Pricing carbon again

Here is a blog from Tim Harford that illustrates the point made by Stavins about why it is lower cost to address climate change through pricing than traditional regulation like standards.

More on cap and trade and carbon tax

1. Why cap and trade with auctions is the same as a carbon tax

2. Opinion on why advocating carbon tax is a waste of time

3. The politics of introducing US cap and trade

4. Nice pictures from Liberia

Selling a carbon tax to the electorate

Tom Friedman of the NY Times argues for a carbon tax over cap and trade

"People get that — and simplicity matters. Americans will be willing to pay a tax for their children to be less threatened, breathe cleaner air and live in a more sustainable world with a stronger America. They are much less likely to support a firm in London trading offsets from an electric bill in Boston with a derivatives firm in New York in order to help fund an aluminum smelter in Beijing, which is what cap-and-trade is all about. People won’t support what they can’t explain".

Comparing cap and trade versus tax

From:

1. Bulletin of Atomic Scientists

2. From an academic viewpoint Environmental Economics blog

Carbon taxes versus cap and trade II

1. My favorite read on carbon taxes from Greg Mankiw

2. Lovelock and industry figures on why cap and trade in Europe has been a failure

Shell drop renewables - another reason for pricing carbon

Economists predictions come true about investment in renewable energy falling with lower oil prices. Shell has just announced it is dropping renewables from its portfolio as it is not profitable.

Environmental groups are raging, but the reason for this is not corporate malice, but a lack of a sufficiently high price for carbon to interest investors. As their CEO Linda Cook says,

"If there aren't investment opportunities which compete with other projects we won't put money into it. We are businessmen and women. If there were renewables [which made money] we would put money into it."

Carbon tax proposed by Nordhaus

William Nordhaus backed a carbon tax instead of the Kyoto protocol approach.

To bet the world's climate system on the Kyoto approach is a reckless gamble", he told the climate change congress in Copenhagen. "Taxation is a proven instrument. Taxes may be unpopular, but they work. The Kyoto model is largely untested and the experience we have tells us it will not meet our objective — to stablise the world climate system."

via The Guardian

Empty commitments on emissions

According to the Guardian, a new report highlights how the EU and US are effectively exporting their emissions commitments to China. The UK claims an 18% reduction in emissions since signing Kyoto. However, imports to the UK have produced substantial emissions in China. 9% of total Chinese emissions are the result of manufacturing goods for the US, and 6% are from producing goods for Europe.

Academics and campaigners argue that the responsibility for these emissions lies with the consuming countries

Dieter Helm, professor of economics at Oxford University, said "focusing on consumption rather than production of emissions is the only intellectually and ethically sound solution". "We've simply outsourced our production," he added."

However, a country's emissions and commitments are calculated on the basis of their production. To include levels of carbon "embedded" in imports would mean imposing a border tax on carbon products. This however is expensive and difficult to calculate and open to mis-use as a protectionist measure.

A more elegant solution would be a global carbon tax...

Carbon pricing in a recession

Posner and Becker argue that raising tax on petrol in a recession is a bad idea

" A further weakening of the financial position of American carmakers would increase the size of the bailout of the American auto industry needed to prevent it from going bankrupt. This implies that higher gas taxes would have a multiplier effect on the tax burden facing American families and businesses- not only would they have to pay more for gas, but they also would at some point have to pay higher taxes to finance a larger bailout. "

Carbon tax versus cap and trade

There is an endless stream of articles about the climate impact of our daily lives and shopping choices. Today, it transpires that surfing the internet is bad. This lengthens the list of daily activities that we are told is causing climate change. One minute you think you are doing the right thing (like buying local food) and then an expert points out that it depends what time of year you are buying it, what country is comes from, if it was grown in a greenhouse or not, what energy sources were used, whether it come it by road, rail or air, how you got to the shop and how you prepared it (oven, boiled or fried).

All this needless to say is a) disconcerting and b) a complete waste of our time c) ineffective way to deal with global warming.

The alternative promoted by economists and endorsed by some politicians is to price carbon. This means raising the price on carbon to account for its environmental damage. This will change the relative price of energy in favour of low carbon technologies and energy conservation measures. Whilst most agree that this is a good idea (some industry groups disagree), there is disagreement about whether a carbon tax or cap and trade emissions scheme is the best approach. I will leave it to the chief proponents of these respective economic instruments to argue which is the best approach.

Greg Mankiw of Harvard University on carbon taxes as the best approach to reduce carbon emissions and Robert Stavins also of Harvard on cap and trade.

Climate letter to Obama

Let's hope Obama finds the time to read this letter from Colombia/NASA Professor James Hansen and his wife in which they highlights the "disconnect" between science (we are going to hell fast) and policy (do nothing substantial about climate change) - (my brackets). They say that it is still "feasible" to save the planet but three actions are needed fast:

• Moratorium on and phasing out of coal power stations without carbon capture, what he calls the "sine qua non for solving the climate problem".

• Raising the price of emissions via a "carbon tax and 100% dividend".

• Urgent research on "fourth generation" nuclear power with international co-operation.

At the heart of the response lies taxation on carbon.

A carbon tax, he says "is the essential underlying support needed to make all other climate policies work... and essential to decarbonize society".
- A carbon tax will be accepted by the public if it is returned to them. No bureaucracy is needed.
- The tax will spur innovation as entrepreneurs compete to develop and market low-carbon and no-carbon energies and products.
- A carbon tax is honest, clear and effective

With oil prices low now is a good time to introduce a tax.

He trashes the idea of cap and trade emissions schemes as these "generate special interests, lobbyists, and trading schemes, yielding non productive millionaires"

In this rich letter, he highlights the urgency of the situation which "derives from the nearness of climate tipping points, beyond which climate dynamics will cause rapid changes out of humanity's control". He also says that we are already past the safe level of 350 ppm of carbon dioxide in the atmosphere. This is pretty alarming given policy makers are saying we have to level off emissions at 450ppm - which a likely scenario being 550ppm. Pre industrial levels were 280ppm...