Cap and Trade. Good, bad or ugly?

[Crazy_Ivan80]

I admit that I have no idea how this tax is supposed to cut down on CO2 emissions.  If it forces me to use local products made with electricity from coal-burning plants rather than import them from someplace where they are made using Hydroelectric power, the tax will actually increase CO2 emissions.

you'd also be paying for the co2 produced at those coal-centers. It's not just transportational-co2 that's being taxed. It's all of it (as far as possible). So if you're a nation that used mostly coal-based powergeneration, you'll be paying for that too.

as far as I understand it (there's been a few articles on it here and there on the concept) it's basically a way to raise prices to get people to vote with their wallets for
-cleaner transport
-less transport
-less poweruasage
-cleaner powergeneration
etc.

all in order to get an overall decrease in production of co2. Which is why it is such a bitch to effectively calculate how much co2 is produced throughout the  entire productioncycle, cause one can go very far with a detailed calculation. That was one of the main conlusions that came out of the few cases where it was indeed tried.

Not sure if it'll ever move beyond the experimental but then again, nuttier things have happened.

[Crazy_Ivan80]

Excellent idea, of course.  You guys do this cap and trade thing, while we in Hong Kong continue to enjoy our coal-fired power stations 

And your non-ventilated apartments. By 2050, you'll have enjoyed your coal-fired power stations and all died of carbon monoxide poisoning.

Winds, my dear, winds.  The benefit (in terms of lower electricity bill and stable supply) is mine.  The pain is spread around the globe.  I see no reason why we should do it :evil:

as the misery gets worse the rest of the globe might not put up with shenanigans like that anymore. fun times

[grumbler]

CI, what you state above ("raise prices to get people to vote with their wallets") is the objective of both systems.

The carbon tax depends on the political system to get the tax rate right in order to achieve the abatement desired (and limit the exceptions).  Cap and trade regulates the abatement directly.  If the tax rate isn't right, it requires the political system to have the will to change the tax rate, against all the resistance tax rate changes face.

Cap and trade has the advantages of (1) regulating the problem directly, and (2) it has been used successfully.  In the US, sulfer dioxide emissions have been under a cap and trade  regime since 1990, and emissions have dropped by 40% without any noticable increase in electricity prices attributable to it.

So, I say to let the politicians figure out what the level of pollution is, and let the businessmen figure out what it will cost.  That's a division of labor that make more sense than having the politicians figure out the cost of pollution and then the businessmen deciding on the levell of it.

[alfred russel]

Cap and trade at least has the benefit of directly "taxing" the item whose decreased output is desired: CO2.  A carbon tax downstream doesn't do this, nor does it directly reward reductions in CO2 output.

If I'm an incumbant company given enough allowances for my current level of production, I'll pay no taxes at all—direct or indirect. If I'm an upstart company, wanting to compete with the incumbent, I need to pay companies (such as the incumbent) for the initial permits. Under the current plan of giving away a bunch of permits at the outset, the entire plan should not be described as a tax—though it does seem like a cleverly designed scheme to protect current business from future competition. If anything, it is a tax on new business formation.

What it seems as though is also missing from the discussion is that most non vehicle emissions result from electricity generation, which is typically produced from state regulated utilities. Since the state rate formulas tend to involve some sort of cost plus calculation, it isn't clear that significant increases in cost will prompt these companies to reduce their emissions.  That could produce some seriously out of whack economics: the economy gets a certain number of permits, the electric utilities don't especially care to reduce cost so they buy them up passing on costs to consumers, leaving hardly any for the rest of industry. Another problem that would not be present with a direct carbon tax.

[DGuller]

Hmm, interesting point.  Market solutions do tend to work poorly without market incentives.

[crazy canuck]

The US system works much differently than the Canadian one.  Allowances can only be obtained in the US from the Feds at a quarterly auction (with escalating floor prices).  If a company wants to offer offsets in lieu of allowances, it is up to the company to demontrate that the offsets exist and are effective (as well as being required to demonstrate their permanence or time limits).  In the US, offsets are limited to a national total of 2 billion tons per year.

If Canada allows anyone (who wants to) to issue "credits," I can see why you would object.  But that is a flaw in a silly system, and not an objection to cap and trade per se.

So, the US government is going to try to simulate a real market by doing its own due diligence to try to figure out whether the offsets provided by third parties are actually legitimate and then selling those in an auction to people who want to pay for the priviledge of polluting.

And you dont see this as silly system?  How effective do you think the government will be at this sort of due diligence and how much do you think it will cost to create a system that can actually do this effectively.

If the credits the government is selling do not actually provide the off sets the government believes it is selling then all this expense is for nothing. 

By the way, this is system is also not a licencing system.  If the government doesnt do proper due diligence then this has all the same problems of the system you called "silly" except that it will be even worse as it will have the added expense of the government becoming part of the sale of something that doesnt actually exist.

Somebody will get rich though.  Those people that can put themselves into a position to sell carbon credits for more then they are actually worth - ie they are able to inflate the value of the carbon they are selling since there are no real market forces to determine whether the carbon reduction they are selling is real or not.

[Weatherman]

President Barack Obama's push for quick action by Congress on climate change legislation suffered a setback on Thursday when the U.S. Senate committee leading the drive delayed work on the bill until September.

Senate Environment and Public Works Committee Chairman Barbara Boxer said her self-imposed deadline of early August for finishing writing a bill to combat global warming has been put off until after Congress returns from a recess that ends in early September.

"We'll do it as soon as we get back" from that break, Boxer told reporters. Asked if this delay jeopardizes chances the Senate will pass a bill this year, Boxer said, "Not a bit ... we'll be in (session) until Christmas, so I'm not worried about it."

But Boxer did not guarantee Congress will be able to finish a bill and deliver it to Obama by December, when he plans to attend an international summit on climate change in Copenhagen.

[Ed Anger]

That fucker Sherrod Brown better hold out so Ohio can get more delicious federal funds. If Kaptur can do it, that retard can too.

[The Minsky Moment]

Ugly, leaning toward bad.

There is a right way and a wrong way to do this.  The right way is carbon tax.  The wrong way is everything else.

[grumbler]

If I'm an incumbant company given enough allowances for my current level of production, I'll pay no taxes at all—direct or indirect. If I'm an upstart company, wanting to compete with the incumbent, I need to pay companies (such as the incumbent) for the initial permits. Under the current plan of giving away a bunch of permits at the outset, the entire plan should not be described as a tax—though it does seem like a cleverly designed scheme to protect current business from future competition. If anything, it is a tax on new business formation.

Can you give me a citation for these claims?  Or is this simply a series of "ifs" constructed to yield the desired result?

I could just as easily asay "if i am an incumbant company with an exemption to the carbobn tax, i pay no  taxes at all—direct or indirect. If I'm an upstart company, wanting to compete with the incumbent, I need to pay taxes on any carbon I (produce?  consume?  not sure what is being taxed in a carbon tax scheme). The entire plan should not be described as a tax—though it does seem like a cleverly designed scheme to protect current business from future competition. If anything, it is a tax on new business formation."

What it seems as though is also missing from the discussion is that most non vehicle emissions result from electricity generation, which is typically produced from state regulated utilities. Since the state rate formulas tend to involve some sort of cost plus calculation, it isn't clear that significant increases in cost will prompt these companies to reduce their emissions.  That could produce some seriously out of whack economics: the economy gets a certain number of permits, the electric utilities don't especially care to reduce cost so they buy them up passing on costs to consumers, leaving hardly any for the rest of industry. Another problem that would not be present with a direct carbon tax.

You point out, of course, the huge disadvantage of the carbon tax scheme:  since the cost of the tax is passed directly to the consumer, the utility has no incentive to cut CO2 emissions at all.  It especially has no incentive to invest in any CO2 reduction schemes, since they will pay no profit.  In a cap-and-trade system, any reduction in actual CO2 output generates a profit or reduces losses.  Your claim that a tax system avoids the problem is mere wishful thinking.

[grumbler]

Ugly, leaning toward bad.

There is a right way and a wrong way to do this.  The right way is carbon tax.  The wrong way is everything else.

Well done.  You could be a TV talking head, since you have the system of "avoid actual reasoning as it just slows things down and nobody cares about it anyway" down pat.

[The Minsky Moment]

You point out, of course, the huge disadvantage of the carbon tax scheme:  since the cost of the tax is passed directly to the consumer, the utility has no incentive to cut CO2 emissions at all. 

That would only be the case if energy demand at the consumer is perfectly inelastic, which is demonstrably not so.

[The Minsky Moment]

Ugly, leaning toward bad.

There is a right way and a wrong way to do this.  The right way is carbon tax.  The wrong way is everything else.

Well done.  You could be a TV talking head, since you have the system of "avoid actual reasoning as it just slows things down and nobody cares about it anyway" down pat.

I answered the question.  It did not call for any reasoning. 

[grumbler]

That would only be the case if energy demand at the consumer is perfectly inelastic, which is demonstrably not so.

So it must be "perfectly" inelastic?  Any lessor sort of inelasticity will not do?

Since the tax is on carbon, and not energy demand, I am not sure what effect this tax will have.  Who buys carbon, anyway?

[grumbler]

I answered the question.  It did not call for any reasoning. 

The questions were "What do we think about this deal? Is it Good, Bad or Ugly?"