Since a good part of the discussion in this thread has devolved into a debate over which of those two alternatives would be superior, I thought it deserved a thread of its own.
Assumptions/ground rules:
[ul]
[li]We’re considering specifically the U.S.[/li][li]Political feasibility of either approach in the U.S.A.'s current political environment is very much part of the discussion.[/li][li]It’s OK to compare a ‘pure’ cap-and-trade proposal with a ‘pure’ carbon tax proposal.[/li][li]Don’t bother comparing a ‘pure’ carbon tax proposal with the actual cap-and-trade bill passed by the House. Any pony plan is better than a bill that’s already been through the legislative sausage grinder.[/li][li]Claims that a carbon tax would be less mucked up by the legislative process than cap-and-trade has been, must be backed by argument or evidence.[/li][li]Ditto claims that a carbon tax bill could garner 218 votes in the House under any circumstances.[/li][/ul]
Where I stand:
[ul]
[li]Each has advantages and disadvantages in the abstract, but the difference isn’t really that great.[/li][li]I think cap-and-trade has a slight advantage, but if a carbon tax that could have the same effect had a better chance of getting through Congress, I’d be fine with that.[/li][li]But anything that’s clearly and directly a tax will have a much harder time of it politically than something that isn’t technically a tax, even if its effects don’t appreciably differ. Doesn’t matter if it’s revenue-neutral, or what.[/li][li]But the tax has one big structural political problem whose solution I don’t see. See #2 below.[/li][/ul]
Two advantages of cap and trade that are hard for the carbon tax to replicate:
With cap and trade, you set your carbon targets precisely, rather than setting the tax at a certain level and guessing how much that’ll reduce carbon emissions.
Which, over the long run, leads to:
With cap and trade, you have a pretty clear idea of what your target is for, say, 2050. So you can write the bill now that sets the cap for the year 2050.
But you can’t do that with a carbon tax: you really have no idea what tax will have what effect in the year 2025, let alone 2050. You don’t know what the dollar will even be worth in current terms then, and you’re going to be setting the nominal rate of a future tax, if you set it ahead of time at all. And even by 2025, the economy will have changed too much to say what carbon tax in current dollars will lead to what reduction of usage in 2025. It just can’t be done particularly well.
This means that a carbon tax will have to be repeatedly re-calibrated over the years. This means Congress will either have to leave itself open to having to repeatedly pass carbon tax hikes (which relies on the political courage of several future Congresses) or turning over its authority to set carbon tax rates to an independent body (not happening anytime soon).
So a cap-and-trade bill can pretty much lay out the framework for carbon reductions over the next 40+ years. I don’t see how a carbon tax bill can do the same.
Like I said, that’s a political problem. If you simply assume that Congress will adjust carbon tax rates in a timely manner so as to hit the carbon emissions targets, then the big differences vanish, and while it’s not quite six of one, it’s close. But that’s a pretty big assumption.
Oh phooey Rufe, I just went and posted the linked excerpt from the Yale 360 panel on this very issue over in the other thread. Oh well, apologies for repeating myself, but I think it will be useful to have this cite here too.
You missed two key advantages of cap-and-trade over a carbon tax. First, the “correct” amount for a carbon tax would be the cost of getting that carbon out of the atmosphere, or of otherwise correcting for its effects. How much, precisely, is this cost? I don’t know that that’s something that politicians can really answer. Under cap and trade, however, the price would be set by those who actually are getting carbon out of the atmosphere, and who are thus in the best position to know. It’s putting the free market to work.
Second, while a carbon tax would incentivize current carbon-intensive industries to decrease their footprint in various ways, it would not incentivize the emergence of a new industry explicitly for taking carbon out of the atmosphere. Say some entrepreneur finds some way to, say, efficiently grow a whole bunch of trees and sequester them. Under a carbon tax model, he wouldn’t be paying any tax for his efforts, but he also wouldn’t have any income to his business. Under a cap and trade system, though, even if he’s not directly connected to any carbon dioxide-producing industries, he can make money by selling credits to those who are, like coal power plants.
That’s what I was getting at in the other thread: I don’t see how a carbon tax is in anyway related to the true cost of removing carbon from the atmosphere. I’m under the impression that not only do carbon emission levels have to reduce drastically, but we also have to remove a certain level of excess carbon to slow warming.
For that reason, I can’t see how a carbon tax will work (and a tax that has a reasonable expectation of reducing emissions by 70%, say, is going to be quite a hefty one). Isn’t it better to create a market where industries with negative carbon emissions gain credits to sell on that market to industries with positive carbon emissions, then tax them on the excess?
Aw, crap. “My” topic comes up on the Dope — but perversely enough I don’t have time to post anything substantive because I’m prepping several papers on CC financing for Copenhagen.
:sigh:
My .02
Not to marginalize the economic arguments that favour a tax, but IMHO the primary/most common reason lay people support tax over trade is notions of fundamental fairness. The notion that rich corporations or people can buy their way out of emitting just grates on people. I liken it to certain forms of insider trading in which the market is not affected nor did any particular individual lose money. It’s hard to argue for its illegality without falling back on fundamental fairness (not that there’s anything wrong with that).
The nebulous “people” I’m referring to are those who accept climate change as occurring.
Deniers favour a tax, not because they want a tax per se or think it’s a better option, but because it will be harder to pass and will be a very powerful cudgel against political opponents who voted for a tax (passed or not). Yeah, I’m that cynical — it’s not hard.
Though there are hurdles to get over, carbon trading, IMHO, is an obvious choice. It allows for maximum reductions for the minimum/most efficient price and has a host of incentives to boot (e.g., third party innovations).
Forgive the long post, but I really have to comment on the idea repeated here that carbon trading will enhance sequestration and bring market forces to bear on greenhouse gas emmisions.
The problem is that the science behind carbon sequestration schemes is as dodgy as all hell. And this comes from someone who has put in a lot of years on such schemes. While I agree that a tax alone isn’t going to reduce carbon emissions, there’s no way that any sequestration scheme I have seen proposed will do any better. Most people seem to assume that the value of sequestration schemes has been objectively verified because we can measure carbon sequestration from those schemes to within reasonable limits over reasonable time limits. But the fact is that we can’t for almost any schemes. Geosequestration is the only exception can think of, and that’s a situation where the errors are within an order of magnitude, not where the errors don’t exist.
The first problem is that nobody can decide what “sequestration” and “emmissions” even means in the real world. Is removal of carbon from the atmosphere, or more broadly the reduction of carbon emmissions over business-as-usual (BAU).
If we say the former then we have a situation where somebody can’t get any credits for buying an acre of pristine old growth forest that is slated for logging and simply preserving it. After all there is no removal of carbon going on. Yet the action still contributes to a reduction in greenhouse gas emissions. More importantly, if we don’t allow this then the selling of carbon credits is just going to encourage deforestation. Forest owners can clear fell, sell the timber and burn the refuse for charcaol, graze the land for a few years and then re-plant. Over a 20 year period that will result in an increase in soil carbon with minimal net reduction in above ground biomass. So the carbon credits actually result in a situation where deforestaion and the associated carbon emmisions becomes *more *profitable. IOW our trading scheme is going to increase greenhouse gas emmisions.
The only way to prevent that is to adopt a definition of sequestration that also incorporates reductions compared to BAU. That way someone gets credits for *not * clearfelling a forest. But you only need to think about that for a second to see ludicrous that is in the real world. Yet if we don’t allow it we end up with the equally ludicrous situation where carbon credits are subsidising greehouse gas emmisions.
I could go on with similar inconsisitencies in a carbon trading scheme all day. I use this example as one that I am fairly familiar with. But the point is that a carbon trading scheme isn’t going to magically allow the market to price the “true cost of removing carbon from the atmosphere” as Capt. Ridley’s Shooting Party describes it. Any carbon trading scheme is necessarily as artificial and arbitrary and inconsistent as a carbon tax itself.
And that is because we are not dealing with a product that anybody actually wants. There is no real demand for carbon sequestration. The demand is simply for carbon emission permits, which are themselves a just a market distortion imposed from on high. Essentially they are a tax by another name. So nobody cares whether carbon sequestration actually takes place in the real world.
And this is why saying that a carbon trading scheme is in any way related to a free market is invalid. In a real marketplace I care whether I get what I pay for. If I pay for 10 tonnes of carbon in the form of graphite then I bloody well want 10 tonnes of carbon on my loading dock come lunchtime Monday. If someone offers me a low price but doesn’t deliver then I won’t trade with them any more. I don;t just want the docket, I want the product.
But when the carbon takes the form of atmospheric sequestration I don’t give a shit. If I purchase 10 tonnes of sequestered carbon the *only * thing I care about is the docket. I don’t care if you actually have the carbon because I can’t do anything with it. The docket is the only thing of value because it allows me to minimise my costs by allowing me to spew crap into the air. Whether you sequester that crap or not makes absolutely no difference to my profitability.
And that is why any trading scheme is doomed to failure. No matter how much proponents pretend that it is the free market in action, it is not. The whole thing is nothing more than an artificial market distortion, and it will be treated like all other artificial market distortions from taxes to trade barriers: by gaming the system. And that occurs precisely because the distortion is artificial and thus has no impact on demand for the goods and services produced.
And if you think that tax rorts like Scientology and Cayman Island accounts are bad, they are nothing compared to the creative accounting you’re gonna see under a carbon trading scheme. At least the wealth being subjected to taxation is real and of intrinsic value and thus must be preserved. Carbon is completely fictitious and of no value to anyone and can be manipulated in any way convenient.
As I said, I’ve spent many years working on these schemes and on greenhouse gas budgets. I’ve been to a lot of conferences and meetings and listened to a lot of experts, and I’ve never heard one who believed that any proposes scheme would actually work to reduce atmospheric gas levels. At best any scheme will provide a base form which to work, and my cynical side says that many people see it as an opportunity to sell other agendas.
Blake, how would it change your opinion of carbon markets if the majority of focus was on reduction, not sequestration?
The idea isn’t that you’re buying carbon because you love pencils. The idea is that you face a cap on your emissions. You want to exceed this cap. You can install new equipment for X, or you can by a carbon credit from me for X-1. You may have trouble cost effectively reaching your cap. If I can reduce cheaper than you and am willing to sell for more than my cost to reduce but less than your cost, I have made a profit and you have a valuable commodity.
Again, sequestration is no small thing, but it’s a much smaller component than certified reductions.
It wouldn’t. This is just a reduction over BAU, as discussed in my last post, with all the same problems, one of the biggest being setting a baseline.
“Reduction” is a relative term. Reduction over when? We don’t actually know how much carbon any individual business is emitting today. The businesses themselves don’t know. So we’re going to have to find out. We can do that two ways: retroactively or based on future performance.
If we go retroactive then we’re going to have to demand records from businesses that most just don’t have, or that can’t be verified. For example we can’t just demand that the Monsanto plant give us detailed accounts of all carbon emissions from all its plants and all of its crop fields for 1999-2009. That’s unrealistic and more importantly it’s unverifiable
If we go the future route it’s even more problematic, because if you tell me that my fuel costs for the next 50 years will be inversely proportional to my fuel purchases (not use or costs) this year, and that I can then sell the rights to any unused fuel for the next 50 years, you can see what’s gonna happen. I’m going to buy 10 times more fuel this year than I need. Even if I can’t re-sell it (which I could) then I still come out ahead because I get to keep selling it for the next 50 years.
But even if we could establish a realistic baseline, we haven’t addressed the fact that it’s all an artificial distortion. In fact by not allowing for sequestration you’ve doubled the distortion. Let’s say I’m a farmer, and every year for the last 10 years I’ve cleared 10ha of forest land. If I don’t clear 10 ha of land every year do I get to sell those credits? After all on paper I’ve reduced my emissions in so doing? What if I only have 20 ha of forest land left? Do I still get to claim credit for not clearing 10 hectares after 50 years, even though I could never have cleared forest I never had? What if I re-afforest 100 hecatres of my land and I claim I’m not reafforesting for sequestration, but for other reasons. In 10 years time am I allowed to claim that I’m not cutting down 10 hectares year, once again? If I am allowed to claim that then we are selling sequestration, just by another name. And if i can’t claim that then why can’t I claim it? After all not cutting down those trees is a reduction over BAU.
And how do we handle new businesses? If we give them no baseline from which to reduce then they can never possibly compete. But if we give them a baseline how is that calculated? Mean? Wost case? Best case? Best practice? And even if we can assign a fair baseline for new businesses that just makes them the same as our farm example. To show why consider the following hypothetical:
Exxon currently emits 10gT of carbon annually. So on the day carbon trading commences that is its baseline, any reduction below that can be sold at a profit. The day after trading commences I, an ex-Exxon board member, set up Blake Oil and get a baseline of 5Gt annually, calculated in some esoteric way. But “unfortunately” I can’t seem to make the business run as it should. I never seem to produce more than 0.1Gt of carbon. So I sell my excess carbon to Exxon, for more money than I am making from the oil business. Then next day my wife establishes Mrs.Blake oil, and guess what happens?
People are going to make busness out of setting up shelf companies for the baseline credits, just as they do now with taxes. Now there can be laws put in place to minimise this, but it’s going to be so convoluted and complicated at to make the tax law system look like child’s play. And that’s because once again the product has no value. People mostly get caught at tax fraud because they need to actually spend the money at some point. But when the stuff being bought and sold has no value it’s going to be very hard to collect evidence.
So at this point we’re worse off then we would be with taxes. We’ve got a complex multi-layered legal system with constant auditing, designed to evaluate something that doesn’t exist and that nobody actually wants. This is even less free market than a straight carbon tax.
Or at the time of establishing the baseline I can tune my existing equipment to produce X+1. That’s by far the cheapest option.
But it seems the simplest way for a new company to reduce costs is to produce nothing at all, exist as a paper company and just sell the carbon credits.
To avoid that you’re going to have to meticulously audit each new company individually based on mass output, value, infrastructure and God knows what else and then assign a baseline based on that somehow. But that takes away any sort of freedom to trial novel technologies and is going to require a staff of engineers about the same size as the current IRS. That ain’t gonna be cheap,
The argument being made is that sequestration is essential, because only by incorporating sequestration are you able to get a true price on how much it costs of removing carbon from the atmosphere. By simply trading carbon the best you can hope to achieve is to stabilise emissions. And assuming that you aren’t going to forbid all new enterprises you aren’t even going to achieve that.
And that’s the problem. If limiting baseline emissions through economic penalties is sufficient to affect profitability, then any new business is going to have to be handed a reasonable amount of credits to remain competitive. But by handing any new business credits with economic value you are effectively giving a government subsidy to people to start new businesses. That is going to be difficult to implement, it’s gong to be difficult to prevent it becoming unfair to either new or old businesses and it’s so wide open to gaming that I can’t see how to control it without an army of annual auditors. You really are saying to anyone who starts anew business that the government is going to give them credits which they can then sell for money.
At the end of the day we simply are not dealing with a free market here, no matter how much people want to believe it is. It’s a market distortion forced on business by the government that makes them pay for a commodity that they don’t want while giving new businesses free money to make them competitive.
I can’t see how that’s better than simply calling it a tax and giving new businesses an exemption.
Can you clarify this? AFAICT, it’s the same under tax or trade: you’ve got to pay more to emit more CO2. With a tax, you pay more carbon tax, and with cap-and-trade, you’ve got to buy more permits.
The problem is that, unlike burning fuel, cutting down trees is *already *profitable. All you’ve done is added to the profit.
Without carbon trading the balance sheet is:
Standing forest: Worthless
Cost of land: $50
Timber from forest: $100
Grazing land for 10 years: $100
Total life cycle profit: $150
Even in the best case scenario the basic balance sheet is something like
Standing forest: Worthless
Cost of land: $50
Carbon permits for cutting down forest: -$100
Timber from forest: $100
Carbon credits for timber sequestration in landfill: $20
Carbon credits for trash sequestration as charcoal: $20
Grazing land for 10 years: $100
Carbon credits for reforestation: $20.
Total life cycle profit: $210
The problem is that sequestration in tree biomass is the cheapest sequestration method we know of, thus by allowing reforestation and other processes to count as carbon credits you’ve actually added a line of profit not currently available. The only way to avoid this is to make the penalty for emission from forests considerably higher than the cost of the land (or the value of biomass sequestration considerably lower). But if we do that then we’re admitting the trading scheme is no reflection of actual costs, which as the whole point. We’ve said that even if we can sequester carbon most cheaply as trees we shouldn’t.
Might check your arithmetic: in the first example, $50 + $100 + $100 = $250. So requiring the carbon permit has subtracted from profit, as expected.
A few words about your carbon credits for timber/trash sequestration, and reforestation: I assume the sequestration is only in your second example because you’re sequestering part of the felled timber from that site. But 40% of it? Sheesh. Also, I assume there’d be additional carbon permits required for burning the wood (to turn it from wood to charcoal) because that obviously takes carbon in the wood and turns much of it into carbon in the atmosphere, just like any fossil fueled power plant takes carbon in coal or whatnot, and turns much of it into carbon in the atmosphere. You can’t treat the process any differently from a regulatory perspective because you’re not generating electricity for the grid from it. (OK, you can, but that’s a separate argument.)
And reforestation? How do we credit 20% to that? It’s been grazed for 10 years; at the end of that, why should a bunch of seedlings with 0.03% of the biomass of the felled forest be given a 20% credit? I think you’re assuming astonishingly bad regs. A reforestation credit would have to be based on biomass: you can give that 20% credit once the new forest has 20% of the biomass of the felled one. For that matter, the carbon permits required for cutting a forest down would also have to be based on biomass, but I didn’t want to get into that in my earlier post.
I’m still not sure I see the need for the reforestation credits at all; the important thing is to keep forests from being cut down in the first place, and the more wood that’s in them, the steeper the price needs to be. People are rarely going to plant forests and tend them, except to cut them down later anyway. How forests grow is that nothing is being done with the land anyway, so wild stuff grows on it. Finally, any forest is going to reach a point of maturity where the total biomass levels off, and then there’s no more reforestation credit since there’s no new added biomass. That would act as an incentive that would make it cheaper, in one way at least, to cut down mature forests as opposed to, say, a bunch of scrub.
I wouldn’t be averse to a pilot project somewhere to see if biomass-based reforestation credits actually result in more forests, but I’d want to see the results.
I’ll confess that I’m not following this at all. You seem to be assuming that the carbon permits/credits required/given for felling and reforesting will be set at inappropriately low levels. But that doesn’t make sense, so there must be something else I’m not getting here.
I think what’s missing there is that, from a standpoint of decreasing the CO[sub]2[/sub] in the atmosphere, clear-cutting a forest is a good thing, provided that you don’t burn the wood, and that you re-seed the land with more trees. A mature forest is holding on to a lot of carbon, but it’s not, on net, taking any more out of the atmosphere. The wood will still be holding onto just as much carbon if it’s turned into house frames or furniture (or even just buried somewhere) as it will in the form of living trees. By cutting it down and hiding it away in houses or landfills, you’re providing the opportunity for a new forest there, that will take out a new batch of carbon from the atmosphere. So cutting down a forest (and not burning the wood, and re-seeding it) is something that the carbon-credit system would reward.
The tax would be better because we could keep track of what the government did with the money and theoretically hold them to account. The cap creates a huge privately-traded carbon market with a built-in yearly price increase that makes Wall Street and investors billions, you can imagine how transparent the market is. The current bill is just a big handout to Wall Street on top of the other handout. It’ll do absolutely nothing to cut emissions in the long run, just make the usual suspects lots of money. Government has basically created a giant new commodity market with a guaranteed yearly price increase and given it to Wall Street.
No, it hasn’t and it’s minor error, because the values in the first example remain unchanged in the second.
If anything thate is an underestimate. I’ve provided the data fr schemes that propose 200% sequestration via recalcitrant soil carbon and timber life cycle.
But the actual figures don’t matter because it’s just an example. We could use 10% and it would work out the same. Any amount of sequestration only adds to the profitability because that income stream didn’t exist before.
Nope, because you don’t charge for the same emmissions twice. Either you need a permit for cutting the tree down, or you need a permit for burning it. Burning it doesn’t release any carbon that hasn’t already been paid for by the permit to cut it down. IOW it’s the same carbon that was already in the biomass that is being released by burning.
It seems like your suggesting that burning the tree releases more carbon than simply letting the tree decay, and so should incur a penalty n addition to that incurred for felling the tree in the firstplace. But in fact exactly the opposite is true.
Well first off every carbon scheme I’ve ever been involved with encourages precisely this. You don’t actually think that Al Gore started buying his carbon credits in 1979 do you? Of course not. He buys his credits this year in the form of a contract to sequester/reduce over whatever time frame the trading scheme allows.
If a trading scheme demands a sequestered carbon reserve before trading can begin then it’s never going to work because there will no funds available.
If you can point to a scheme that works that way, I’ll accept your point. All the schemes I have seen work on the basis of future contracts. As I say, if they don’t work this way then they are all going to be relying solely on stock sales for startup capital, and that’s completely impractical. The same goes for any sequestration technology. If they can only sell what they have, rather than selling on contract, then they can never get off the ground.
Of course they are based on biomass. What else would they be based on?
Because if you exclude it you are excluding a genuine sequestration method. So you are artificially distorting the market, which is precisely what this scheme was touted as avoiding.
Yet we’ve just been told that the important thing is to allow the market to value carbon based on the cost of reducing atmspheric levels.
This is yet another problem with the whole scheme: no two people can agree on what the point of it actually is beyond a nebulous “reducing impacts”.
Yet a core principle of every trading scheme I’ve seen is that it encourages third world reforestation by adding value to reforestation.
Quite simply, your claim that “people are rarely going to plant forests and tend them, except to cut them down later” isn’t true.
Is this meant to be a joke? If not then I suggest you take a trip to your local state forest.
Precisely. Mature forest has no value. Scrub does. And now you start to understand the problem. Mature forest has no economic value.
Which has been my whole point. Most economic and social modnels suggest it will result in increased deforestation and increased emissions.
Inappropriate is a value judgment. I’m assuming they will be set at economically feasible levels, nothing more. The only way to avoid this problem is to make the credits felling the trees both more expensive than the credits given for growing them and a significant fraction of the land price.
I’ll make it really simple: today I pay $100 for land and I can make $200 profit over the next two decades through logging and grazing and then abandon the land. Tomorrow I can pay $100 for land and I can make $200 profit over the next two decades through logging and grazing and then replant it with trees and make a further $50.
The standing forest has no value. The price of forest land is set by the market. If it is going to cost me $70 in carbon taxes to develop the land then I won’t pay more than $30 for the land itself. If the land is valued by the market at $100 then that’s what it’s worth. The carbon taxes may reduce the profitability to the seller, but that’s all. Unless the carbon tax is greater than the land cost then all it does is add another revenue stream at the end of the life cycle. Instead of abandoning the played out land I can partially reafforest it and increase my profit form clearing it in the first place.
This is a little bizarre. Blake, you’re really fixated on forest issues and sequestration, and it seems as if you’ve gotten yourself a bit twisted up in knots — to the point where you can’t see the forest for the trees
That is, you seem to keep coming back to trees and shrubs, but they’re just beginning to become part of the carbon market, and a relative fraction thereof. And sequestration?
It seems — and I’m not trying to put words in your mouth; this is just my impression — that you’re saying sequestration is/should be the dominant approach to climate change. But that can’t be right. That would mean sequestering an amount that is greater than the entire world’s carbon output. Only then would atmospheric CO2 levels decrease. That’s an insane amount of sequestration, especially as you have such a sharp focus on forests.
If we sequester any amount less than the world’s carbon output, then CO2 levels are still rising — albeit at a reduced level. Given the nature of the atmosphere and greenhouse gases, this is totally indistinguishable from straightforward, conventional reductions.
Hence I am clearly misunderstanding you. Would you (in about three sentences, for clarity), sum up your conception of sequestration’s role in the climate change mitigation? Go on and on afterwards, I’m just looking for a good summary to set me straight.
Though agricultural sequestration is essential — no one approach or method can achieve the amount of reductions needed — it is a relatively minor tool in reduction methodology. As you pointed out there are thorny issues to be addressed, which is one factor why Joint Implementation and the Clean Development Mechanism didn’t allow consideration of forest projects. UN-REDD (REducing Emissions from Deforestation and Degradation) only launched in 2008 (REDD+ is still under development), and it is not yet operational.
(Also worthy of note is that REDD/REDD+, while focused on forest issues, does not target sequestration. Rather, it’s focused on reducing the emissions that stem from deforestation and degradation.)
Which again brings me to a point of confusion and the assumption that I am somehow misunderstanding you. Are you using forest issues as a convenient example to highlight generalized problems with the carbon market? Are you saying that no matter what happens in other sectors, if we don’t figure out forest/sequestration carbon markets are doomed to fail?
As for the problems you raise, I’m happy to say that many of them have been addressed.
For many supposed issues, there is the very successful Acid Rain Program (sulphur dioxide) to use as a model in problem solving.
To address a few issues:
This is a false dichotomy — there is no need for the “or” conjunction. Sequestration is, generally, the long-term storage of carbon dioxide, while emissions reduction is, generally, a decrease in the output of carbon dioxide as compared to some benchmark.
I fully agree that there are a lot of land use issues that pose difficulties. Under the circumstances you describe, you are correct that there is no incentive for an investor to purchase the land. But why is that a problem? The logging company, if it goes through with its plans, has to account for the emissions somehow, whether through curtailing operations, using up its allocated credits, or purhasing them from other sources. An actor who has no incentive to participate does not imply an overall market failure — especially as the logging company is still a member of the same cohort. If there are no other actors, then the trees stand.
Carbon credits are not just issued willy-nilly. Carbon credit certification is subject to the regulations and oversight of the Designated National Authority (DNA). Not only do the DNAs apply national law, they also need to comply with the standards of the UNFCCC. Many of the rather transparent schemes you suggest as ruinous of a carbon market have been addressed and regulated away. As with any bureaucracy, when new schemes and loopholes are developed, new regulations can address them. As a gatekeeper to the market, the DNA has strong incentives to preserve the integrity of its nations’ credits — if the DNA fails in its mission, it risks decertification of all projects.
No magic; time. I agree that there is no true cost to removing carbon from the atmosphere. That is why carbon markets are the most cost-effective way of reducing emissions. Since different actors face different prices, those who can reduce more for the lower price will sell to those with greater costs – eventually yielding an equilibrium price that is definitionally optimal. Though there are interference factors that lead away from this price, this is little different from other markets that have nonetheless thrived.
It is of course necessarily artificial and arbitrary (though there is no reason for it to be inconsistent). It’s artificial from a pure capitalism perspective, because no one wants to pay for greenhouse gas reductions. Reducing emissions — no matter what implementation method is chosen — is going to be very costly. Again, though, markets ensure that the cost is the least possible.
Actually, it’s a market correction. Current prices reflect the use of the atmosphere as an infinite and free sink. We now know that there are significant externalities inherent to a fossil fuel-based economy — externalities that are not currently captured in the cost of goods.
There have been tax cheats and smugglers from time immemorial. This has not stopped markets from functioning or clearing to the most efficient price. Furthermore, imperfect reduction isn’t a market failure, it’s an enforcement failure — the market still functions.
Reduction to 5.2% from 1990 levels. By when is up for renegotiation. Hearkening back to the OP, I believe the US is actually establishing its own benchmarks and is not participating in the global market. There are many proxies to determine past and current energy use — some as simple as a electricity consumption. Again, markets do not have to be perfect to achieve their goals.
This assumes a moronic DNA and universal attempts to cheat. Neither of which is true.
Imagine for a moment, that you’re sitting in an office somewhere, thinking of schemes like this. Now, since you happen to imaginarily work for the DNA, take out a pad and start brainstorming regulations that would account for such situations. Also note that if an actor can’t play in the market, the market is marginally less efficient by that one person, but is not a failure.
Also, remember that carbon credits represent a specific unit of carbon dioxide. You don’t get a new carbon credit every year you don’t cut down your tree. Also note that if you accept a carbon credit you are committing to complying with the DNA regulations. You cannot take a credit, sell it, then cut down your forest. That would undermine the integrity of the market and devalue the credit that someone else purchased from you. That is why the DNA is a governmental body.
Excellent questions. Fascinating questions. Hypothetical, not so much, but the questions raise some great issues. You may want to take a look here for a really good PDF that touches on the fundamentals. Or Google carbon credit allocation or similar and have a look around. Basically, there are plenty of ways to dole out initial and subsequent allocations, and most align with different public policy goals. Give them away and put off the public’s pain of paying for reductions for a few more years. Auction them off, thereby earning revenue for the State to address adaptation issues. It’s up to the State.
Could you end up with some firms making a windfall profit? Sure. If it’s that much of a concern, empower the DNA to reclaim allocations or establish some other schema. Keep in mind the overarching goal is to get emissions down. If someone unfairly benefits, yet emissions reduce, society is marginally improved nonetheless.
Granted, there’s fraud everywhere and in every sector, but why would it follow that fraud (or cheating, or gaming the system, or whatever you want to call it) would be more prevalent here? Are you under the impression that you walk into the local DNA office, fill out a couple forms and walk out with a basket of permits? Rather, it can be a long, often arduous and sometimes expensive process. There are even agencies (such as the MDG Carbon Facility) set up to offer a range of technical and other expert help to move through the bureaucracy and gain approval. Oh, and by the time the DNA is ready to allocate permits to you, you’ll have, say, a factory or a Choo Choo train on your hands.
What do you mean the stuff being bought and sold has no value? If you give me $1 for a credit, the credit has a value. If stuff is being bought and sold, it has value. The people paying for the credit are doing so in order to run their factory. Are they going to meet you in the back alley behind your Choo Choo?
To make the permits as fungible as possible, the permits are catalogued and tracked — they’re not bearer bonds. Where is the seller getting the permits from, and how is he getting them registered?
Clearly crime will happen in any circumstance (I’m sure someone stole a pen from the ISS), but it’s not valid to suggest that it will be so easy as to incapacitate the entire market.
Yes, some firms will end up with windfall profits, either intentionally or unintentionally. As for intentionally manipulating emissions levels, how many firms can do that? A large manufacturing plant can’t go down to the basement and turn the power to extra-high. And there are considerable financial risks — to tune your factory up to X+1 you need to consume the +1’s worth of energy. If you didn’t have a profitable reason to do so beforehand, all you’re doing is wasting energy. You’re now gambling on the relative cost of power to the price of a permit.
And what happens next year? And in ten years? Initial profits will fade leaving an efficient market.
Again, the DNA isn’t just putting credits in the mail. Small numbers of credits aren’t going to be worth much. Large numbers of reductions aren’t going to be easy to fake. Just put yourself in the DNA’s office again for a moment, and consider what you’d ask for. You say you run a factory? Property records are easy enough to search. You want us to issue you a credit? Sign this form to release power consumption records.
Your basic point is absolutely correct: once you’ve got that mature forest, the carbon in the trees is kept out of the air, whether it’s locked up in trees or in 2x4s. But there’s one other aspect: the trees, while standing, would also be taking in CO2 and releasing oxygen just as part of their sustenance.
I have no idea what the overall tradeoff in carbon amounts to if you cut down a hectare of mature forest - whether you lose because, for an interval of time, you’ve got a lot less biomass on that hectare eating up CO2 and releasing oxygen, or whether you come out ahead over time because the CO2 locked up in the growth of the trees from seedlings to mature forest is greater than the additional CO2 that a mature forest would have been taking in all along.
Presumably, that’s a question with a known answer. It would be useful to this discussion to know which approach works out better, and by how much.
My point exactly. The values in the first example remain unchanged in the second - but you’ve failed to account for one of those unchanged values in the first (but NOT the second) example, which reverses your result and invalidates your example.
I can’t see discussing the rest of it until we get this part right.
One example in one post, and a two other posts clarifying that issue in response to direct questions on that specific issue. And this is a fixation?
What an odd definition.
Because people keep specifically asking me about that issue. What do you suggest I do? Ignore the questions so I don’t get accused of being fixated? :dubious:
I’m not saying this. What I have done is noted, clearly and repeatedly and with quotations, where several other posters in this thread have claimed that sequestration is essential to accurately price greenhouse gas emmissions.
It’s as simple as that. It has been claimed that sequestration is essential to accurately price greenhouse gas emmissions. I dispute that this is possible.
Might I politely suggest that you go back and re-read the thread before I became involved? Therein you will find such comments as:
The argument being presented here is quite simple and straightforward. The claim is that carbon trading is more efficient at solving the problem than a tax because it both allows a realistic pricing of carbon credits and it encourages sequestration technologies.
Your statements about the effects of sequestration are doubtless correct, but they have absolutely no relevance to anything that I’ve posted in this thread.
No, I can’t sum it up in three sentences because it’s two complex.
I can sum up my position in this thread in less than three sentences, because i;ve odne so in every post I’ve made. Still it won;t hurt to do it again here:
We’ve just been told that the important thing is to allow the market to value carbon realistically, and that evaluation is best based on the cost of removing carbon from the atmosphere. We’ve also been told that by allowing the production of new credits via sequestration we will encourage sequestration technologies. I dispute both these arguments.
Once again, I request that you go back and read the thread where I’ve stressed this point over again.
You really need to ask that? I’ll just repeat the original post (the only one in which I introduced the forest issue):
[quote]
Are you saying that no matter what happens in other sectors, if we don’t figure out forest/sequestration carbon markets are doomed to fail?
[quote]
Every single post that I have made, that wasn’t addressing specific questions related to the forestry example, has mentioned major problems in other fields. SO why would you even ask this question?
Generaly. Not always. OS you are aware that there are many exceptions. Which was precisely the point I was making. IOW you are saying it’s false dichotomy to state that it is defined by some as removal and by some as a reduction over BAU, because it is sometimes defined as removal but sometimes as a a reduction over BAU.
I have no idea what to make of this. You are quoting me, saying it’s false dichotomy while agreeing wholeheartedly with what I wrote. Mystifying
The problem is that the credit requirement does is drive the land price down by the cost of the credits needed, while adding another credit stream at the end of the lifecyle, thus increasing the economic value of deforestation. The carbon credits form reafforestation have real value, but the only way to realise that value is to remove the existing trees, which effectively has no carbon penalty attached because it is factored into land prices when all lznd use requires deforestation.
And as noted, it’s going to take an army of accountants and engineers to do so. A literal central planning bureau. This is the very antithesis of a free market, wherein the players largely regulate one another via the demand for goods and services.
[quote]
As a gatekeeper to the market, the DNA has strong incentives to preserve the integrity of its nations’ credits — if the DNA fails in its mission, it risks decertification of all projects.
[quote]
Now replace “DNA” with “Central Planning Bureau”. Still true. Still didn’t work
The difference is that this market isn’t real. Nobody actually wants this product, they are being just being forced forced to buy because they will be fined if they don’t.
That is hugely different from any other markets that have thrived.
One example in one post, and a two other posts clarifying that issue in response to direct questions on that specific issue. And this is a fixation?
What an odd definition.
Because people keep specifically asking me about that issue. What do you suggest I do? Ignore the questions so I don’t get accused of being fixated? :dubious:
I’m not saying this. What I have done is noted, clearly and repeatedly and with quotations, where several other posters in this thread have claimed that sequestration is essential to accurately price greenhouse gas emmissions.
It’s as simple as that. It has been claimed that sequestration is essential to accurately price greenhouse gas emmissions. I dispute that this is possible.
Might I politely suggest that you go back and re-read the thread before I became involved? Therein you will find such comments as:
The argument being presented here is quite simple and straightforward. The claim is that carbon trading is more efficient at solving the problem than a tax because it both allows a realistic pricing of carbon credits and it encourages sequestration technologies.
Your statements about the effects of sequestration are doubtless correct, but they have absolutely no relevance to anything that I’ve posted in this thread.
No, I can’t sum it up in three sentences because it’s two complex.
I can sum up my position in this thread in less than three sentences, because i;ve done so in every post I’ve made. Still it won;t hurt to do it again here:
We’ve just been told that the important thing is to allow the market to value carbon realistically, and that evaluation is best based on the cost of removing carbon from the atmosphere. We’ve also been told that by allowing the production of new credits via sequestration we will encourage sequestration technologies. I dispute both these arguments.
Once again, I request that you go back and read the thread where I’ve stressed this point over again.
You really need to ask that? I’ll just repeat the original post (the only one in which I introduced the forest issue):
Every single post that I have made, that wasn’t addressing specific questions related to the forestry example, has mentioned major problems in other fields. SO why would you even ask this question?
Generally. Not always. As you are aware that there are many exceptions. Which was precisely the point I was making. IOW you are saying it’s false dichotomy to state that it is defined by some as removal and by some as a reduction over BAU, because it is sometimes defined as removal but sometimes as a a reduction over BAU.
I have no idea what to make of this. You are quoting me, saying it’s false dichotomy while agreeing wholeheartedly with what I wrote. Mystifying
The problem is that the credit requirement does is drive the land price down by the cost of the credits needed, while adding another credit stream at the end of the lifecyle, thus increasing the economic value of deforestation. The carbon credits form reafforestation have real value, but the only way to realise that value is to remove the existing trees, which effectively has no carbon penalty attached because it is factored into land prices when all lznd use requires deforestation.
And as noted, it’s going to take an army of accountants and engineers to do so. A literal central planning bureau. This is the very antithesis of a free market, wherein the players largely regulate one another via the demand for goods and services.
Now replace “DNA” with “Central Planning Bureau”. Still true. Still didn’t work
The difference is that this market isn’t real. Nobody actually wants this product, they are being just being forced forced to buy because they will be fined if they don’t.
That is hugely different from any other markets that have thrived.
I’ve given numerous reasons why.
Yet you just told us that it’s no different form other markets that have thrived. What other artificial market has ever thrived?
no, it’s not because you’ve conceded that nobody wants the damn product. It’s no more a market correction than the Central Planning Bureau demanding that a company make Yugo’s is a market correction.
A market correction comes from within the market, This is being applied purely from without.
Because there is a limit to hIn a real marketplace I care whether I get what I pay for. If I pay for 10 tonnes of carbon in the form of graphite then I bloody well want 10 tonnes of carbon on my loading dock come lunchtime Monday. If someone offers me a low price but doesn’t deliver then I won’t trade with them any more. I don’t just want the docket, I want the product.
That’s not the case with carbon trading schemes.
How do you propose to determine what a businesses carbon emissions were in 1990. Because of course if you can’t do that this figure is meaningless.
No, it doesn’t.
Which is precisely what I have repeatedly said: an army of auditors and framework of regulations more complex than tax law.
As I stated above, under some schemes that is effectively what is proposed. If you currently clear 100 hectares a year and reduce that to 1 hectares a year you get a 90 hectare-equivalent credit. Which is fair enough because you have reduced emmisions.
Excellent questions. Fascinating questions. Hypothetical, not so much, but the questions raise some great issues. You may want to take a look here for a really good PDF that touches on the fundamentals. Or Google carbon credit allocation or similar and have a look around. Basically, there are plenty of ways to dole out initial and subsequent allocations, and most align with different public policy goals. Give them away and put off the public’s pain of paying for reductions for a few more years. Auction them off, thereby earning revenue for the State to address adaptation issues. It’s up to the State.
Again: because it’s an entirely artificial market.
In a real marketplace I care whether I get what I pay for. If I pay for 10 tonnes of carbon in the form of graphite then I bloody well want 10 tonnes of carbon on my loading dock come lunchtime Monday. If someone offers me a low price but doesn’t deliver then I won’t trade with them any more. I don;t just want the docket, I want the product.
But when the carbon takes the form of atmospheric sequestration I don’t give a shit. If I purchase 10 tonnes of sequestered carbon the only thing I care about is the docket. I don’t care if you actually have the carbon because I can’t do anything with it. The docket is the only thing of value because it allows me to minimise my costs by allowing me to spew crap into the air. Whether you sequester that crap or not makes absolutely no difference to my profitability.
A complex network of bureaucracy and auditors overseeing an incomprehensible regulator framework for a fictitious product that people are only buying because it’s marginally cheaper than paying the fine for *not * buying it.
Do you honestly think this is a recipe for success, much less enhanced efficiency?
So what is the value? Purely what you will be fined if you don’t have it. Let’s face it, if the fine for emitting without a credit is $1 a tonne, and the price of the credit is $1.01 a tonne, nobody is going to buy the credit. If it has a value that value is entirely determined by the state, not buy supply and demand.
The product is not desirable in its own right. If you object to me describing it as having no value, that’s a fair enough quibble. I’ll substitute “the stuff being bought and sold is not wanted”.
The value is a fiction. Unlike graphite or window washing which have an actual value based upon how much they cost to produce and how much people are prepared to pay for them.
All the other examples I can think of where the state demanded that something be produced, assigned it a value and regulated that value through a complex multi-layered bureaucracy system capped by a central planning bureau, that’s precisely what happened. Corruption and crime incapacitated the market, such as it was.
In this case we have the added level of complexity that the state also demands that people buy the stuff.
Since you’ve told us it’s based on 1992 records that I would bet don’t exist, it would seem the answer is “all of them”.
There’s no gamble in many cases because we know the absolute lower cost of the permit. That’s defined by the government, not the market.
I don’t see why.
How do you know what they will be worth. Isn’t the wheel point that at least the upper value is set by the market?
Small numbers of dollars aren’t worth much either.
And now you’ve penalised the business for being efficient.
Maybe you’re right. Maybe this proposed, multi-level, government valued, international market, regulated by a complex bureaucracy and governed by an even more complex legal system and devoted entirely to trading in a product that people only buy because they get fined if they don’t that has a lower value imposed entirely by the state, maybe that system will work and be really efficient.
Maybe it won’t end up being just a de facto tax system, used for pork barrelling, social engineering and an election and diplomatic football.
Everything in my experience, everything in history and every expert I’ve spoken to one the matter tells me it hasn’t got a snowball’s chance in hell of workingthat way.
Can you give me any examples of where such an artificial system for an unwanted commodity has succeeded?
