In Which I Cash My Predictability Chips
Now, I’ll admit that as cosmotarian technophile post-Randian foreign policy doves with a soft spot for mutualism go, I’m pretty predictable. But this made me sit up and take notice. Maybe it’ll do the same for you.
It’s about Thomas Crocker, an economist who followed in Ronald Coase’s footsteps to become the inventor of cap and trade pollution credit systems:
Crocker, who is retired but continues to do economics research, says cap-and-trade is not the best way to reduce greenhouse gas emissions. It would make more sense to impose a flat tax on carbon dioxide, he argues. In a phone interview with TWI from his home in Wyoming, Crocker said, “Apart from the question of whether or not it’s appropriate to control greenhouse gases in the first place, and given that you’re going to take some form of control, I believe that emissions taxes for greenhouse gases are more economically efficient than is cap-and-trade.”
Cap-and-trade, which Crocker said is not “inappropriate by any means” to reduce greenhouse gas emissions, works better for traditional pollutants like sulfur dioxide, because “incremental emissions of SO2 do a great deal of damage.”
“Whereas with respect to greenhouse gases,” he continued, “the marginal damages of an additional bit of greenhouse gas is not going to do much harm.”
Because each additional increment of SO2 that is emitted into the atmosphere is so detrimental to the environment, a proper policy must give certainty with respect to quantity, Crocker said. Cap-and-trade puts a hard cap on emissions and therefore controls emissions quantity. A carbon tax, on the other hand, provides certainty with respect to pricing — it imposes a certain cost on carbon — but does not set a limit on how much carbon can be emitted across the economy.
Greenhouse gases, Crocker argued, are not as incrementally dangerous as SO2 and other pollutants. Therefore, price certainty, delivered through a carbon tax, is more important.
So while I’m not inclined to take Friedrich Hayek seriously as an anti-cap-and-trader (because he advocated pollution controls before cap-and-trade even existed as an idea), I am inclined to take Thomas Crocker seriously, because he’s the actual inventor of cap-and-trade.[1]
As to the appropriate size of the intervention, that’s another question entirely, but there’s nothing in principle about very large sized commons problems that says we should ignore them forever. The opposite seems rather obviously true, no?
One proposal I recently found appealing was to swap it for the corporate income tax. If it could be done, why not do it? Even if we were to grant that carbon taxes achieved no environmental good whatsoever,[2] they could still wind up being a lot better than the special interest boondoggles arising from the corporate income tax and its many exceptions. If you’ve gotta tax something, why not carbon?[3]
[1] I’m also inclined to grumble at the Washington Independent, for misspelling Coase’s name, and not in a flattering way.
[2] A premise I by no means grant.
[3] In the interests of fairness, here’s a dissenting view.
Well since the corporate income tax is the most inefficient, ineffective, distortionary and corruption producing revenue stream the government has I certainly agree that replacing it with anything would be advisable. I’m more inclined though to think that it’d be best to axe the corporate income tax in exchange for an end to the favorable treatment of capital gains taxes.Report
I second North.
Also, while Cap and Trade was still being discussed in the MSM, many who were serious about reducing emissions and still producing a piece of legislation that was passible, were arguing for a straight tax just on the producers of carbon based fuels. Rather than targeting a myriad of interest groups, focus just on the traditional energy ones (natural gas, coal, oil, etc.), and tax the carbon at the point where it is introduced into the economy, that is, when it is made available as energy or potential energy.
A cap and trade program always seemed like the worst of both worlds for regulating carbon, convoluted and ultimately toothless.Report
Cap & trade will unevenly impact individual Americans, so it’s important that it generate revenue that can be used to offset these problems (via job training, business development grants in coal mining states, etc). Swapping cap & trade for some other revenue source makes this impossible absent other cuts.
I can’t see how a carbon tax that’s both effective/efficient and provides price certainty is feasible. Can we accurately model the effect of some carbon tax on CO2 emissions? It seems likely that a tax would have to be tweaked on a regular basis to meet emissions targets, introducing as much uncertainty as trading permits. The CO2 permit market shouldn’t be all that volatile since it’s a lot easier to project low-CO2 energy development than other forms of energy. It seems like cap and trade would shift our energy supply towards a higher-certainty mix of nuclear/wind/solar. Would the uncertainty in the CO2 market be offset by making energy prices less contingent on erratic oil prices?Report
This is the conversation I wish the country were having. Yes, with some modifications I would be fine with that as Climate change is a big deal and we should do something about it.
I’d like to keep the tasty varities of tuna non-extint too but that doesn’t seem to be going well.Report
@ThatPirateGuy, You’d have to have a word with the libertarians Pirate. Most of the tuna fisheries lie free from regulation in the libertarian paradise of international waters.Report
@North,
It is my understanding that countries are not willing to work together to place serious limits or a temp ban to give the tuna a chance to breed back up.
I’d support just about any approach even Carp and trade(rolleyes for my pun I know).
I seem to remember a smaller scale issue being solved by selling a percentage of the available fish to the fishers creating an incentive for all of the workers to focus on getting the total number of fish up so that they can produce more delicious sushi meat for efete liberal city people like me to overpay for.
Seriously if tearing down the Washington monument and replacing it with a gold statue of Rush Limbaugh that all citizen had to kiss the tusch of once a year would reduce carbon concentrations to the levels they need to go down to I’d be puckering up at this very moment.Report
@ThatPirateGuy, I’m going to try and sponge that last part out of my brain but yes, your general understanding is the same as mine. There have been a few flaccid efforts at limiting the activity of tuna fleets but tuna is swimming gold right now and since the regulatory body is toothless and corrupt the catch ceilings are way above what can be realistically caught let alone what can be sustainably caught there is essentially a race going on to fish them into oblivion.
What we have in the case of the tuna is a classic case of the tragedy of the commons. The more you fish individually the more money you get. The more you fish, the more fish stocks go down. But the more the stocks go down the higher the price goes which means that the more fish you get the mega more money you make. So there is a mad scramble to fish the tuna out. Since it is impossible for anyone to own the tuna schools and since the tuna school mostly in international water where no national body can impose regulations the tuna are headed for commercial extinction.Report
I’m indifferent between a carbon tax and a cap and trade regime. Each has its advantages and disadvantages. I would like to make one point. We must be very careful in comparing actual cap and trade legislation — Waxman-Markey, for instance — against a theoretical carbon tax. Were a carbon tax to emerge from the legislative process, it would no doubt be riddled with exclusions, deductions, and a host of other provisions — in short, be in many ways quite as “ugly” as a cap and trade bill. This, I might add, is a problem endemic to discussions of taxation. Almost any theoretical tax looks better than an actual tax.Report
Right. You want to get rid of the corporate income tax to be harder on corporations….
Thanks for reminding me why I dislike and mistrust libertarians.
Introducing a carbon tax and using it to pay for income-tax cuts for the middle class and tax rebates for the poor sounds like an exponentially better policy, having the benefit of not being outrageously regressive like your plan is. It’s more or less what British Columbia has done.Report
Not to be harder on corporations necessarily, but to treat them in more predictable and perhaps even more equal ways. And to give them incentives not to emit so many greenhouse gases.
But if even that’s not going to make you happy… what would?Report
@Jason Kuznicki,
I should add that I’d taken for granted that eliminating all taxes on corporations would have been politically unacceptable, particularly to people like you. If we must tax corporations, then let’s at least tax them on carbon. I really don’t see the problem with this.Report
@Katherine,
Leave the corporate income tax as it is; if the “many exceptions” are your problem with it, get rid of them.
What you propose is harder in the long term than you may appreciate. Corporations will lobby incessantly for credits, exemptions, and other exceptions, and — because they fit particular near-term policy goals — they will win.
Raise the capital gains tax and lower the income tax so that the two are at the same level and we’re not favouring the ability to play the stock market over the ability to do useful, productive work;
I’d support equalizing these taxes, but not because “playing the stock market” is unproductive. It isn’t.
this would have the added benefit of calming down investment trends and reducing the extent of the boom/bust cycle.
I’m unconvinced, but it certainly wouldn’t hurt.
In any event, I wasn’t meaning to propose a comprehensive plan to make all taxes exactly the way I want them. I was repeating one idea, admittedly a big one, that came from the left and yet seemed an improvement to me. That’s all I intended to do here.Report
What you propose is harder in the long term than you may appreciate. Corporations will lobby incessantly for credits, exemptions, and other exceptions, and — because they fit particular near-term policy goals — they will win.
I don’t believe we should increase tax breaks for corporations on the basis that “they’ve got good lobbyists, so they’ll win anyway.” I believe we should decrease the power corporations have in elections, but for reasons I don’t understand libertarians loathe campaign finance reform.Report
@Katherine,
It seems entirely wrong to me to call a revenue-neutral tax swap a “tax break.”
For the class of corporations as a whole, this is entirely untrue. For corporations that pollute, it will usually be a tax increase. For corporations that earn income without polluting, it will be a tax break. But don’t these at least deserve it?
As an added benefit, a tax on carbon is clearly more neutral on its face than the current corporate income tax code, which is a labyrinth of special interest giveaways.
Now, admittedly I’d taken it as a given that a carbon tax would be less open to lobbying for exceptions than an income tax, and while I might be wrong on that, it doesn’t seem terribly absurd to think this way. It’s a fair point that what looks great in theory might look awful in practice, as other commenters have noted. But I don’t think it can reasonably be claimed that what I’m proposing here is merely an increase in tax breaks.Report
But if even that’s not going to make you happy… what would?
Leave the corporate income tax as it is; if the “many exceptions” are your problem with it, get rid of them. Raise the capital gains tax and lower the income tax so that the two are at the same level and we’re not favouring the ability to play the stock market over the ability to do useful, productive work; this would have the added benefit of calming down investment trends and reducing the extent of the boom/bust cycle. The increased revenue from the taxes would enable the debt to become something more manageable; if higher taxes offend you too much, reduce taxes for lower-income people. Oh, and reinstate the estate tax at a rate of about 40% for properties values over $5 million.
Oh, and a revenue-neutral carbon tax offset with income tax cuts to the lowest tax brackets wouldn’t be a bad idea either.Report