Robert Reich is a very bright man whom I almost always comprehensively disagree with – a fact that I’m pretty sure has cost him no sleep whatsoever. Still, I have to wonder at his opinion piece on carbon cap and trade schemes in today’s WSJ. (If only for discussion’s sake, let us stipulate that anthroprogenic global warming is a real problem that can be cost-effectively mitigated).
Cap and trade is a scheme of granting ever-decreasing carbon credits – permissions to carbon generating industries permitting them to emit greenhouse gases. When an emitter reaches its limit, it would be forced to either cease work or purchase credits rom other companies who have been more successful in reducing their emissions. The question in play is the difference between the cap and trade schemes favored by the three presidential candidates, which chiefly differ over how the credits are issued. In short (no pun intended), Reich favors a scheme wherein carbon credits are auctioned to emitters – an admitted form of taxation:
Mr. McCain’s proposal would initially give out most of them for free to the nation’s biggest emitters of greenhouse gases. This does have some logic to it: after all, as the overall cap tightens each year, the biggest polluters will face the largest challenges in cutting emissions.
By contrast, Mr. Obama has proposed allocating the permits through an auction. Under his proposal, every company
The point is the governmen t would be able to influence how that money is spent by creating incentives…. never mind that they’ll end up taking about 30% off the top for overhead.
Lex, The point is simple. Reich is pathetic on issues of economic analysis. He knows just enough economics to be dangerous, which combined with a leftist agenda, makes for a very dangerous combination……at least as far as the economy is concerned. He is a very bad economist, but that is creates no particular difficulty among the leftwingers of the Democrat Party….I have the same reaction to him that you do.
The important point to remember is that the economy, and the citizens of the country involved, are best served by balancing social costs and benefits in settings where there are externalities. Unfortunately, most lawyer types (especially leftwingers) view these as opportunities to redistribute income and otherwise advance their social agendas which virtually never balance social costs and benefits.
Citizens should be extremely skeptical of proposals to auction permits and redistribute the proceeds based on income. It makes just as much sense to redistribute to those who bear the greatest costs from emissions…..that might extend to those of you along the coast of Southern California. I might suggest you take your “transfer” in Guinness credits.
Marxism plain and simple….redistribution of wealth.
It’s a good question Lex, but I think Reich makes some sense here. There are some serious, and complicated, economic reasons why auctioning carbon credits might make more sense than giving away an initial allocation of credits. In fact, there are some good economic reasons why a carbon tax might actually make more sense than cap and trade. Mind you, these are economic reasons, not conservative or liberal or wealth-redistribution reasons.
Under the scenario that Reich gives, the implementation would look like a carbon tax up front (solving some fairness and perverse incentive issues), but turn into a cap and trade system (employing some of the market’s wonder working powers). Reich’s point is actually a conservative one -although I can’t believe I’m saying that. His point is to AVOID a wealth redistribution scheme by giving the proceeds of the “carbon tax” portion back to the population in a non-progressive way. Given your stipulation, Lex, that “anthroprogenic global warming is a real problem that can be cost-effectively mitigated,” Reich’s proposal is a conservative one. So ultimately, consumers WILL pay for the pass-through costs of cap and trade, but not for the initial auction.
It’ll never happen, the electorate will feel gouged no matter what system they impose.
First, city dwellers (even those taking the subway to work) are going to notice their electric and heating bills jumping, along with those subway token costs. Second, Great Flyover senators will stop anything that penalizes folks for commuting to work when other options aren’t available. Third, the farm lobby is going to have a field day (heh!). Add in a do-nothing Congress and this is vote-pandering horse-hockey.
Most of the power in this land is still produced from coal, with natural gas “peaker” plants running when base load exceeds threshold (think hot summer afternoons when the AC needs to run for three or four hours, too little to fire up a coal boiler to supply). The Midwest has abundant wind but it’s still as unreliable as a politician’s promise. More nukes? Logical, but the environmentalists won’t have it. The result is electrical costs rising, which also raises the cost for mass transit transportation.
It doesn’t take much to stop legislation in the Senate, and folks in the Dakotas, Wyoming, Montana, Kansas, Missouri, Mississippi, Indiana, Ohio, etc… don’t have mass-transit alternatives to driving. They have to commute via car, and with the lower populations but equal number of senatorial representation as the larger coastal cities, they’ll do everything they can to remove carbon penalties from automobiles or other personal use.
Finally, the farm lobby gets to have some fun. If a farmer burns 15000 gallons of diesel to plant and harvest 2000 acres of crop that grows by turning co2 into 02, thus removing carbon, is he a net producer or net consumer of carbon? I happen to have about 40 acres that are woodland, can I claim a carbon credit on that? And at what rate? The pasture the horses graze on scrubs CO2, but the horses emit methane so maybe that’s a loss? What about ranchers? If you think the price of beef is high right now, a carbon-tax on cattle will be devastating.
It quickly becomes a battle of special interests, each group trying to ensure their own are insulated from the taxes placed on the carbon cycle. In the end, in a country this diverse, I cannot see politicians doing anything that would affect the daily cost of living for their constituents when they can do nothing and blame the other party.
– Max
I may be missing something, but this scheme would create an incentive for companies to reduce CO2 emissions; not compared to some benchmark but rather to each other.
For example, if no one reduced emissions, or everyone reduced them by the same amount, then the whole thing would be innocuous. But those that managed to reduce more than the average would profit, at the expense of those which cut less than the average amount of CO2. In this toy-model version of Reich’s plan, the only wealth redistribution would be from less efficient to more efficient industries (CO2-wise)
All of these schemes operate under the premise that by doing some form of cap and trade it will reduce CO2 emissions overall. Not gonna happen.
If you want to reduce CO2 emissions you must reduce food production, energy production, economic output, and population growth.
Actually, they would only cut to the point where it becomes cheaper to pay whatever fines exist for going over the limit. I.e why pay 100$ for a carbon credit if the fine is only 50$.
This boils down to another politician telling the people to vote for him because he’ll give us bread and circuses, in the form of green folding money.
What Kelly in #4 said!
And a “cap-and-trade” system is preferable to a “carbon tax”. Both Obama and McCain support a cap-and-trade system, but differ on how it should be implemented.
Regardless, what could be more “free market” than an “auction” …….as Reich proposes?
Fliter: The end result is that it is a tax, as companies will just pass the buck.
I give them a dollar, they give the Govt. 80 cents, the Govt. gives me 20 cents back. I should be happy, right, since there is no “Greenhouse Tax”?
GeoSTI, the best we can hope for is that it’s a tax as your scenario shows. At least then there will still be some jobs. If it’s an auction, at some point there’s nothing left to auction off. “Sorry folks, we can’t purchase carbon tax credits until July. We’re closing the plant. Those who don’t find other jobs are welcome to call on July 2nd to see if we’re opening up. Enjoy your vacations and Merry Christmas!”
Yeah, not going to go over so well.
Given my work-from-home status and fairly self-sufficient lifestyle I’d make out like a bandit from this scheme, but it’s the worse thing I can possibly think of to do for the country.
– Max
Allen, I respectfully disagree on a technicality. All of these schemes operate under the premise that CO2 is a problem, and none recognize that CO2 is the basis for all plant life on this planet. Raise CO2 levels 1% and you’ll see crop yields rise 5%. Might make that morning jog a bit more difficult, but we’re not the only life on this planet and last I checked 2/3rds of the planet is water, which we can’t breathe anyway, so I’m thinking it’s, you know, not All About Us. Plants are likely More Important.
Which, to people in Haiti, Bangladesh, Mexico and Egypt rioting over food prices, I’m thinking they won’t find that troubling.
Rice production is rising, but drought in Australia and Ukraine have helped drain stocks. The consumption side of the equation is growing faster, and there’s no green revolution to be had in the labs of Monsanto this time. 20 years ago wheat was nearly a weed, we raised it mainly for the straw byproduct to help livestock through the winter for bedding. Today wheat sells for more than corn did then, corn sells for more than beans did then, and soybeans bring three times the price. This from prices that until recently had not changed much since the 1930’s.
One may speculate if increased CO2 has caused weather patterns to shift and reduce yields, or if increased population has finally hit the point where richer countries can buy food and poorer countries will starve, or even if the change from subsistence crops to cash crops in so much of the world has altered the food balance. That is a subject for some debate.
What cannot be debated is that plants take in CO2, release O2, and use the resulting free carbon to grow. This is our food supply, the base of the pyramid. Attempts to limit CO2 are going to impact our source of sustinence, our economies that allow us to trade foodstuffs for other products, on a planetary scale this will affect our ability to sustain our population.
Once, just once, I’d like to see a politician stand up and say, “We’re providing subsidies to ethanol because we think it’s more important that we have 46 different summer-time fuel blends that aren’t imported from Brazil than we think providing foodstuffs to Central America is. Suck it, Mexico.”
And yes, I had stock in an ethanol plant. Sold out once I saw $4/bu corn on the Chicago BOT.
We used to depend upon a plague every couple of generations to keep the population in line with the food supply. Now that medicine has caught up, we seem to be attempting the same with public policy.
– Max
“It’s a good question Lex, but I think Reich makes some sense here. ”
Yeah, if you’re a fricking Socialist, with no rudimentary knowledge of Economics or Biology.
Or common sense…
Max, what I was saying is that under most carbon trading schemes, they wouldn’t have to close the plant, just pay the pittance of the fine. Unless of course, the politicos send out the jackbooted eco-mentalists out to close the factory, then the scenario becomes much worse.
And I wouldn’t state there isn’t a green revolution coming from the agro-tech labs. There is a lot in the pipe, just hard to release when you have neo-luddites that would rather starve people than accept progress.
The point is to increase Government power.
This is ALL about increasing power. And nothing else.
So sad. A new tax/profit center fer sure. Nothing more. Remember that hole in the ozone layer thing caused by the eeevil Freon? The same Freon on which Dupont’s patent ran out? Well, the planet was doomed until it was mandated that all refrigeration systems must use new, patented stuff.
Whatever happened to the hole in the ozone? Probably the same thing that will happen when industry and government get their new tax rolling. Man made global warming, errr – climate change will drop off the front pages and out of the (union) school syllabus and a new (profitable) scourge will threaten to ravage the planet unless we act NOW!
There’s a sucker born every minute, and at my age, that has grown tiresome indeed.
The Thunder Run has linked to this post in the – Web Reconnaissance for 06/05/2008 A short recon of what’s out there that might draw your attention, updated throughout the day…so check back often.
#15 – Mike M: We have a winnah!
I work for a very large industrial gas and chemical company, and I can’t wait to see the panic that will ensue when we max out on our CO2 emmissions cap, and we have to stop making hydrogen. Guess what? The next thing you’ll see vanish is gasoline and diesel at the pumps. Very practical indeed. Just more taxes in disguise is all this is.