"Our greatest responsibility is to be good ancestors."

-Jonas Salk

Tuesday, June 23, 2009

Cap and Trade that Might Work

James Hansen, as followers of our pet subjects will probably already be aware, has been arrested in a protest against mountaintop mining. Perhaps almost as well known is the fact that Hansen opposes Waxman-Markey so strongly that he hopes for its failure, believing that writing an inadequate bureaucracy into place is worse than doing nothing at all and waiting for a stronger political consensus to emerge. All pretty strong stuff for an AGU keynoter.

He's advocating for a simple carbon tax. Opponents, despite the evidence of British Columbia, believe that such a thing is not sellable to the public. Others, like David Roberts, (link?) have argued that in practice a tax is a complicated beast. And everybody's proposal defers to national sovereignty, letting every nation work out its own path to its own sustainable share of emissions. See the problem with that one? It gives every nation's politicians plenty of leeway to blame the politicians elsewhere. "If they won't do it, why should we bother?" From a game theory perspective it pays to bail out.

Here's a solution of the sort that I am stuck with dreaming up. It's technically practicable and politically impossible. Few politicans will consider the dilution of their power attractive, and it will be easy to stir up the xenophobes (the ones who think NAFTA is a conspiracy between Mexico and Canada to take over the US for instance) into a paranoid frenzy, but it has some very nice features.

Rations. Yes, you heard me. Rations. Not by country. By head. Per capita carbon rations, controlled by smartcards.

One day, you get in the mail a smartcard giving you exactly the same share of the world's atmosphere over the next year as anyone else. You can spend it on emissions or you can specify a price. If the price of emissions exceeds your price, your carbon share goes down and your card contains the equivalent in money. If you want more than your share, you have to bid on the energy you want. If you sequester carbon, you get credit.

The only political decision to be made after that point is the annual share. How many tons can you emit?

This looks like a direct transfer of wealth to poorer countries, but if you believe the atmosphere is a commons, it is not. It is a correction: a direct way of pricing the carbon effects so that the correction flows directly from the high-intensity user to the low-intensity user. In other words, it is the reverse of the stealing from the poor that is happening now. In a sense, it is exact rather than approximate.

The details, admittedly, are as complicated as anything else. What constitutes an emission? (I think it should be modeled on a value-added tax, though in this case it is value-subtracted!) What constitutes a sequestration? How should the near-frictionless transactions be set up? In what currency? Lots of other stuff I haven't thought of, probably, too.

As I said, I really doubt this is politically saleable in the short run. But it removes a lot of arbitrary decisions, and manages the international equity question with remarkable clarity, destabilizing tinpot dictators while transferring wealth without stigma to their population.

One trouble is that those of us in energy intensive cultures will have to bid on a finite pool of energy rights in addition to production costs. Energy prices will rise. Energy companies will compulsively hate this because Africans and Asians get some of their profits. Americans will understand very quickly what an 80% reduction means.

Another advantage, though, is that this approach is very market-flavored. There's no shame in wanting a Hummer. You just have to pay a bunch of other people not to do so.

Also, nonlinear pricing can be applied. At the cost of more decisions, this can penalize frivolous uses against socially responsible ones. Your first 100 kg. C per year, for instance, might not be transferable at any price, so people won't be tempted to sell their cooking fuel. On the other hand, your excess above some threshhold could have increasing purchase prices (Austin does this with water.) So all the energy would be discouraged from going to people with money to burn.

Yes, an international agency is required to issue the cards. And enforcement mechanisms have to exist. My intuition, though, is that it's technically workable. And if a carbon tax is regressive, a carbon license is surely progressive.

Hat tip to MR who came up with most of this idea over coffee at Sodade and can claim credit if he wants. I suspect he won't like the international angle, but he's hard to predict sometimes.


Anonymous said...

Sigh, my previous post disappeared. :C

Anyway, don't introduce another currency. It would be nigh impossible to permeate the thing from source to consumer. Say, buy a cup of coffee? How many CO2 credits?

Instead tax at source (powerplant, cows etc) so the cost to the consumer is in money.

Still rich people buy their way out in either way.

I don't really know if our approaches are that different.

If you prevent buying and selling, remember there used to be black markets during the war - bypassing rationing. Rationing is hard and problematic in many ways.

Michael Tobis said...

The main thing that is different here is that the national sovereignty is ignored completely; there's no means testing, but simply universal distribution of a resellable benefit. Accordingly it is not regressive.

In the end these rights can only be traded except by those actually adding carbon to the system, who actually expend them, so it really is at the source that the cap acts.

Also, the rich can be discouraged by a sliding scale. They can buy as many nice antiques as they like (leaving aside shipping costs) but their private plane will cost them a lot, disproportionately more, until it bites.

Although I think this approach has many nice properties, it is a pipe dream. The west will never allow it.

Dano said...

Michael O'Hare has been following an amendment inserted into the bill that effectively kills any carbon reductions, and his thoughts on it are compelling, in my view.

Lots of applause today.



Mojo+ELvis=MELvis said...

It could easily be done with food credits as well... the poor people who are air and carbon rich could trade some of that for higher quality food,,, fruit, corn, wheat... even pay for the planes to ship it to them...

EliRabett said...

There is always the Emissions Added Levy, Eli's simple solution to save the world

Michael Tobis said...

I think this idea is compatible with the EAL; indeed both depend on a systematic evaluation of the global-commons impact of every commercial activity everywhere.

The personal cap simply changes who levees the tax.

Anonymous said...

I really like this idea. Right now, money is something that many people, especially conservatives, save up rather than spend. If we did the same thing with emissions (a new currency so to speak) people would save up the right to pollute, not waste it like we are right now when it is free.

Anonymous said...

This kind of per capita rationing is at the heart of Monbiot's solution in his book "Heat". He speculates that it will never fly politically, because we're the generation that equates rationing with what our grandparents had to do in the war. (And people don't understand climate change sufficiently to understand that wartime measures are necessary).

There's another interesting point about per capita rationing - it emphasizes the role of population growth. Assume that an appropriate emissions target is 80% reduction over 1990 levels by 2050. If you also take into account that the population is projected to have doubled by 2050, that really means a 90% reduction per capita. I think this kind of "per capita" thinking is ignored in most discussions of emissions targets.

Michael Tobis said...

It will never fly politically because it is a threat to politicians at every level. I think the public can be brought to understand and support it. And it provides a model that can be applied to other highly distributed problems that are intractable to local legislation.

The population question is a good one.

However, as Steve (whom I will stupidly address as Greg some day) points out, this does raise an equity issue of how to discourage population growth.

The comparable solution is to offer each person a transferable license for exactly one child. The political and philosophical problems with that approach are too many and too far afield for this blog, but it would actually solve the core problem.

The demographers tell us it will take care of itself in an economic growth scenario. I understood the population is NOT expected to double again, but instead to level off at the convenient number of 10G. I think this optimistic outcome is contingent on avoiding collapse, so let's do that and avoid the tar pit of baby licenses if we can.

Padraig Tomas said...

Well no one else has said it so I suppose I might as well be the one. Why not use dirrect government financing of zero carbon energy sources. At the end of the day we are talking capital costs. And someone will pay the cost. With any scheme the electrical utilities will pass their costs oto the user. All that is being debated is how to do this in a manner that is politically acceptable. With government spending of this sort we will at the end of the day have something material and benificial to show for our money. Is it childish to suppose that it would be politically impossible to do this in the United States?

Anonymous said...

Patrick, a good idea, partly.

It is weird how people on the right want to spend government money (leading to higher taxes) on cleaner energy sources, but don't want to tax dirtier energy sources.

Where is the money then going to come from? More spending, less taxes means debt.

Or where will the incentive to use less of the dirty but cheap energy sources come from, if they don't have to pay externalities?

Anyway, if new energy tech research and investment help (nuclear, that's the most massively scaling industrial solution, and it's hampered by regulations too) is something even the misguided people can agree on, then that should be strongly driven.