How is carbon supposed to be priced?

Factual Questions
21

Of course not. I’m not sure where you got that idea–the point of a cap and trade system is that there’s a cap. And further, the cap is set by the government, hopefully a way that decreases over time until it reaches the sustainable level (which is not zero, but is certainly much smaller than the current amount).

The only real difference between cap-and-trade vs. carbon tax is the way the carbon is priced–and a tax is a shitty way to set a price. It has to be figured out by some bureaucracy, and if they accidentally set the price too low then you end up blowing out your emissions target, and if it’s too high then you cause massive economic disruption. The “correct” tax is also a moving target, since technology improves over time and reduces the value of the emissions. Oh, and the bureaucracy has to somehow immunize themselves against massive industry lobbying.

Markets don’t solve everything, but one thing they’re almost perfect at is commodity pricing. And CO2 emissions are a commodity that needs to be priced. Cap-and-trade allows setting a hard emissions target while letting industries figure out the correct price for the emissions. It would be paid for by consumers one way or another–everything is, after all–but efficient industries would beat inefficient ones, and this allows the government to reduce the cap over time while minimizing disruption.

22

Ok, so you are actually saying the thing that I’m arguing is wrong.

And you are actually very wrong.

If you slap a 10% tax on some raw material that’s used in widgets, it doesn’t matter if you force the end user to pay the tax or the producer to pay the tax. The ultimate change in price is going to be approximately the same.

The simplest reason is that profit margins are not static. There’s no magical reason that a producer would always get 10% margin, regardless of how their costs change.

I mean, look at how silly your example is. You have a producer making more profits per unit when their production is taxed. That is not how it works. The cost of a tax is always shared between the producer and the consumer based on supply/demand curves.

23

Your policy is predicated on the assumption that there is a clearly appropriate emissions target — an assumption which I disputed in the prior post. Is it not at least as reasonable to suppose that an appropriate external cost can be estimated? The idea
encourage carbon use if it meets the economic test of affording the external cost
makes more sense than
fix total carbon use to some specific level set arbitrarily by bureaucrats.
With the tax approach, actual carbon use might exceed the arbitrary limit you would impose; or it might be less than that limit. In either case, the total level of carbon consumption is set by market forces, not by an arbitrary limit.

24

Not so much… cap and trade basically marketizes carbon pollution, and therefore lets the market set prices on things in a natural fashion, with the exception of the TOTAL carbon allowed by the system, which presumably would be cranked down steadily over time to some reasonable/sustainable level.

Basically it accomplishes more than one thing- it reduces/limits the total amount of carbon by a specified amount, it is a more economically subtle instrument than a simple tax, and because there’s a market for carbon, the artificially induced scarcity will raise prices in a more “natural” fashion.

Look at it this way… cap and trade looks at it as a system; if there’s an industry or company that absolutely NEEDS to emit some amount of carbon, then they can cough up the $$$ for the credits to do it, or they can figure out a way to reduce it. This applies across the board, and as a system, the total amount will remain the same, regardless of how the credits are traded. Then in some specified amount of time, the total of the system will be reduced, causing another round of adjustments.

The beauty of it is that there’s only one “knob” for the government to turn; with a tax, you’re essentially hoping that the increase in prices will reduce consumption, either directly in the form of say… fewer miles driven, or indirectly through the purchase of more efficient vehicles.

Cap and trade accomplishes this by letting the market itself determine where and how much the price increases hit, and where the consumption drops and efficiency increases occur. And it doesn’t really matter where they happen, so long as that total number of credits/megatons of carbon continues to be reduced.

Taxes by contrast have no mechanism to guarantee anything- you put a 10% tax on something, and then cross your fingers and hope it’s enough to discourage driving, or whatever, or worse, its’ on a good with inelastic demand, like say… gasoline that people use to get to and from work, and you just rake in the cash without actually affecting the consumption of the good. That’s worse probably than if you didn’t tax it in the first place. At least with cap and trade, it’s possible that fuel might not be where the market adjustments are primarily made. Unlikely, but possible.

25

If you can determine a “correct” external cost (admittedly a big if) and then impose that cost as a tax, you are achieving your goal precisely. If consumption falls only slightly, then the market is “telling” us that carbon use is economic, even with the external cost afforded. Similarly, if carbon use falls more than expected, the market is “telling” us that replacement energy sources are more economic.

It is the tax, which directly forces consumers to afford the external cost, which lets the free market solve the economic problem. Cap and trade — having a bureaucrat fix an arbitrarily limit — reeks of central state planning.

26

Here’s the problem with a tax: Let’s say a company’s process for manufacturing their product uses a lot of natural gas. You levy a tax on that natural gas’ carbon emissions.

The company may choose to pass that tax cost on to the consumer in the form of higher prices. Or the may reduce the amount of gas they use. But they may not do either; they may find other efficiencies in their processes that mitigate the cost of that tax, if they choose not to redesign their process or raise prices.

And where are you at that point? You’ve both collected your tax, and NOT reduced the amount of carbon emitted, so you essentially made things more troublesome for someone, and not actually solved the problem.

That’s the risk of a tax; it doesn’t look at the problem from a system-wide perspective.

27

But that’s the exact same problem if they buy the carbon credits on the carbon market.

The problem with cap and trade is that legacy carbon emitters get to emit CO2 for free, and they can trade that level of emission to others if they reduce their emissions. That leaves us with our current level of emissions!

A carbon tax just imposes a cost to everyone who emits, hopefully priced high enough to match the externalities of carbon emission. And if that doesn’t shrink emissions, then we raise the tax again and again until it does.

Of course that would be politically impossible, to price the external cost of losing the state of Florida into carbon emissions would require a pretty fucking steep tax. But how much is the state of Florida worth? Hundreds of billions of dollars. Therefore, making people who are destroying Florida pay hundreds of billions of dollars is sensible.

28

I don’t understand the dispute. Why not just set the tax at a million dollars a pound, if we start on the basis that any amount of carbon is too much?

The CO2 capacity of Earth is independent of human economic activity. Climate scientists think in terms of gigatons of carbon, not in dollars. And so that’s what the targets should be based on if they are to have any credibility.

The external cost of CO2 emissions is certainly anything but linear–it’s zero (or even negative) up to some threshold, and as you cross the threshold the cost increases rapidly, and asymptotically. The cost of 10 times current emissions isn’t 10x the current amount; it’s infinity.

Yes, and both those cases are bad. Consider the namesake of the classic “tragedy of the commons”; the sheep grazing on the village commons.

Your first idea is to charge a fixed fee. But how much? If you charge too little, then you’re still overgrazing and you haven’t solved anything. But if you undercharge, then you have excess grazing capacity that you aren’t using.

The better solution is to figure out how much grazing capacity there is and sell the grazing rights at market prices. You can’t exceed the grazing capacity because you’ve only sold so many slots. But you aren’t underutilizing it either because the price would lower until every slot has been purchased.

29

What does it cost, per ton of carbon in the air, to take the carbon back out of the air, and convert it to stable plastic? (using nuclear energy as the power source for the plant doing this)

Or, if it’s cheaper, the cost to grow trees or hemp or whatever and then just bury it in the ground in a landfill, per ton of carbon.

Ok, start off by charging per ton 1/10 that amount, whatever it is. This is a straightforward calculation, though since such a plant hasn’t been constructed to full scale, you would have to estimate what it costs per ton were you to build a large scale plant and then what it’s operating cost would be.

As for where to charge the tax - the taxing agency itself is a burden on the economy. So it is wise to minimize that burden. So it makes sense to charge the large entities at the moment hydrocarbons are committed to being fuel. For natural gas, that would be the moment a utility company buys the gas. Up until that point, the natural gas might be used to make motor oil or something else. For oil, that would be a bill for every ton of CO2 equivalent the refinery produces in the form of gasoline or diesel.

Gradually ramp up the carbon tax, a small amount at a time, with the eventual goal that the tax equals the cost to remove the same CO2 that was added. At that far future date, the collected tax revenues just get sent to companies actually doing this, and we would be in a carbon neutral economy, where every unit released is equalled by a unit reclaimed. In that far future world, you could still drive vintage gasoline cars - the fuel would just be extremely expensive, as a facility somewhere else would reclaim your emissions.

30

In that hypothetical world, what happens when some entrepreneur invents a new method of turning carbon dioxide into solid/liquid hydrocarbons that’s just a little bit more economical than the rate the government’s paying? It looks to me like that leads to a positive feedback loop.

31

The problem is the grass regenerates, at a known rate. You can just go and measure it with ruler, even. Rainfall and climate make it vary somewhat, but you could measure it over several years and get a 95th percentile estimate of about how much grass growth capacity a particular chunk of land in a particular climate zone has.

Then you auction, in a yearly market, the slots for grazing up to that capacity limit.

The problem is, the Earth essentially has zero collection of carbon in the atmosphere. It’s not quite zero - that’s why we have found oil to burn - but it may as well be. Yes, plants absorb the carbon, but normally, when the plants die, they just rot and release it back. It takes exceptional events - peat bogs, that kind of thing - that just happen to trap the rotting plants before they release all their CO2, and they eventually become coal/oil.

So you’re back to the million dollar a pound. This is why I propose we work out the cheapest practical way to recollect the CO2, and charge a carbon tax as a fraction of that, ramping up by perhaps 1% per year. So if we start at 10% of the cost to recollect, we plan to reach 100% in 90 years. We periodically reassess the technology cost to re-collect the carbon (as in, we might get more accurate numbers), and we change our eventual target price accordingly.

32

Every few years you reassess, and you set a new target. You ratchet up or down the current tax by some agreed on equation in the laws - not all at once, perhaps you correct over 10 years.

If some entrepreneur finds a cheap way, that’s good. That means that yes, the tax needs to be reduced. And some of the tax revenue should go to paying the entrepreneur to collect carbon at his stated rate. That’s how you accurately determine the true price - you find out what the cheapest price that someone who actually owns an industrial factory that collects CO2 will accept per ton. As that price drops, so does the tax target, and the tax itself gets readjusted.

Eric Drexler did the napkin math on solar powered carbon sequestering machines using nanotechnology. TLDR, they are very thin, and there are tiny nanoscale rotors that only accept CO2. When CO2 binds to their slot, they are turned by a motor. The CO2 is then eventually bonded into a more stable form and comes out as graphite dust from the bottom of the machine. They would look like black panels to the naked eye.

Theoretically, these machines would be a product made by a hypothetical self replicating “nanoforge”, and since the producing machine is self replicating, the cost drops to near zero. You would then just cover the sahara desert with these machines - nobody would steal them because they are worthless - and we could restore the CO2 to pre-industrial levels in about 10 years.

All his math checks out - this is why he has a PhD from MIT - and biological cells use a variant of nanotechnology, so eventually stuff like this might exist. We as a civilization just have to survive to reach that point. Our problems are *not *unsolvable.

33

That’s thermodynamically challenging- CO2 has very low Gibbs free energy and although it can be collected and converted to hydrocarbons, the energy requirements are huge. Just the entropy change required to collect a pure stream of CO2 from air is huge.

34

Wait, I misread. Ok, so this is the far future. People have fun driving vintage cars and flying vintage, non hydrogen burning airplanes, and they pay a tax on the fuel they use for this, basically a “cleanup fee”. Most of society uses BEVs, power cable vehicles, or hydrogen burning vehicles. Or hybrids between them - you could run your tractor trailer trucks on overhead power cables on major highways, and they would switch to batteries for the actual delivery hops. For rare cases where the batteries won’t cut it, there could be an extra module that mounts behind the cab that provides power, burning hydrogen or methane. (which means a cleanup fee in the methane case)

You’re saying that as the “cleanup fee” decreases, more people would switch back to these vintage vehicles because the fuel is more dense than hydrogen or batteries. Maybe. Realistically the price of fuel + cleanup fee would probably always be more expensive than batteries or hydrogen except for special purpose vehicles where no alternative fuel exists. As you are no doubt aware, hydrogen has shit density. Hydrogen powered airplanes would need to be longer just to fit the massive hydrogen tank. Hydrogen powered rockets need a tank like the space shuttle’s - in such a world, if we were still using rockets, paying the “cleanup fee” might indeed be worth it.

35

Correct. Technically speaking, it means you need to produce as much energy as every last joule gained from worldwide burning of fossil fuels, from the dawn of the industrial age until the day you do this, in order to put things back. And since no machine is 100% efficient, figure you need to produce 3 times that.

The only way this would ever be remotely affordable is you need self replicating industrial equipment. If you have that, the problem’s easy. Just a matter of scaling up exponentially until you can solve it in 10-20 years. And the energy is there - solar panels over the entire Sahara desert is a start, though I’d have to work out precisely how much coverage you need.

I think self-replicating nanotechnology is a bit…speculative. I mean, the math checks out and single celled photosynthesizers do something similar, but it’s so insanely difficult to even get started that it may be a long time before we have it.

What isn’t speculative is machine learning + robots + factory equipment leading to self replication. That’s a straightforward, though large scale endeavor. All it means is, we use machine learning so robots may do every single task on an assembly line for the same robots doing the task, and also every precursor part manufacturing line as well, and also the lines for the mining equipment to get the minerals in order to do all this.

36

Peat isn’t exceptional; it’s all over the place. Some plant life will return their carbon, but not all, and there’s value just in having it stored for a period of time. A tree that lives 100 years keeps its carbon out of the atmosphere for 100 years.

Cap-and-trade doesn’t exclude artificial sequesterization; on the contrary, it allows the market to work out the most efficient means. Instead of having another bureaucracy research and select a technology–again, influenced by lobbyists and congressmen wanting some pork for their state–the market works it out. If there’s a technology that can sequester carbon for $10/whatever, then they will do so until the price drops to that level. And if some competitor works out a way to do it for $8/whatever, then they take over the market.

And if it turns out that no technology at all can sequester for a reasonable price, then that’s fine too–it means the market price stays high, and industry has to work out better ways of improving efficiency or switching to non-carbon technologies.

37

The thing about the tree is, if it does rot, then right now, there are 100 year old trees rotting. And trees growing that will live to 100 years. It’s just a phase lag, the net is 0 carbon sequestered and in fact this is a misleading way to talk about the problem.

If the tree gets cut down and used in a house, a valid way to talk about it is then you sequestered the carbon, since the structure owner will preserve the wood and when it is demolished, the rubble will be buried.

Cap and trade is a valid alternative to a straight carbon tax. It economically works out to be about the same, but yes, it has the advantage that all I need to do is buy a certificate for X tons of carbon sequestering, and I can present that to the government, and get approval to emit X tons of carbon fuel. I see that is a little more elegant than “every 5 years, a government committee calls around and finds out what the going rate per ton is”.

In practice, cap and trade should be administered exactly like the carbon tax. Every unit of fuel you create or sell (probably at the sell stage), you must have a valid cap allocation for. If you don’t have one, you go to jail and your company gets fined. You buy the cap certificates at auctions.

38

We already have those. Nanotech isn’t magic.

39

The type Drexler is talking about run in clean vacuum and the parts are very stiff, using lubricants and tiny electric motors to drive them. This is very, very different from the operating environment and general strategies used by mechanisms in living cells. Living cells are proof of concept, though - they self replicate, they build complex products from base molecules + energy, they have internal control computers, and so on. They prove that basic physics will allow a system to do this, and we know from other experiments that Drexler’s proposed mechanisms will probably function.

Anyways, Drexler’s versions would be at least 10 times more efficient if they worked.

40

“Just” a phase lag implies that it’s not useful. On the contrary; it’s incredibly useful, and almost as good as true sequestration.

First of all, you can still decide to harvest and bury that tree when it dies. And it happens to be a nice dense lump instead of being dispersed throughout the atmosphere. So it’s much easier to throw into a salt mine or whatever when the time comes.

Second, 100 years is a lot of time to develop new technologies, like Drexlerian nanotech. It may well be that we just need to get through the current crisis to get to the permanent solution.

Last, it’s basic economics: a $1 debt today is much more costly than a $1 debt a century from now. It’s always better to delay costs to the future if the “interest rate” is cheap enough.