What is the ideal structure for a carbon tax?

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What is the ideal structure for a carbon tax?

Postby EMTP » Thu Jan 30, 2014 8:20 pm UTC

Image

The accumulation of long-lived greenhouse gases in the atmosphere (chiefly CO2 and to a lesser extent methane) is projected to cause global temperatures to rise by several degrees C over the next few centuries, leading to massively expensive and destructive consequences, including sea level rise, loss of agricultural productivity, species extinction, spread of tropical diseases, and potentially (depending on the final level of temperature increase) significant portions of the world rendered uninhabitable.

One of the ways this can be addressed is via a price on carbon emissions. To succeed, a carbon price would have to eventually include most of the world's economies (the poorest nations produce so little in the way of carbon emissions that they could be ignored until and unless they get quite a bit richer.) It might take the form of cap-and-trade, a flat tax on emissions, or a sliding scale based on carbon emissions per unit of GDP or some other metric.

Serious questions about such a program include:

1. Tax structure vs cap-and-trade.
2. How fast it should be phased in, and what the final level (conventionally expressed as $/ton of CO2) should be.
3. How it should be structure to secure broad agreement. Should the larger powers place pressure on the smaller powers to agree, and if so, in what form?
4. How it would be monitored and enforced.
5. How do other causes of warming, like deforestation and albedo changes, fit in? How would the tax address replanting a forest, or cutting one down?

Questions that I suggest belong elsewhere:

1. Climate denial. If you don't think the world is warming or don't believe it will have destructive consequences, please address that elsewhere. The scientific consensus, that the globe is warming, human activities are the primary cause, and warming of >2C is likely to cost, at a minimum, many trillions of dollars, should be assumed for the purposes of this discussion, though the exact level of destructiveness is an important topic of discussion as it pertains to (#2).
2. Geoengineering. Very interesting subject, but OT here.
3. Simply claiming no one will ever agree to a carbon tax in any form. It is fine to be of that opinion, but it is not going to advance the discussion.
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Re: What is the ideal structure for a carbon tax?

Postby Izawwlgood » Thu Jan 30, 2014 9:06 pm UTC

An econ friend of mine (who admittedly does not believe in anthropogenic global warming, so, grain of salt and all that) put up one argument that I had a hard time countering; it may not be economical to reduce carbon emissions now, and may in fact stymie reaching a more developed technology that is more effectively capable of doing so.

I'm a fan of providing economic incentives for green technologies, such as for example, LEED certification, but I'm not sure I entirely disagree with my friends point. I'm curious to see what people suggest as compromise from both sides.
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Re: What is the ideal structure for a carbon tax?

Postby LaserGuy » Thu Jan 30, 2014 10:19 pm UTC

I think technology is not really a solution we can afford to count on. While alternative energy sources would certainly be a huge help, decommissioning all of our existing power stations and replacing them with the new ones, essentially world-wide, is going to be a colossal endeavor. It would probably take decades, if not longer to implement and the commissioning of new stations and decommissioning of old ones may well be a carbon intensive process itself, at least in the short term. Whatever we discovered wouldn't just have to be better than what we have right now, it'd probably have to be orders of magnitude better than what we have right now to really have a significant effect on near-to-medium-term global warming. Otherwise, we're probably still going to roll over into the real danger zone, with the consolation prize that things will look better after maybe 2200 AD.

[edit]Unless the new technology is a giant vacuum that can suck CO2 directly out of the air or something...

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Re: What is the ideal structure for a carbon tax?

Postby morriswalters » Thu Jan 30, 2014 11:05 pm UTC

Izawwlgood wrote:it may not be economical to reduce carbon emissions now, and may in fact stymie reaching a more developed technology that is more effectively capable of doing so.
How would he know? If he can predict the future he should play the stock market. When he is rich beyond measure it might be time to listen to him. There is no reason to believe that there is a technology that will help. There isn't any magic, and warp drive is a fictional device. The world you see out your door is all there is. That is the smart play. If we get advanced technology fine and good, but betting your ass on it is poor think, more common to people in my neighborhood than an economist's.

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Re: What is the ideal structure for a carbon tax?

Postby EMTP » Thu Jan 30, 2014 11:54 pm UTC

The problem I have with technical Polyannaism is the unspoken major premise, to wit: What will advanced technology saving us really look like?

Well, first, advanced investigation techniques and high-tech sensors would allow scientists to define the problem and see the worst effects coming many decades in advance.

Technology would provide us with far more energy-efficient ways to get work done, from manufacturing, to heating and cooling, to preparing food.

Technology would provide us with a number of alternatives to burning fossil fuels, like splitting atoms, or capturing energy from wind, or sunlight.

That is what I would imagine advanced technology saving us would look like. And don't we have all of that today? We have the science to tell us about the problem, the technology to use far less energy, and numerous ways to get the energy we do need without burning fossil fuels.

That being the case, the techno-optimists unspoken major premise is: the technology must make everything easy. It must overcome all political dysfunction and short term thinking be being virtually free, instantly profitable, and free of the need to make choices, or plan.

That is a fantasy. It's as if someone proposed the interstate highway system, or the polio vaccine, and the techno-optimist responded "Nah, I'm waiting for technology to solve the problem." High tech does not mean no cost, it does not mean no plan. There is no gizmo that neutralizes apathy and human stupidity.
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Re: What is the ideal structure for a carbon tax?

Postby Derek » Fri Jan 31, 2014 12:12 am UTC

From a purely economic perspective, the ideal solution is a Pigovian tax that exactly captures the negative externality of carbon emissions. This would mean that people would only emit carbon if doing so produced more value than the cost of the carbon emissions.

Realistically, it's too difficult to accurately measure the cost of carbon emissions. So most plans involve identifying a target level of output and using economic measures to reach that target. There are also the obvious political difficulties, any scheme needs to be applied globally to be effective. Otherwise carbon intensive industries just move to the less regulated areas.

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Re: What is the ideal structure for a carbon tax?

Postby moiraemachy » Fri Jan 31, 2014 12:58 am UTC

Izawwlgood wrote:it may not be economical to reduce carbon emissions now, and may in fact stymie reaching a more developed technology that is more effectively capable of doing so.
I disagree on the technology magic bullet thing, but not on the possibility of reducing emissions not being cost-effective. To risk sounding like denialist: I don't think there is enough data to provide a reasonably accurate picture of the extent of damage that an increase in temperature would cause, and I expect the research made so far to have a bias that favors more catastrophic conclusions (since the "other side" refuses to play this game). It does not sound impossible that the incremental hurricanes/droughts/heat waves/flooded areas avoided are not be worth the effort to avoid them.

However, I would try to counter by arguing that I believe that a very significant portion of the emissions could go away with little investment and small harm to productivity - in many situations the cost difference between the more and significantly less polluting alternative are small, but there is simply no incentive to choose the latter. I know for a fact that industries regularly pick a cheaper and less efficient motors because of small margins. I expect this to happen everywhere. Or, to put it in another way: I don't think the world's productivity depends so much on such small margins that the effects of a increase in the cost of polluting would be such a big deal. These margins only are a big deal when dealing with competition. However, ecological catastrophes tend to be very very costly.And seriously, why do people have a fetish for inefficiency in cars? Why are carburetors still a sting?

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Re: What is the ideal structure for a carbon tax?

Postby EMTP » Fri Jan 31, 2014 1:24 am UTC

moiraemachy wrote:However, I would try to counter by arguing that I believe that a very significant portion of the emissions could go away with little investment and small harm to productivity - in many situations the cost difference between the more and significantly less polluting alternative are small, but there is simply no incentive to choose the latter. I know for a fact that industries regularly pick a cheaper and less efficient motors because of small margins. I expect this to happen everywhere. Or, to put it in another way: I don't think the world's productivity depends so much on such small margins that the effects of a increase in the cost of polluting would be such a big deal. These margins only are a big deal when dealing with competition. However, ecological catastrophes tend to be very very costly.And seriously, why do people have a fetish for inefficiency in cars? Why are carburetors still a sting?


This is a point that escapes many people -- even if there are many very economically productive uses of fossil fuels, there are other uses with a low marginal return that will be phased out as soon as there is a price signal of any significant magnitude.

I disagree on the technology magic bullet thing, but not on the possibility of reducing emissions not being cost-effective. To risk sounding like denialist: I don't think there is enough data to provide a reasonably accurate picture of the extent of damage that an increase in temperature would cause, and I expect the research made so far to have a bias that favors more catastrophic conclusions (since the "other side" refuses to play this game). It does not sound impossible that the incremental hurricanes/droughts/heat waves/flooded areas avoided are not be worth the effort to avoid them.


I think that's a misconception. Climate science research is not dominated by leftists (except to the extent all American science is.) They have been targeted by the right; that does not make them the left, any more than biologists are leftists because they believe in evolution.

You are right that it is tricky to estimate how much climate change we can live with. But one thing we can say for certain is that the appropriate cost of carbon is not zero. I would argue that most of the estimates out there today are quite conservative, because they fail to take into account, among other things, the secondary costs of people's predictably dysfunctional responses to the effects of climate change -- protectionism, mass migration, civil unrest, international conflict, accelerated depletion of resources.
"Reasonable – that is, human – men will always be capable of compromise, but men who have dehumanized themselves by becoming the blind worshipers of an idea or an ideal are fanatics whose devotion to abstractions makes them the enemies of life."
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Re: What is the ideal structure for a carbon tax?

Postby BattleMoose » Fri Jan 31, 2014 1:39 am UTC

and I expect the research made so far to have a bias that favors more catastrophic conclusions


As an example, the reduction of the Arctic summer ice was very under predicted. You have no evidence to support this position of yours. Indeed actual evidence suggests that projections tend to be conservative. Perhaps largely from the fear that scientists will be labelled as alarmists because the public don't like the message.

moiraemachy wrote:It does not sound impossible that the incremental hurricanes/droughts/heat waves/flooded areas avoided are not be worth the effort to avoid them.


Why do people always miss the actual danger? Water and by extension food shortages! Perhaps this is because of a largely USA centric viewpoint, which is mostly abundant in water. And would have the capacity to import food ad infinitum. But when you don't have water or food, and are forced to migrate to another region, then you might want to recalculate the value of that.

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Re: What is the ideal structure for a carbon tax?

Postby firechicago » Fri Jan 31, 2014 4:31 am UTC

Izawwlgood wrote:An econ friend of mine (who admittedly does not believe in anthropogenic global warming, so, grain of salt and all that) put up one argument that I had a hard time countering; it may not be economical to reduce carbon emissions now, and may in fact stymie reaching a more developed technology that is more effectively capable of doing so.

Did your friend actually present any arguments as to why this is actually a likely outcome? Because we might find a new, super-effective technology 20 year from now that would be stifled if we started carbon incentives now. It's also true that if I invest my savings in lottery tickets rather than in a retirement account, I might win the Powerball jackpot which I wouldn't have if I'd invested that money in a boring old IRA, but I don't make my financial plans on the assumption that my winning the lottery is a significant possibility that I need to plan for.

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Re: What is the ideal structure for a carbon tax?

Postby LaserGuy » Fri Jan 31, 2014 5:19 am UTC

I think the most obvious thing that need to be done is that whatever the price of carbon is, it has to be worldwide--an internationally trade commodity of some kind. Otherwise, jurisdictions that introduce carbon taxes (especially ones actually significant enough to engender significant emissions reductions) may find that heavy industries or whatnot might just decide to pack up and move to a no-tax jurisdiction.

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Re: What is the ideal structure for a carbon tax?

Postby Thesh » Fri Jan 31, 2014 8:55 am UTC

I think what we need is a tax on foreign trade, calculated based on your CO2 emissions, population, and GDP relative to a baseline goal; the more your emissions are above that goal, the higher the tax rate on trade. A carbon tax alone won't reverse the effects of global warming, we have to have a much more directed effort to do so. I would also love to see a cap and trade plan on a global level to directly plan the reduction in CO2 emissions, with economic sanctions if you are above your cap. It will hurt third world development, but I don't see how we can let the third world develop uncontrolled when even the cleanest first world countries produce more CO2 emissions per capita than the world average. We need to allow third world countries to grow their CO2 emissions only as the first world countries cut their CO2 emissions. The US in particular needs to stop using coal, which represents 25% of our CO2 emissions; I don't think it will take long to reduce overall CO2 emissions if we give ourselves a 30 year plan to completely eliminate coal plants.

Vehicular traffic, of course, is another huge source of CO2 emissions, and the best way to cut that is not through a fuel tax but instead by reducing traffic in the first place; telecommuting and public transportation are the best areas of focus here. This is a problem that's just going to get worse as population increases, and regulations on vehicular emissions is probably going to be necessary as well. I like the idea of a 36 hour work week to help reduce CO2 as well; by getting people to do a combination of four nine-hour days, half days on Friday, and every other Friday off, you could have significantly less congestion on Fridays, resulting in fuel consumption savings not just from the people who don't work, but from the people who do as well. I would also love to see us reduce the percent of the population that works in the first place, for this very reason, although I don't think that's going to gain much support; if the US reduced the retirement age to 55 and increased social security payments, we could probably see a good 5-10 million fewer commuters.

I think we need to actually make a conscious decision between economic growth and CO2 output; the latter is a much more pressing issue, especially for western countries.
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Re: What is the ideal structure for a carbon tax?

Postby Izawwlgood » Fri Jan 31, 2014 2:02 pm UTC

firechicago wrote:
Izawwlgood wrote:An econ friend of mine (who admittedly does not believe in anthropogenic global warming, so, grain of salt and all that) put up one argument that I had a hard time countering; it may not be economical to reduce carbon emissions now, and may in fact stymie reaching a more developed technology that is more effectively capable of doing so.

Did your friend actually present any arguments as to why this is actually a likely outcome? Because we might find a new, super-effective technology 20 year from now that would be stifled if we started carbon incentives now. It's also true that if I invest my savings in lottery tickets rather than in a retirement account, I might win the Powerball jackpot which I wouldn't have if I'd invested that money in a boring old IRA, but I don't make my financial plans on the assumption that my winning the lottery is a significant possibility that I need to plan for.

The assumption is that a carbon tax has a net cost on progress. I think in some respects that's a fairly safe assumption; if you're diverting resources towards reducing emissions, those are resources not being spent on other things, like, say, developing technologies that are more efficient or even developing technolognies for reducing emissions.

Obviously, if you're on fire, continuing to douse yourself with gasoline is not a winning solution, but it may be prudent to run a few meters before you stop drop and roll if there's a puddle of gasoline at your feet. Useless metaphor aside, my friend had no counter to my point that LEED certification is a profitable business solution that results in less emissions. So, I think the ideal implementation of a carbon tax is going to be one that provides economic incentives to emitters of CO2 to reduce their emissions, through not just (if at all) taxing emissions, but through tax breaks for green solutions and practices.
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Re: What is the ideal structure for a carbon tax?

Postby Derek » Fri Jan 31, 2014 7:25 pm UTC

Out of curiosity I looked up GDP versus carbon emissions. Surprisingly, Wikipedia actually has a page on this. I expected European countries to come out on top, with developing countries like China and India at the bottom. That much I got right, but I was surprised to see that the least developed countries also came out on top. Apparently the lack of any industry whatsoever dominates their tiny GDPs. The US and Canada are about middle of the road.

Thesh wrote:I think what we need is a tax on foreign trade, calculated based on your CO2 emissions, population, and GDP relative to a baseline goal; the more your emissions are above that goal, the higher the tax rate on trade. A carbon tax alone won't reverse the effects of global warming, we have to have a much more directed effort to do so. I would also love to see a cap and trade plan on a global level to directly plan the reduction in CO2 emissions, with economic sanctions if you are above your cap. It will hurt third world development, but I don't see how we can let the third world develop uncontrolled when even the cleanest first world countries produce more CO2 emissions per capita than the world average. We need to allow third world countries to grow their CO2 emissions only as the first world countries cut their CO2 emissions. The US in particular needs to stop using coal, which represents 25% of our CO2 emissions; I don't think it will take long to reduce overall CO2 emissions if we give ourselves a 30 year plan to completely eliminate coal plants.

Vehicular traffic, of course, is another huge source of CO2 emissions, and the best way to cut that is not through a fuel tax but instead by reducing traffic in the first place; telecommuting and public transportation are the best areas of focus here. This is a problem that's just going to get worse as population increases, and regulations on vehicular emissions is probably going to be necessary as well. I like the idea of a 36 hour work week to help reduce CO2 as well; by getting people to do a combination of four nine-hour days, half days on Friday, and every other Friday off, you could have significantly less congestion on Fridays, resulting in fuel consumption savings not just from the people who don't work, but from the people who do as well. I would also love to see us reduce the percent of the population that works in the first place, for this very reason, although I don't think that's going to gain much support; if the US reduced the retirement age to 55 and increased social security payments, we could probably see a good 5-10 million fewer commuters.

I think we need to actually make a conscious decision between economic growth and CO2 output; the latter is a much more pressing issue, especially for western countries.

I think this is exactly the wrong way to go about it. Instead of simply putting a cost on carbon, you are regulating the carbon producing industries. This effectively puts a cost on carbon, but the cost is different for different industries, which will distort the market by undercharging some industries and overcharging others. It's also more complicated to legislate and maintain, and will probably impose administrative costs that are not proportional to carbon production.

Your 36 work day scheme in particular seems needlessly confusing, and with effectively a quarter of the work done on Fridays, but only half the commuting, it will probably be more detrimental than beneficial. If you wanted to reduce commuting, then 4 10-hour days (9-hours if you want slightly shorter work weeks, but that's a completely orthogonal issue) would make more sense, it would maintain the current 40 hour week while reducing work-related commuting by 20%. But again, regulating the work week is a bad way to reduce carbon emissions because it's far too indirect and the associated costs are not proportional to carbon use (it's also a bad idea in general). If you simply tax carbon instead, then carbon intensive commutes become more expensive, which leads to workers choosing to change their work patterns or commute patterns to reduce carbon emissions. This is much more effective.

I would also love to see us reduce the percent of the population that works in the first place, for this very reason, although I don't think that's going to gain much support; if the US reduced the retirement age to 55 and increased social security payments, we could probably see a good 5-10 million fewer commuters.

I'm going to single out this part in particular. This is the exact opposite direction that western economies are moving. With increasing life spans and decreasing birthrates, it is essential that workers retire older, not younger.

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Re: What is the ideal structure for a carbon tax?

Postby Thesh » Sat Feb 01, 2014 4:28 am UTC

Derek wrote:I think this is exactly the wrong way to go about it. Instead of simply putting a cost on carbon, you are regulating the carbon producing industries. This effectively puts a cost on carbon, but the cost is different for different industries, which will distort the market by undercharging some industries and overcharging others. It's also more complicated to legislate and maintain, and will probably impose administrative costs that are not proportional to carbon production.


When you have two areas, power plants and transportation producing 70% of the CO2 emissions in the US, then yes, it makes absolute sense to target those industries in particular if you want to have the most reduction in CO2.

Derek wrote:it's also a bad idea in general

Oops, I forgot that 40 is a magical number; my mistake.

Derek wrote:
I would also love to see us reduce the percent of the population that works in the first place, for this very reason, although I don't think that's going to gain much support; if the US reduced the retirement age to 55 and increased social security payments, we could probably see a good 5-10 million fewer commuters.

I'm going to single out this part in particular. This is the exact opposite direction that western economies are moving. With increasing life spans and decreasing birthrates, it is essential that workers retire older, not younger.


If you keep raising the retirement age, then traffic is just going to get worse, and the problem is just going to be compounded. The only reason countries are raising the retirement age is because the alternative is higher taxes. With the rise in productivity it makes perfect sense to lower the retirement age. Just because this is the direction we are moving in, doesn't mean it's the right direction to move in, and it doesn't mean it actually makes sense.
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Re: What is the ideal structure for a carbon tax?

Postby Derek » Sat Feb 01, 2014 5:57 am UTC

Thesh wrote:
Derek wrote:I think this is exactly the wrong way to go about it. Instead of simply putting a cost on carbon, you are regulating the carbon producing industries. This effectively puts a cost on carbon, but the cost is different for different industries, which will distort the market by undercharging some industries and overcharging others. It's also more complicated to legislate and maintain, and will probably impose administrative costs that are not proportional to carbon production.


When you have two areas, power plants and transportation producing 70% of the CO2 emissions in the US, then yes, it makes absolute sense to target those industries in particular if you want to have the most reduction in CO2.

And how is singling out these areas more effective than a general carbon tax? What if the other 30% are significantly less efficient per unit of carbon? What if power plants are more efficient than transportation? How does your plan account for these differences?

Derek wrote:it's also a bad idea in general

Oops, I forgot that 40 is a magical number; my mistake.

Huh? I said that regulating the work week is a bad idea, what does that have to do with 40 being a magical number? I used a 40 hour week in my example only because it's the modern standard work week. But I cannot emphasize enough that regulating the work week is a bad idea. It is also, as I've said, completely unrelated to the issue of reducing carbon emissions.

Derek wrote:
I would also love to see us reduce the percent of the population that works in the first place, for this very reason, although I don't think that's going to gain much support; if the US reduced the retirement age to 55 and increased social security payments, we could probably see a good 5-10 million fewer commuters.

I'm going to single out this part in particular. This is the exact opposite direction that western economies are moving. With increasing life spans and decreasing birthrates, it is essential that workers retire older, not younger.


If you keep raising the retirement age, then traffic is just going to get worse, and the problem is just going to be compounded. The only reason countries are raising the retirement age is because the alternative is higher taxes. With the rise in productivity it makes perfect sense to lower the retirement age. Just because this is the direction we are moving in, doesn't mean it's the right direction to move in, and it doesn't mean it actually makes sense.

People are living longer and healthier lives. How does it not make sense to work longer? And with birthrates falling, squeezing the work force from the bottom, how does it make sense to squeeze it from the top at the same time? And again, reducing the size of the work force is a terribly indirect way to reduce carbon emissions. What about the workers who takes mass transit to work? What about the ones who telecommute? You're cutting those jobs as well, which hurts the economy without reducing carbon emissions. Indirect regulation is not an effective way to achieve your goals.

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Re: What is the ideal structure for a carbon tax?

Postby Tyndmyr » Mon Feb 03, 2014 3:33 pm UTC

Izawwlgood wrote:An econ friend of mine (who admittedly does not believe in anthropogenic global warming, so, grain of salt and all that) put up one argument that I had a hard time countering; it may not be economical to reduce carbon emissions now, and may in fact stymie reaching a more developed technology that is more effectively capable of doing so.

I'm a fan of providing economic incentives for green technologies, such as for example, LEED certification, but I'm not sure I entirely disagree with my friends point. I'm curious to see what people suggest as compromise from both sides.


That same argument has occurred to me, and it seems troublesome indeed. Predicting future technological development is tricky, but the value of past technological development has certainly been very great indeed.

morriswalters wrote:
Izawwlgood wrote:it may not be economical to reduce carbon emissions now, and may in fact stymie reaching a more developed technology that is more effectively capable of doing so.
How would he know? If he can predict the future he should play the stock market. When he is rich beyond measure it might be time to listen to him. There is no reason to believe that there is a technology that will help. There isn't any magic, and warp drive is a fictional device. The world you see out your door is all there is. That is the smart play. If we get advanced technology fine and good, but betting your ass on it is poor think, more common to people in my neighborhood than an economist's.


*shrug* It already has helped. Nukes, solar panels, all manner of alternative energy...yes, the problem is a very large, widespread problem, and thus far, technical solutions have a ways to go to solve it...but seriously, how much have non-technical solutions helped in comparison to technical ones? I do not see people eagerly accepting a lower standard of living in order to reduce emissions.

It seems extremely likely that these technologies, at least, will proliferate and be improved at least somewhat. Related tech, like battery storage density, allows these solutions to be applicable in more scenarios as well. This may not be fast or sexy, but at least some work is being done. No doubt more will be. It is simply extremely hard to predict where the next breakthroughs will be.

firechicago wrote:
Izawwlgood wrote:An econ friend of mine (who admittedly does not believe in anthropogenic global warming, so, grain of salt and all that) put up one argument that I had a hard time countering; it may not be economical to reduce carbon emissions now, and may in fact stymie reaching a more developed technology that is more effectively capable of doing so.

Did your friend actually present any arguments as to why this is actually a likely outcome? Because we might find a new, super-effective technology 20 year from now that would be stifled if we started carbon incentives now. It's also true that if I invest my savings in lottery tickets rather than in a retirement account, I might win the Powerball jackpot which I wouldn't have if I'd invested that money in a boring old IRA, but I don't make my financial plans on the assumption that my winning the lottery is a significant possibility that I need to plan for.


Not the same situation. Lottery is a net loss. Investing in technology has been a net gain for humanity. It's more like the 401k. You're gonna have gains in a properly diversified portfolio, but you have no idea where they are going to arise over the short term. Will tech help with emissions? Yes. Will it do so very significantly over a short term horizon of say, twenty years? Ehhh...maybe? Maybe alternative energy programs will stagnate and the big advancements will be elsewhere. I can't predict all developments two decades out with significant accuracy. I suspect that nobody can.

Now, this does not mean that we should abandon ALL efforts to curb emissions. Reducing wastage, etc is great regardless. But if we're looking at a decision point where we're hurting technological advancement in order to curb emissions, it's an issue.


If it matters, I do believe that anthropogenic global warming is happening. That's actually fairly trivial to demonstrate. The devil is in the details, as always. Predicting localized effects, costs, costs for mitigation, etc, are all vastly harder problems that are highly error-prone.

So, in the end, we have a huge lack of data about the costs, a huge lack of data about the costs of an action to fix it, but a lot of people demanding action. This is fairly awkward. It also risks falling into the "we've got to do SOMETHING" trap. I've had the lovely experience of working for two failing companies now, and in both cases, bad news was met with an immediate "what do we do", and increasingly rapid, panicked actions. Time horizons of decisions shorten. Data analysis gets abbreviated. Each decision ends up making things worse, increasing the incentive to fix it quickly, leading to the problems being exacerbated. A death spiral, really.

I worry that in the climate of emotion, fear-mongering and denialism...decisions are going to get made based on sheer partisanship and feelings of urgency, rather than by a dispassionate assessment of the situation.

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Re: What is the ideal structure for a carbon tax?

Postby EMTP » Sat Feb 08, 2014 7:27 pm UTC

Derek wrote:
Thesh wrote:
Derek wrote:I think this is exactly the wrong way to go about it. Instead of simply putting a cost on carbon, you are regulating the carbon producing industries. This effectively puts a cost on carbon, but the cost is different for different industries, which will distort the market by undercharging some industries and overcharging others. It's also more complicated to legislate and maintain, and will probably impose administrative costs that are not proportional to carbon production.


When you have two areas, power plants and transportation producing 70% of the CO2 emissions in the US, then yes, it makes absolute sense to target those industries in particular if you want to have the most reduction in CO2.

And how is singling out these areas more effective than a general carbon tax? What if the other 30% are significantly less efficient per unit of carbon? What if power plants are more efficient than transportation? How does your plan account for these differences?


Well, you could make the argument that it is easier politically to charge a carbon tax at the point of manufacture, rather than consumption. So you charge when the coal or oil comes out of the ground (or crosses the border). That would extract the cost from fossil fuel companies first, and while they would certainly seek to pass that cost on to the consumer, they would be unlikely to be 100% successful, so their profits would take a hit, which would be nice.

The difficulty with charge electricity producers is that most of them are operating on some sort of a utility model, which would likely make them less responsive to price signals than consumers or more typical private companies.
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Re: What is the ideal structure for a carbon tax?

Postby cphite » Mon Feb 10, 2014 6:41 pm UTC

EMTP wrote:Well, you could make the argument that it is easier politically to charge a carbon tax at the point of manufacture, rather than consumption. So you charge when the coal or oil comes out of the ground (or crosses the border). That would extract the cost from fossil fuel companies first, and while they would certainly seek to pass that cost on to the consumer, they would be unlikely to be 100% successful, so their profits would take a hit, which would be nice.


It's politically easier to propose higher taxes at the point of manufacturer because most voters won't look past the "someone else is paying" aspect of it... but the reality is that those costs will be passed along to the consumer. Maybe not at 100% but probably pretty close.

And of course, that is only the direct costs. When gas goes up $1.00 or more per gallon, that means consumers have less money to spend on other things. When profits go down for fossil fuel companies, that means investors (including a lot of middle class people) and pensioners lose money - which in turn means even less money going into the economy.

Really, like it or not, the people least harmed by a carbon tax are the energy producers.

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Re: What is the ideal structure for a carbon tax?

Postby EMTP » Mon Feb 10, 2014 7:01 pm UTC

cphite wrote:It's politically easier to propose higher taxes at the point of manufacturer because most voters won't look past the "someone else is paying" aspect of it... but the reality is that those costs will be passed along to the consumer. Maybe not at 100% but probably pretty close.


Evidence? This is a frequently repeated assertion, but I have yet to see any supporting data.

And of course, that is only the direct costs. When gas goes up $1.00 or more per gallon, that means consumers have less money to spend on other things. When profits go down for fossil fuel companies, that means investors (including a lot of middle class people) and pensioners lose money - which in turn means even less money going into the economy.

Really, like it or not, the people least harmed by a carbon tax are the energy producers.


That doesn't follow. Money taken out of the economy by taxation gets put right back into it in the form of government spending. So unless a carbon tax is dedicated to deficit reduction, there's no reason to think it would be an overall drag on spending.

Nor do I see any reason why (fossil fuel) energy producers would be "hurt least" by a tax on the extraction of fossil fuels. That seems like hand-waving.
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Re: What is the ideal structure for a carbon tax?

Postby Zamfir » Mon Feb 10, 2014 8:32 pm UTC

cphite wrote:Really, like it or not, the people least harmed by a carbon tax are the energy producers.

I've worked in and around the energy business for years, and this doesn't ring true to me, at all. It's a business where people tend to have deep investments in a particular mode of working. For one, lots of expensive plants and equipment, mostly stuck to particular energy chains. Beyond that, the knowledge and expertise of people and organizations is not universally applicable either.

So people are very sensitive to shifts in the attractiveness of particular energy chains. If the tide moves away from your specialisms, then you are stuck with your expertise, your plants, your supplier and customer networks, all of them worth a lot less and still indebted. And conversely, a shift in your direction is great, because new competition will be facing an uphill battle against your entrenched position.

So yes, carbon-intensive energy producers care about carbon taxes. Even if they can pass part of the cost on to the customers, they cannot pass on all, because of the competition of less-carbon intensive alternatives. And even little losses can easily be the difference between glorious opportunities for all, and years of thankless work to stave off the bankruptcy another year.

Now, for everyone invested on the carbon-heavy side of energy, there's someone else who stands to gain from such shifts. And most people and most organizations have some cards on both sides of the table. But there's hardly anyone with a truely neutral portfolio on the issue.

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Re: What is the ideal structure for a carbon tax?

Postby Derek » Mon Feb 10, 2014 9:06 pm UTC

Unless there is an external force or a market failure, it doesn't matter where you apply a tax, the costs will be distributed throughout the chain according to the elasticity of demand at each stage. If you tax at the point of sale, then sellers will lower their prices (because the tax lowers demand). If you tax the point of production, then sellers will raise prices (because the tax increases costs). In either scenario, both the seller and buyer are paying part of the tax. (I'm pretty sure this even holds for monopolies)

For this reason, it is usually best to apply a tax wherever it is easiest to enforce. Although for a pigovian tax like this, it's also important to be sure that you tax all carbon output equally if you want to achieve the desired goal.

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Re: What is the ideal structure for a carbon tax?

Postby Tyndmyr » Mon Feb 10, 2014 10:05 pm UTC

EMTP wrote:
cphite wrote:It's politically easier to propose higher taxes at the point of manufacturer because most voters won't look past the "someone else is paying" aspect of it... but the reality is that those costs will be passed along to the consumer. Maybe not at 100% but probably pretty close.


Evidence? This is a frequently repeated assertion, but I have yet to see any supporting data.


I run a store. I know quite a few other people in the same position. Margins are fairly well pegged overall...they pretty much have to be. Now, different types of stores will have different margins, but within a store, you generally run pretty strict metrics that products have to maintain, or they get the axe. There is a tradeoff with volume, where exceptionally popular items may run at a lesser margin, but regardless, an increase in cost isn't going to change the standard to keep a product in stock. The price rises. If demand falls off, the product does not get restocked.

Some products, such as heating oil, etc, are not particularly elastic. To reduce consumption, the customer would need to either replace their heating system(quite expensive), or accept being colder. Both of these are rather unpopular, and especially over the short term, customers essentially are not going to change consumption voluntarily(weather, etc patterns may change them). So, consumer demand is not very flexible. This means that you'll see the price swing with the cost.

If it's an item with many equivalent replacement goods that have NOT gone up in price, and are now cheaper, the item may simply vanish instead, sure...but power is not really at this point. The power grid isn't all that flexible, there isn't that much oversupply, and alternative sources tend to be more expensive than traditional energy sources, and additionally, alt energy sources tend to be fairly costly to develop and install. So, yeah, you're gonna mostly see price increases.

Zamfir wrote:So yes, carbon-intensive energy producers care about carbon taxes. Even if they can pass part of the cost on to the customers, they cannot pass on all, because of the competition of less-carbon intensive alternatives. And even little losses can easily be the difference between glorious opportunities for all, and years of thankless work to stave off the bankruptcy another year.


To translate this to energy, this would mean that coal would go out of business because of solar, etc. This does not seem to be a pressing concern in the US.

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Re: What is the ideal structure for a carbon tax?

Postby Zamfir » Tue Feb 11, 2014 7:22 am UTC

In the short run , it would mean that coal plants struggle financially because of competition from (lower carbon) natural gas. As is already happening in the US, mostly because of shale gas, but also because of increasing pollution standards.

There is quite a lot of inertia between 'financial struggle' and plant closures, exactly because there is so much sunk cost involved. But quite some US coal plants are currently taken off-line. I've heard people say that there might never be a new coal plant in the US again, because by the time that gas prices revert to international levels, the further increase in regulation will be enough on its own. I can't tell if that's accurate, but apparently it's plausible. Coal mine owners are among the most active opponents to carbon restrictions in the US, with good reason.

That inertia applies not just to coal plants, but to pretty much everything in the energy and fossil fuel business. It's an important issue when considering carbon prices. There is a difficult trade-off here, even if you are already determined to stabilize greenhouse levels. The economically attractive path is to set prices such that new investment in carbon-intensive industries halts, but their existing investments are phased out at only mildly accelerated speeds. Higher carbon prices are relatively costly, as they imply the phase out of lots of well-functioning and dearly paid-for kit (and the accompanying expertise).

Trouble is, that kit will emit CO2 for decades, and it will stay in the atmosphere for decades longer. So if you want to stabilize the level of CO2 later on, then a mild start implies very tough measures later on to meet the goals.

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Re: What is the ideal structure for a carbon tax?

Postby EMTP » Wed Feb 12, 2014 2:21 am UTC

Tyndmyr wrote:
EMTP wrote:
cphite wrote:It's politically easier to propose higher taxes at the point of manufacturer because most voters won't look past the "someone else is paying" aspect of it... but the reality is that those costs will be passed along to the consumer. Maybe not at 100% but probably pretty close.


Evidence? This is a frequently repeated assertion, but I have yet to see any supporting data.


I run a store. I know quite a few other people in the same position. Margins are fairly well pegged overall...they pretty much have to be. Now, different types of stores will have different margins, but within a store, you generally run pretty strict metrics that products have to maintain, or they get the axe. There is a tradeoff with volume, where exceptionally popular items may run at a lesser margin, but regardless, an increase in cost isn't going to change the standard to keep a product in stock. The price rises. If demand falls off, the product does not get restocked.


I don't see how that's applicable to, say, Exxon, which made a profit of $44.9 billion in 2012. Or BP, which made a profit of $25.7 billion dollars in 2011.

The fact of the matter is that businesses compete with one another, and if you respond to the problem of increased costs by passing them on to your customers, you may trade that problem for the problem of not having any customers.

Anecdotal evidence aside, I would love to see some evidence that all or almost all increased costs get passed onto consumers.

Some products, such as heating oil, etc, are not particularly elastic. To reduce consumption, the customer would need to either replace their heating system(quite expensive), or accept being colder. Both of these are rather unpopular, and especially over the short term, customers essentially are not going to change consumption voluntarily(weather, etc patterns may change them). So, consumer demand is not very flexible. This means that you'll see the price swing with the cost.


Heating oil is very elastic. You can burn it, or you can put on a sweater. If it's expensive enough, people will tend to put on sweaters. At some price point, people will certainly look to replace heating oil for some sort of post-Victorian-era technology which is likely to be far more efficient. If the system has a high initial cost, but saves money over the medium term, then people will save their money or take out a loan.
If it's an item with many equivalent replacement goods that have NOT gone up in price, and are now cheaper, the item may simply vanish instead, sure...but power is not really at this point. The power grid isn't all that flexible, there isn't that much oversupply, and alternative sources tend to be more expensive than traditional energy sources, and additionally, alt energy sources tend to be fairly costly to develop and install. So, yeah, you're gonna mostly see price increases.


No one is saying there won't be price increases. The dubious assertion that you made was that all or almost all of the additional costs imposed on the fossil fuel industry would be passed on to consumers. That's what I'd like to see you support with evidence.

Beyond that, you seem to be describing the healthy operation of a Pigovian tax as if it were strange and unwelcome. "[A]lternative sources tend to be more expensive than traditional energy sources" -- yes, if you don't count the cost of fouling the atmosphere and jacking up the climate. Which is why you impose a carbon tax; so that consumers can compare the real price of different ways of getting their electricity. The objective is not to make fossil fuels "vanish" but to limit them to applications where they have an economic value that justifies their actual cost to society as a whole. So you might find that a future society powers its cities with nuclear power but still has diesel backup generators in the hospitals. Or has most people using mass transit or electric vehicles, but still loves its gas-guzzling NASCAR races.
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Re: What is the ideal structure for a carbon tax?

Postby Tyndmyr » Wed Feb 12, 2014 3:55 pm UTC

EMTP wrote:
Tyndmyr wrote:
EMTP wrote:
cphite wrote:It's politically easier to propose higher taxes at the point of manufacturer because most voters won't look past the "someone else is paying" aspect of it... but the reality is that those costs will be passed along to the consumer. Maybe not at 100% but probably pretty close.


Evidence? This is a frequently repeated assertion, but I have yet to see any supporting data.


I run a store. I know quite a few other people in the same position. Margins are fairly well pegged overall...they pretty much have to be. Now, different types of stores will have different margins, but within a store, you generally run pretty strict metrics that products have to maintain, or they get the axe. There is a tradeoff with volume, where exceptionally popular items may run at a lesser margin, but regardless, an increase in cost isn't going to change the standard to keep a product in stock. The price rises. If demand falls off, the product does not get restocked.


I don't see how that's applicable to, say, Exxon, which made a profit of $44.9 billion in 2012. Or BP, which made a profit of $25.7 billion dollars in 2011.

The fact of the matter is that businesses compete with one another, and if you respond to the problem of increased costs by passing them on to your customers, you may trade that problem for the problem of not having any customers.

Anecdotal evidence aside, I would love to see some evidence that all or almost all increased costs get passed onto consumers.


They get taxed now, and they haven't decided "hey, maybe we should hack our profits to nothing". You can pretty trivially observe that costs like "price of oil" translate pretty directly to increased price at the pump.

Some products, such as heating oil, etc, are not particularly elastic. To reduce consumption, the customer would need to either replace their heating system(quite expensive), or accept being colder. Both of these are rather unpopular, and especially over the short term, customers essentially are not going to change consumption voluntarily(weather, etc patterns may change them). So, consumer demand is not very flexible. This means that you'll see the price swing with the cost.


Heating oil is very elastic. You can burn it, or you can put on a sweater. If it's expensive enough, people will tend to put on sweaters. At some price point, people will certainly look to replace heating oil for some sort of post-Victorian-era technology which is likely to be far more efficient. If the system has a high initial cost, but saves money over the medium term, then people will save their money or take out a loan.


It has an elasticity lower than 1, therefore, by definition, it is an inelastic good. It doesn't have a lot in the way of substituteable goods. You can't suddenly start burning wood instead if the price is high...that would require a wood stove installation and what not. This is why heating oil is a classic example of an inelastic good. Now, nothing has absolutely NO elasticity, but it is very low(.2 is a common estimate)*.

A .2** elasticity means that a 10% rise in price will reduce demand by 2%. It is trivial to realize that for inelastic goods, it is more desirable for the producer to pass increased costs along to the consumers. Things such as gasoline run about .26 short term, .56 long term***.

Energy use is VERY inelastic.

*I'm aware that elasticity may vary between long and short term, but heating oil is inelastic for both(though long term is, as usual, somewhat more elastic).
**Elasticity is expressed in negative numbers, technically...but again, simplifying. It is not the normal case that higher costs lead to higher consumption, so there is little risk of confusion.
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Re: What is the ideal structure for a carbon tax?

Postby Zamfir » Wed Feb 12, 2014 4:32 pm UTC

Surely we want suppliers to pass on carbon prices? When they don't pass them on, there is no reason for their customers to reduce the use of carbon intensive goods.

One way, customer face higher prices, pushing them away from carbon intensive goods. The other way round, suppliers of such goods face diminished profits, which in the long term reduces such production. Both ways seem to be effective.

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Re: What is the ideal structure for a carbon tax?

Postby Kit. » Wed Feb 12, 2014 5:05 pm UTC

Zamfir wrote:One way, customer face higher prices, pushing them away from carbon intensive goods.

Unless those are Giffen goods (which coal probably is).

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Re: What is the ideal structure for a carbon tax?

Postby firechicago » Wed Feb 12, 2014 5:15 pm UTC

Kit. wrote:Unless those are Giffen goods (which coal probably is).

Not when natural gas is as cheap as it has been recently.

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Re: What is the ideal structure for a carbon tax?

Postby Zamfir » Wed Feb 12, 2014 5:46 pm UTC

Yeah, when coal prices rise, coal plants are run less intense and old plants are retired sooner. With the slack typically taken up by natural gas plants. Not much Giffen there.

And newer plants invest in efficiency measures, to consume less coal. There's quite some slack there: there are quite some plants in the world that operate below 30% efficiency, while the currently feasible is nearly 50%.

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Re: What is the ideal structure for a carbon tax?

Postby EMTP » Wed Feb 12, 2014 6:13 pm UTC

Tyndmyr wrote:
They get taxed now, and they haven't decided "hey, maybe we should hack our profits to nothing". You can pretty trivially observe that costs like "price of oil" translate pretty directly to increased price at the pump.


If it's trivial, then show some evidence for it. You posted one link, which leads to a login page.

Zamfir wrote:Surely we want suppliers to pass on carbon prices? When they don't pass them on, there is no reason for their customers to reduce the use of carbon intensive goods.

One way, customer face higher prices, pushing them away from carbon intensive goods. The other way round, suppliers of such goods face diminished profits, which in the long term reduces such production. Both ways seem to be effective.


Oh yes, and they will, in part. Just not entirely, especially given that they have to compete with low-carbon alternatives.
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Re: What is the ideal structure for a carbon tax?

Postby Tyndmyr » Wed Feb 12, 2014 8:24 pm UTC

EMTP wrote:
Tyndmyr wrote:
They get taxed now, and they haven't decided "hey, maybe we should hack our profits to nothing". You can pretty trivially observe that costs like "price of oil" translate pretty directly to increased price at the pump.


If it's trivial, then show some evidence for it. You posted one link, which leads to a login page.


Holy crap, you really don't believe that oil prices are reflected in gas prices?

....really?

Oil Prices:
Image

Gas Prices:
Image


.....really?

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Re: What is the ideal structure for a carbon tax?

Postby lgw » Wed Feb 12, 2014 8:52 pm UTC

Zamfir wrote:Surely we want suppliers to pass on carbon prices? When they don't pass them on, there is no reason for their customers to reduce the use of carbon intensive goods.


I like carbon-intensive goods. Not trolling here - I see "reducing carbon emissions" as directly translating to "reducing standard of living" (I assume costs will of course be passed on), and I object to any such plan. I find it interesting that people so off-handedly assert that it's OK for one group of people to use the power of the state to force/incentivize another group of people to change their ways. I can think of no warning flag that makes me more hesitant than "our group's values are right and must imposed on that group over there, whose values are harmful". Surely the bar should be very high here.

No one has shown via cost-benefit analysis that:
  • if we absorb a cost of $X to reduce carbon emissions, it will reduce other costs/harm done by $Y
  • $X is significantly lower than $Y, to the point it justifies the loss of liberty implicit in reducing choices
  • We know $X and $Y to 2 or more significant digits, thanks to falsifiable predictions with believable error bars that have proven their accuracy for years

I don't think we even have wild guesses at such numbers. I find a rush from "it seems carbon emissions, qualitatively, are likely harmful" to "must force everyone to live my way" quite disturbing, almost as if maximizing well-being wasn't actually a goal of the process.
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Re: What is the ideal structure for a carbon tax?

Postby Zamfir » Wed Feb 12, 2014 9:07 pm UTC

I can think of no warning flag that makes me more hesitant than "our group's values are right and must imposed on that group over there, whose values are harmful".

Well, there's the Jolly Roger, that one should make you more hesitant.

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Re: What is the ideal structure for a carbon tax?

Postby Izawwlgood » Wed Feb 12, 2014 9:10 pm UTC

Wellllllllll, you're assuming there's no cost of emitting, which I think is a ludicriously untenable position. Environmental protection *is* one of the things I feel a libertarian, like I imagine you are going to call yourself, should believe is the states responsibility.
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Re: What is the ideal structure for a carbon tax?

Postby LaserGuy » Wed Feb 12, 2014 9:19 pm UTC

lgw wrote:
Zamfir wrote:Surely we want suppliers to pass on carbon prices? When they don't pass them on, there is no reason for their customers to reduce the use of carbon intensive goods.


I like carbon-intensive goods. Not trolling here - I see "reducing carbon emissions" as directly translating to "reducing standard of living" (I assume costs will of course be passed on), and I object to any such plan. I find it interesting that people so off-handedly assert that it's OK for one group of people to use the power of the state to force/incentivize another group of people to change their ways. I can think of no warning flag that makes me more hesitant than "our group's values are right and must imposed on that group over there, whose values are harmful". Surely the bar should be very high here.


If anything it's actually more akin to the government enforcing laws against theft or vandalism. Yes, of course it means reducing standards of living, because your standards of living are being artificially inflated by the fact that you are using a valuable resource without paying for it. If I rob a bank and get away with it, my standard of living will necessarily be higher than if I don't. That doesn't mean that I ought to be robbing banks or that there is no cost to society at large for me to do so.

It baffles me that people can be libertarians and not also be environmentalists.
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Re: What is the ideal structure for a carbon tax?

Postby Derek » Wed Feb 12, 2014 9:21 pm UTC

Wikipedia has a good article on tax burden. TL;DR: The burden is PES/(PES + PED) for producers, and PED/(PES + PED) for consumers (PES is price elasticity of supply, PED is price elasticity of demand). Tyndmyr provided some numbers for elasticity of demand, someone see if you can find numbers for elasticity of supply.

It baffles me that people can be libertarians and not also be environmentalists.

I believe most environmentalists (at least, self described environmentalists) overestimate the cost to society of environmental damage, not necessarily in all areas, but in many, and thus advocate for too much regulation or taxation than is economically optimal.

I also believe that many of them have little to no understanding of economics, and thus even when they correctly evaluate the problem, their proposed solutions are poor or even harmful, but that is perhaps a different issue.

In any case, I think there is room for a pigovian tax on carbon, if we can get a good estimate of the negative externalities.

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Re: What is the ideal structure for a carbon tax?

Postby DireKobold » Wed Feb 12, 2014 10:50 pm UTC

I have a tendency to conceal my lack of knowledge by going big-picture and avoiding the subject entirely, and then maybe asking some open-ended difficult to answer questions. You have been warned... (I say that in part because this is my second post).

I would also consider myself a small-l libertarian, but I can certainly see where preventing the "Tragedy of the Commons" (no link provided see above). Is something where government really does have a role.

That said I'm inclined to a certain degree of technological pollyannaism myself because I'm not sure I see another way out of the corner we've painted ourselves into. To adapt a quote from Macbeth:

We are in blood
Stepped in so far that, should I wade no more,
Returning were as tedious as go o'er.


Is the purpose of the carbon tax to destroy the carbon economy. If so Carbon Economy = All Economy, so that's bad. Or is it just a method to incentivise people to develop new and better ways of mitigating carbon emission? If the latter then doesn't it reduce back down to technological pollyannaism, just perhaps a different flavor of it?

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Re: What is the ideal structure for a carbon tax?

Postby Zamfir » Wed Feb 12, 2014 11:38 pm UTC

I believe most environmentalists (at least, self described environmentalists) overestimate the cost to society of environmental damage, not necessarily in all areas, but in many, and thus advocate for too much regulation or taxation than is economically optimal.

I also believe that many of them have little to no understanding of economics, and thus even when they correctly evaluate the problem, their proposed solutions are poor or even harmful, but that is perhaps a different issue.

In any case, I think there is room for a pigovian tax on carbon, if we can get a good estimate of the negative externalities.

You're implying here that there is a single, objective correct value of environmental damage, and by extension a single correct dollar amount of externalities to assign to it. A number that we might not know precisely for lack of knowledge, but if we knew more we could bracket the correct number more closely.

Thing is, people don't have the same views on such things, even when they fully agree on the facts. And in cases of uncertainty, they also disagree on the amount risk to take, and in which direction. Economics doesn't really deal with such situations, there is no such thing as an economically optimal approach to a situation that different people value differently.

Economics deals best with situations where people have different valuation of the same situation, and they can also be put in different situations. When my neighbour worries about fires while I like donuts, then economics isn't about deciding what the correct worry about fire is for us both, or the optimal amount of donuts. Economic optimization is about getting more sprinklers and insurance to my neighbour, and more donuts to me.

That doesn't work for environmental issues. The economically optimal situation is a world where people with heavier carbon use get an atmosphere with more co2 in it, and find out for themselves what will happen. But we can't there, and we can't even move in that direction.

This a fundamental: there is no such thing as an 'economically optimal' level of environmental damage, or an objectively correct value for a pigouvian tax. Because those environmentalists disagree with you on what matters more. And economics just isn't about deciding who is right in that case.

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Re: What is the ideal structure for a carbon tax?

Postby Thesh » Thu Feb 13, 2014 2:52 am UTC

When it comes to CO2, I think we need to actually reduce output to below today's levels if we want to have a chance at minimizing the damage of global warming. The problem is that the population is growing and countries are developing. Developed countries pretty much all produce more CO2 per capita than the world average, and as countries are developing they tend to have fewer regulations on pollution (for countries like China, they currently have incentive to have less regulation). This spells huge problems down the line if we don't take drastic measures now - we are already predicting disaster based on current levels of world development, and we may be starting to see the effects today with increased frequency of extreme weather events.

If our goal is to see more and more of the world developed, and I think that's a pretty common goal, then the west doesn't just need to reduce CO2 output per capita to get current levels down, they need to reduce it to make up for the increased population, as well as the increased CO2 output and deforestation from developing countries. You are not going to accomplish this without accepting severe economic consequences. The question is not how much economic damage should we do for global warming in terms of overall production, it's how can we do this while also reducing poverty in our countries instead of increasing it.
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