Everything You Wanted To Know About Carbon Emissions Regulations But Were Afraid to Ask

This superb editorial from The Los Angeles Times laying out different forms of cap-and-trade and carbon tax schemes ran yesterday, but I'm not sure if anyone reads blogs (or, indeed, The Los Angeles Times) on Memorial Day, so I thought I'd link to it this morning.

Comments

Thanks for the link, but this is hardly a "superb" editorial. It makes some pretty typical assertions about a market-based approach to regulation of CO2, claiming that a "Carbon tax" is the way to go. The assertions in the editorial are not really empirically verifiable, and the whole thing promotes approaches to regulation that are, by their nature, open to manipulation by the companies that are being regulated.

Three schemes are discussed in the editorial - Command and Control (where the government sets an overall CO2 emission level), Cap and Trade (in which the govt. sets the emission level, distributes emission "allowances" to companies which cannot exceed those allowances, and then allows companies to buy and sell allowances, the price of which is determined by how many companies meet, beat, or exceed their allotment ), and Carbon Taxes (in which the government is paid a fixed amount of tax per unit of carbon emissions). The editorial claims that a carbon tax reaches the same result and is more "efficient" than the others.

Here is the bottom line - an emissions tax, to work, would have to be set at a level that was punitive enough to change emissions enough that we have "acceptable" emissions levels. So - we need first to know what those levels are (just like in Command and Control) and THEN we have to pick a tax that will induce companies to reach those levels. So, how do we select such a tax level? If the tax fails to reach the expected emissions reduction, do we increase the tax? How frequently? If it exceeds our expectations, do we decrease it? The editorial's claim that carbon taxes are inherently more stable and predictable than other market or non-market mechanisms are transparently bunk - taxes of this type would be CONSTANTLY adjusted to make sure they achieved emissions goals. It is notable that there has NEVER been a successful (i.e. - pollution-reducing) implementation of a pollution tax in any industrialized country.

These neo-classical economic wet dreams of "efficient" regulation by the market are not worth the spreadsheets they are written on. Companies and industries (rationally) try to minimize either an emission standard or a carbon tax and work to maximize their allotments under a cap & trade schemes. The same economic logic applies to each model - companies work to game the system to their advantage. If anything the cap & trade model is a little bit better because it allows for companies to compete with one another across sectors (to buy pollution allowances), and allows environmentalists or others to bid up the price of emissions by buying credits and taking them out of circulation. Rather than fantasizing about mechanisms of reduction, let's start by setting a goal and sticking to it.

Posted by RBB | May 29, 2007 4:54 PM