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Carbon Tax vs. Emissions Trading

electricitylikesmeelectricitylikesme Registered User regular
edited March 2010 in Debate and/or Discourse
In many countries around the world, the current 'solution' to climate change is being touted as either an emissions trading scheme (hereafter I will refer to as ETS) or a carbon tax (tax on carbon dioxide).

Here in Australia the Rudd government recently (probably fortunately) failed to pass a pretty poor implementation of an emissions trading scheme, and we are almost certainly on track to utterly miss our pathetic target of a 5% emissions reduction by 2020 (of note that we need to do something like a 50% reduction by 2050 to actually approach what we need to do, and we are the worst per-capita emitter of carbon dioxide in the world).

Why am I happy about this? I'm really not - just Rudd is kind of an inept politician it seems - he likes big plans over phased implementations or sanity, but the opposition is not much better. But in a sense, I do not like emissions trading schemes - they're a conservative delusion that if you make everything a "market" then clearly all problems can be solved. They're also widely open to manipulation, require enormous oversight and careful management in order to actually function - as well as behaving in unexpected ways.

A better solution, and the one which is now preferred by many commentators is the carbon tax. Ideas on implementation vary, but the basic notion is that emission of carbon dioxide by any industry would incur some charge per ton of CO2 emitted. Some prefer flat-tax, others prefer a progressive tax. This is the option I prefer, because it has political expediency.

When the ETS debate in Australia was going on, the essential cry of the opposition became that it would levy "a great big tax" on Australian families. This is probably accurate - also an indightment of its stupidity - since its supposed to work the other way - we the consumers get the money and it offsets rising costs. Behold the power of the coal lobby.

With a carbon tax, this can, in part, be avoided: pass the tax, and slash corporations tax by the expected immediate yield of the carbon tax, thus making it effectively revenue neutral and not raising taxes on businesses overall. But! You would create a strong incentive for companies to reduce their footprint, since they would effectively pay less tax, and you would create a strong incentive for high-tech industry - since we would now have very low corporate tax rates (Australia's are currently 20% I believe).

Most importantly - it becomes far more difficult for anyone to oppose when you can talk about how taxes don't rise.

tl;dr I think revenue-neutral carbon tax, achieved by slashing corporations tax, is the politically-expendient option to doing something about climate change that actually leads to action. What do you think?

electricitylikesme on
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Posts

  • werehippywerehippy Registered User regular
    edited March 2010
    The downside to making the carbon tax overall revenue neutral through business taxes is that the heavy energy use companies are going to be disproportionally effected. Which is the point, but will in the short term lead to giving them cover to pass the costs on for the most part, as opposed to actually changing anything, and will hit the middle class and poor hard. Considering we're talking a lot of consumer goods here people would scream bloody murder.

    If you're going to plow the revenues back into the system to reduce hardship I'm much more in favor of rolling the revenue back into a flat tax credit to people. The poor come out ahead, the average middle class family breaks even, and the market forces are in alignment to drive emission reduction with minimal oversight. Businesses have every reason to want to reduce their energy usage because they feel the costs directly and consumers are encouraged to reduce their emission profile because they feel the costs constantly but are only given yearly offsets (and any level they get to below the national average is just money in their pockets).

    werehippy on
  • GeorgeWashingtonPlunkittGeorgeWashingtonPlunkitt Registered User
    edited March 2010
    I was just thinking about this exact question, and I completely agree. Although I'd probably prefer to cut lower and middle bracket income taxes; make opponents campaign against a tax cut for working families.

    GeorgeWashingtonPlunkitt on
  • CauldCauld Registered User regular
    edited March 2010
    The trading scheme is a form of tax. It just allows for more flexibility than straight taxation and is thus more efficient and superior. Some companies will find it more profitable to sell (or not buy) their emissions permits and allow other companies to emit more. These other companies would find it more profitable to emit more and pay for extra permits.

    The trading scheme also allows an emissions cap to be easily set, though this is usually undermined by creating a maximum permit price, when prices meet this threshold more permits are released.

    The US uses a trading scheme for SO2 emissions and it works very well. Better than it was expected to work.

    Edit: What to do with the revenues is a separate question from the taxation question. Selling permits or taxing emissions can result in the same thing, and what to do with the revenue is a separate issue.

    Cauld on
  • electricitylikesmeelectricitylikesme Registered User regular
    edited March 2010
    Well one of the big economics criticisms is usually that it'll simply drive business overseas. By creating a strong tax incentive here for certain kinds of business, you undermine this argument.

    electricitylikesme on
  • Pi-r8Pi-r8 Registered User regular
    edited March 2010
    is the carbon tax supposed to just a fixed, single tax rate (either flat or progressive)? Or is it taxed relative to their industry? Because I can understand why, say, a car factory might need to produce a lot of CO2, but if a farm or a textile plant is producing just as much, that's probably a sign that they're doing something wrong.

    Pi-r8 on
  • werehippywerehippy Registered User regular
    edited March 2010
    Well one of the big economics criticisms is usually that it'll simply drive business overseas. By creating a strong tax incentive here for certain kinds of business, you undermine this argument.

    Has there ever been any idea in the existence of modern society that touched business in any non-liassez-faire way that wasn't immediately meet with pronouncements of doom for domestic industry?

    It doesn't have to be a cripplingly high tax, just enough to be felt and provide an incentive for those industries than can be run more cleanly to actually put some effort into doing so.

    werehippy on
  • ronyaronya Arrrrrf. the ivory tower's basementRegistered User regular
    edited March 2010
    Pi-r8 wrote: »
    is the carbon tax supposed to just a fixed, single tax rate (either flat or progressive)? Or is it taxed relative to their industry? Because I can understand why, say, a car factory might need to produce a lot of CO2, but if a farm or a textile plant is producing just as much, that's probably a sign that they're doing something wrong.

    It doesn't matter. If your industry is inherently pollutive, then there should be less of it. If it then goes out of business and four thousand people are now unemployed and forced to change careers, so be it; it just means that its existence was dependent on pollution to be begin with.

    ronya on
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  • ronyaronya Arrrrrf. the ivory tower's basementRegistered User regular
    edited March 2010
    Well one of the big economics criticisms is usually that it'll simply drive business overseas. By creating a strong tax incentive here for certain kinds of business, you undermine this argument.

    The effect is identical either way, presuming a careful design choice in how to allocate emissions permits prior to trade. Appropriately distributed, the buyers of permits pay people who operate cleaner-than-average industries, which generates the incentive.

    ronya on
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  • enc0reenc0re Registered User regular
    edited March 2010
    Pigovian taxes, such as a carbon tax, and cap-and-trade are mathematically identical. They lead to the same outcomes and require the same administrative overhead. The only difference is that the tax fixes the price of carbon, and let's the amount emitted vary. Cap-and-trade on the other hand fixes the amount of emission, but let's the price of carbon vary. They are both market-based approaches to pollution control.

    Graph to illustrate the equivalency.
    6a00d83451688169e200e5529e0ad08833-800wi

    enc0re on
  • enc0reenc0re Registered User regular
    edited March 2010
    Pi-r8 wrote: »
    is the carbon tax supposed to just a fixed, single tax rate (either flat or progressive)? Or is it taxed relative to their industry? Because I can understand why, say, a car factory might need to produce a lot of CO2, but if a farm or a textile plant is producing just as much, that's probably a sign that they're doing something wrong.

    With the CO2, it doesn't matter who's emitting it. So you raise the tax (or fix the number of permits) until the actual emissions equal desired emissions. The reason Pigovian taxes and cap-and-trade are market-based approaches is that you don't make the decision whether (or how much) the farm, mill, or factory cut emissions. In the end, with a uniform tax, those for whom it is cheapest to cut, will cut. That's the genius of the market based approaches.

    enc0re on
  • electricitylikesmeelectricitylikesme Registered User regular
    edited March 2010
    Ok, the problem with cap-and-trade though is that it favors established industries over start ups. If you develop a more efficient way of doing something, that still emits CO2, the market is intrinsically against you because the available carbon permits will already have been bought up by the big consumers. They have more capital to afford price increases, and an established base. They also have no incentive to sell to a competitor.

    electricitylikesme on
  • chidonachidona Registered User regular
    edited March 2010
    Ok, the problem with cap-and-trade though is that it favors established industries over start ups. If you develop a more efficient way of doing something, that still emits CO2, the market is intrinsically against you because the available carbon permits will already have been bought up by the big consumers. They have more capital to afford price increases, and an established base. They also have no incentive to sell to a competitor.

    Although there are potential risks with permit hoarding, there are ways around that, such as regulation and tinkering with the actual permit contracts.

    What, theoretically, should happen is that marginal abatement costs are equalised over all the firms involved in the scheme; i.e., the Equimarginal principle is satisfied. Those that can afford to abate more pollution (i.e., those with cleaner technology) do, and those that can't, don't. While it may be naive to suggest that this will occur perfectly in practice, there's no reason - if administered competently - that it can't work to a broad extent.

    chidona on
  • electricitylikesmeelectricitylikesme Registered User regular
    edited March 2010
    The problem as I see it is that we can theoretically just tinker with the mechanics of it...but all of that adds complexity and administrative overhead. On an issue where a lot of people pretty much want it to outright fail.

    Conversely, taxation is more of a measurement/enforcement problem. It's simpler, and can be altered later - getting it setup in the first place is like, 90% of the battle.

    electricitylikesme on
  • enc0reenc0re Registered User regular
    edited March 2010
    chidona wrote: »
    What, theoretically, should happen is that marginal abatement costs are equalised over all the firms involved in the scheme; i.e., the Equimarginal principle is satisfied. Those that can afford to abate more pollution (i.e., those with cleaner technology) do, and those that can't, don't. While it may be naive to suggest that this will occur perfectly in practice, there's no reason - if administered competently - that it can't work to a broad extent.

    I couldn't have said it better myself. If firms are profit maximizers, the permits will always go to those willing to pay the most. Carbon markets are much too deep to be effectively monopolized.

    enc0re on
  • AbdhyiusAbdhyius Registered User regular
    edited March 2010
    ELM, as the above person said, they're both market solutions

    and market solutions are not "conservative delusions", thank you very much

    Abdhyius on
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  • electricitylikesmeelectricitylikesme Registered User regular
    edited March 2010
    Abdhyius wrote: »
    ELM, as the above person said, they're both market solutions

    and market solutions are not "conservative delusions", thank you very much

    Explain how.

    electricitylikesme on
  • Andrew_JayAndrew_Jay Registered User
    edited March 2010
    In the end they are both market instruments and both have roughly the same effect on carbon - with a tax you increase the price to reduce demand, with emissions trading you decrease the supply and increase the price (EDIT: as in, exactly what Enc0re said . . . must have missed their first post).

    The thing to keep in mind is that either way, the costs are going to be passed on to consumers. That's been an annoyance here in Canada with certain politicians grandstanding about cap-and-trade "making corporations pay" etc. Problem is that they wont pay - as much of the cost as possible will be passed on to consumers. That's why the revenue neutrality is so important. Whether trading or a tax, it's going to amount to a regressive tax on lower income earners, so any system needs to account for that through cash transfers or tax reductions. Also wouldn't hurt for the overall tax mix to include business tax cuts too as ELM suggests.

    That said, I also much prefer the carbon tax:
    • It's more transparent
    • Easier to implement (and could also be applied to imports much easier than trading)
    • Can raise revenue (though that depends on how trading is implemented, some auction off the permits, in some the permits are just given away)

    Andrew_Jay on
  • AbdhyiusAbdhyius Registered User regular
    edited March 2010
    Abdhyius wrote: »
    ELM, as the above person said, they're both market solutions

    and market solutions are not "conservative delusions", thank you very much

    Explain how.

    well he had a graph and everything

    but like he said the point of emissions trading is that it sets an upper limit for the amount of pollution, which emissions tax doesn't, and that it in essence allows for those industries that have the most benefit from emitting CO2 to emit and those that can easily cut emissions to cut emissions

    resulting theoretically in maximum socioeconomical gain

    Abdhyius on
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  • electricitylikesmeelectricitylikesme Registered User regular
    edited March 2010
    This is what I posted in [chat]:
    Abdhyius wrote: »
    I'm here.

    Cool. You have a wierd sense of economics.

    I get the basics of how markets work. But evidence suggests that with ETS's it's never going to work. It's too complicated to implement well, and faces steep political opposition even then. I'm interested in actually doing something good - and that means beating the tough sell to the electorate, opposition parties which simply don't believe in climate change etc.

    Anything which can tweaked, tinkered with or managed has administrative costs - you need those to be low to simply pass the legislation otherwise you get the classic "they're raising taxes!!!" argument.

    Not raising taxes is the most important thing you can do, first and foremost, with environmental policy which a lot of people would prefer not to see happen at all.

    EDIT: Theoretically lots of things work. My over-arching point is that emissions trading has not proved politically expedient to do, nor comprehensible to the public.

    electricitylikesme on
  • Andrew_JayAndrew_Jay Registered User
    edited March 2010
    enc0re wrote: »
    Graph to illustrate the equivalency.
    I thought those graphs looked familiar - I've been following Worthwhile Canadian Initiative for a while. For anyone else interested, here's their environmental material.

    This is also a good outline of the economics of climate change:
    1. Canada needs to act on climate change now.
    2. Any substantive action will involve economic costs.
    3. These economic impacts cannot be an excuse for inaction.
    4. Pricing carbon is the best approach from an economic perspective.
      • Pricing allows each business and family to choose the response that is best and most efficient for them.
      • Pricing induces innovation.
      • Carbon is almost certainly under-priced right now.
    5. Regulation is the most expensive way to meet a given climate change goal.
    6. A carbon tax has the advantage of providing certainty in the price of carbon.
    7. A cap and trade system provides certainty on the quantity of carbon emitted, but not on the price of carbon and can be a highly complex policy to implement.
    8. Although carbon taxes have the most obvious effects on consumers, all carbon reduction policies increase the prices individuals face.
    9. Price mechanisms can be regressive and our policy should address this.
    10. A pricing mechanism can allow other taxes to be reduced and provide an opportunity to improve the tax system.

    (full text under spoiler):
    Canada needs to act on climate change now.

    Any substantive action will involve economic costs. Any effective carbon-reduction policy will necessarily entail changing the way we live and do business. All forms of regulation, taxes, or markets for the exchange of emission permits that have a significant impact on greenhouse gas emissions will affect the prices of carbon-intensive goods.

    These economic impacts cannot be an excuse for inaction. Climate scientists are clear on the costs of inaction, and that these costs will accumulate well beyond the current business cycle, possibly at an accelerating rate. Active and effective climate change policy should be seen as an investment that will yield pay-offs for ourselves, our children and our grandchildren. Given the need to act, the question then becomes which policies would obtain the carbon reduction goals we establish with the lowest cost and greatest level of fairness.

    Pricing carbon is the best approach from an economic perspective. Approaches to reaching any particular climate change goal that involve pricing carbon, such as carbon taxes and cap and trade systems, involve less economic damage to businesses and families than the alternatives. Carbon pricing is good for several reasons:
    • Pricing allows each business and family to choose the response that is best and most efficient for them. Firms and families will differ greatly in the options they have for reducing their use of carbon, as well as in the value they place on carbon-generating activities. Price mechanisms give everyone the incentive to reduce their carbon use, but to do so to the degree and in the way that is best for them. This is the main reason that pricing policies are the lowest-cost way to meet our climate change goals.
    • Pricing induces innovation. As the price of carbon increases, users of carbon intensive goods will demand alternatives. This will induce innovations in the goods and services that are produced, how those goods and services are produced, and the way people live. By moving relatively early in terms of climate policy, Canada has an opportunity to innovate and sell new technologies to the rest of the world.
    • Carbon is almost certainly under-priced right now. In a fully efficient price system, the price we pay for a product would reflect the full costs of producing and using it, including the costs to the environment. Prices do not currently reflect those environmental costs. When carbon is under-priced, consumers and businesses tend to use too much of it. Policies that increase the price of carbon provide the proper incentives for consumers and businesses when they are making their investment and consumption decisions.

    Regulation tends to be the most expensive way to meet a given climate change goal. Under regulation, businesses and consumers are mandated to take particular actions related to carbon use (e.g., use a particular technology or stay under mandated levels with no option to trade carbon emission rights). As a result, they are not given the choice of adjusting in the way that is best for them. Regulation therefore increases the costs of achieving carbon reduction compared to when pricing mechanisms such as a carbon tax or a cap and trade system are used. Furthermore, while regulations imposed on firms may appear to be so far removed from the typical consumer that they might think they will not bear these costs, this is not true. Those increased costs will be passed on to consumers due to normal market forces. There may be circumstances when regulation is the appropriate policy tool, but in most cases it is the most economically damaging.

    A carbon tax has the advantage of providing certainty in the price of carbon. Under a carbon tax, a charge is added to the sale of all fuels according to the carbon emitted when they are used. With a well-designed carbon tax strategy, the tax will be introduced gradually and increased in pre-announced increments until the environmental target is reached . This provides investors with a degree of certainty that is good for business, and allows consumers to make adjustments knowing what is coming. The exact impact of the price increase on the quantity of carbon emitted can be predicted, although with some margin of error. A carbon tax thus involves choosing price certainty but accepting some uncertainty in total carbon emissions.

    A cap and trade system provides certainty on the quantity of carbon emitted, but not on the price of carbon and can be a highly complex policy to implement. In a cap and trade system, an upper limit (cap) is set on carbon emissions, usually for a particular industry. The government must then make a decision about whether to auction the permits (known as allowances), requiring each firm to buy enough allowances to cover its total emissions. Normal market forces then determine the price of these allowances such that supply equals demand. A cap and trade system with auctioned allowances then acts much like a carbon tax. The price cannot, however, be predicted in advance. Alternatively, the government can issue allowances to firms without charge, then open up the market for trading. In this situation, there is both the uncertainty about the price and potential for significant problems to emerge in the market based on how the allowances are initially allocated. The Emission Trading System in the European Union began by distributing too many allowances and as a result the price fell to close to zero, rendering the policy ineffective. Thus, while a cap and trade system can in principle be equivalent to a carbon tax in terms of its ultimate impacts on the price and quantity of carbon, and will generally give more certainty in meeting environmental targets if the allowances are properly chosen, the price uncertainty in the cap and trade system generally implies a worse environment for long-range decision-making on the part of businesses and consumers.

    Policies that impose costs on producers (big or small) affect consumers. Some voters seem to think that policies like cap and trade, which apply directly to producers, have less impact on the prices they face than carbon taxes, where the impact can be seen immediately. In fact, voters would do better to assume that all such policies would, ultimately, affect the prices they pay. Indeed, since the goal of these policies is to change what we buy, policies applied to producers must affect the prices faced by consumers if they are to meet environmental goals. The argument that a policy capable of reducing carbon emissions will only affect producers is without economic merit.

    Price mechanisms can be regressive and our policy should address this. Like most taxes on goods and services that are widely consumed, carbon pricing will have a larger negative effect on lower income Canadian families than others. As we have stated, the same is true of regulation since regulation also raises costs of production and those increased costs will ultimately show up in higher prices. Thus, whatever policy is used, a complete policy should include some element of redistribution to address the impacts it will have on the least well off in our society. Not only will the costs to consumers ultimately be lower under a carbon tax or auctioned emission permits, these latter policies also have the potential to bring revenue into the government that can be used to help offset any inordinate hardship experienced among the least well-off. This is not true of regulatory approaches, or of a cap and trade system in which the allowances are allocated without charge to emitters.

    A pricing mechanism can allow other taxes to be reduced and provide an opportunity to improve the tax system. With the revenue brought in from a carbon tax or from auctioning the allowances in a cap and trade system, governments can provide general cuts in income and/or corporate taxes. Such systems can be “tax neutral”, meaning the increased burden of the carbon taxes is exactly offset by tax reductions elsewhere, but this result will depend on the details of the particular policy adopted. Under such a plan, lighter carbon users will tend to pay lower taxes overall, while heavier polluters will pay more, corresponding to their greater negative effects on the environment. At the same time, all individuals will continue to have an incentive to reduce their carbon emissions when prices include the cost of their carbon usage. If the tax redesign is done thoughtfully, Canada could move toward an overall tax system, which imposes fewer burdens on the economy and, as a result, leads to a more productive economy for all Canadians.

    Andrew_Jay on
  • chidonachidona Registered User regular
    edited March 2010
    ELM, it would be my position that, in the longer-run, ETS/Tradable Pollution Permits are actually less bureaucratically intensive than explicit taxation - they work by creating an explicit market for permits, which needs only very basic levels of regulation/watching; Carbon taxes are more problematic largely because you're not stating how much pollution you want to crack down on - it takes fairly good knowledge of the supply and demand curves to know what is the optimum (pigovian) tax/subsidy to administer, and it's unreasonable to expect that sort of knowledge. Thus, the goal may be reached, but only via iteration.

    I would also argue that TPP have had a bad empirical rap because of incompetent administration, than because of an underlying economic weakness - numerous simulations have shown TPP schemes to be a desirable method of emissions regulation.

    chidona on
  • electricitylikesmeelectricitylikesme Registered User regular
    edited March 2010
    chidona wrote: »
    ELM, it would be my position that, in the longer-run, ETS/Tradable Pollution Permits are actually less bureaucratically intensive than explicit taxation - they work by creating an explicit market for permits, which needs only very basic levels of regulation/watching; Carbon taxes are more problematic largely because you're not stating how much pollution you want to crack down on - it takes fairly good knowledge of the supply and demand curves to know what is the optimum (pigovian) tax/subsidy to administer, and it's unreasonable to expect that sort of knowledge. Thus, the goal may be reached, but only via iteration.

    I would also argue that TPP have had a bad empirical rap because of incompetent administration, than because of an underlying economic weakness - numerous simulations have shown TPP schemes to be a desirable method of emissions regulation.

    Administration costs. You have to employ people to do it, to run the market etc etc. All of that costs. Then you have to do the other stuff anyway - you have to enforce the permits, and ensure people comply. You need to somehow deal with people who overrun.

    Sure, you have to administer a tax - but by comparison your administration is reduced to just the measurement and actual charging. Their are no awkward questions of how to deal with overruns, or how the exchanges should run. More importantly, the costs to companies are predictable in advance which means your surrounding remuneration and tax changes are simpler.

    electricitylikesme on
  • Andrew_JayAndrew_Jay Registered User
    edited March 2010
    chidona wrote: »
    I would also argue that TPP have had a bad empirical rap because of incompetent administration, than because of an underlying economic weakness - numerous simulations have shown TPP schemes to be a desirable method of emissions regulation.
    Well that's the thing, theoretically they're fine, but once people start getting involved . . .

    There's too much human intervention, in my view: you first need to decide on the initial cap, then allocate permits (what are the chances that politically important industries will get a load a permits for free?), then there are all kinds of mechanisms such as safety valves, etc. to interfere with the supply and demand curves.

    Andrew_Jay on
  • Modern ManModern Man Registered User regular
    edited March 2010
    ronya wrote: »
    Pi-r8 wrote: »
    is the carbon tax supposed to just a fixed, single tax rate (either flat or progressive)? Or is it taxed relative to their industry? Because I can understand why, say, a car factory might need to produce a lot of CO2, but if a farm or a textile plant is producing just as much, that's probably a sign that they're doing something wrong.

    It doesn't matter. If your industry is inherently pollutive, then there should be less of it. If it then goes out of business and four thousand people are now unemployed and forced to change careers, so be it; it just means that its existence was dependent on pollution to be begin with.
    It does matter. Because if your goal is to pass legislation to reduce carbon emissions, saying "so be it" to people losing their jobs is hardly a winning strategy.

    It seems like a lot of proponents of carbon tax/emissions trading don't live in the real world on this- until they figure out how to deal with the lost jobs issue, this type of legislation is dead in the US and a lot of other countries.

    Modern Man on
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  • BeltaineBeltaine BOO BOO DOO DE DOORegistered User regular
    edited March 2010
    So, if it becomes a market, does that mean I can begin exhaling CO2 into glass jars and selling them for profit?

    What does the tax money collected get used for? Seems like if they want industry to reduce actual emissions it would make more sense to regulate their emissions. Instead, companies that have megabucks will just find loopholes to cut the taxes they pay and continue high emission practices.

    What's more important, governments having more money in the name of (pseudo-)environmentalism, or actually doing something that results in protecting the environment.

    Once again, the rich get to continue business as usual with a slight speedbump, while the rest get to feel the squeeze.

    Beltaine on
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  • chidonachidona Registered User regular
    edited March 2010
    Andrew_Jay wrote: »
    (what are the chances that politically important industries will get a load a permits for free?)

    Seeing as that's the outcome of the 2009 Cap-and-Trade bill in the US, I'd say it's pretty much a dead cert :P

    My statement about TPP being less bureaucratically intensive was based on the assumption that the optimal level of taxation is administered in the long run. Whilst there's a bulk of infrastructure to set up for a TPP scheme at the start, with carbon tax you have to continually change it in order to hit that 'just-right' spot where you're not overcharging and you're not just givin' it away. TPPs are also much more flexible in the long-run.

    I'm not against the use of a Carbon-Tax either; I realise we live in a second-best World, and therefore realise that - as inelegant and heavy handed as they are - taxes are probably the best mechanism we've got. It's sad that TPP schemes never really manage to get off the ground though, because they offer so much dynamic flexibility over and above outright taxation and other command and control measures.

    EDIT:
    Modern Man wrote:
    It does matter. Because if your goal is to pass legislation to reduce carbon emissions, saying "so be it" to people losing their jobs is hardly a winning strategy.

    There's something called the 'Double Dividends' hypothesis - which applies for both taxation and TPP schemes - that is basically that the revenue accrued from taxation/selling off permits can be used to reduce market-distorting taxes in other areas of the economy. Essentially, it suggests that any loss of jobs in a polluting industry can be offset by a gain in jobs in another area of the economy.

    chidona on
  • electricitylikesmeelectricitylikesme Registered User regular
    edited March 2010
    Beltaine wrote: »
    So, if it becomes a market, does that mean I can begin exhaling CO2 into glass jars and selling them for profit?

    What does the tax money collected get used for? Seems like if they want industry to reduce actual emissions it would make more sense to regulate their emissions. Instead, companies that have megabucks will just find loopholes to cut the taxes they pay and continue high emission practices.

    What's more important, governments having more money in the name of (pseudo-)environmentalism, or actually doing something that results in protecting the environment.

    Once again, the rich get to continue business as usual with a slight speedbump, while the rest get to feel the squeeze.

    Tax money you cycle back to the citizenry as rebates, ideally geared to protect the lower classes more then upper classes (you having hot water and electric lights is somewhat more important then running the 3rd 72" LCD TV in my house).

    Business still cuts CO2 emissions, because doing so increases their profits total by reducing their tax burden.

    In my opinion, if we could just pass a CO2 tax and have absolutely nothing change in the short term it would still be a huge success because we'd have a system on the books to let us start dealing with CO2 emissions across the board.

    electricitylikesme on
  • electricitylikesmeelectricitylikesme Registered User regular
    edited March 2010
    chidona wrote: »
    Modern Man wrote:
    It does matter. Because if your goal is to pass legislation to reduce carbon emissions, saying "so be it" to people losing their jobs is hardly a winning strategy.

    There's something called the 'Double Dividends' hypothesis - which applies for both taxation and TPP schemes - that is basically that the revenue accrued from taxation/selling off permits can be used to reduce market-distorting taxes in other areas of the economy. Essentially, it suggests that any loss of jobs in a polluting industry can be offset by a gain in jobs in another area of the economy.

    This runs into the reality that your political opponents become anyone who represents anywhere with a lot of jobs tied up in those industry's which will lose jobs, whereas no one represents those areas which might gain them and their are social problems transitioning those people. You have to lose jobs eventually, but you can do it gradually.

    electricitylikesme on
  • thisisntwallythisisntwally Registered User regular
    edited March 2010
    one big problem with the tax approach lies in goal setting.

    if our end goal is a set limit on carbon output, it is much easier to accomplish that via a cap&trade approach. the share price will adjust to reflect actual value and emissions should stabilize at desired levels provided the penalty for excess emissions is greater than the market cost of the excess emissions. If we decide we need levels to go down, Gov't buys shares. If we decide we have more room, they sell some.

    with a carbon tax approach, we take a wild guess at what the tax should be, then make multiple adjustments to fix output levels as desired. THIS IS NOT SO EASY AS SOME OF US MAKE IT SOUND.

    There is much hostility towards taxes and any attempt to raise them (lets be honest with ourselves, we will set the tax too low). Multiple legislative efforts on a global scale to adjust a tax that will be rather unpopular with say 50% of the world is a pipe dream. We will be damned lucky to get people in agreement ONCE. Let alone the multiple attempts it would take to get things right.

    Cap and Trade worked just fine for SO2 and will work again here. Shit, it worked so well people don't even remember it.

    Barriers to entry are going to exist in either scenario, and a simple auction is a decent way to 'fairly' distribute shares while simultaneously setting prices.

    Also, republicans can just repeal a tax. They will have a much harder time seizing assets from publicly traded companies.

    just my two cents.

    thisisntwally on
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  • ronyaronya Arrrrrf. the ivory tower's basementRegistered User regular
    edited March 2010
    Ok, the problem with cap-and-trade though is that it favors established industries over start ups. If you develop a more efficient way of doing something, that still emits CO2, the market is intrinsically against you because the available carbon permits will already have been bought up by the big consumers. They have more capital to afford price increases, and an established base. They also have no incentive to sell to a competitor.

    This is true, which is why emissions trading schemes generally require the permits to be 'spent' and returned to the government, whereupon they are auctioned again. It's still cap and trade.
    chidona wrote: »
    Modern Man wrote:
    It does matter. Because if your goal is to pass legislation to reduce carbon emissions, saying "so be it" to people losing their jobs is hardly a winning strategy.

    There's something called the 'Double Dividends' hypothesis - which applies for both taxation and TPP schemes - that is basically that the revenue accrued from taxation/selling off permits can be used to reduce market-distorting taxes in other areas of the economy. Essentially, it suggests that any loss of jobs in a polluting industry can be offset by a gain in jobs in another area of the economy.

    This doesn't help. People working in the industries likely to lose will not easily shift to industries likely to gain; most workers today have some kind of specialization. The supply of skilled people takes a time to adjust; in the meanwhile you're just generating unemployment in losing industries and supernormal pay in winning industries.

    Mind you, this is somewhat necessary for adjustment to start taking place. But you can't get away from the reality of people getting unemployed, or having their wages reduced, or being unable to afford their commutes to work, etc. - if we're serious about shifting behavior here, someone at the margin is going to hurt. No free lunch etc.

    ronya on
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  • Modern ManModern Man Registered User regular
    edited March 2010
    chidona wrote: »
    Modern Man wrote:
    It does matter. Because if your goal is to pass legislation to reduce carbon emissions, saying "so be it" to people losing their jobs is hardly a winning strategy.

    There's something called the 'Double Dividends' hypothesis - which applies for both taxation and TPP schemes - that is basically that the revenue accrued from taxation/selling off permits can be used to reduce market-distorting taxes in other areas of the economy. Essentially, it suggests that any loss of jobs in a polluting industry can be offset by a gain in jobs in another area of the economy.

    This runs into the reality that your political opponents become anyone who represents anywhere with a lot of jobs tied up in those industry's which will lose jobs, whereas no one represents those areas which might gain them and their are social problems transitioning those people. You have to lose jobs eventually, but you can do it gradually.
    And, as we've seen, your opposition is going to end up being solidly bi-partisan, since high-carbon industries exist in Republican and Democratic districts and States.

    There are going to be specific people who lose their jobs, and they are going to scream bloody murder to their elected representatives to prevent the passage of any bill or treaty. On the other hand, people who might get a job from such legislation sometime in the future aren't likely to be an organized lobbying group.

    Modern Man on
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  • chidonachidona Registered User regular
    edited March 2010
    ronya wrote: »
    This doesn't help. People working in the industries likely to lose will not easily shift to industries likely to gain; most workers today have some kind of specialization. The supply of skilled people takes a time to adjust; in the meanwhile you're just generating unemployment in losing industries and supernormal pay in winning industries.

    Oh aye, I was talking about the aggregate effect; I do realise that there will be some level of local unemployment, at least in the short-run - hell, the North of England is still basically destitute after the collapse of heavy industry over 2 decades ago; it's political suicide, but at some point someone needs to make these decisions for the collective long-term benefit.

    Couldn't revenues be used to fund re-training and placement for those shafted by the taxes? Although unpopular in the short-run, wouldn't that at least be a viable long-term political goal? Then again, I'm not a politician...

    chidona on
  • enc0reenc0re Registered User regular
    edited March 2010
    Administration costs. You have to employ people to do it, to run the market etc etc. All of that costs. Then you have to do the other stuff anyway - you have to enforce the permits, and ensure people comply. You need to somehow deal with people who overrun.

    Sure, you have to administer a tax - but by comparison your administration is reduced to just the measurement and actual charging. Their are no awkward questions of how to deal with overruns, or how the exchanges should run. More importantly, the costs to companies are predictable in advance which means your surrounding remuneration and tax changes are simpler.

    Do you realize that the US has been using emissions trading successfully for many years? It's how SO2 (acid rain) emissions are capped. There's no need to argue hypotheticals. It has actually been implemented with great success.

    enc0re on
  • thisisntwallythisisntwally Registered User regular
    edited March 2010
    enc0re wrote: »
    Administration costs. You have to employ people to do it, to run the market etc etc. All of that costs. Then you have to do the other stuff anyway - you have to enforce the permits, and ensure people comply. You need to somehow deal with people who overrun.

    Sure, you have to administer a tax - but by comparison your administration is reduced to just the measurement and actual charging. Their are no awkward questions of how to deal with overruns, or how the exchanges should run. More importantly, the costs to companies are predictable in advance which means your surrounding remuneration and tax changes are simpler.

    Do you realize that the US has been using emissions trading successfully for many years? It's how SO2 (acid rain) emissions are capped. There's no need to argue hypotheticals. It has actually been implemented with great success
    .

    someone should have mentioned this earlier.

    thisisntwally on
    #someshit
  • GoumindongGoumindong Registered User regular
    edited March 2010
    ronya wrote: »

    Mind you, this is somewhat necessary for adjustment to start taking place. But you can't get away from the reality of people getting unemployed, or having their wages reduced, or being unable to afford their commutes to work, etc. - if we're serious about shifting behavior here, someone at the margin is going to hurt. No free lunch etc.

    Just wanted to pipe in and say that this is not a reason to NOT do it though(not sure of your position on the matter Ronya). Some people are going to be hurt by every policy or lack of policy. The judge between them is not a matter of who gets hurt, but a matter of how much and how many.

    Cap and trade may hurt some people on the fringes, yes. But it helps everyone else, and in greater amounts. If we were going the other way this would look even more obvious as to why its a good idea. I.E. The opposite of this policy would make everyone worse off in order to make a few people on the fringes better off*. When we do that, we typically call it corruption and bad policy. So why is it not in this situation?

    *By strict normal theory(I.E. not getting into behavioral aspects which probably don't apply here anyway) the two are the same. A policy that hurts 10 and helps 1 is the same as lack of a policy that helps 10 and hurts 1. So long as the amounts are the same.

    So why should we implement a policy that hurts the entire population of the United States in order to give a few people a benefit? If you can't argue for that policy then you cannot argue against cap and trade.

    Goumindong on
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  • tinwhiskerstinwhiskers Registered User regular
    edited March 2010
    Goumindong wrote: »
    ronya wrote: »

    Mind you, this is somewhat necessary for adjustment to start taking place. But you can't get away from the reality of people getting unemployed, or having their wages reduced, or being unable to afford their commutes to work, etc. - if we're serious about shifting behavior here, someone at the margin is going to hurt. No free lunch etc.

    Just wanted to pipe in and say that this is not a reason to NOT do it though(not sure of your position on the matter Ronya). Some people are going to be hurt by every policy or lack of policy. The judge between them is not a matter of who gets hurt, but a matter of how much and how many.

    Cap and trade may hurt some people on the fringes, yes. But it helps everyone else, and in greater amounts. If we were going the other way this would look even more obvious as to why its a good idea. I.E. The opposite of this policy would make everyone worse off in order to make a few people on the fringes better off*. When we do that, we typically call it corruption and bad policy. So why is it not in this situation?

    *By strict normal theory(I.E. not getting into behavioral aspects which probably don't apply here anyway) the two are the same. A policy that hurts 10 and helps 1 is the same as lack of a policy that helps 10 and hurts 1. So long as the amounts are the same.

    So why should we implement a policy that hurts the entire population of the United States in order to give a few people a benefit? If you can't argue for that policy then you cannot argue against cap and trade.

    explain how CO2 emissions hurt the entire population of the US. Really there are few countries better equipped to deal with the effects of climate change than the US is. So the legislation your proposing is to help people "over there" while hurting people "here" aka in Rep. Bobs voting district.
    And just to bring it up: We are in a recession and employment in industry is already getting pounded.

    tinwhiskers on
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  • CauldCauld Registered User regular
    edited March 2010
    enc0re wrote: »
    Administration costs. You have to employ people to do it, to run the market etc etc. All of that costs. Then you have to do the other stuff anyway - you have to enforce the permits, and ensure people comply. You need to somehow deal with people who overrun.

    Sure, you have to administer a tax - but by comparison your administration is reduced to just the measurement and actual charging. Their are no awkward questions of how to deal with overruns, or how the exchanges should run. More importantly, the costs to companies are predictable in advance which means your surrounding remuneration and tax changes are simpler.

    Do you realize that the US has been using emissions trading successfully for many years? It's how SO2 (acid rain) emissions are capped. There's no need to argue hypotheticals. It has actually been implemented with great success
    .

    someone should have mentioned this earlier.

    I mentioned this in the 4th post of the thread!

    Cauld on
  • thisisntwallythisisntwally Registered User regular
    edited March 2010
    Cauld wrote: »
    enc0re wrote: »
    Administration costs. You have to employ people to do it, to run the market etc etc. All of that costs. Then you have to do the other stuff anyway - you have to enforce the permits, and ensure people comply. You need to somehow deal with people who overrun.

    Sure, you have to administer a tax - but by comparison your administration is reduced to just the measurement and actual charging. Their are no awkward questions of how to deal with overruns, or how the exchanges should run. More importantly, the costs to companies are predictable in advance which means your surrounding remuneration and tax changes are simpler.

    Do you realize that the US has been using emissions trading successfully for many years? It's how SO2 (acid rain) emissions are capped. There's no need to argue hypotheticals. It has actually been implemented with great success
    .

    someone should have mentioned this earlier.

    I mentioned this in the 4th post of the thread!

    show me the T-shirt :rotate:

    thisisntwally on
    #someshit
  • GoumindongGoumindong Registered User regular
    edited March 2010

    explain how CO2 emissions hurt the entire population of the US. Really there are few countries better equipped to deal with the effects of climate change than the US is. So the legislation your proposing is to help people "over there" while hurting people "here" aka in Rep. Bobs voting district.
    And just to bring it up: We are in a recession and employment in industry is already getting pounded.

    Just because we are better equipped to deal with it does not mean we're well equipped to deal with it.

    Anyway, i think there was some report about this that was in the news a few years back. I don't recall what it was called though.

    Goumindong on
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  • AegisAegis Not Quite TorontoRegistered User regular
    edited March 2010
    enc0re wrote: »
    Administration costs. You have to employ people to do it, to run the market etc etc. All of that costs. Then you have to do the other stuff anyway - you have to enforce the permits, and ensure people comply. You need to somehow deal with people who overrun.

    Sure, you have to administer a tax - but by comparison your administration is reduced to just the measurement and actual charging. Their are no awkward questions of how to deal with overruns, or how the exchanges should run. More importantly, the costs to companies are predictable in advance which means your surrounding remuneration and tax changes are simpler.

    Do you realize that the US has been using emissions trading successfully for many years? It's how SO2 (acid rain) emissions are capped. There's no need to argue hypotheticals. It has actually been implemented with great success.

    I was just about to come in here to post this, so hurrah!

    Also, obligatory Western Climate Initiative shoutout.

    Aegis on
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