While the emissions trading debate is on semi-hiatus in Australia while we discuss such important matters as which other politicians have ever visited strip clubs, it’s on in earnest in the United States, with a number of different carbon taxing or trading proposals floating around the US Congress.
As in Australia, one of the concerns is that the cost of carbon permits under a straight “cap-and-trade” system is unbounded - all the uncertainty is in the cost, rather than the amount of carbon emitted. Therefore, many people - notably Warrick McKibbin and Peter Wilcoxen, have proposed schemes in which, if the price of carbon permits reaches some maximum level, additional permits will be issued. However, as Clive Hamilton noted, under such systems, if it turns out to be more expensive than expected to reduce emissions, it is the environment that bears the entire cost. The proposal by the Prime Minister’s emission trading taskforce features such a safety net.
However, a group of four U.S. Senators - conservative Democrats and moderate Republicans - are pushing a new emissions trading plan which has an interesting mechanism for allowing emitters some flexibility, while still ultimately constraining CO2 emissions.
The details are explained in this discussion paper, the concept of “banking and borrowing” is quite simple - if companies find it difficult to meet short-term emissions reduction targets, they can borrow permits from the future. However, they pay for it by having to emit less in the future - not only whatever they borrowed, but an additional interest payment, just like borrowing money from the bank.
Of course, with any emissions trading scheme the devil remains in the detail of the number of permits issued, how they are allocated or sold, and if there is any safety net mechanism, what price it kicks in. With this one, questions include how many permits can be borrowed from the future, at what interest rate, and most importantly whether the governing authority is going to force the repayments if companies just start piling up “carbon debts”, possibly in the face of considerable political pressure to forgive them.
But, on the face of it, it seems like a better way of incorporating a bit of flexibility to schedule the introduction of emissions-reduction technologies, while not turning the hard targets we need to meet into emitter-friendly plasticine.
Carbon-insolvency anyone?
Call in the Carbon-Administrators? Get 1g in every kg CO2e?
Of course it does. Its the Clayton’s emissions trading scheme. Its the AP6 to Kyoto. Its full of holes and outs to let the big polluters keep polluting.
Borrowing from the future!? Isn’t that what we’re doing already (in spades) by guzzling the planet’s entire endowment of fossil fuels in a few hundred years and spewing gigatonnes of greenhouse gases into the air? Don’t worry, we’ll let the grandkids deal with it.
IMHO all these fudges and fiddles are invented by neoliberal economists to avoid actually doing anything. What we really need are some politicians with the courage to tax carbon. Now.
The problem with just taxing carbon is that we may be able to just eat the cost and continue polluting. We’re essentially a reasonably wealthy country, and a carbon tax may increase power bills or the price of petrol but not enough to make the necessary change in behaviour. We may find that the tax rate has to be sufficiently punitive as to lead to an undesirable outcome - or, we really stuff up poor, outer-suburban or rural people who either have little choice in, say, commuting.
Carbon taxation is an important part of dealing with global warming, but it’s only of value when combined with an absolute cap, and that cap must be reduced each year. The point is not to make carbon-producing activities expensive, but rather to reduce the amount of carbon we emit. Taxation by itself doesn’t necessary support the end result that we need.
So how many actual and real emitter sighted sites are there,and how many are there into the future!?I have noticed people like ourselves friend Merkel are getting our way rapidly re hot rocks and converting carbon dioxide direct from flues, we ,that is me, are building everywhere attached to present designed coal fired power stations!?And to parrot-phrase like the ABC ..we know what we are doing in this nation,do the other we s know what they are doing!? Nothing lost in the translation to esperanto…!
Carbonsink: my point was that if the carbon trading scheme has to include escape clauses if the permits get too expensive in the short run, this scheme might be better than the all-purposes get-out-of-jail-free safety net. Essentially, what the bank and borrow scheme internalises that if you emit more now, you’ll have to cut that much harder later.
In any case, a carbon tax works has an inbuilt “safety net” - the cost of emitting carbon is capped by the level of the carbon tax.
Finally, yes, you’re right, we need to act, and now.
Alister wrote:
So? If it doesn’t produce the desired result, then raise the tax, and give the proceeds back as income tax cuts at the bottom end.
I take your point (and Robert’s) that there must be a cap and the real goal is to reduce emissions not make emissions expensive. However, it seems most emissions trading schemes are full of holes, begin with over generous allocations, and only include the electricity generation sector. In short they don’t work, and if John Howard has any say in designing an emissions trading scheme, you can be damn sure it won’t work.
The third alternative is tradeable carbon quotas, but most people seem to view this idea as a bit “out there” and I must say I’m not particularly keen on introducing a new currency. But then, the longer we delay the more drastic the measures.
BTW, living in a big house with a big car in the outer suburbs is probably an unsustainable lifestyle choice. A carbon tax would put a price on this lifestyle that is currently borne by the environment.
carbonsink wrote:
Churn. It’s probably a waste of money and effort that could better be used elsewhere.
Sure, but remember, Howard doesn’t think climate change is happening. Nothing he proposes will work. A complete package of caps - an absolute maximum of all emissions - needs to be determined. This is because the results of doing nothing are not just economic results. This isn’t like raising interest rates to stop inflation. If you get that wrong, the worst that happens is that you get a recession - which is important, and should be avoided, and nowhere near as serious as what appears to be the results of letting too much carbon dioxide (and methane) into the atmosphere.
True, but as progressive types (and I’ll out myself here as a member of the Greens) it’s incumbent on us to consider the people who are living in the outer suburbs (I’ll leave aside the big house/car for a moment). Look at the income spreads - the further away from the city you live, the less wealthy you are. Carbon taxes mean that the richer people (who, more or less by definition can look after themselves) aren’t required to change their way of life, but the poor are screwed.
I’m not opposed to taxing carbon, by the way. I think it’s an essential part of the need to reduce emissions of carbon dioxide. The problem is that taxation, by itself, doesn’t automatically mean that emissions are reduced. An absolute limit needs to be set too.
Huh? Why is it churn? I think you misunderstood what I meant. I didn’t mean tax with one hand and give back with the other. I meant the government could afford income tax cuts (preferably at the bottom end) if it had a new revenue stream, namely a carbon tax.
Many years ago in NZ I heard that the Christchurch City Council was about to buy between 500 and 1000 electronic parking meters from the UK. So a local electronics engineer and I put together a proposal to manufacture the meters locally. Our proposal was very solid and the proposed product had many features that were ahead of their time. But the whole thing came unstuck when some idiot politician put forward the idea of parking coupons. The way these worked was that people were expected to buy coupons in advance and have them in their car on the off chance that they might want to park in certain areas. Then they would take one of their coupons, punch out the times (chads) and display the coupon in the windscreen of the vehicle. This was immensely appealing to councillors because it meant that they could presell a huge block of parking “futures” to stock all of the shops that would be supplying the coupons to the public. But the very feature that made the scheme appealing to the council was what made the system unappealing to the public. The fact is that people do not plan their parking intentions in advance. And they certainly do not want to put out significant chunks of money on the offchance that they might want to park on streets x,y, and z. So in consequence the parking spots were mostly unused, and the people who did use them in desperation got parking fines and became very disgruntled townsfolk.
The council abandoned the scheme and quietly bought 1500 parking meters from overseas. My electronic engineering friend went on to make regulated power supplies for Telstra (2000 amps per phase) and at the peak was turning over 100 million dollars a year employing 470 people (that is by way of saying that our ability to design and build the meters was proveable).
The moral of the story is that, in general, people will only buy what they need when they need it. The notion that average businesses are going to buy carbon release futures is typical politician BS. And the idea of a carbon stocks exchange….well. Trading in sharre is such a natural thing for the administrators of successful enterprises to participate in, but it is not Bill on the street stuff. Most people are struggling to pay their mortgage and their cell phone bill in the same month let alone plan their future carbon useage. The only way that carbon useage deterent will work is to apply a tax to it that is included in the cost of the carbon containing goods. You want to park? put the coin in the meter, you cannot afford $2 per hour, move a little further out to $1 per minute. That is a deterent at work. That is what will work. There is only one currency.
addendum
that was “shares” and “$1 per hour”
Please permit a disgruntled Canadian Esperanto-speaker to make an aside re philiptravers’ comment:
>Nothing lost in the translation to esperanto…!
I’m not entirely sure what this is supposed to mean, but my supposition is that Esperanto is perceived as incapable of rendering an adequate translation and/or that the result is still only gobbledygook. If this is so, then ‘Quel hogwash!’ - as the French might say (if they knew enough English)! I wish your very own Australian Esperanto-speaking diplomat Ralph Harry could rise from the dead and come back to haunt you for such a statement:
http://www.smh.com.au/articles/2002/10/23/1034561547232.html
He seemed to think that Esperanto was perfectly adequate for international treaties, and even once proposed it be used as the sole documentary language at the UN, thus saving enormous amounts on translations.
That’s Brian by the way, not Brian. I thought I’d make that clear, because my gravatar doesn’t always seem to work.
The Canadian (gravatar-less) Brian wishes to apologize to the Australian Brian for any confusion inadvertently caused by the use of the same name - und bittet demütigst um Enstschuldigung wegen der Themenentgleisung.
Kein Problem! Machen Sie sich nicht krank darum!
I think that’s as far as I’ll try to go with my rusty Deutsch.
The problem with most of the schemes proposed far is that they are “push� schemes, based solely on perceived high costs of greenhouse gas abatement. The benefits of avoided damages are overlooked. Even target-based schemes are based on gradational pathways towards a target where incremental permits are “let�, to allow the price to change according to how technology/the market allows without introducing shocks or undue hardship for the emitter. (Here it makes little difference whether they are permits to emit more or less at time t compared to time t-1, depending on whether they are conforming to a stabilisation pathway or deviating from a pre-determined baseline).
Such pathways are more an artefact of how they are modelled than what may occur in the real world. As many have said, the McKibbin-Wilcoxen blueprint is totally based on the cost of abatement/offset with non-market and future generations absorbing the risk of being wrong (a risk with a very high probability with a scheme based on short-term pricing hoping to solve a long-term problem).
All schemes need to factor in the benefits of avoided damages. We have shown that a full risk assessment taking in the range of plausible outcomes, factors in higher damages costs/avoided benefits than single, monotonic cost-benefit assessments. If triple bottom line damages are assessed, allowing for social and environmental damages that cannot easily be costed, then that suggests an upfront investment that is higher than the direct economic damages cost is warranted. This is consistent with Stern, but the model structure and line of reasoning was somewhat different.
The really hard to cost aspect of climate change damage are the costs of climate variability and extremes, and of singularities like the potential irreversible meting of the Greenland Ice Sheet. If more of those damages, combined with better knowledge of the rate and magnitude of climate change and its impacts come about, then the price of CO2 and other greenhouse gases will turn from a push price to a pull price. Demand for abatement would come from sectors now and in the future from regions and sectors that anticipate their limits of adaptation may be exceeded. Anticipation of such future demand requires insurance.
My hunch is that the pull price (demand) for mitigation services will exceed the push price (perceived cost) within a decade. A hybrid scheme combining tax with permits might be useful. Permits designed to foster technological learning and innovation could manage a discretionary proportion of the market, whereas a tax could act as an energy consumptions tax. Some of the recent rate hikes might have been better as carbon consumption taxes, which would serve to limit demand in an overheating economy. Proposed tax cuts could target the vulnerable who would lose out as higher prices flow through to consumers, as an equity measure.
Tax revenue so gained could also be used to fund public good adaptation to climate change such as in the environment (The Social and Environmental Future Fund!!!), whereas permits, properly designed could help drive technology as it seeks to make mitigation cheaper.
Politically, much of this is totally non-viable, because new taxes are anathema. Government revenue is also seen as a trough to be dipped into at election time. Despite this, any viable scheme needs to be able to manage both supply and demand, while anticipating a steeply rising carbon price based on perceived damages in future (much more likely than us suddenly finding that climate will be benign and of little consequence – the evidence is increasingly pointing the other way). Abatement that is cheaper than demand for reduced damages can ratchet up to meet such demand. I think this is a likely scenarios and should be explored to determine its viability as rapidly as possible. Successful implementation of such ideas in a few countries would spread very widely, very rapidly.
How hybrid schemes (tax and permit) could avoid free rider problems and significant leakage I’m not sure. They do involve linking both market and non-market values into a larger risk management framework, instead of a three way collision between economic, environmentally and socially constructed frames of reference. For “bank and borrow” to work it would have to anticipate the dynamic above.
Gosh, Roger there are a lot of loaded words in your evaluation, which I only partly understand. But you do make some good points, the most significant of which is the probability of a variable environmental need which all current proposals fail to recognise.
In reaction may I suggest that a workable system might look like:
A tax on carbon content, the accruals for which are held in an insurance stuctured fund. The rate of the tax is variable over time to allow for a changing environment. This is a 2 way variability.
An insurance fund has a number of advantages. Firstly it is separated from government general revenue. Secondly it becomes a pool of funds that would be investment managed but specifically for environmental outcomes such as bio fuel production, solar energy production, reseach and development of environment solutions. Thirdly it would be the basic fund for disaster relief.
Properly managed such a fund would eventually achieve a balanced national carbon cycle which should in the longer term minimise environmental damage, and eventually eliminate itself.
This would allow government to concentrate on policy free from political tourmoil driven by competing views. It would also guarantee availability of funds for projects aimed at reducing carbon emission impacts. Such a scheme would still allow limited exemptions for public interest critical situations.