As per my economist wife, subsidies are better spent on things with big positive externalities -- like R&D -- than tech that's already well-known. If the tech already exists, then it's a better candidate to leave to market forces.

Posted by Adam Villani | October 8, 2007 7:52 PM

Adam,

Rail transportation has positive externalities.

Posted by The Animal | October 8, 2007 8:02 PM

Nice! Good man!

Adam

Your wife is generally right that in an ideal world with transparent markets, etc. a direct tax is 2nd best, an indirect tax is 3rd best and subsidies are only 4th best...

But when it comes to the energy sector - that does not necessarily hold true. First - many CO2 emitters are currently subsidized. Second - the retail price of energy is comprised of 1. production, 2. transportation, 3. distribution (the grid).

For a tax to be effective (to decrease CO2 emissions) one would have to tax all 3 of these elements (but currently all tree are subsidized).

Solar - which does not need transportation and distribution as it can be produced locally and does not stretch the grid etc - would therefore benefit from a direct subsidy rather than a tax on say coal production?

building more insulated home can be achieved in a variety of ways. One such approach are tighter buildings regulations and quotas. building more efficient homes has obvious economic, not only environmental, advantages in the mid- to long-term. but tell this to a short-term business man?

it is not clear which approach is better here - regulation by red tape and law, more taxes or a shift in existing spending.

I personally see a unique chance of more market transparency by ceasing to spend tax money on CO2 polluters (eg livestock agriculture and other CO2 facilitating utility infrastructure) and shifting it to green alternatives for a restricted time (20 years in Germany and other EU nations. a bit like affirmative action - which I can support only with a time cap).

Posted by Hugo Pottisch | October 8, 2007 8:19 PM

I haven't read the plan, but I don't see the logic of any subsidies. The cap and trade plan can handle global warming (and implies incentives to develop technologies which reduce emissions and will be profitable if there is cap and trade). The money can be used for, say, reducing the deficit or providing universal health insurance ore expanding the earned income tax credit or ... I mean the problem of too much revenue to the federal government is the easiest to solve of all problems.

I'm not even making strong uninformed criticism, but I do think that there is a problem with dividing problems up and trying to solve each one with no effect on the deficit. In congress this happens because of turf wars between different committees, but there is only one Barack Obama so why can't he pay for health by auctioning carbon emission credits ?

Posted by Robert Waldmann | October 8, 2007 8:20 PM

Proposals don't matter. The legislation will be written by the oil company lobbyists, along with those from electric, coal and nuclear. Congressional efforts will be aborted, the treasury plundered and good intentions fucked in the ass. Business as usual. Not to say Obama shouldn't try. I just wince at the prospect of the eventual Dem president getting his head handed to him. O'Reilly, Hannity and Ingraham will be insufferable as they gloat and chant "Paper tiger" in unison. Dems could have 70 Senators and 300 members in the House and the Right would continue to control Congress. How? Because invertebrates have great difficulty standing up to the challenge of a predator. Munch, munch.

Posted by steve duncan | October 8, 2007 9:12 PM

In other words, Matthew, Obama's plan is to have the 535 hacks who gave us corn ethanol and sugar beet subsidies, along with the New Orleans levee system, countless DOD boondoggles, and more vote-buying schemes than there is time to mention, also use the cap and trade revenues in ways that actually accomplish technological goals, and aid those most in need, as opposed to those most likely to vote, like non-poor retirees. I can see the subsidies for "green" recreational vehicles and yachts right now!

I swear, Matthew, your Faith in statism is almost touching at times.

Posted by Will Allen | October 8, 2007 9:30 PM

Will-

You know, there are other countries with functional states and even in the US some state governance does work. Let's not go blaming the deficiencies of the US political system on state-craft in general.

Posted by MCMC | October 8, 2007 9:42 PM

Will-

You know, there are other countries with functional states and even in the US some state governance does work. Let's not go blaming the deficiencies of the US political system on state-craft in general. I mean, you're suggesting Obama's plan should be "screw it, I don't need policy proposals, Congress will just mess it up anyway" right?

Posted by MCMC | October 8, 2007 9:43 PM

No, MCMC, I'm suggesting any plan which revolves around huge new revenue streams flowing to the likes of Ted Stevens, Robert Byrd, Tom Harkin, Trent Lott, etc., for them to employ in a mostly productive manner, instead of mostly for their narrow political self-interest, is so utterly naive as to be mind-boggling.

Posted by Will Allen | October 8, 2007 9:53 PM

More evidence that Obama is a lightweight empty suit.

But in fairness, he's no worse than the other Republicratic prez candidates, though of course that's not saying much.

Posted by kafka | October 8, 2007 9:59 PM

Dear me, I thought I was cynical beyond redemption...

Come on, kids, let's turn that frown upside down!

Posted by Rihilism | October 8, 2007 10:13 PM

So, a tax that distributes the unknown cost among companies that can, over time, gradually adjust their practices as they see fit is less preferable to having the Army Corp of Engineers, DMV, or EEOC decide what the IPCC didn't even deign to decide and just nail every single company that produces carbon, all at once, with an enormous levy, determined by auction in which its competitors (Chevron, UNocal, etc) can run the price up on 'em? Do you think every single carbon producing company under slim margins will get run out of business, or just 90%?

Having said all that, I prefer L'il Mat's approach too, but I want some lead time to short every market index and go long on inflation & unemployment.

I suppose you could use all the revenue to bail out the employees and pensions that hold stock in the destroyed companies.

Posted by Béziers | October 8, 2007 10:13 PM

One thing for certain; this would be the Mother, Father, Grandpa, and Grandma of All Regulatory Capture outcomes!

Posted by Will Allen | October 8, 2007 10:18 PM

(This comment was posted at tpmelectioncentral.com following the text of Sen. Obama's energy policy speech; I thought this thread at least deserved a copy.)

The fact that anyone can be favorably impressed by this speech shows mainly how low all our standards have fallen in recent decades. Yes, there are a few moments of grown-up behavior here, but taken as a whole it's a laughable self-parody. The rich, chewy center are the lines:

"But being President of the United States isn’t about doing what’s easy. It’s about doing what’s hard. It’s about doing what’s right. Leadership isn’t about telling people what they want to hear – it’s about telling them what they need to hear.

Boldly joining the crowd of a million politicians before him who promised that they would make tough decisions and tell people the truth, Senator O. proceeds take no stand at all while pandering in nearly all directions at once. The idea that current American (ie corn) ethanol production represents progress toward energy independence or reduction of carbon emissions is so thoroughly ridiculous -- look it up -- that even Iowans must be smiling at the transparent pander. Ethanol from switchgrass may do better than break even for motor fuel, but can never replace coal: when you have a minute, work out just how many freight trains filled with grass would have to run _continually_ to fuel just one electrical plant.
"Clean coal technology" are just a set of syllables that Pres. Bush can say over and over again instead of actually doing something even mildly costly or inconvenient.

Do your homework, since the Senator from Illinois is unwilling to do his: as anyone familiar with thermodynamics and willing to do some simple math knows, the _only_ forseeable solution to both energy independence and sufficiently reducing carbon dioxide emissions, short of a vast contraction of lifestyle, is a widespread increase in nuclear energy. Period. Stop. This is the "inconvenient truth" that neither Barack Obama nor Al Gore have ever told you, and until they do all rhetoric about "telling [people] what they need to hear" is, literally, just so much hot air.

Yes, the Senator does say "We will also explore safer ways to use nuclear power," but even a child can see that "explore" is the thinnest code for "not a priority" and hence "not going to actually happen." So despite his serious tone and promise to be honest, he is basically doing exactly what he blames others for: hiding the truth that people, particularly those that vote in Democratic primaries, don't want to hear.

Don't take my word for it. Do your own homework, read the work of independent (ie non-government, non-industry) physicists and chemists, and you will see: it's either a nuclear future, or global warming will be unstoppable. All else is window dressing.

Posted by Enkitu | October 9, 2007 12:01 AM

"It does seem to me, though, that Ryan Avent is right that it would make more sense to have a bit less in the way of subsidies for pie-in-the-sky R&D efforts and more in the way of subsidies for proven technologies like rail transportation."

If we get everything we dream of from proven technologies, carbon emissions will continue to rise. "Pie-in-the-sky" is required.

Posted by Njorl | October 9, 2007 1:25 AM

Don't "buy" the cap-and-trade hype! The tax is better because it is administratively more simple and works better in a public choice framework.

The best that the companies can ask for is exemptions from the tax here, while in the other situation they will do what Russia did in the Kyoto treaty - grandfathering credits is an inevitable consequence regardless of what a politician says ...

Plus your best reason for cap and trade is actually the best reason for a tax, namely that we don't know the value of the credits. I recommend Bill Pizer's work at RFF if you are actually interested in learning about why this kind of uncertainty is potentially more damaging to our economy.

Posted by Matt | October 9, 2007 2:35 AM

I would imagine that this plan would enjoy a similar 'success' to the eu's cap and trade programme.

Posted by pimp hand strikes! | October 9, 2007 3:44 AM

Enkitu

Good post. Very good post!

Of course - if it were up to us two - ethanol and nuclear would be faded out immediately. Well it is happening with nuclear anyway as we have not build a plant in 30 years and any new plant would merely replace the old one - not add extra capacity.

The Ethanol approach scares me more for what it stands for and not for its dangers. It shows that people do not understand ecology and nature and do not understand the agriculture itself is the worst polluter in any respect that we support. nothing destroys more soil, forests, water, air, species, etc.

Having said all that - Obama (and Ron Paul) is the most concrete candidate out there (sad as it is). Hillary is a social butterfly with a brand name that stands for... being a woman (quite an unfair edge know that Americans wake up to the fact that Turkey - a Muslim democracy had elected female leaders long before...). That is what we get with democracy - 2nd best... (although I always assumed that this is why we a republic - to at least get 1.5 best?)

Posted by Hugo Pottisch | October 9, 2007 8:05 AM

cap and trade becomes a mess to administer: creating winners and losers by bureaucratic fiat -- and then pass along the costs to the end-user. An oil import tax (based on our costs to protect it as a source) of say $5/bbl would a) directly impact the use of oil b) remove legislative/regulatory gamesmanship from the process c) reduce the deficit (and possibly increase unemployment rate etc. so it may be a wash or worse) d) over time, increase the alternative energy component of our energy use without having to subsidize its R&D to the tune of $150B.

Posted by mike c | October 9, 2007 8:57 AM

I'm an astrophysicist, and as such I'm quite familiar with thermodynamics. It has nothing to do with whether nuclear power is useful. I've never had a problem with nuclear energy. But, short of Jetson-type scenarios, it isn't going to impact personal transport much. Nuclear is a piece of a solution, but it's silly to believe that it is the only solution. Conservation and alternative energies have a place. Simply removing subsidies for practices that encourage wasteful sprawl would be another avenue. And, of course, actually adressing the problem instead of making it worse (the republican strategy) has its virtues.

Posted by Marc | October 9, 2007 9:01 AM

Matt @2:35am: Plus your best reason for cap and trade is actually the best reason for a tax, namely that we don't know the value of the credits.

I haven't read the plan, but I'd assume the government would be auctioning off the credits, rather than selling them at a preset price. Especially since Matt Y. says Obama's plan *won't* attempt "the so-hard-it-might-be-impossible task of guestimating what price will get emissions under control."

Posted by low-tech cyclist | October 9, 2007 9:03 AM

Don't "buy" the cap-and-trade hype! The tax is better because it is administratively more simple and works better in a public choice framework.

I don't see where a tax is administratively more simple. Quite the opposite. Of course there are ways to make such a tax administratively more simple but then you would wind up with a system where the mismatches abound and intensify over time.

Then there's a bunch of stuff about efficiency that I don't really understand, but which other people seem to think is good.

Most of it seems to be fine, except the part where they're sayignt they want to decrease 'energy intensity' by 50% in 20-odd years. I'm not sure how to read that except that he's saying that he's going to reduce energy usage by 50% and boy, that ain't gonna happen, not without a massive standard of living hit.

It does seem to me, though, that Ryan Avent is right that it would make more sense to have a bit less in the way of subsidies for pie-in-the-sky R&D efforts and more in the way of subsidies for proven technologies like rail transportation.

He's talking mostly about mass transit; the (cheap) win with rail would be to offload cargo from 18-wheelers to rail. That gets you at least a 50% reduction in energy use. With mass transit and whatnot, you need to change population patterns and that's a lot harder and a lot slower, for reasons which should be obvious. I am, however, fine with increasing the rail subsidy, and much more than that guy would do. Seriously, we need a decent rail system that moves cargo fast; passenger rail can follow in the track of the cargo. If we're just going to give more money to Amtrack and not otherwise change anything, that's going to accomplish exactly dick.

The plan contains many sops to various groups (ethanol, for one) and who gets what will matter. Njorl is right though, the 'pie in the sky' will need to arrive, and simply doubling the existing R&D budget isn't going to cut it. Of course, there is a real philosophical difference underlying all this: there are the people who basically want to cut total and per cap energy usage (which would make the same amount of solar energy go farther) and the people who want to make more energy with less (a lot less) carbon. I'm not in the first group simply because as far as I can see, that signals worldwide impovershment, and not only do I think that's politically unsaleable here, the poor people of the rest of the world will never never buy it, since they will then be stuck where there are.

max
['The mass transit thing is part of that.']

Posted by max | October 9, 2007 9:13 AM

I'm with Njorl. We need 'pie in the sky'. I don't have as big a problem with ethanol and switchgrass subsidies if they really were paths that led to energy independence in the short term while we researched more environmentally stable alternatives. It seems to me so long as we have to rely on external energy supplies that require us to fight wars and have planes flown into our buildings we will never break ourselves from the politics of survival that is currently killing us as a nation. So long as half our country feels we are in a fight for our very existence with the other humans on the planet we are never going to do enough to deal with the fact that we are also at war with the planet itself, a battle that we are even more likely to lose.

Posted by Ricky | October 9, 2007 9:50 AM

""...forseeable solution to both energy independence and sufficiently reducing carbon dioxide emissions, short of a vast contraction of lifestyle, is a widespread increase in nuclear energy. Period. Stop."

I'm not an astrophysicist like Marc, but I have my B.S.E. in ChE and my M.S. in CCE so I'm also familiar with thermodynamics. And I concur with Marc's statements conclusions regarding nuclear power and the alternatives

And if you don't believe me, perhaps you should read what the nice folks at MIT have to say. They seem to be under the impression that it will take 40-50 years to develop enough nuclear power capacity to may a significant impact on CO2 emissions.

http://web.mit.edu/nuclearpower/

If CO2 emissions were my only concern, I might agree with you. But CO2 is not the "enemy". The problem is using carbon based fuels that add a net increase in carbon to the carbon cycle. In the time it takes us to develop the nuclear alternative (which is NOT carbon free, btw) to the point that it makes a difference, I think we can develop and implement more promising technologies.

Posted by Rihilism | October 9, 2007 10:18 AM

Couple quick points:

Carbon tax v Carbon cap - those pushing tax are ignoring price elasticity issues. What price of carbon impacts consumption? 5 years ago, most assumed that price elasticity of oil was $50-$60 bbl, and that price imposed a natural soft cap on oil consumption...once it climbed above that price, demand would slow, and oil prices would ease (eventually dropping below $50-$60). We're now at $80, some i-banks project $100 in the next six months and still no sign of demand reduction. Now, in our current situation, we need to immediately and significantly slow carbon emissions. Unfortunately, we don't know at what price that happens, with least impact on the economy - the optimal abatement level. A $15/ton tax on CO2 will have minimal impact on carbon emissions, whereas at $200/ton you'll dramatically reduce carbon emissions, but severely impact national economies (especially developing countries). Somewhere in between is your answer, but I'm not quite ready to trust congress to come up with it. Also - when you have a finite goal - a need to reduce carbon emissions 50% globally (from BAU) by 2050, do you really trust politicians to stand tall and fast in the face of opposition, and not drop the carbon tax as a sop to business interests, or in the face of a cyclical economic downturn? I don't. A carbon cap (with full auction of carbon credits) allows a market (made up of thousands of companies, each filled with smart people trying to reduce costs and increase income) to best determine the price of carbon and their carbon-reduction strategy in a new carbon constrained economy. A carbon tax has too many information asymmetries, and is too open to manipulation by whatever political party holds power.

Re Energy Efficiency - someone didn't quite understand "energy intensity". Intensity is just a measure of the number of energy units per unit of GDP. Reducing energy intensity by 50% simply reduces the amount of energy necessary to produce a unit of GDP. McKinsey's done some great work determining the cost-positive impact of energy efficiency initiatives. A simplistic example - changing your incandescent bulb to a CFL reduces your household energy intensity, but doesn't require you to use that light any less. The CFL is just more energy efficient.

Re Obama's plan. As someone who does this stuff for a living - I love it. It's a wonderful mix of market transformational policy and incentive structuring. This isn't traditional liberal "government interventionism to fight the evil market", and it isn't traditional conservative "efficient markets trumps all". Its a rather elegant blend of both worlds.

Well done sir!

Posted by Green Business | October 9, 2007 11:25 AM

Downside of a tax: If you put a $5/bbl tax on oil, and consumption DOESN'T drop sufficiently, then you have to go BACK to Congress and pass another TAX INCREASE. This, of course, puts Repubs in the driver seat because they always win the rhetoric war on "Tax Increases." Cap'n'Trade allows you to set TOTAL EMMISIONS for once and for all.

Posted by pooh pooh | October 9, 2007 3:03 PM

Isn't This John Edwards' Plan?

I love the cap-and-trade approach where the government sells the credits and spends the money on green energy technology development.

Just wanted to point out that this has been John Edwards' plan for quite a while. Hillary adopted JE's health care plan. Obama adopted JE's CO2 plan. Whether or not JE wins, he has certainly had a very positive affect on the policies that are adopted by his competitors.

Posted by Robin Ozretich | October 9, 2007 4:00 PM

Re: Marc | October 9, 2007 9:01 AM

and Rihilism | October 9, 2007 10:18 AM

(why can't we get comments numbered for reference?)

Thanks for your replies. I'd like to mention a few things quickly:

First, Marc, I'm not sure I understand this remark

"But, short of Jetson-type scenarios, it [nuclear energy] isn't going to impact personal transport much."

Does a plug-in hybrid car count as a Jetson scenario? or high-temperaure reactors increasing the efficiency of hydrogen production? I'm not a fan of hydrogen for motor fuel myself (read the debunking piece in Physics Today), but the larger thermodynamic point is: if you don't want to burn fossil hydrocarbons but you do want to keep driving, then what is your [Helmholtz free] energy source going to be? Regardless of whether it traces back through an electrical or a chemical potential, the useable energy has to come from somewhere.

I'd also like to take issue with phrases like these:

"Nuclear is a piece of a solution, but it's silly to believe that it is the only solution."

While true as written, I think it's also rather deceptive (not that I imagine you intended it that way) and potentially dangerous, because it's completely non-quantitative. Whenever I read a phrase like "nuclear will be a part of the solution" I feel sure that somewhere in the world there's an innumerate Green thinking to himself "Well, if nukes are just a _part_ of the solution then maybe it's a part we can do without! by just working a little harder on everything else." Using the phrase "part of the solution" is weasly and non-committal because it doesn't get across the essential truth: nukes are not just "a part" of a post-hydrocarbon future, they are an _essential_ part/an _unavoidable_ part/a _primary_ part.
Neither you nor Sen. Obama are not doing the innumerate Green any favors by allowing him to keep his "no-global-warming and no-nukes" fantasy intact, and I personally think it's a rather cynical way to rope in his vote.

Note also that you've critisized somethiing I didn't say: that nuclear energy is "the only solution." Arguing against the unwarranted extreme is lazy form and generally unhelpful. My statement was not that nukes are _sufficient_ in themselves, but that they are _necessary_ in heading off global warming. Here's a compact, specific statement that you can dispute at will: There is _no_ way to head off global warming without either (a) a vast contraction of present and future lifestyles, or (b) a significant increase in nuclear energy use (x2 to x10 increase in generating capacity within 10-30 years).

Rihilism, I've read the MIT study you linked to, and in fact I keep a copy on my desktop. In the announcement for its release you can find this remark from John Deutch: "Taking nuclear power off the table as a viable alternative will prevent the global community from achieving long-term gains in the control of carbon dioxide emissions," which is equivalent to my statement above. I don't know what part you refer to for the statement that it will take 40-50 years for increased nuclear capacity to have an effect on CO2 emisisons; though I will mention that one problem I have with this study is its fairly narrow, though perhaps realistic, assumptions on what will be politically possible in the future (for example, they've deliberately ignored the thorium cycle). Yes, if you presume that the current level of uneducated public opposition and regulatory inhibition are unchangeable then of course nothing can be done soon. But these are political problems, not technical ones, as I said in the earlier comment.

Lastly I'm sure I'm missing your point in the statement "But CO2 is not the "enemy". The problem is using carbon based fuels that add a net increase in carbon to the carbon cycle." Isn't it the CO2 emission from fossil hydrocarbons that is the main way in which we (ie humanity) are adding carbon to the carbon cycle?

Posted by Enkitu | October 9, 2007 4:03 PM

Is the choice of the pic by Matthew a political statement?
I suspected at first glance that it was not taken int the US. After a check, I can now tell it comes from Germany, the leading environmentalist country, and within Germany, from Freiburg, the first and only big city with a green Mayor.
Where subsidies for green energy are a given, together with strong building regulations and polluters are under control.
If Matthew choose the pic by choice, it is simply a proof that you will have real green policy where politicos are really green.

Posted by Obelix | October 10, 2007 3:08 AM

They state in their press release that they are looking at mid-century to implement enough nuclear energy capacity to achieve a significant impact on CO2 emissions.

Yes, this is likely a conservative estimate, but rather spending the trillions in investments and subsidies to accelerate this process, I'd rather spend it on technologies that don't suffer the geopolitical, environmental and "peaking" issues that nuclear does. It seems to me that eventually we'd be in the same boat as we are now with fossil fuels (though maybe not in my lifetime).

I said that CO2 was not the enemy because bio-fuels would obviously produce CO2 but (in theory) would not add a net gain to the carbon cycle like fossil fuels (or nuclear assuming we don't refine, enrich, etc. using something other than fossil fuels). I know there are potential drawbacks to bio-fuels, but I think their potential shouldn't be dismissed.

My big $ preference is a mix of solar, wind, biofuels, and conservation. This may be an easier decision for me since not only will I likely be dead (Lord Jesus, take me home...) before ANY alternative is implemented at a level that will make an impact but also because I'm not convinced such alternatives will be in place before a significant level of impact from global climate change occurs (just conjecture due to lack of data, I'm just a cynic that way...). By NO means am I implying this suggests we shouldn’t act!

Rather than "just" fighting global warming, why not spend our resources on technologies that may be even more beneficial in the long-run (long after I’m cremated and used as fertilizer in a switch grass field)?

Posted by Rihilism | October 10, 2007 9:10 AM