Another Free Marketeer for Carbon Taxes

Ronald Bailey | August 14, 2007

Julian Morris, executive director of the London-based International Policy Network, has come out for carbon taxes over cap-and-trade in an op/ed in the Wall Street Journal (subscription required). IPN is a non-profit that aims to encourage better public understanding of the role of the institutions of the free society in social and economic development.

Morris cogently writes:

Even if the Kyoto Protocol were fully implemented -- not just by the EU, but by all of the more than 160 signatories -- and its restrictions kept in place until 2100, its effect on the climate would barely be discernible. It would merely delay the projected warming by less than a decade over the course of the next century. Meanwhile, the economic cost has been estimated at between 0.1% and 3% of gross world product. Even at the lower end, that is an enormous price to pay for essentially no benefit.

Given these undisputed facts, you may be wondering what is driving the global push for cap and trade. The answer is that the scheme has been gamed by various vested interests. Several big companies, including Shell, BP and Exxon, were granted more permits than they required and were able to sell them to companies with lower allocations who thought they needed more.

Meanwhile, other companies, such as Climate Change Capital, have made money by buying up emission permits in China cheaply and selling them in Europe.
In May 2006, it became apparent that the EU allocated more permits than were required during the first period of trading, which started in 2005 and runs through the end of this year, and the price of such permits collapsed. The same vested interests who initially made money from carbon trading worried that the same would happen in the 2008-2012 period and so lobbied the EU and member state governments very hard to issue fewer permits for that period.

A more cost-efficient and effective alternative to stem global warming would be to invest in new technologies that could cut greenhouse gas emissions in the future. One way to incentivize such investments is to impose a small but rising tax on carbon. Environmental economist Ross McKitrick has suggested a carbon tax that would be tied to the mean temperature of the tropical troposphere (a region of the atmosphere that is believed to be particularly susceptible to greenhouse gas-induced warming). If the temperature rises, the tax should rise; if it falls the tax should fall. This is an intuitively appealing idea, since a higher tax would probably spur more rapid developments of low-carbon technologies, countering further carbon-related increases in temperature.

Such a tax would also, among other things, motivate private-sector investments in climate forecasting, since companies would want to know what the tax level was likely to be in coming years. This would introduce long-needed competition and progress in a field currently dominated by government funding.

Those those without a WSJ subscription, the whole op/ed is available here.

Disclosure: I am proud to acknowledge that IPN has in the past generously paid my travel expenses to report on some U.N. Climate Change Conferences and World Trade Organization meetings.

Comments

|8.14.07 @ 3:42PM|#

You can get free access to those WSJ.com articles using www.congoo.com. That was in PC World last month.

|8.14.07 @ 3:44PM|#

Tie the tax rate to a change in the weather?How can we take this seriously?

|8.14.07 @ 3:54PM|#

I don't see how a tax based on tropical troposphere would avoid free-rider issues. Who exactly is assessed this tax anyway?

|8.14.07 @ 4:05PM|#

Carbon taxes are the ultimate 'faith-based initiative'. We are supposed to believe that the problems of the distant future can be correctly anticipated and corrected today. That's extremely unlikely to be successful, even with the best of intentions.

|8.14.07 @ 4:07PM|#

Actually the Artic Circle is much more sensitive to warming; though I would be satisfied with a heat-tax based on the Global Mean Temp. But the basic idea is interesting as it also addresses the long term problem from waste heat of super-civilization itself:
http://www.thespacereview.com/article/909/1

And carbon-credit trading can be improved; there is no need to dismiss it entirely.

x,y|8.14.07 @ 4:16PM|#

Who wrote the oxymoronic headline?

joey|8.14.07 @ 4:21PM|#

x,y
Who wrote the oxymoronic headline?

Someone who doesn't want heavy handed regulation by government but wants to address the problem resulting from the tragedy of the commons.

GILMORE|8.14.07 @ 4:33PM|#

I am dissatisfied with the insufficient detail in this disclosure. Which UN/WTO meetings, precisely?? Economy or First Class???

WHAT ARE YOU TRYING TO HIDE RON BAILEY

Disclosure: I only read the disclosures in your posts anymore

|8.14.07 @ 4:35PM|#

Carbon taxes are the ultimate 'faith-based initiative'. We are supposed to believe...

Max, your vacuous arguments exhibit the damage caused by rhetoric in the global climate change discussion. There is no faith in science. Scientists identified global climate trends from various data sources, not as an excuse to tax the citizenry. The degree of climate change should be assessed by one's own conclusions from the data.

As for 'believing' in policy decisions, well yes, there is a degree of uncertainty involved with the future. In these cases, models based on existing knowledge are our most accurate source of information. How can you critique a proposal based on knowledge with your own faith-based (i.e., no data) assertion that doing nothing is the best option?

|8.14.07 @ 5:18PM|#

KingHarvest,My objection is not on science but the very nature of goverment.I have yet to see a revenue neutral tax or off setting tax cuts for a new tax.Even when taxes are cut they can't control their spending.I'm afraid a carbon tax will become a cash cow for other purposes[health care ?].Check out the fraud of federal gasoline taxes.

|8.14.07 @ 5:30PM|#

There is no way to know the optimum price for gas.

It could very well be below current prices now.

Lowering consumption requires technical advancement and technical advancement requires energy which costs money. If the price of oil goes up then the cost of investment in energy efficiency goes up.

The optimal price would be the price at which there is the strongest incentive to conserve yet not to high so that it costs to much to invest in technical breakthroughs.

|8.14.07 @ 5:34PM|#

As for 'believing' in policy decisions, well yes, there is a degree of uncertainty involved with the future.

Trying to predict the distant future is fundamentally irrational.

Imagine someone 100 years ago trying to forsee the concerns of today. Obviously absurd and impossible, right? Well, the next 100 years is likely to be far less predictable.

How can you critique a proposal based on knowledge with your own faith-based (i.e., no data) assertion that doing nothing is the best option?

But I do have data, hard data: doing nothing is cheap and easy. If it's not the theoretically best option, it's likely to be less bad than any practical alternative.

|8.14.07 @ 6:24PM|#

Max

Sometimes doing nothing is very expensive.

|8.14.07 @ 6:38PM|#

Sometimes doing nothing is very expensive.

That's catchy, but it's hardly appearing on Oprah showing an animation of Manhattan with the sea rising to fill up the World Trade Center Memorial.

C-

fyodor|8.14.07 @ 6:51PM|#

If the price of oil goes up then the cost of investment in energy efficiency goes up.

Huh? Why is that? Engineers would have to commute farther? Your assertion lacks any support or logic. BTW, it's not energy efficiency per se that is being sought (thought that would help) but carbon-producing efficiency.

Craig|8.14.07 @ 7:37PM|#

Of course, if you don't believe that carbon emissions are responsible for the changing climate, then both are unnecessary.

|8.14.07 @ 8:08PM|#

Scientists identified global climate trends from various data sources, not as an excuse to tax the citizenry.

Scientists funded by politicians with a vested interest in conclusions that allow them to raise taxes and impose regulations on industry to pander to environmental advocacy groups identified raised alarmist cries about computer-model guesses about possible global climate trends from various data sources, not as an excuse to tax the citizenry, rather, leaving that dirty job to the politicians.

|8.14.07 @ 8:12PM|#

jh,

[blink]
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Are you really that incapable of thinking about the issue?

|8.14.07 @ 8:42PM|#

Are you really that incapable of thinking about the issue?

Neu Mejican -- did you read the IPCC report? I read the executive summary last night. Is your BS detector so broken that when you see a "likely" projected increase in global mean temperates ranging from as little as one degree to as much as over seven degrees, with the possibility of actual values falling outside that range, based on highly speculative computer models and highly speculative guesses about human reactions to events, and lumping together as if they were a single cause vastly different phenomena such as CO2 emissions, methane from cows and rice paddies, and other greenhouse gases -- you actually think "hmmm, they really know what's going to happen with a high degree of accuracy?"

Are you really that incapable of skepticism? Do you really not know the difference between "this is definitely what is going to happen" and "here is a wide range of projections about what maybe might happen if we're not totally full of it"?

The executive summary of the executive summary of the IPCC report: "We don't really know enough to be able to predict what's gong to happen, but by golly, we need to do something -- for The Children TM."

|8.14.07 @ 9:27PM|#

Huh? Why is that? Engineers would have to commute farther? Your assertion lacks any support or logic.

Manufacturing a new dish washer will use more energy then it will conserve compared to simply using your old one.

Same goes for just about anything from houses to cars to ipods.

BTW, it's not energy efficiency per se that is being sought (thought that would help) but carbon-producing efficiency.

In the US that is a distinction without a difference.

|8.14.07 @ 11:52PM|#

I think what Joshua was getting at with :

"...Lowering consumption requires technical advancement and technical advancement requires energy which costs money. If the price of oil goes up then the cost of investment in energy efficiency goes up...."

Was that if energy prices go up, the incentive to invest in alternative technologies or more efficient technologies becomes more real/possible. With cheap gas, there is no incentive to switch to an alternative source since we have a cheap one now. With gas at $3 to $5/gallon, there is more of an incentive to consider hybrid cars, solar power, public transportation (or telecomuting if you are fortunate like me).

I believe there is a great deal of "faith" involved with global warming in the context of it's source. Some, and I would weight all sources equally likely, say it's from solar activity (completely out of our control), water vapor, heat islands (due to the growth of cities, pavement), and possibly carbon dioxide. I would bet there is a very strong correlation between Megawatt generating capacity and global warming as well. As any electrician will tell you, if you feed 100 AMPS into a house, you'll need 2 tons of air conditioning to cool it in the summer. Doesn't matter if it's computers (my personal experience), toasters, TVs, what have you. If it runs on electricity and you use it, it generates heat when it operates.

I think the best thing to do is plan for the change, and adapt in ways that are appropriate. There may also be other opportunities along the way. A friend of mine recently returned from Canada, and he said that in the papers there they are arguing over the water route above Canada once there is an open water route above Canada once the ice pack opens up for a few months each year. Thus freight would not have to travel the Panama Canal to go from China to Europe. Canada is asserting the route is not in international water and they have the exclusive right to it.

There are other issues (like sustainable, clean drinking water) that are much more likely to occur have a much more immediate impact. Global Warming is 90% hysteria about something that is completely out of our control. And trying to legislate to lessen the impact is ludicrous to me.

Mike Laursen|8.15.07 @ 12:45AM|#

if it falls the tax should fall

To me, this part of McKitrick's plan is very faith-based. I'm afraid tax rates ain't going to fall so readily.

|8.15.07 @ 1:47AM|#

A lot of this carbon rationing stuff basically smells like watermelon to me. Green on the outside but red in the center. The really hard-core adherents are always from the left and they're basically always trying to use top-down coercion to make us all poorer. It's possible that there's a tragedy of the commons happening, but it's also possible that a modest change in climate might be a net positive. All this talk about the precautionary principle in a world where a billion people live in abject poverty. If coal's going to give their children a shot at a decent standard of living, nothing's going to stop them from mining and burning that coal. There's a more-or-less finite amount of fossil fuel reachable in the earth's crust. If you think you can keep any of it there forever, you'd better get going on essentially free forms of energy. (Or kill 5 billion people)

|8.15.07 @ 12:16PM|#

Ron--
Julian Morris, in his article, after noting that a carbon tax is better than a cap-and-trade system also cogently makes this point about what is really needed:

"In the short term, though, the main response to climate change must be adaptation. That is because most of the problems associated with climate change are extensions of problems that we already face today - from malaria and water-borne diseases to flooding and crop failure.

"If we could tackle those problems now, reducing their severity, incidence and consequences, then they would be also less of a problem in the future, with or without climate change.

"By adaptation, economists generally do not mean government mega-projects, such as dams and the like. Rather, they mean enabling people more effectively to address the problems they face. This is especially so for the poor, who suffer the most from the vagaries of the weather - they are least adapted to the current climate."

Those thoughts are ones that have been emphasized for the past ten years by such GW "deniers" as Mr. Morris, CEI, etc. and are usually completely ignored by the GW alarmists.

I wish you had drawn attention to the adaptation argument, Ron.

|8.15.07 @ 12:25PM|#

Morris gets off to a very bad start:

Even if the Kyoto Protocol were fully implemented...and its restrictions kept in place until 2100, its effect on the climate would barely be discernible.

This is a red herring tactic popularized by con man Bjorn Lomborg. Kyoto would last for 10 years. Where do the other 90 years of data come from? Nowhere. What would the other 90 years under Kyoto be like? Nothing. It's like saying Ronald Reagan was an unpopular president because he wasn't elected to a third term.

fyodor|8.15.07 @ 12:26PM|#

Manufacturing a new dish washer will use more energy then it will conserve compared to simply using your old one.

Maybe, maybe not. That depends on the particulars. Carbon taxes that applied both to both the operation and manufacture of dish washers would penalize the choice that emits more carbon and thus provide incentive for the market to move in the direction that emits less carbon. Compare this to one-size-fits-all regulations, which we're likely to get in lieu of graduated taxes, which may simply decree that a dish washer must meet certain requirements, and in THAT case, your objection is perfectly valid, because yes, it may very well be the case that producing a new dish washer to replace the old one produces more carbon emmissions. But if that's the case, a carbon tax would make the production of new dish washers to replace old inefficeint ones even less likely than it is now!

In the US that is a distinction without a difference.

Sounds like you're using a static model. As long as the potential exists to create energy without emitting carbon (or to create a given amount of energy with varying amounts of carbon emmissions), it most certainly is a meaningful distinction.

Wall Street Journal online acc|8.15.07 @ 11:15PM|#

I hate it when WSJ restricts articles to subscribers only.

But to get access to these "restricted" articles on WSJ.com, they are now selling WSJ online subscriptions for $125 for 1 year which INCLUDES 1 year of the print edition delivered -- plus 8 free weeks. Can't beat that deal and you'll be able to read every article...
http://www.valupoint.com/weblog/2007/08/75-off-discount-for-wall-street-journal.html

|8.16.07 @ 6:42AM|#

Scientists funded by politicians with a vested interest

That's why we scientists have the wonderful system of peer-review. Studies have shown that the amount of bias that creeps through is fairly negligable (though not non-existent, of course). Why? Because when you try to publish your article, it is nit-picked by a group of people who know their stuff and have every incentive to do the nit-picking. Then, once it is published, every scientist out there has large incentives to prove you wrong. A paper proving a previous paper wrong is almost always one of importance, with high levels of citation.