Via Andrew Sullivan, I learn that James Hansen is boycotting the talks in Copenhagen on the grounds that he objects to cap and trade. But what is his objection?
“The fundamental problem is that fossil fuels are the cheapest form of energy. As long as they are, they are going to be used,” he said.
He said that it would be better for the summit to fail rather than reach the type of cap and trade-based system envisaged.
We are going to have to move beyond fossil fuels at some point. Why continue to stretch it out longer?” he said. “The only way we can do that is by putting a price on carbon emissions. The business community and the public need to understand that there will be a gradually increasing price on carbon emissions.”
He proposes that the “carbon tax” start at the equivalent of about $1 per gallon of petrol but rise in future years.
Okay, I’m stumped.
Hansen is a really smart dude. So surely he must know that cap and trade does put a price on carbon emissions. I mean, everyone agrees about this, right?
There are legitimate reasons why some folks prefer taxes to cap-and-trade systems (though I’m a c&t guy, myself). But I thought everyone on both sides of the debate acknowledges that the two programs are fundamentally similar with respect to creating a price signal—they just aproach the problem differently.
In brief: A carbon tax prices carbon directly and relies on higher prices to reduce demand. Cap and trade restricts the supply of carbon thereby creating a price that fluctuates in response to demand. Does anyone disagree with this basic assessment?
Someone please enlighten me in comments. I don’t want to get into a big debate about all the respective merits and demerits of the two systems. I just want to know: does anyone out there think that cap and trade does not put a price on carbon?
In other words, what does Hansen mean?
Hansen gets to his unusual conclusion by assuming the worst about cap-and-trade and the best about a carbon tax.In the article, he says (a) there won’t really be an enforceable cap on emissions, and (b) companies will use offsets instead of real reductions. Here are two quotes:* “They are selling indulgences there. The developed nations want to continue basically business as usual so they are expected to purchase indulgences to give some small amount of money to developing countries. They do that in the form of offsets and adaptation funds.”* “He dismisses government announcements of national targets for greenhouse gas emissions as promises that will not be kept, noting that even Japan missed its goals under the Kyoto Protocol.”http://www.timesonline.co.uk/tol/news/environment/article6941974.eceAfter trashing cap-and-trade for the potential loopholes that companies are lobbying to get, he blithely assumes that adopting a $1 a gallon gasoline tax can be done without any loopholes. I wish he had seen how hard it was to pass a $0.05 gas tax (yes, only a nickel a gallon) in relatively progressive Washington State a few years ago. Passing a $1 tax in every country in the world would obviously be much harder. I don’t see how he can ignore the fact that the same political forces which chip away at a cap-and-trade system will also chip away at a carbon tax.The bottom line: Hansen ought to admit that even an imperfect cap-and-trade will put a price on carbon, just not as high a price as he wants. And he ought to admit that a carbon tax will likely be imperfect too, since it will be subject to the same political pressures we are witnessing in the run-up to Copenhagen. I’d be willing to discuss whether an imperfect carbon tax is better than an imperfect cap-and-trade system. But I’m not sure why we should bother comparing a perfect carbon tax with a real-world cap-and-trade system.
They’re not mutually exclusive, and I think the best long-term solution would have both. That way you create a market for a scarce resource, impose an absolute limit that can be scaled to the need to reduce emissions, you (hopefully) make money off the initial auctions, and you make additional money off ongoing carbon taxes, which can be increased gradually over time to reinforce the reduction in emissions.
Cascadian, Yes!A cap-and-trax sandwich!While the CAP works from the top down, the TAX works from the bottom up, and the TRADE gets squished in between. Thereby, all loopholes are closed. And, the massive pollution clean up is done in double-quick time. Which is precisely the tempo Dr. Hansen is prescribing.
The big issue is that C cannot be viewed in a vacuum. Currently Big Oil and Big Coal and Big Nuke all receive billions of tax payer subsidies which they will use to “buy” carbon credits and continue to expand CO2 production. So by approving Trade we support the industries that caused the problem and continue to block solutions. This not a “free market”. With a Carbon Tax at least we might have more control over which industries benefit from investment. I do not see either approach leading to meaningful change but if C leads to placation I am not a supporter.
Short answer: No, nobody believes that C does not put a price on carbon.Long answer: What I think Hansen means (and does not express well IMHO) is that it would be bad for the world to engage in posturing that makes it sound like we’re taking strong action… without actually taking much action. And that’s what he fears is happening with Waxman-Markey and with Copenhagen (and I mostly agree with him on this).Elsewhere in his recent comments Hansen writes that the cap-and-trade approach is “fundamentally wrong”, and I disagree with him on this. I think—and sorry to be a broken record here—that carbon taxes and cap-and-trade are fundamentally similar: anything you do with one you can basically do with the other. So folks like Hansen (and the people behind the new “Story of Cap-and-Trade” video) who argue that C is terrible and that carbon taxes are the way to go are IMHO wrong if they are making those claims IN GENERAL. Of course, SPECIFIC proposals of one type or the other might be lousy, and I happen to agree with Hansen that the specifics on the table right now are pretty lousy. Others think that the specifics on the table are pretty good, and so we can debate that. But the general proposition that C puts a price on carbon is not (or at least should not be) up for debate.
PS. In my previous post, “C” means “cap and trade”. Apparently your website doesn’t like the ampersand character 🙂
Paul Krugman writes today that Hansen is wrong about the economics of cap-and-trade:http://krugman.blogs.nytimes.com/2009/12/07/unhelpful-hansen/
I heard the Hansen story run again on NPR this morning. It just burned me up to hear not only Hansen’s misinformation but also NPR perpatuating this misinformation. Aargh!