The US government seems to have a pretty good handle on where the greenhouse gas emissions are coming from:
But in every discussion of cap and trade I’ve been involved in, the focus of cap and trade and trading permits is on industry and electrity producers. But that’s only half of emissions. How does the permitting process work for the rest of the economy, from farms, to residences, to the use of personal and commercial vehicles? How does the permitting process work for governments, who run mass transit systems, and of course buildings that emit greenhouse gases?
To be more precise, how would Obama’s proposed cap and trade plan back in 2010 have handled this? and secondly, how do other countries with cap and trade systems handle it?
I remember during the debate over the plan in 2010 that the goal was to have the system cover 100% of carbon emissions. That means involving individual citizens in the buying of permits somehow. Was this going to be done indirectly in some way?
For transportation and a lot of other emissions, carbon is priced through fuel taxes. You could unify that with cap and trade by making oil companies buy quotas for the product they sell.
Involving end users of gasoline and fuel oils in some other way wouldn’t make sense except for the biggest industrial users.
It’s end user behavior that has to be changed though. There’s only so much you can do at the supply end. The demand is where the issue is. Obviously selling permits to homeowners and car owners makes little sense, so you’d probably need both cap and trade and a carbon tax. Or better yet, just a carbon tax.
I did some more research while I was waiting for responses and found that Waxman-Markey(the bill that was supposed to institute a cap and trade system in the US), would have reached 85% of emissions. The EU systems apparently reach only 50%.
Can’t we figure out how much it costs to clean up or mitigate the damage caused by carbon on a per pound basis, and then charge emitters per pound that amount? Seems like the most obvious solution to me. Maybe I’m missing something.
Yes, those costs will get passed on to consumers, but not entirely, and anyway, that’s the point. To drive demand down to where it would naturally be if polluters weren’t foisting those costs onto society as a whole, and instead priced it into their products.
My question though is that since consumers directly emit a large portion of our total emissions, how do you reach that? Seems to me that a carbon tax is the only way to reach all emissions, whereas cap and trade leaves a lot out. Plus some taxes or caps on emissions are actually useless on the supply side. Take meat for example. Meat has a big carbon footprint, but taxing farmers for their cows is pointless. No matter how high you set the price, farmers are going to sell enough meat to match consumer demand. Of course if they pass the higher costs onto consumers, that will reduce demand. It would also be nice if politicians took responsibilty for doing that rather than pointing fingers at the producers whose costs they raised.
Charge the tax at the mines or well-heads … this takes advantage of corporate greed … at every point along the supply chain, margins will be added … by the time the product gets to the end consumer prices will be sufficiently high to serve the goal of reducing consumption …
There’s a few products of fossil fuels that aren’t burned … for example plastics and lubricants … however these products do tend to become pollution anyway … and they can be recycled … the plastic products produced from recycled plastics wouldn’t be taxed at all since no new fossil fuels are being pumped out of the ground …
The downside to all this is that Congress, and only Congress, is allowed to spend the collected tax dollars … that’s the fundamental problem we have now, Big Oil is getting too many tax breaks as it is, we’ll wind up giving Big Oil tax rebates for pumping and mining more fossil fuels … anything to protect congressional payola …
Enforcement might well be impossible … countries like Saudi Arabia, Nigeria and Russia will cheat their asses off … right away that will undermine the market and their oil will be far cheaper than Canadian or Mexican oil …
Bottom line is that Joe the Plumber will be paying the tax (plus margins) … and isn’t he already overtaxed?
I don’t think it is that simple because each marginal ton has a different mitigation cost, if they are all even possible to mitigate, so you’d have to estimate how much carbon will be emitted and then average the cost, assuming it all can be mitigated, and if not then you’d have to determine the cost of the damage.
For instance, for the first few (mega?)tons you could simply plant some trees, but there are only a finite places where they could be planted efficiently. It’s the same reason why buying “carbon offsets” is not a valid large-scale solution either since these schemes obviously pick the low-lying fruit.
Sure, but incentivizing large-scale suppliers ultimately results in incentives to the seller. Duke Energy is constantly showering me with invitations to invest in high-efficiency appliances and roofing and double glazing and other things that reduce my energy usage, in exchange for which they offer rebates. If they get customers to reduce energy usage, they don’t have to build new plants (expensive and potentially redundant in the future) or buy juice from somebody else in the grid (also expensive). If they are carbon taxed, they are going to offer me even more blandishments to reduce my energy usage, or just raise prices which will have the same effect.
Smaller-scale suppliers that use carbon are presumably less able to offer large scale programs like rebates. Ironically, Duke were not so interested in incentivizing solar electrification, because that might cut too heavily into their bottom line.
Then the cost goes up as pollution goes up. It’s cheap to release a ton of CO2, it’s hella expensive to release a megaton. That’s probably how it should be.
Also, besides gasoline, what do consumers personally emit? Besides higher gasoline taxes, I’m not seeing the need to tax consumers personally.
Finally, if we’re going to do this, the “tax” should go directly towards cleaning up or mitigating the pollution. That’s what the polluters are paying for. It shouldn’t be a “you’re evil for using fossil fuels” issue if the polluters are paying to fix the problems caused by their pollution.
First, they have an incentive to clean their own mess up (or improve their processes so it doesn’t pollute as much) in order to save money on the pollution tax. This is how you incentivize “clean coal” and similar goals. Then, if they don’t do so themselves, that’s what the pollution tax pays for.
In my opinion, this should be about internalizing the known externalities, not shaming people into changing their behavior. The goal should be including the costs of pollution into the production costs, so that market forces will naturally guide industry into clean solutions. Then, if they find it is a worthwhile thing to do anyway, so be it.
Ideally, this would be a generic pollution tax, too, not just carbon. All pollution has costs that businesses foist onto society as a whole. Those businesses should pay those costs themselves.
Of course a carbon tax is the sensible way to manage it, not “cap and trade” which is a much more complicated way to manage the whole thing to achieve the same result.
But you don’t have to involve the end consumers, just the the sellers, and the sellers pass the price on to the consumers. Just like we don’t expect customers to carefully note all their purchases over the year and dutifully send the government a check for sales taxes. The sellers collect the sales taxes from the consumers at point of sale.
If we have two possible taxes, one that’s $X per ton of CO2 emitted paid at the gas pumps, and one that’s $X per ton of CO2 emitted at the wellhead, it takes an awful lot of irrational behavior for those two taxes to result in different total prices at the pump.
I’m not saying people are perfectly rational, but I’m not convinced they’re that irrational.
Ultimately, I think that the question of whether a carbon tax is better than cap-and-trade, or the reverse, is a useless distraction. The really important thing is that we need to somehow put a price tag on emissions. One way of attaching the price tag might be better than the other, but either is far better than our current tactic of doing nothing.
The atmosphere can handle a certain amount of CO2 input. You determine the acceptable amount and then let the market handle the trading of credits. The market price adjusts on its own without the government needing to declare a certain price. A tax doesn’t have any inherent limit on emitted carbon, which is bad.
The complication comes from some industries getting free credits so as to minimize disruption in the short term. It’s not inherent to the system, though. It should just be a straight government auction, like radio spectrum.
Either way, consumers don’t have to be directly involved. Just require credits on every barrel of fuel that leaves a refinery, since it’ll get burned eventually.
The idea of taxing at the wellhead is that this covers the wide variety of carbon polluting uses … not just burning gasoline in your rig … there’s also a much more limited taxing points making enforcement easier …
Also … I’m treating the carbon tax as a disincentive to usage … and as such the tax is specifically design to whither away to nothing … for example the high taxes charged with cigarettes … the idea is to eliminate tobacco use, so these taxes eventually disappear as a government revenue source … again, by starting at the wellhead, each step in the supply chain will add their profit margin to the price they charge … thus in effect amplifying this basic tax into some monstruous price increase at the pump, at the seed and feed store, the electricity produced from fossil fuels, virgin plastic containers and everything else made from the filthy stuff …
It will be expensive just reducing greenhouse gas emissions … and still those CO[sub]2[/sub] concentrations will keep going up …
I humbly differ on this. As someone who has and continues to work in Oil & Gas Industry, this will create other problems.
For example :1. A lot of Natural Gas is lost as leakages / inefficiency during transportation of gas from well head to users. If there is no incentive to reduce losses (or penalty for losses) during transportation, the market will move towards the cheapest solution for gas transportation. In the oil industry, initial capital investment is everything most of the time.
Even for a car, the charcoal canister that absorbs the gasoline vapors from the gas tank will have a tough time to justify the expense versus just venting to the atmosphere. Same would go for large tanks / storage etc.
That’s not what I’m responding to. The portion I quoted says that taxing at the wellhead will lead to more of a price increase due to margins being added at every point along the supply chain.
You can tax the end user or the producer, and the total price increase isn’t going to change appreciably. Yes, you have to tax all the end uses, but that’s irrelevant to this point.
Also, do you not know about punctuation marks other than the ellipsis?
That’s how margins work … everyone adds a percentage … if it costs $1 to produce something, we charge $2 for it … the next buys it for $2, sells it for $4 … etc etc etc …
Tag that product with a 10% tax … it costs $1.10 to produce and we charge $2.20 … sent the $0.10 to the IRS, pocket the other $0.10 … [ka’ching] … that’s a fairly basic business practice, margins are always a percentage of revenue …
Americans are not especially heavily taxed compared to other developed countries, but we also get a lot less in the way of social support from government. /sidetrack
Clearly, any human injection of CO2 has bad consequences now: we’d want to remove CO2 if we could. And there is no sensical limit — are you suggesting that if 8 gigatons of carbon is already too much, then 10 gigatons is no worse than 8? Reality is the opposite; if reduction to 5 gigatons is good, reduction to 4 gigatons is better. Whatever the detailed cost curve looks like at a macro level, behavior is linear at any smaller scale — costs or incentives should be linear in carbon use.
So a straight carbon tax is far better than cap and trade. (I’ll let the experts decide where the best point is to impose the tax.) The reason cap and trade was adopted was simply to avoid the political costs of imposing a tax (and the short-term economic costs of adjusting to the tax).
A large carbon tax would be passed on to consumers of gasoline and home heating oil. I and others have proposed that this revenue be offset by reducing payroll taxes. Yes, this would penalize, e.g., long commutes, but that is the purpose of the tax. Voter sentiment, not economic fact, is the big obstacle to such a policy.