an equal percentage refund of what each person has spent, then it will have the effect of penalising above-average energy users (the rich) and rewarding below-average users (the poor), thus accomplishing a good degree of redistribution. Of course, this will technically just pull all users towards the mean, since the rebate obviously can’t be used for anything except buying energy, but it’s likely it would still result in a net decrease in energy consumption.

I still think that an end-of-year cash rebate of uniform amount would be the best approach, but there are certainly more options to utility rebates than it would appear at first glance.

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Coat

@Certainty Principle

However

Since by rearranging we get

re-Ar+s = 0

clearly we have no rears and so no Arse.

Thus again using the formula and rearranging we get

(Ar - s)/e = r

Given Arse = 0 then QED r = 0

and nothing is retained...

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Tim
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Not the way to go

Cap and trade is never going to solve the problem of CO2 emissions. The problem is that the situation is international. The US will never agree to cap at a level that will actually contain the problem. And if it did, where possible US producers will simply shift as much 'dirty' industry abroad to places where the cap has not been reached/does not exist. To some extent this is already happening - the huge growth in pollution from China comes as much from making things for the west as it does for internal consumption.

As it is pretty clear the problem occurs from the burning of fossil fuels, the answer lies in taxing the burning of fossil fuels to the point at which consumption drops to the point of sustainability. If other countries don't play ball you put import tariffs in place for products from those countries. With the tax raised you reduce other taxes and/or provide incentives for clean energy supply (e.g. Feed-in tariffs), home insulation etc.

Will it affect the poor disproportionately. Probably. In the UK they spend far less on transport (as many don't own cars anyway) and often live in social housing where insulation standards are higher. Where there's a problem use the revenue to offer free insulation and a fair allowance for heating costs. If dirty energy costs are low for the poor then they are low for the rich and consumption does not drop. There's no magic way of avoiding this fact.

Of course this plan is electoral suicide so it'll never happen. Until it's far too late.....

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Scratch that

That didn't read quite right. Obviously reducing people's utility bills via rebates will free up money for other things. The question is; how much of the money released will be ploughed back into energy consumption?

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Just another job destroying tax

Given the way global temperatures crashed last year, and the ludicrous number fiddling by global warming advocates (see below), it is doubtful we need to do anything about carbon emissions.

This makes Cap and Trade just another job destroying tax, which populist politicians are trying to sell to the gullible under the guise of caring for the environment.

Crashing temperatures:

http://www.dailytech.com/Temperature+Monitors+Report+Worldwide+Global+Cooling/article10866.htm

Number fiddling:

http://www.theregister.co.uk/2008/05/02/a_tale_of_two_thermometers/

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Unhappy

you always pay

the long story short:

you release Carbon.....you pay

someone esle releases carbon.....you pay

someone screws up and releases carbon....they pay, increase prices, hence you pay

A cow farts.....you pay

a cheaper solution. shut the politicians up and lock them in their office till they come up with a good idea for a change

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