Reason magazine features a debate between three nominally libertarian thinkers over the appropriate response to global warming: cap and trade, carbon tax, or deregulate the economy. Ron Bailey, one of the debaters, has gone from ardent global warming skeptic, to something is happening but we probably aren’t causing it, to okay warming is real but we can’t do anything about it. Now he supports a carbon tax.
Lynne Kiesling, an economist from Northwestern University, supports cap and trade, but never really says why she favors it over a carbon tax.
Fred Smith, the head of the Competitive Enterprise Institute, argues that either of these approaches are likely to cost more than global warming itself — if global warming is happening, which Smith is almost willing to admit, though he thinks it will hardly be catastrophic. Instead, he argues that the world needs to deregulate — deregulate trade, deregulate electricity, deregulate biotechnology. This way, we can build wealth and technology and be ready for any warming (or cooling) that happens.
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The Antiplanner’s attitude is: if you feel like you have to do something, at least don’t do something stupid. Cap and trade could be pretty stupid because it creates all sorts of opportunities for people and companies to manipulate the system in their favor. Plan on planting some trees? Then get some carbon revenue for something you were going to do anyway. Plan on a major construction project that will emit all kinds of greenhouse gases? Then build something into it that you can claim is “green” and get the politicians to ignore the real cost.
Carbon taxes offer fewer opportunities for such rent seeking, but they are still there. The biggest problem is that carbon taxes will produce hundreds of billions of new revenues that, if they are not offset by reducing some other tax, will give politicians all sorts of new pork barrel opportunities.
So Fred Smith’s ideas seem best to me. But remember, whatever you do, don’t do something stupid, like building a streetcar line and calling it your city’s contribution to saving the earth.
Reposting my 6/11 comment…
Ebenezer Scrooge travels to 100 Christmases in the future and returns back to 2008. He reports…
“Our descendants, those bastards, they not only get to live 200 years looking as we look in our 30s, still have sex at 150, with no diseases like cancer and heart attacks, private flying vehicles and ….(use your imagination). And we were thinking of adopting the passive defeatist mentality of scaling down our current limited freedom out of fear for their [ha!] futures?
It’s as if I went back to my ancestor in the mid 19th century and told him: â€ÂGrandpa, I know your fireplace only gets your house to 55degrees in the winter but can you also please stop burning wood altogether? Your descendants are going to run out of telegraph poles.â€Â
The most effective way to reduce carbon emissions without imposing additional taxes would be to liberalize the more illiberal aspects of land use policy: zoning laws and parking requirements. Dense building is efficient, which is profitable. But given that most of the places people want to live have artificially imposed caps on their density (either directly through zoning ordinances, or indirectly through minimum parking requirements), this density cannot be achieved.
Has anyone who is saying that big temperature differences will happen and happen soon done anything that would resemble putting their money where their mouth is? For example, if things are going actually going to warm up by a couple of degrees during the next 50-100 years, then now would be the time to invest in lake front property someplace like Lake Winnipeg.
The CEI effort seems to be about par for that particular group. At least they seem to have moved on a bit:
http://www.youtube.com/watch?v=7sGKvDNdJNA
I wonder what they would have made of CFCs – “They call it pollution, we call it refrigeration”.
Cap and trade, etc, is the sort of thing that economic theorists come up with. It looks great on a spreadsheet, but has no connection to the world that the rest of us inhabit.
Which makes the efforts by New York to sort out their taxis all the more interesting. They are working to replace the existing taxis with new hybrid models, which, because of the large mileage done by taxis, means the cost can be recouped very quickly, with pure profit thereafter.
http://www.transporttimes.co.uk/
Latest Issue (free), p24.
A good look at the issue:
May 29, 2008
Testimony Before the House Environment and Energy Committee, House Revenue Committee, Regarding Proposed Global Warming Legislation
Filed under: Testimony  John A. Charles, Jr.
My name is John Charles, president and CEO of Cascade Policy Institute. Cascade is a nonpartisan policy research center working to promote economic opportunity in Oregon. I have been involved professionally with environmental policy for the past 30 years and am familiar with the politics of climate change. In recent months I have focused a fair amount of time examining claims made about carbon offset projects in the Pacific Northwest. My comments today reflect that work.
I have been asked to speak about two conceptual approaches to global warming legislation: a carbon tax, and a regulatory limit on greenhouse gases (GHGs). Before I begin, however, I would like to place this issue in the context of the GHG reduction goals embodied in HB 3543.
First, the basic goal of HB 3543 to “arrest the growth of Oregon’s GHG emissions by 2010†has probably been met. Gross emissions peaked in 2000 and were at least 2.5% below that for the years 2001-04. While one cannot predict the future, the fact that the U.S. economy has been steadily de-carbonizing for the last half-century makes it unlikely that Oregon emissions will grow much, if at all.
Second, the HB 3543 goal for 2020 – reduce emissions to 10% below 1990 levels – has also been met because Oregon’s forests sequester roughly 51% of gross emissions1. Oregon total estimated GHG emissions in 1990 were 55.506 MMTCO2e; net emissions in 2004 were 33.069 MMTCO2eâ€â€well in excess of the 10% reduction goal. So there is no need to rush to judgment on GHG policy.
Carbon taxes vs. a regulatory cap
Neither proposal is truly “market-basedâ€Â. Both use pricing methods, but depend entirely on the superior prescience of government regulation/taxation to price and ration energy use more intelligently than the private sector. Unfortunately, the ethanol debacle now unfolding is a reminder of the hazards of handing markets over to government planners, and it is by no means the only example.
Carbon Tax: Possible Advantages
If the legislature feels compelled to do something, a carbon tax has a few advantages relative to the so-called “cap-and-trade†(C&T) concept. The most notable is truth in advertising: it’s called a TAX. That’s probably the reason why it’s not the favored approach of most interventionists, since they realize that consumers have little appetite for an energy tax.
A carbon tax would also be easier to administer than a C&T scheme, and the negative effects of the tax could be mitigated if it were designed to be revenue-neutral and the funds used to lower other, less-desirable taxes such as those levied on income or dividends.
Disadvantages
Unfortunately, the advantages of a carbon tax are far outweighed by the disadvantages. Most notably, there is no way to calculate the optimal tax rate. According to one scholar, there are at least 106 estimates in the literature of the appropriate “price†for a ton of CO2. The mode of those estimates is $2 and the mean is $14; how would a legislative body know which number is the best, assuming any of them are?
Architects of a proposed carbon tax suffer from severe knowledge constraints. There is no way to know what the tax rate should be because you can’t work backwards from the end goal. There is a chain of hurdles impeding any such attempt:
Since global climate is a random, non-linear system there is no way to know what changes in human activity would affect climate (if at all);
Water vapor is the most dominant GHG, not CO2, so a tax on CO2 is, by definition, a low-leverage policy that might be irrelevant;
Even assuming that CO2 regulation is meaningful relative to water vapor, roughly 97.1% of worldwide CO2 is emitted from natural sources, while 2.9% are anthropogenic; and
Of the 2.9% that is human related, Oregon’s net emissions amounted to 0.086% in 2004.
Given these problems, it’s clear that the tax rate would be arbitrary, based on the lowest common denominator of politics.
Moreover, one of the primary theoretical benefits of the tax – using the revenues to offset other taxes on labor or capital – has almost no chance of ever being adopted. Therefore most of the money would be pork-barreled away to a few interest groups. Anyone who doubts the likelihood of this scenario should examine the use of tobacco tax funds received from the MSA.
Finally, and most importantly, there would be no environmental benefits to those paying the tax today because CO2 is not even a pollutant. Reducing it does not make the air healthier or improve scenic vistas of the Cascades. If any benefits do exist, they will redound to future generations (decades or centuries in the future) who will not have been asked to pay.
Cap and Trade: Advantages: There are no advantages in practice, if the European experience is any guide.
Disadvantages:
There is no way to know what the cap should be, for the same reason a rational tax rate cannot be calculated.
All parameters of this convoluted program would be subject to intense gaming and rent-seeking by interest groups.
Experience to date shows that there are many problems associated with the “trading†part of the concept, including a lack of property rights, lack of additionality for offset projects, lack of verification, and lack of any empirical benefits.
An economic analysis prepared by CRA International modeled the impact on Oregon if the US adopted a federal cap on GHG emissions; the study showed that by 2020, Oregon would have 16,000 fewer jobs and natural gas prices would be 56% higher.
A second study, prepared by Global Insight, found that a carbon cap would reduce Oregon’s GSP by 2.7% and employment by 23,100 by 2020 (from what it would have been).
Estimates prepared by the Congressional Budget Office predict that a mandated 15% cut in CO2 emissions would result in an annual cost increase of $680 (or 3.3% of total household income) for the lowest quintile of households, $1,160 per year (2.8% of income) for those in the middle quintile, and $2,180 (1.7% of earnings) for those in the highest quintile.
Cap and trade regulation would create a state-run carbon cartel. The cartel would then give monetary value to something that is currently worthless (carbon emissions). Once this occurred, there would be no way to back out of the policy. The legislature would be fueling a speculative “bubble†in carbon trading that would institutionalize rent-seeking by powerful interest groups. Since there would be no actual value added to the economy from these coerced income transfers, the net effect would be to divert scarce capital from productive investments, thereby lowering the standard of living for Oregonians.
Actual Market-Based Policies for Reducing GHGs
A true “market-based†strategy for addressing GHGs would harness the power of the market to improve the efficiency of the economy and reduce carbon intensity through technology investments, land-use changes, and improvements in transportation management. Specific policies for consideration should include at least the following:
Focus on reforming the mis-pricing in the transportation sector. Transportation is the largest source of CO2, with much room for efficiency gains. You should begin reform by gradually replacing broad-based transportation taxes and subsidies with user charges. Specifically, this should be implemented as congestion pricing on all Portland freeways, using open-road electronic tolling to collect variable tolls. This would greatly improve livability, eliminate billions of dollars in economic losses, and also reduce GHGs. The reason is that traffic congestion is, by itself, is a major source of CO2; Barth et al. estimate that CO2 emissions per/mile in free-flow traffic are 60-90% lower than emissions generated in stop-and-go conditions.
CO2 emissions (grams/mile) as a function of average trip speed (mph)
Source: Barth and Boriboonsomsin, 2007
Also, empirical evidence from the SR 91 Express Tollway in Southern California (a 10-mile highway with 14 different prices) shows that congestion-priced highway lanes are roughly twice as efficient as unpriced lanes at moving vehicles. At the most crowded time of the week – 3:00 p.m. eastbound on Friday – the priced lanes carry 1,600 vehicles per hour, while the “free†lanes carry only 800.
SR 91 Express Lanes
Vehicles per lane, per hour at peak
Source: FHWA, 2008
Although it’s counter-intuitive, market-based pricing of highways does not toll people off the road; it actually tolls them on by allowing double the number of cars to use the same facility. It also provides a much higher level of driver satisfaction due to the higher road speed (the average travel speed on SR 91X is more than 60 MPH at all times).
In addition to benefiting motorists, congestion pricing creates “virtual capacity†for express buses, making bus service more attractive to consumers. This would increase the utilization of transit buses and reduce the energy consumption per passenger-mile of those vehicles. This is important because transit buses have become steadily less efficient over the past 35 years, mostly due to under-utilization of buses on routes that make no economic sense (but are maintained for political reasons).
Energy intensity of highway passenger modes
1970 – 2005
(Btu per passenger mile)
Cars Bus Transit Amtrak Rail Transit
1970 4868 2472 N/A 2157
1980 4279 2813 3065 2290
1990 3856 3794 2614 3072
2000 3611 4515 3253 2822
2005 3445 4323 2709 2784
Change: -29% +75% -24% +29%
Source: Transportation Energy Data Book, 2007
Legalize nuclear power in Oregon. This should probably be considered the litmus test of the legislature’s commitment to de-carbonization. If the legislature is serious about GHG reduction, we should begin discussing the 1980 prohibition on nuclear power in Oregon. The economy is going to need more base-load electrical generation, and it will not be coming from unreliable sources like wind, solar or wave energy.
This is not to say the legislature should subsidize nuclear power, or even promote it; but private investors should at least have the opportunity to provide it.
Eliminate subsidies on so-called “green technologies†that cannot make it on their own in the marketplace. The chances are they are using more resources (including energy) than they will save over their lifetimeâ€â€otherwise the public would be snapping them up, unsubsidized. And if government guesses wrong about whom to subsidize and by how much, it diverts scarce capital into unproductive investments. Repealing the 3% Public Purpose Tax would be a good place to start, since the primary purpose of the tax is to subsidize investments otherwise rejected by the market.
Allow land-use changes that would lower methane emissions. Methane is 21 times more potent than CO2 as a GHG, so it should receive special scrutiny. The largest source of methane in Oregon (52%) is “enteric fermentation†and “manure management†at dairy farms and cattle ranches. While the legislature should not discourage or punish agricultural operations, we should amend state land-use laws to allow dairy farmers and cattle ranchers to change land uses if they so desire. Virtually any other use will have lower methane emissions (or probably none), so this is a high-leverage policy.
Address the threat of catastrophic forest fires on public lands in Oregon. Forest fires are a large and growing source of CO2 emissions. Emissions per acre of timberland can be reduced by approximately 67% through proper thinning of overgrown stands2. The Oregon legislature should demand more active management on all public forestlands in Oregon, especially those owned by the federal government. Proper thinning and biomass utilization can create market opportunities for electricity generation, thereby supporting several state policy goals.
Allow the market to continue responding to its natural incentive to minimize costs, including energy. The amount of energy per dollar of GDP has declined steadily for 50 years. This trend can be accelerated through technological research and deployment. The legislature can help by eliminating corporate income taxes and keeping capital gains taxes low. Investment in better technology is the only real sustainable path to GHG reductions.
Anybody who’s going nuts and wants to cripple our economy because of global warming fear needs to read:
“‘Cool It – The Skeptical Environmentalist’s Guide to Global Warming’ ” by Bjorn Lomborg and
“An Appeal To Reason: A Cool Look At Global Warming” by Nigel Lawson. These 2 books provide a welcome counterpoint to the current psuedo-religious hysteria.
Hugh, You seem to be unaware of one of the fundamental principal of economics: Anything that improves productivity, efficiency and competitiveness is good for the economy.
Since reducing carbon emmissions requires nothing more complex than the removal of pork-barrel subsidies for energy consumption it can only enhance the American economy’s global competitiveness. Of course switching to free energy sources will have a negative impact on GDP because that only measures spending which is only a small part of a persons or a countries standard of living.
Perhaps you are worried about your own income? That’s only a problem if you are employed in one of the energy selling industries or an industry that uses vast quanities of electricity, such as computing. But don’t worry, when energy costs go up the demand for solutions also go. Invest in one of the carbon reduction industries before everybody else catches on and you could become the next Bill Gates or Steve Jobs.
The problem is that the cost isn’t as simple as the cost of the subsidies. There are a lot of costs forced on the system by renewables. More so in the lack of action they’re able to take. Power generating companies are running away from coal not because it’s effecient and inexpensive but because they’re scared to death of what the costs could become because politically that have unknown potentially huge costs from those looming depending on what the political system does. They see cap and trade or carbon taxes as being right around the corner but they don’t know what it’ll be nor what it’s additional costs will be. That is, costs are going up in ways that are not because of subsidies.
Oh yeah Reason, those guys sure play with a full deck(sic).