Are we at the "then they fight you" stage?

I think it's promising that climate denialists in Congress feel a need to actively fight against carbon taxes and a "fee and dividend" proposed legislation. Given that the legislation has zero shot of passing before 2017, I'm glad that the forces of status quo feel the need to fight it.

The article at the first link is good but flawed, with the incorrect and uncited statement, "Economists favor a carbon tax over cap-and-trade as more efficient and transparent". A tax gives greater certainty on costs but less on carbon emissions than cap-and-trade. It's a less efficient and less transparent way to achieve a proposed level of emissions, but more efficient and more transparent way to demonstrate the costs.

This part's good:

most new versions of the tax, including Boxer/Sanders, would include a border tariff on the carbon content of imports that is equivalent to the tax. That would create a big incentive for exporting countries like China to impose their own carbon tax so as to keep the revenue. 

Opponents clearly think the idea is gaining traction and want to stop it before it gets too far.

I'm looking forward to seeing something similar in Europe and Australia, providing the same incentive to us that we'd like to provide to China. I do think though that at least half of the revenue from an import tariff from a developing country should be sent back to exporter to help reduce their emissions.

A modest carbon tax has modest carbon reduction results

Been meaning to highlight Brad Plumer's post on a paper about the effect of a carbon tax on emissions (full paper here).  A tax of $20/ton, with an inflation-adjusted 4% annual increase, knocks emissions down 14% by 2020, and a larger number in 2050 if you believe economic projections that far in the future.

I include my caveat about 2050 because economics modeling is far harder than climate modeling.  In particular I can't tell what assumptions they make about the cost of renewables in the future, which seems like a game-changer to me.

Still this seems a reasonable argument that a carbon tax has only modest benefits.  By all means we should do it, but also use the funding for renewables, and pursue stricter regulation.  One aspect that surprised me is how much money this tax would raise, over a trillion dollars in the next decade.  That can really help with deficit reduction and maintaining social welfare programs as well as renewable energy funding.


UPDATE:  I really should've mentioned that an annual 4% real increase is not enough in their model to drive large decreases in emissions.  The implication is that if you choose a small initial tax then you need a higher annual increase.  The California cap's minimum price is even smaller than this study ($10/ton), and has a 5% annual increase.  Still it's just part of the pricing system, with emission allowances hopefully functioning as the real control on the amount, together with regulation.

Happy California Cap-And-Trade Eve

Nice radio program on California's cap-and-trade allocation auction that starts taking bids tomorrow, and on Monday we'll find out the price per ton, with a minimum price set by regulation at $10/ton.  Second biggest cap-and-trade market in the world after Europe.  Hopefully we've learned from other's mistakes (and I think we have).

One critique deserving a response is whether including a minimum and maximum price on allocations somehow proves a failure of the cap system.  The idea is if a cap's appeal over a carbon tax is that it determines the total amount of emissions, then the floor and ceiling prove the lack of commitment to determine the right amount of emissions.

Three responses:

1. Doesn't matter anyway unless the price hits the floor or ceiling.

2. It's a little simplistic to say a tax focuses on specific price for carbon while a cap focuses on specific quantity of carbon emissions.  The floor and ceiling for a cap just lets society choose a tradeoff between price and quantity.  You could do something similar with a tax by letting the tax price change if total emissions fall through a floor or above a ceiling.

3. If greenhouse gases were as easy to eliminate as ozone-destroying chemicals then we'd have a similar schedule for phaseout.  It's not that easy, so we're doing things less quickly under either a carbon tax in Australia, or cap in Europe and in parts of the US.  Putting a floor is an indication that we overestimated the difficulty in achieving a reduction and therefore will require a larger reduction.  It's actually good news, that we can achieve reductions more quickly than anticipated.

The time window for a revenue-neutral carbon tax is 2017-2018, so get cracking

My theory that our time for serious climate legislation is the two years after the 2016 election relies on the following reasons why up to 2016 won’t work:

• Before 2014 is no good because the current House majority would never pass it (and the Senate minority would filibuster).
• 2014-2016 is no good because the president’s party almost always loses seats in the House in the off year.

Then there’s 2016, the counterpart of the lucky fate of 2012 Senate elections. The Senate gets elected in three separate waves, with a few more Ds than Rs. Fate decreed an uneven distribution with a large minority of Ds up for election in 2012, 23 Ds versus 10 Rs, a big reason why this election was supposed to be bad in the Senate, until the Rs pulled out their unregistered pistols and shot up their own feet. Fate said 2014 would be somewhat closer in distribution between parties, so Math said that 2016 is the vulnerable year for Rs, with 24 Rs up for election compared to 10 Ds.

While far from certain, it’s possible that for two years after the 2016 election, and only for those two years, Ds will have somewhere in the vicinity of 60 votes in the Senate. That’s the chance. The 2018 election puts the Ds back on the defensive, 25 D seats versus 8 R seats.

I suggest two alternatives for explaining climate politics. One is Roger Pielke Jr.’s so-called Iron Law:

When policies focused on economic growth confront policies focused on emissions reduction, it is economic growth that will win out every time.

The other is the acronym BOSO, or Brian’s Obvious Statement of the Obvious:

Getting 60 votes in the Senate is hard.

Only one of these is likely to display true insight into climate politics. The Iron Law appears to be unfalsifiable because it’s not applied where it doesn’t work, so you can probably guess which way I lean. If you go with the Iron Law though, then you make a few bets on technology and just hope for the best (and please don’t annoy Godwin by pointing out that was Hitler’s end-game strategy too). If by contrast you’re just a BOSO, then look for the best strategy to get to 60.

I’m assuming the president will be a Democrat, or a Republican who favors action, and that the House will pass a bill like they were able to in 2010. Getting Republican and possibly squishy Democratic support is the reason, really the only reason, to do a revenue-neutral carbon tax. A revenue-generating tax could do positive things for climate mitigation and adaptation, or a cap-and-trade law could provide similar incentives. It’s the possibility of getting a few Republican votes and the difficulty of BOSO that makes me think we should explore a revenue neutral tax.

And I’m saying “possibility,” not probability for all the above. On the hopeful side, science will continue to beat over the heads of the ignorant, and not-hopeful tragedies like Sandy may do the same.   Renewables will continue to expand while costs decrease, and shale gas can cut into the stranglehold that coal has over electricity politics in swing states like Ohio.  Demographics also favor reality. On the other hand, two election cycles between now and 2017 aren’t that many to get reality into Republican politics, which is actually getting more ideologically rigid at the state and local level.

Still, it’s an opportunity that we should plan for as much as possible, and revenue-neutral carbon tax might be the best way to do it. Meantime, stick with Eli’s strategy of regulating our way through this via the Clean Air Act (and I expect eventually through the Clean Water Act for ocean acidification).

 If the Republicans don’t bend in 2017 and there aren’t enough votes to get around them, then their rigidity will eventually make them a national version of the California Republican Party, a group so unpopular and powerless that it will have less than one third of the seats in both houses of the state legislature. That, however, will take even more time before it happens.

Shorts

1. AAUP proposes revisions of rules on research misconduct:

The proposal defines research misconduct as "fabrication, falsification, or plagiarism in proposing, performing, or reviewing research, or in reporting research results." To arrive at a finding of research misconduct, in-vestigators would have to establish that the conduct in question was a significant departure from accepted practices in the relevant research community, and that the action was committed intentionally, knowingly, or recklessly.

My emphasis added.  Doesn't sound all that different from current rules that are being flaunted by George Mason University over plagiarism among their climate denialist academics.

UPDATE:  No wonder it sounded familiar, it actually was the old set of rules - I stumbled through a link and thought it was new (HT to John Mashey).  Even more importantly, I should've said "flouted" the rules instead of "flaunted" the rules.

2. My sadly-unpaid advertising for Chris Mooney's Point of Inquiry continues, this time about the Truth Markets innovation that attempts to reward truth in political discourse with money.  Great idea, no idea if it will work.  I don't share Mooney's concern that the conservative reaction to the mostly truthful wikipedia - creating Conservapedia - represents a successful response on any level.  OTOH, the proposal for a Truth Campaign, "Over 95% of American scientists believe climate change is real" is problematic.  It should read "over 95% of climatologists publishing on climate change believe climate change is real."  Still, I hope the overall idea works out.

3. Nice Felix Salmon article about the positive interaction between straight regulation, a gas tax, and a theoretical carbon tax:

Porter is also right that in countries with higher gas taxes, fuel economy tends to be much higher. But he’s not necessarily right that the higher gas taxes alone are responsible. Porter implies that the US only has fuel-economy standards just because “a tax on gasoline doesn’t stand a chance” of being passed. But the fact is that even countries with very high gas taxes have fuel-economy standards as well. And, guess what, they’re significantly tougher than ours, and they always have been.... 

Auto emissions pollution was a problem in the 70s and 80s; it’s not a problem now, with today’s much cleaner cars. [Wow, that was a really wrong sentence in an otherwise smart article - Ed.] 

The fact is that fuel-economy standards are a pretty good way of ensuring that carmakers can plan for a more fuel-efficient future, without worrying about competitors undercutting them with gas-guzzlers. If the US government ever comes to its senses and increases the gas tax, or if it — wonder of wonders — actually implements a broader carbon tax, then at that point you would have three different forces conspiring to make America’s fleet more efficient. You’d have the tax, you’d have the fuel-economy standards, and you’d have the general global increase in fuel efficiency.

I added the emphasis, a point that I hadn't thought of before.

America != Europe. How's that for insight?

I'm planning to write a post on how a revenue neutral carbon tax might, just might, have a shot in the US in the medium term.  First though I have to disagree with William's argument that a revenue-neutral carbon tax is the only way to go - or to be more fair, is the best political approach.

I'll just sycophantically second Eli's first comment to William's post that both taxing and regulating can work.  The other main point I'll make is that taxes are sticky in the US - they don't like to go up.  Saint Ronnie approved a rate increase in the US gas tax from 5 cents to 9 cents in 1983, and it's now 18.4 cents, a net decrease after inflation.  Regulations by contrast do get tougher - not only the CAFE standards that Eli talks about at length, but also the nickel-and-dime increases in regulations on coal plants that are helping natural gas in putting a squeeze on that industry.

It's a fact of life in the US that we accept regulation more readily than taxes and especially tax increases.  Seems like it might be a little different elsewhere.

I suppose regulation is somewhat less transparent, but you could also think of it as a solution to a coordination problem.  A tax approach makes the solution appear as painful as possible, and because we'll underachieve the solution regardless, we might consider a solution that doesn't highlight the pain and therefore gets more done.

Three other points.  It's helpful to clarify assumptions in any discussion, and in this case are we assuming the people are economically rational actors divorced from real world psychology and politics, or are we having a meaningful discussion?  Personally I prefer the latter, but it's helpful to identify your assumption if you want to talk about the former.

Second, at least in the US, a significant carbon tax that has any remote chance of passing political muster will have some balancing combination of exemptions and financial support for those interests and people/constituencies most affected by the tax.  The exemptions will distort the economics, and the financial support raises the question of where the money will come from if your carbon tax is revenue neutral.  These aren't easy political issues.

Finally, William points out that putting a floor on the price for carbon allowances in a cap and trade system contradicts the argument that allowances let you set right emission levels, something that's a lot harder to do with taxes.  He's right, but this gets back to initial assumptions - the cap-and-trade isn't a platonic ideal but an assessment of what's politically and economically achievable.  Putting a floor (or ceiling) on the price is a way to correct for misjudgments at the beginning as to what would be achievable in the future.

UPDATE:  William responds in the comments.

Yes, carbon taxes can work in theory

I've argued a million times that some enviros shot and are shooting themselves in the foot by opposing cap-and-trade so they can get their-way-or-the-highway alternative of the carbon tax.  I'm not enjoying the highway very much.

To balance this criticism, I should say the liberal economics blog NoahOpinion is wrong to say "Carbon taxes won't work".   Had he said "carbon taxes are unlikely to be politically achievable in the short to moderate term at levels that are sufficient to change behavior, and other approaches deserve prioritization of political capital," then he'd have a worse title but better argument.  His problem though is that he mushes a political argument into what purports to be an economic analysis.

Noah briefly tries to unmush the politics but doesn't do it.  He mentions the political difficulty and then says that's not an argument that economists should use.  He says the solution is technology development, standard Breakthrough Institute stuff (thankfully minus their prioritization of nuclear uber alles).

So.  Even if you think we really can't get 90% GHG reductions with current technology, a debatable but unimportant argument given the decades that we're talking about, then anything that incentivizes a move away from carbon will assist new technological development.  Therefore a theoretical carbon tax, especially a substantial carbon tax, will provide some of that incentive that he wants.

As for his other points, coordination is difficult, but Europe is moving, Australia has a carbon tax, and other countries are making efforts.  Carbon tariffs on imports seem like an important solution to the coordination problem, although I'm not clear to what extent that raises World Trade Organization issues.  Noah says the pointy-headed intellectuals might not want tariffs, but that hardly matters politically.

His argument that carbon taxes can be revoked and therefore have little effect is another political argument.  If you assume the political strength exists to get them started, my guess is that worsening climate impacts over time will only reinforce that resolve.  Finally his argument that a small reduction does almost nothing is a misstatement of his previous argument about temporary reductions.  If he wants to make a scientific argument instead, go to it then.

It all comes down to politics.  I'm happy to support a carbon tax, but will also support cap-and-trade that seems to get a lot farther politically.  It passed the full House of Representatives in 2010 and versions have passed Senate committees.  If Noah's ideal technological support legislation had reached similar levels before being stopped, then I'm sure he'd call that substantial support, not something that "went nowhere fast".

Of course, cap-and-trade and carbon taxes will go nowhere on the national level barring a natural disaster for at least a few years.  Support for technology is fine, but it shouldn't be viewed as the only possibility on an indefinite basis.


UPDATE:  I should have mentioned that I generally like the other posts at Noah's blog, but of course I have to complain about the one where I don't like the free ice cream.

Conservative carbon-tax convert con job

Whether it's intentional or unintentional, the mini-wave of conservatives like Jonathan Adler saying they would support a carbon tax to prevent cap-and-trade legislation are really offering a poison pill. As Dave Roberts says:

The 111th U.S. Congress is not going to pass a carbon tax. Calls for a carbon tax, to the extent they have any effect, will complicate and possibly derail passage of carbon legislation....If you want carbon pricing out of this Congress, cap-and-trade is what you're getting.

I think the same is true for 100% cap and dividend, where all the money raised from carbon auctions has to be distributed to taxpayers. While sending some of the money raised back to taxpayers wouldn't wreck a deal, I think sending 100% of it back would, as well as cut off a source of funding for research, mitigation, and yes, adaptation to climate change.

The good thing about a carbon tax is that it's compatible with cap-and-trade. Once the cap system is in place, a carbon tax will reduce the economic incentive to emit carbon, and then reduce the auction price. Carbon taxers who really believe what they say should get a good cap system in now, and then work on a carbon tax that if significant enough, would end up overshadowing the cap system.

Good news/bad news on a carbon tax

Respected conservative and liberal economists Tyler Cowen and Brad DeLong agree about the good news: an oil tax will mostly just transfer wealth from low-cost oil producers like Saudi Arabia to the governments that impose the tax. The bad news: because the oil tax will mostly just transfer wealth instead of increasing oil's cost, it will do little reduce carbon emissions.

This sounds mostly correct to me, assuming most oil is produced by low cost producers. You can't always predict the behavior of semi-monopolies like the Saudis though. And the economics is clear that a tax does affect price and presumably emissions in the long-term. The sooner we get started, the sooner we get to the long term.

And then there's the issue of what we can do with the tax revenues to reduce emissions.