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What the US Can Learn From Europe's Pollution Credit System
Al writes "Technology Review discusses what a US carbon trading scheme could learn from the flawed European experience. Advocates of carbon-trading schemes like to point to Europe's cap-and-trade program as a model worthy of emulation, but the reality has been less than perfect. A glut of pollution credits, distributed without cost during both the first, transitional phase of the program and the current working phase, drove down the value of the EUAs. As a result, Europe's carbon dioxide emissions remain priced well below 20 euros per ton. With the price of pollution so low, economists say, industries that generate and consume energy have no incentives to change their habits; it is still cheaper to use fossil fuels than to switch to technologies that pollute less. Establishing a carbon price in the US system now, and tightening the system later, could send a dangerously wrong signal to financial markets looking to invest in new energy technologies."
...is that it's not progressive. So Joe Sixpack bears a much higher load in proportion to, say, Al Gore. An article by Robert Zubrin pegs this cost as $1800 for a family of four. This on top of a 9.x% unemployment rate. Huh.
The Army reading list
This particular regulatory scheme employs a market mechanism. That's not the same as The Market.
Except for ending slavery, the Nazis, communism, & securing American independence, war has never solved anything.
The other important consideration is making sure you don't just shift the problem. If only a few countries, or even most of them agree to restrictions, the rest of the world will shrug its collective shoulders, and take on the fossil fuel burning and productino that the nicer countries have kept themselves from doing. Specifically, the BRIC block (Brazil, Russia, India, and China).
Any plan for such a global problem MUST take into account the actions of such "defecting" countries, or you might as well not bother. That can mean using auction revenues to sink CO2, tariffing non-compliant countries (though with blanket punitive tariff on all of their products; it's too much work to figure out the marginal CO2 impact of any one product when they're not pricing its cost in), and yes, even geoengineering.
"Unilateral disarmament" is symbolic at best.
Information theory is life. The rest is just the KL divergence.
Why is the bill worded to demand that only solar/wind be advanced as renewable when for all intents and purposes Fast Breeder Nuclear Reactors are cheaper (these renewable sources are much more expensive barring an insanely good breakthrough/require MUCH LARGER areas to be anywhere near current power plant outputs) and also renewable in the fact that they burn their waste, then burn their wastes waste, etc, all the way down to burning 90+% of their waste with the remaining byproduct only being slightly hot for 5-10 years?
Politicians grabbing at money via legislation that's difficult to monitor and enforce, so that companies will invest in technologies that are inefficient or don't exist yet?
How is this a flawed system?
As this article points out (with a nice graph), the market has recovered from its initial missteps. Carbon emissions have been trending down (even before the mega-recession began), and Europe is on track to meet the Kyoto requirements (8+% below 1990 levels) by 2011. The major problems had to do with a lack of data about how much carbon the European countries were emitting. Therefore the cap was set too high. There have been several adjustments since then, and the results have become much better.
One hopes that we'll be able to avoid this, since we have much better emissions data. To my mind, the most important finding of the post above is that corporations are finding massive improvements in efficiency, since the cap has essentially set a price on emitting carbon. This, plus technological development, is going to make the problem a lot less scary than conservative estimates would have you believe.
(Now there are various caveats. The really big one being the ability of nations to "outsource" their emissions by importing from nations with no such caps. But I don't think this is an argument for removing the caps --- rather, we should be finding ways to integrate the trading schemes of those nations with caps, and recover some of the carbon cost on imports from the other nations.)
In economics, it is generally accepted that the free market only establishes the right price of a good if there are no externalities. Hence, if producing a good is cheap but has large negative external effects (eg pollution, human harm), the market will price it lower than would be optimal for the society at large, because they are paying the price of the externality (eg by cleanup costs, reduced hapiness/lifespan).
The main ways to 'internalize' these externalities so the free market can do its job are (1) explicitly internalizing the externality, eg making employers responsible for workplace accidents, making mining companies etc pay cleanup costs), or (2) taxing the factor causing the externality so the price is about right. The latter option has the drawback of somehow determining the right value of the externality. A Cap-and-trade system does this by creating artificial scarcity, but the amount to cap is difficult to establish and ultimately a political decision.
What I am trying to say is that cap-and-trade is not some sort of socialist contraption. Rather, it is one of the most natural ways of dealing with a negative externality in a free market system.
Ignoring the externality is a fuck-the-others (in this case, fuck-the-children) mentality that has nothing to do with the ideal free market or (broad and/or long-term) prosperity
Carbon never harmed anyone?! Are you kidding!? How much carbon is in a bullet? How much of a bomb's explosiveness is due to carbon reactions? I'll tell you: lots. You say Carbon's a dirty word, I'll tell you what: you're right...it is dirty. Have you ever handled powdered carbon, aka graphite? All it does is dirty stuff up. That stuff's nasty. So I think it's appropriate that carbon is a dirty word...it's a dirty, dirty element.
If carbon didn't exist, we'd live in a very different world.
everything is safe in certain quantities, everything is dangerous in excessive quantities. The fact that a small level of CO2 is not only safe but neccessary has no bearing on whether or not higher levels are harmful to the climate. In fact, most of the science points to a rapid change in CO2 being the causal agent for climate change. It's effects are not uniform but to say that it hasn't harmed anyone is most certainly not a truthful statement.
Sigs are too short to say anything truly profound so read the above post instead.
Oh, we aren't taxing Carbon. We're supposedly taxing greenhouse gases. But we aren't really even doing that. Cow farts are completely off the table due to agricultural lobbies. Coal-burning utilities and industries are receiving special treatment, since Democrats get lots of votes from coal and steel-heavy regions. Carbon capture will end up being a wasteful boondoggle. It's not even clear yet whether imports of worthless Chinese trinkets will be taxed based on their carbon usage.
Basically the only thing being singled out for special taxes is oil, which is somewhere in the middle of the list of fossil fuels contributing to global warming. The whole thing is a green-washed sham designed to tax foreign oil in favor of local energy production, without incurring the ire of supernational organizations like the WTO. It's not that we don't need more local energy production, but to pretend that the proposed exception-laden US cap-and-trade system will do anything to significantly reduce greenhouse gases is naive.
"I assumed blithely that there were no elves out there in the darkness"
Matt Taibbi, in his article The Great American Bubble Machine, asserts that the next bubble will be the carbon trading scheme. Perhaps that's how the Government and Wall Street plan on keeping carbon credits artificially high. That is until the bubble bursts and they raid our tax dollar barrel... again.
http://www.correntewire.com/great_american_bubble_machine_0
FTA:
The new carbon-credit market is a virtual repeat of the commodities-market casino that's been kind to Goldman, except it has one delicious new wrinkle: If the plan goes forward as expected, the rise in prices will be government-mandated. Goldman won't even have to rig the game. It will be rigged in advance.
Here's how it works: If the bill passes; there will be limits for coal plants, utilities, natural-gas distributors and numerous other industries on the amount of carbon emissions (a.k.a. greenhouse gases) they can produce per year. If the companies go over their allotment, they will be able to buy "allocations" or credits from other companies that have managed to produce fewer emissions. President Obama conservatively estimates that about $646 billions worth of carbon credits will be auctioned in the first seven years; one of his top economic aides speculates that the real number might be twice or even three times that amount.
The feature of this plan that has special appeal to speculators is that the "cap" on carbon will be continually lowered by the government, which means that carbon credits will become more and more scarce with each passing year. Which means that this is a brand-new commodities market where the main commodity to be traded is guaranteed to rise in price over time. The volume of this new market will be upwards of a trillion dollars annually; for comparison's sake, the annual combined revenues of an electricity suppliers in the U.S. total $320 billion.
Goldman wants this bill.
One of the best ways to reduce pollution is to tax it. Reducing pollution costs money. The purpose of a corporation is to generate profit for shareholders. Given the choice, no corporation would reduce pollution instead of returning a higher dividend. So, for pollution to be reduced, government has to be involved somehow. There are two possible ways:
I recommend that everyone who is interested in this topic should read The Undercover Economist by Tim Hartford, particularly chapter "Crosstown Traffic" subsection "Battling pollution on the cheap". The gist of it is that sulphur dioxide emissions were successfully reduced by taxation to the point where the tax is negligible. Initially, the corporations involved in power generation claimed that it would be impossible to do, that each ton of reduction in emissions would cost thousands of dollars. And yet, within 3 years of an auction based taxation being introduced, the cost per ton had fallen to $70.
Isn't this exactly what we all want? A market based solution to the problem, rather than overbearing government regulation?
I will probably be blasted by all the environmentalists in the group, but this simply won't work. My office is two hundred feet from a coal fired power plant. They are upgrading their pollution controls right now. They are spending over $200 million on it. There is a new plant scheduled to be online in a matter of months right next to it. This is the cheapest source of power in the area. It employs hundreds of people. My company had thousands of people last year. The cost of electricity shut us down. All of my friends are sitting at home drawing unemployment. I don't know what they are going to do when their benefits are exhausted. High electricity costs will drive jobs out of America. Power is the primary cost of many manufacturing processes. All manufacturing where power is the primary driver will be done in China, Mexico, Brazil, Iceland, etc. It will be done where there are no carbon credits to buy and the environmental laws are lax. Business goes where its cheap to operate.
You aren't saving the environment by driving out business. The president cited California as an example of good energy policy. A lot of power consumed in California comes from neighboring states that don't have such strict regulations. The government of California is broke. They may not be able to make payroll next month. Is that where we want America to go? Is that our future model?
We are going to drive our businesses overseas. These foreign countries will build power plants to supply their new found industry. They won't care much about pollution other than to pay lip service to it. By the time we are finished cleaning up America's air, we'll all be sitting on our thumbs with no jobs lamenting our plight. On the upside, the air we are breathing during this wringing of hands and gnashing of teeth may perhaps be slightly cleaner than before. If your goal is to reverse global climate change, you are sadly mistaken if you think this will fix it. Other nations will fill in the production gaps. They don't give a crap about the environment. They want power. You gain power by having a happy, well fed, and prosperous population. This is done through industry and jobs. The pollution will simply be outsourced along with your job.
A little misunderstanding? Galileo and the Pope had a little misunderstanding...
It can learn that carbon trading schemes don't work, is a drain on the economy, and only enriches a few well connected that dreamed it up... while reducing total greenhouse gases by negligible amounts to none.
On the other hand, U.S. can also learn something useful from one of Europe's bigger countries, France: having large numbers of nuclear power plants that provide majority of your nation's electricity needs can be done, practically and safely. Of all the non-carbon-generating "green" energy schemes out there, nuclear is the only one that is practical and cost-competitive with fossil fuels on any sort of a large scale.
Here's a little question. Does anyone here not see the market working?
Toyota Prius?
Everyone seems to be doing plugin hybrids by 2010.
Google's funding nano-solar.
Countless ventures are out there in terms of battery power, renewables...
So if I might ask... what the hell is the problem? There's no shortage of research or money in the field. If technology can solve this problem, it will.
Any tax now would hurt the poor the most. Which is not a nice thing in this economy... much less any other time. The rich can afford a prius and to live in downtown near the subway.
That said, I 100% understand accounting for externalities in the market. Of course, we already tend to have those... it is called a gas tax for gasoline which hasn't be used to pay for roads in a long time.
I would be 100% for a global warming tax... if and only if 100% of the revenues go towards countering the effects of global warming (building levies, moving populations from low lying ares ...).
Unfortunately, this is just going to become one massive corruption scheme.
Big finance making billions off doing nothing... just playing a game of carbon credits.
Governments handing out contracts and making laws to benefit certain businesses and industries...
It's going to be a mess. But central planning is always a mess. Americans lived without it for a while... but every country gets its chance to be ruined by central planning.