Posts tagged ‘carbon tax’

Is The Carbon Tax A Pricing Signal To Reduce CO2, Or A Funding Mechanism for a Patronage System to Feed Various Constituencies?

This is an absolutely fascinating article at Vox on efforts by green forces and the Left to defeat a carbon tax ballot initiative in Washington State.  The ballot initiative was written very similarly to my proposed plan, where a carbon tax would be made revenue neutral by offsetting other taxes, particularly regressive ones.

Apparently, the Left is opposing the initiative in part because

  1. It turns out the carbon tax, for many on the Left, is more about increasing the size of government rather than really (or at least solely) for climate policy, and thus they do not like the revenue neutrality aspects.  They see carbon taxes as one of the last new frontiers in new government revenue generation, and feel like it would be wasted to make it revenue neutral
  2. The Greens have made common cause with the social justice warrior types, so they dislike the Washington initiative because it fails to allow various social justice and ethnic groups cash in.
  3. Apparently, folks on both the Left and the Right actually like government picking winners and tinkering in individual subsidies and programs, such as funding various green energy and conservation initiatives.  To me, that stuff is all a total waste and made irrelevant by a carbon tax, whose whole point is to allow markets to make the most efficient CO2 reduction choices, but looking at this election it would not be the first time the electorate was ignorant on basic economics.

There is a real disconnect here that it is important to understand.  I don't think I really understood how many of us could use the term "carbon tax" but understand its operation in fundamentally different ways, but I think that is the case.

The authors of the law, like me, see the carbon tax as a pricing signal to efficiently change behaviors in the market around use of carbon-based fuels.  The whole point of a carbon tax is to let individual actions and market forces shape how solutions are created.  But the Left seems to see the carbon tax totally differently.  They don't understand, or don't accept, the power of the pricing signal in the market, or else they would not say things like they want a "put a fee on emissions and reinvest that revenue in clean energy" -- the latter is a redundant and pointless government action if one accepts the power of the tax, since individuals will already be responding by making such investments.  The Left instead sees the carbon tax as the source of a new kitty of money that then must be fought over in some sort of political process.

Check out this passage, and consider whether these folks are thinking of the carbon tax as a pricing signal or a source of new money to be spread around:

Either way, state social justice groups did not feel consulted. "Rather than engaging with these communities," wrote Rich Stolz and De'Sean Quinn of environmental justice group OneAmerica, "I-732 organizers patronized and ignored concerns raised by these stakeholders."

White people who work with other white people — and the white people who write about them — tend to slough off this critique. What matters, they insist, is the effect of the policy, not the historical accident of who wrote it down.

Bauman points to a set of policy demands posted by Black Lives Matter. Among them: "shift from sales taxes to taxing externalities such as environmental damage." Also: "Expand the earned income tax credit."

"Well," Bauman says, "we did both those things, right?"

But communities of color want more than for mostly white environmental groups to take their welfare into account. Most of all, affected groups want some say in what constitutes their welfare. "All of us want to be included from the beginning of any decision," says Schaefer. "We don't want to be told after the fact, ‘Hey, by the way, we decided all this stuff for you.’"

This tension within the climate movement has played out most recently in California, where low-income and minority groups have won substantial changes to the state’s climate law, ensuring that a larger portion of cap-and-trade revenue is directed to their communities. Given demographic changes sweeping the country — and climate funders’ newfound attention to building up the capacity of those groups — those tensions are unlikely to remain confined to the West Coast.

These folks see the carbon tax as a pool of money to fund a patronage system, and are thus scared that any groups not involved in crafting the legislation will be left out of the benefits of the patronage -- after all, that is how most programs from the Left are put together.  The Obama stimulus program back in 2009 was such a patronage project, and those who were in on crafting it got windfalls, and those who were left out of the process had to pay for it all.  Either the Left assume that everything works this way, even when it does not, or they want everything to work this way -- I don't know which.

One thing I do know is that I fear I am going to lose this argument in the future.  Here is one way to look at it -- are more people graduating from college looking at the world through the lens of markets and economics and incentives or are more graduating structuring issues in terms of social justice and government authority?

 

Denying the Climate Catastrophe: 9. A Low-Cost Insurance Policy

This is Chapter 9 (the final chapter) of an ongoing series.  Other parts of the series are here:

  1. Introduction
  2. Greenhouse Gas Theory
  3. Feedbacks
  4.  A)  Actual Temperature Data;  B) Problems with the Surface Temperature Record
  5. Attribution of Past Warming:  A) Arguments for it being Man-Made; B) Natural Attribution
  6. Climate Models vs. Actual Temperatures
  7. Are We Already Seeing Climate Change
  8. The Lukewarmer Middle Ground
  9. A Low-Cost Insurance Policy  (this article)

While I have shown over the previous chapters that there is good reason to be skeptical of a future man-made climate catastrophe (at least from CO2), I am appalled at all the absolutely stupid, counter-productive things the government has implemented in the name of climate change, all of which have costly distorting effects on the economy while doing extremely little to affect man-made greenhouse gas production.  For example:

Even when government programs do likely have an impact of CO2, they are seldom managed intelligently.  For example, the government subsidizes solar panel installations, presumably to reduce their cost to consumers, but then imposes duties on imported panels to raise their price (indicating that the program has become more of a crony subsidy for US solar panel makers, which is typical of the life-cycle of these types of government interventions).  Obama's coal power plan, also known as his war on coal, will certainly reduce some CO2 from electricity generation but at a very high cost to consumers and industries.  Steps like this are taken without any idea of whether this is the lowest cost approach to reducing CO2 production -- likely it is not given the arbitrary aspects of the program.

For years I have opposed steps like a Federal carbon tax or cap and trade system because I believe (and still believe) them to be unnecessary given the modest amount of man-made warming I expect over the next century.  I would expect to see about one degree C of man-made warming between now and 2100, and believe most of the cries that "we are already seeing catastrophic climate changes" are in fact panics driven by normal natural variation (most supposed trends, say in hurricanes or tornadoes or heat waves, can't actually be found when one looks at the official data).

But I am exhausted with all the stupid, costly, crony legislation that passes in the name of climate change action.   I am convinced there is a better approach that will have more impact on man-made CO2 and simultaneously will benefit the economy vs. our current starting point.  So here goes:

The Plan

Point 1:  Impose a Federal carbon tax on fuel.

I am open to a range of actual tax amounts, as long as point 2 below is also part of the plan.  Something that prices CO2 between $25 and $45 a ton seems to match the mainstream estimates out there of the social costs of CO2.  I think methane is a rounding error, but one could make an adjustment to the natural gas tax numbers to take into account methane leakage in the production chain.   I am even open to make the tax=0 on biofuels given these fuels are recycling carbon from the atmosphere.

A Pigovian tax on carbon in fuels is going to be the most efficient possible way to reduce CO2 production.   What is the best way to reduce CO2 -- by substituting gas for coal?   by more conservation?  by solar, or wind?  with biofuels?  With a carbon tax, we don't have to figure it out.  Different approaches will be tested in the marketplace.  Cap and trade could theoretically do the same thing, but while this worked well in some niche markets (like SO2 emissions), it has not worked at all in European markets for CO2.   There has just been too many opportunities for cronyism, too much weird accounting for things like offsets that is hard to do well, and too much temptation to pick winners and losers.

Point 2:  Offset 100% of carbon tax proceeds against the payroll tax

Yes, there are likely many politicians, given their incentives, that would love a big new pool of money they could use to send largess, from more health care spending to more aircraft carriers, to their favored constituent groups.  But we simply are not going to get Conservatives (and libertarians) on board for a net tax increase, particularly one to address an issue they may not agree is an issue at all.   So our plan will use carbon tax revenues to reduce other Federal taxes.

I think the best choice would be to reduce the payroll tax.  Why?  First, the carbon tax will necessarily be regressive (as are most consumption taxes) and the most regressive other major Federal tax we have are payroll taxes.  Offsetting income taxes would likely be a non-starter on the Left, as no matter how one structures the tax reduction the rich would get most of it since they pay most of the income taxes.

There is another benefit of reducing the payroll tax -- it would mean that we are replacing a consumption tax on labor with a consumption tax on fuel.  It is always dangerous to make gut-feel assessments of complex systems like the economy, but my sense is that this swap might even have net benefits for the economy -- ie we might want to do it even if there was no such thing as greenhouse gas warming.   In theory, labor and fuel are economically equivalent in that they are both production raw materials.  But in practice, they are treated entirely differently by the public.   Few people care about the full productive employment of our underground fuel reserves, but nearly everybody cares about the full productive employment of our labor force.   After all, for most people, the primary single metric of economic health is the unemployment rate.  So replacing a disincentive to hire with a disincentive to use fuel could well be popular.

Point 3:  Eliminate all the stupid stuff

Oddly enough, this might be the hardest part politically because every subsidy, no matter how idiotic, has a hard core of beneficiaries who will defend it to the death -- this the the concentrated benefits, dispersed cost phenomena that makes it hard to change many government programs.  But never-the-less I propose that we eliminate all the current Federal subsidies, mandates, and prohibitions that have been justified by climate change.  Ethanol rules and mandates, solar subsidies, wind subsidies, EV subsidies, targeted technology investments, coal plant bans, pipeline bans, drilling bans -- it all should go.  The carbon tax does the work.

States can continue to do whatever they want -- we don't need the Feds to step on states any more than they do already, and I continue to like the 50 state laboratory concept.  If California wants to continue to subsidize wind generators, let them do it.  That is between the state and its taxpayers (and for those who think the California legislature is crazy, that is what U-Haul is for).

Point 4:  Revamp our nuclear regulatory regime

As much as alternative energy enthusiasts would like to deny it, the world needs reliable, 24-hour baseload power -- and wind and solar are not going to do it (without a change in storage technology of at least 2 orders of magnitude in cost).  The only carbon-free baseload power technology that is currently viable is nuclear.

I will observe that nuclear power suffers under some of the same problems as commercial space flight -- the government helped force the technology faster than it might have grown organically on its own, which paradoxically has slowed its long-term development.  Early nuclear power probably was not ready for prime time, and the hangover from problems and perceptions of this era have made it hard to proceed even when better technologies have existed.   But we are at least 2 generations of technology past what is in most US nuclear plants.  Small air-cooled thorium reactors and other technologies exist that could provide reliable safe power for over 100 years.  I am not an expert on nuclear regulation, but it strikes me that a regime similar to aircraft safety, where a few designs are approved and used over and over makes sense.  France, which has the strongest nuclear base in the world, followed this strategy.  Using thorium could also have the advantage of making the technology more exportable, since its utility in weapons production would be limited.

Point 5: Help clean up Chinese, and Asian, coal production

One of the hard parts about fighting CO2 emissions, vs. all the other emissions we have tackled in the past (NOx, SOx, soot/particulates, unburned hydrocarbons, etc), is that we simply don't know how to combust fossil fuels without creating CO2 -- CO2 is inherent to the base chemical reaction of the combustion.  But we do know how to burn coal without tons of particulates and smog and acid rain -- and we know how to do it economically enough to support a growing, prosperous modern economy.

In my mind it is utterly pointless to ask China to limit their CO2 growth.  China has seen the miracle over the last 30 years of having almost a billion people exit poverty.  This is an event unprecedented in human history, and they have achieved it in part by burning every molecule of fossil fuels they can get their hands on, and they are unlikely to accept limitations on fossil fuel consumption that will derail this economic progress.  But I think it is reasonable to help China stop making their air unbreathable, a goal that is entirely compatible with continued economic growth.  In 20 years, when we have figured out and started to build some modern nuclear designs, I am sure the Chinese will be happy to copy these and start working on their CO2 output, but for now their Maslov hierarchy of needs should point more towards breathable air.

As a bonus, this would pay one immediate climate change benefit that likely would dwarf the near-term effect of CO2 reduction.  Right now, much of this soot from Asian coal plants lands on the ice in the Arctic and Greenland.  This black carbon changes the albedo of the ice, causing it to reflect less sunlight and absorb more heat.  The net effect is more melting ice and higher Arctic temperatures.  A lot of folks, including myself, think that the recent melting of Arctic sea ice and rising Arctic temperatures is more attributable to Asian black carbon pollution than to CO2 and greenhouse gas warming (particularly since similar warming and sea ice melting is not seen in the Antarctic, where there is not a problem with soot pollution).

Final Thoughts

At its core, this is a very low cost, even negative cost, climate insurance policy.  The carbon tax combined with a market economy does the work of identifying the most efficient ways to reduce CO2 production.   The economy benefits from the removal of a myriad of distortions and crony give-aways, while also potentially benefiting from the replacement of a consumption tax on labor with a consumption tax on fuel.  The near-term effect on CO2 is small (since the US is only a small part of the global emissions picture), but actually larger than the near-term effect of all the haphazard current programs, and almost certainly cheaper to obtain.  As an added benefit, if you can help China with its soot problem, we could see immediate improvements in probably the most visible front of man-made climate change:  in the Arctic.

For those who have hung with me this entire series, many thanks for your interest.  If you have questions, concerns, or outraged refutations, you are welcome to email me at the link above.

Coyote's Bi-Partisan Climate Plan -- A Climate Skeptic Calls For a Carbon Tax

While I am not deeply worried about man-made climate change, I am appalled at all the absolutely stupid, counter-productive things the government has implemented in the name of climate change, all of which have costly distorting effects on the economy while doing extremely little to affect man-made greenhouse gas production.  For example:

Even when government programs do likely have an impact of CO2, they are seldom managed intelligently.  For example, the government subsidizes solar panel installations, presumably to reduce their cost to consumers, but then imposes duties on imported panels to raise their price (indicating that the program has become more of a crony subsidy for US solar panel makers, which is typical of these types of government interventions).  Obama's coal power plan, also known as his war on coal, will certainly reduce some CO2 from electricity generation but at a very high cost to consumers and industries.  Steps like this are taken without any idea of whether this is the lowest cost approach to reducing CO2 production -- likely it is not given the arbitrary aspects of the program.

For years I have opposed steps like a Federal carbon tax or cap and trade system because I believe (and still believe) them to be unnecessary given the modest amount of man-made warming I expect over the next century.  I would expect to see about one degree C of man-made warming between now and 2100, and believe most of the cries that "we are already seeing catastrophic climate changes" are in fact panics driven by normal natural variation (most supposed trends, say in hurricanes or tornadoes or heat waves, can't actually be found when one looks at the official data).

But I am exhausted with all the stupid, costly, crony legislation that passes in the name of climate change action.   I am convinced there is a better approach that will have more impact on man-made CO2 and simultaneously will benefit the economy vs. our current starting point.  So here goes:

The Plan

Point 1:  Impose a Federal carbon tax on fuel.

I am open to a range of actual tax amounts, as long as point 2 below is also part of the plan.  Something that prices CO2 between $25 and $45 a ton seems to match the mainstream estimates out there of the social costs of CO2.  I think methane is a rounding error, but one could make an adjustment to the natural gas tax numbers to take into account methane leakage in the production chain.   I am even open to make the tax=0 on biofuels given these fuels are recycling carbon from the atmosphere.

A Pigovian tax on carbon in fuels is going to be the most efficient possible way to reduce CO2 production.   What is the best way to reduce CO2 -- by substituting gas for coal?   by more conservation?  by solar, or wind?  with biofuels?  With a carbon tax, we don't have to figure it out.  Different approaches will be tested in the marketplace.  Cap and trade could theoretically do the same thing, but while this worked well in some niche markets (like SO2 emissions), it has not worked at all in European markets for CO2.   There has just been too many opportunities for cronyism, too much weird accounting for things like offsets that is hard to do well, and too much temptation to pick winners and losers.

Point 2:  Offset 100% of carbon tax proceeds against the payroll tax

Yes, there are likely many politicians, given their incentives, that would love a big new pool of money they could use to send largess, from more health care spending to more aircraft carriers, to their favored constituent groups.  But we simply are not going to get Conservatives (and libertarians) on board for a net tax increase, particularly one to address an issue they may not agree is an issue at all.   So our plan will use carbon tax revenues to reduce other Federal taxes.

I think the best choice would be to reduce the payroll tax.  Why?  First, the carbon tax will necessarily be regressive (as are most consumption taxes) and the most regressive other major Federal tax we have are payroll taxes.  Offsetting income taxes would likely be a non-starter on the Left, as no matter how one structures the tax reduction the rich would get most of it since they pay most of the income taxes.

There is another benefit of reducing the payroll tax -- it would mean that we are replacing a consumption tax on labor with a consumption tax on fuel.  It is always dangerous to make gut-feel assessments of complex systems like the economy, but my sense is that this swap might even have net benefits for the economy -- ie we might want to do it even if there was no such thing as greenhouse gas warming.   In theory, labor and fuel are economically equivalent in that they are both production raw materials.  But in practice, they are treated entirely differently by the public.   Few people care about the full productive employment of our underground fuel reserves, but nearly everybody cares about the full productive employment of our labor force.   After all, for most people, the primary single metric of economic health is the unemployment rate.  So replacing a disincentive to hire with a disincentive to use fuel could well be popular.

Point 3:  Eliminate all the stupid stuff

Oddly enough, this might be the hardest part politically because every subsidy, no matter how idiotic, has a hard core of beneficiaries who will defend it to the death -- this the the concentrated benefits, dispersed cost phenomena that makes it hard to change many government programs.  But never-the-less I propose that we eliminate all the current Federal subsidies, mandates, and prohibitions that have been justified by climate change.  Ethanol rules and mandates, solar subsidies, wind subsidies, EV subsidies, targeted technology investments, coal plant bans, pipeline bans, drilling bans -- it all should go.  The carbon tax does the work.

States can continue to do whatever they want -- we don't need the Feds to step on states any more than they do already, and I continue to like the 50 state laboratory concept.  If California wants to continue to subsidize wind generators, let them do it.  That is between the state and its taxpayers (and for those who think the California legislature is crazy, that is what U-Haul is for).

Point 4:  Revamp our nuclear regulatory regime

As much as alternative energy enthusiasts would like to deny it, the world needs reliable, 24-hour baseload power -- and wind and solar are not going to do it (without a change in storage technology of at least 2 orders of magnitude in cost).  The only carbon-free baseload power technology that is currently viable is nuclear.

I will observe that nuclear power suffers under some of the same problems as commercial space flight -- the government helped force the technology faster than it might have grown organically on its own, which paradoxically has slowed its long-term development.  Early nuclear power probably was not ready for prime time, and the hangover from problems and perceptions of this era have made it hard to proceed even when better technologies have existed.   But we are at least 2 generations of technology past what is in most US nuclear plants.  Small air-cooled thorium reactors and other technologies exist that could provide reliable safe power for over 100 years.  I am not an expert on nuclear regulation, but it strikes me that a regime similar to aircraft safety, where a few designs are approved and used over and over makes sense.  France, which has the strongest nuclear base in the world, followed this strategy.  Using thorium could also have the advantage of making the technology more exportable, since its utility in weapons production would be limited.

Point 5: Help clean up Chinese, and Asian, coal production

One of the hard parts about fighting CO2 emissions, vs. all the other emissions we have tackled in the past (NOx, SOx, soot/particulates, unburned hydrocarbons, etc), is that we simply don't know how to combust fossil fuels without creating CO2 -- CO2 is inherent to the base chemical reaction of the combustion.  But we do know how to burn coal without tons of particulates and smog and acid rain -- and we know how to do it economically enough to support a growing, prosperous modern economy.

In my mind it is utterly pointless to ask China to limit their CO2 growth.  China has seen the miracle over the last 30 years of having almost a billion people exit poverty.  This is an event unprecedented in human history, and they have achieved it in part by burning every molecule of fossil fuels they can get their hands on, and they are unlikely to accept limitations on fossil fuel consumption that will derail this economic progress.  But I think it is reasonable to help China stop making their air unbreathable, a goal that is entirely compatible with continued economic growth.  In 20 years, when we have figured out and started to build some modern nuclear designs, I am sure the Chinese will be happy to copy these and start working on their CO2 output, but for now their Maslov hierarchy of needs should point more towards breathable air.

As a bonus, this would pay one immediate climate change benefit that likely would dwarf the near-term effect of CO2 reduction.  Right now, much of this soot from Asian coal plants lands on the ice in the Arctic and Greenland.  This black carbon changes the albedo of the ice, causing it to reflect less sunlight and absorb more heat.  The net effect is more melting ice and higher Arctic temperatures.  A lot of folks, including myself, think that the recent melting of Arctic sea ice and rising Arctic temperatures is more attributable to Asian black carbon pollution than to CO2 and greenhouse gas warming (particularly since similar warming and sea ice melting is not seen in the Antarctic, where there is not a problem with soot pollution).

Final Thoughts

At its core, this is a very low cost, even negative cost, climate insurance policy.  The carbon tax combined with a market economy does the work of identifying the most efficient ways to reduce CO2 production.   The economy benefits from the removal of a myriad of distortions and crony give-aways, while also potentially benefiting from the replacement of a consumption tax on labor with a consumption tax on fuel.  The near-term effect on CO2 is small (since the US is only a small part of the global emissions picture), but actually larger than the near-term effect of all the haphazard current programs, and almost certainly cheaper to obtain.  As an added benefit, if you can help China with its soot problem, we could see immediate improvements in probably the most visible front of man-made climate change:  in the Arctic.

Postscript

Perhaps the hardest thing to overcome in reaching a compromise here is the tribalism of modern politics.  I believe this is  a perfectly sensible plan that even those folks who believe man-made global warming is  a total myth ( a group to which I do not belong) could sign up for.  The barrier, though, is tribal.  I consider myself to be pretty free of team politics but my first reaction when thinking about this kind of plan was, "What?  We can't let those guys win.  They are totally full of sh*t.  They are threatening to throw me in jail for my opinions."

It was at this point I was reminded of a customer service story at my company.  I had a customer who was upset call me, and I ended up giving them a full-refund and a certificate to come back and visit us in the future.  I actually suspected there was more to the story, but I didn't want a bad review.  The customer was happy, but my local manager was not.  She called me and said, "That was a bad customer!  He was lying to you.  How can you let him win like that?"   Does this sound familiar?  I think we fall into this trap all the time in modern politics, worried more about preventing the other team from winning than about doing the right thing.

OK, I Relent: I Will Support A Carbon Tax If Y'all Will Stop the Torrent of Stupid

President Obama is preparing to unleash a Colorado-River-sized torrent of stupid.  He wants to spend tens of billions of dollars on goofy green energy projects that will have an indiscernible affect on world temperatures but will have a very robust effect on some crony bottom lines.   Here is one example:

As part of President Obama’s plans to combat climate change, the White House announced a program on Friday for the U.S. Department of Energy to train 75,000 people to work in the solar power industry by 2020, many of whom will be part of a military veterans jobs initiative called Solar Ready Vets.

Seriously, is the training costs of workers really a substantial portion of a solar installation?

Andrea Luecke, president and executive director of the Solar Foundation, which publishes the annual National Solar Jobs Census, said that Obama’s announcement will not likely increase the size of the solar industry’s workforce but will instead ensure that the industry will be able to find highly skilled workers to fill jobs.

“We’re experiencing difficulty finding more skilled and qualified workers to install and do design work required,” she said, adding that the industry’s workforce has a “skills gap” as well-trained electricians and other workers go back to other construction jobs as the economy gains momentum.

I will translate that trade-group speak for you:  We like to pay our workers less than similarly-skilled construction workers so we lose a lot of skilled workers to higher paying construction companies. This program will not add any net employment to the economy but will help us keep wages lower by increasing the supply of qualified workers.

I can't help but think of Henry Ford, who famously raised the wages of his employees substantially.  The fake story is that he did this so all his workers could buy his product.   The real reason he did this was that he had horrendous labor turnover problems.  Like the solar industry, he was training folks who then left for higher paying jobs.  So he had to raise his wages to retain trained people.  How history would have changed if Ford had instead been able to call Obama and ask him to have the taxpayer pay to feed him with new, trained workers so he wouldn't have to raise his wage rates!

Seriously, did a bunch of technocrats get together and study the whole solar industry and come to the conclusion that solar installation skills were the keystone problem that was holding back the whole industry?  Of course not.  The solar industry will sink or swim based on panel costs and efficiencies.   What happened is someone said, "well the public always seems to like job training programs.  Those poll well."  And then they called the solar crony association or whatever it is called and they said, "sure, we would love to have taxpayers pay some of our training costs.  Thanks, we will be very supportive." And then someone said, "well, won't the Republicans pitch a fit over this?" And then someone had the brilliant idea of making it a veterans program -- "Republicans love soldiers, that will help defuze their opposition."  And an expensive crony giveaway was born.

About 5 years ago I said I would be willing to accept a carbon tax whose proceeds were used to reduce various labor tax rates (e.g. social security).  Substituting an energy consumption tax for a labor consumption tax was probably at least neutral and maybe even a net positive.

Now, I want to come back to that idea.  I don't believe any more than I did then that CO2-driven global warming will be catastrophic.  In fact, I am more confident than ever that while CO2-induced warming is a reality, the sensitivity of temperatures to CO2 levels is relatively low.  But please, I am willing to fully support a carbon tax that offsets some other existing tax if only we will stop all this stupid crony useless green energy stuff.  At least with a carbon tax, the markets will reduce fossil fuel use in the most efficient ways possible.  As opposed to programs like this one that will reduce fossil fuel use not at all but will cost a lot of money.

Are You Desperately Worried About Global Warming? Then You Should Be Begging for More Fracking

Charles Frank of Brookings has looked at the relative returns of various energy investments in the context of reducing CO2.  The results:  The best answer is natural gas, with nothing else even close.  Solar and Wind can't even justify their expense, at least from the standpoint of reducing CO2.  Here is the key chart (Hat tip Econlog)

powerplants

 

Note that this is not a calculation of the economic returns of these types of power plants, but a relative comparison of how much avoided costs, mainly in CO2 emissions (valued at $50 per ton), there are in switching from coal to one of these fuel sources.  Natural gas plants are the obvious winner.  It remains the winner over solar and wind even if the value of a ton of CO2 is doubled to $100 and both these technologies are assumed to suddenly get much more efficient.   Note by the way that unlike wind and solar (and nuclear), gas substitution for coal plant yields a net economic benefit (from reduced fuel and capital costs) above and beyond the avoided emissions -- which is why gas is naturally substituting right now for coal even in the absence of a carbon tax of some sort to impose a cost to CO2 emissions.**

I was actually surprised that wind did not look even worse.  I think the reason for this is in how the author deals with wind's reliability issues -- he ends up discounting the average capacity factor somewhat.  But this understates the problem.   The real reliability problem with wind is that it can stop blowing almost instantaneously, while it takes hours to spin up other sorts of power plants (gas turbines being the fastest to start up, nuclear being the slowest).  Thus power companies with a lot of wind have to keep fossil fuel plants burning fuel but producing no power, an issue called hot backup.  This issue has proved itself to substantially reduce wind's true displacement potential, as they found in Germany and Denmark.

There is no evidence that industrial wind power is likely to have a significant impact on carbon emissions. The European experience is instructive. Denmark, the world's most wind-intensive nation, with more than 6,000 turbines generating 19% of its electricity, has yet to close a single fossil-fuel plant. It requires 50% more coal-generated electricity to cover wind power's unpredictability, and pollution and carbon dioxide emissions have risen (by 36% in 2006 alone).

Flemming Nissen, the head of development at West Danish generating company ELSAM (one of Denmark's largest energy utilities) tells us that "wind turbines do not reduce carbon dioxide emissions." The German experience is no different. Der Spiegel reports that "Germany's CO2 emissions haven't been reduced by even a single gram," and additional coal- and gas-fired plants have been constructed to ensure reliable delivery.

Indeed, recent academic research shows that wind power may actually increase greenhouse gas emissions in some cases, depending on the carbon-intensity of back-up generation required because of its intermittent character.

 

** Postscript:  The best way to read this table, IMO, is to take the net value of capacity and energy substitution and compare it to the CO2 savings value.

click to enlarge

The first line is just from the first line of the table above.   The second is essentially the net of all the other lines.

I think this makes is clearer what is going on.  For wind, we invest $106,697 for $132,030 $132,030 for $106,697 in emissions reduction (again, I think the actual number is lower).  In Solar, we invest $258,322 for $69,502 in emissions reduction.    For gas, on the other hand, we have no net investment -- we actually have a gain in these other inputs from the switch -- and then we also save $416,534.  In other words, rather than paying, we are getting paid to get $416,534 in emissions reduction.  That is not several times better than Solar and Wind, it is infinitely better.

Postscript #2:  Another way to look at this -- if you put on a carbon tax in the US equal to $50 per ton of CO2 that fuel would produce, then it still likely would make no sense to be building wind or solar plants unless there remained substantial subsidies for them (e.g. investment tax credits, direct subsidies, guaranteed loans, above-market electricity pricing, etc).  What we would see is an absolute natural gas plan craze.

Wherein I Almost Agree With Thomas Friedman on a Climate Issue

Thomas Friedman outlines what he would do first to attack climate change

Well, the first thing we would do is actually slash income taxes and corporate taxes and replace them with a carbon tax so we actually encourage people to stop doing what we don't want, which is emitting carbon, and start doing what we do want, which is hiring more workers and getting corporations to invest more in America.

Friedman is a bit disingenuous here, as he proposes this in a way that implies that deniers (and probably evil Republicans and libertarians) oppose this common sense approach.  Some may, but I would observe that no one on the alarmist side or the Left side of the aisle is actually proposing a carbon tax that 1:1 reduces other taxes.  The only person I know who has proposed this is Republican Jeff Flake, who proposed a carbon tax that would 1:1 reduce payroll taxes.

As I said back then, I am not a big fan of taxes and think that the alarm for global warming is overblown, but I could easily get behind such a plan.  Payroll taxes are consumption taxes on labor.  I can't think of anything much more detrimental to employment and economic health.  So Flake's proposed shift from a consumption tax on labor to a consumption tax on carbon-based energy sources is something I could get behind.  I probably would do the same for Friedman's idea of shifting taxes from income to carbon.  But again, no one is proposing that for real in Congress.  The only plan that came close to a vote was a cap and trade system where the incremental payments would go into essentially a crony slush fund, not reduce other taxes.

Of course, since this is Friedman, he can't get away without saying the government should invest more in infrastructure

 the federal government would borrow money at almost 0 percent and invest it in infrastructure to make our cities not only more resilient, but more efficient.

In TARP and the stimulus and various other clean energy bills, the government borrowed almost a trillion dollars at 0% interest.  How much good infrastructure got done?  About zero.  Most of it just went to feed government bureaucrats and planning studies or ended up as crony payments to well-protected entities (Solyndra, anyone?).  The issues with government infrastructure investments, which Friedman has never addressed despite zillions of articles on infrastructure, are not the borrowing rate but

  • The incentive and information problems the government has in making investments of any sort.
  • The vast environmental, licensing, and NIMBY factors that make it virtually impossible to do infrastructure projects any more, at least in any reasonable time frame.

A Proposal For Better Management of the (Soon to Be) California Climate Slush Fund

California is about to implement a new climate tax via a cap and trade system, where revenues from the tax are supposed to be dedicated to carbon reduction projects.  Forget for a moment all my concerns with climate dangers being overhyped, or the practical problems (read cronyism) inherent in a cap-and-trade system vs. a straight carbon tax.  There is one improvement California can and should make to this system.

Anyone who can remember the history of the tobacco settlement will know that the theory of that settlement was that the funds were needed to pay for additional medical expenses driven by smoking.  Well, about zero of these funds actually went to health care or even to smoking reduction programs  (smoking reduction programs turn out to be fiscally irresponsible for states, since they lead to reduced tax revenues from tobacco taxes).  These funds just became a general slush fund for legislators.   Some states (New York among them, if I remember correctly), spent the entire 20 year windfall in one year to close budget gaps.

If California is serious that these new taxes on energy should go to carbon reduction programs, then these programs need to be scored by a neutral body as to their cost per ton of CO2 reduction.  I may think the program misguided, but given that it exists, it might as well be run in a scientific manner, right?  I would really prefer that there be a legislated hurdle rate, e.g. all programs must have a cost per ton reduction of $45 of less -- or whatever.  But even publishing scores in a transparent way would help.

This would, for example, likely highlight what a terrible investment this would be in reducing CO2.

 

Wow, Thomas Friedman is A Total Joke

I missed this editorial from back in April, but it is a classic.  If you want one of the greatest illustrations of the phrase "if all you have is a hammer, everything looks like a nail", here is is.

UNTIL we fully understand what turned two brothers who allegedly perpetrated the Boston Marathon bombings into murderers, it is hard to make any policy recommendation other than this: We need to redouble our efforts to make America stronger and healthier so it remains a vibrant counterexample to whatever bigoted ideology may have gripped these young men. With all our warts, we have built a unique society — a country where a black man, whose middle name is Hussein, whose grandfather was a Muslim, can run for president and first defeat a woman in his own party and then four years later a Mormon from the opposition, and no one thinks twice about it. With so many societies around the world being torn apart, especially in the Middle East, it is vital that America survives and flourishes as a beacon of pluralism....

So what to do?  We need a more “radical center” — one much more willing to suggest radically new ideas to raise revenues, not the “split-the-difference-between-the-same-old-options center.” And the best place to start is with a carbon tax.

Wow

This is one of the more amazing things I have read of late.  Environmentalist recants his opposition to GMOs.  Good, I hope Greenpeace is listening and will reconsider its absurd and destructive opposition to golden rice.

As an environmentalist, and someone who believes that everyone in this world has a right to a healthy and nutritious diet of their choosing, I could not have chosen a more counter-productive path. I now regret it completely.

So I guess you’ll be wondering – what happened between 1995 and now that made me not only change my mind but come here and admit it? Well, the answer is fairly simple: I discovered science, and in the process I hope I became a better environmentalist....

So I did some reading. And I discovered that one by one my cherished beliefs about GM turned out to be little more than green urban myths.

I’d assumed that it would increase the use of chemicals. It turned out that pest-resistant cotton and maize needed less insecticide.

I’d assumed that GM benefited only the big companies. It turned out that billions of dollars of benefits were accruing to farmers needing fewer inputs.

I’d assumed that Terminator Technology was robbing farmers of the right to save seed. It turned out that hybrids did that long ago, and that Terminator never happened.

I’d assumed that no-one wanted GM. Actually what happened was that Bt cotton was pirated into India and roundup ready soya into Brazil because farmers were so eager to use them.

I’d assumed that GM was dangerous. It turned out that it was safer and more precise than conventional breeding using mutagenesis for example; GM just moves a couple of genes, whereas conventional breeding mucks about with the entire genome in a trial and error way.

Bravo Mr Lynas.  It is hard to admit one was wrong.  It is even harder, though, for a man like Lynas to declare himself on the "wrong" side of a "progressive" issue like this.  He has now likely put himself into a category along with black Republicans who will incur special wrath and disdain from progressives.

Speaking of the need for a little science in the environmental movement, I was channel surfing over Bill Moyer's show yesterday on PBS (actually I was navigating to our local PBS station to  make sure Downton Abbey was set to record later in the day) when I heard Moyer whip out a stat that even with a carbon tax, the world will warm over 6 degrees this century.  Now, I don't know if he was talking in degrees F or C, but in either case, a 6 degree number far outstrips the climate sensitivity numbers used even by the IPCC, which many of us skeptics believe has exaggerated warming estimates.  It is constantly frustrating to be treated as an enemy of science by those who display such a casual contempt for it, while at the same time fetishizing it.

Generally Freedom-Loving Australia Turned Totalitarian By Climate Alarmists

This is really sad to see in what is supposed to be a liberal democracy:

Now that the carbon tax has passed through [Australian] federal parliament, the government’s clean-up brigade is getting into the swing by trying to erase any dissent against the jobs-destroying legislation.

On cue comes the Australian Competition and Consumer Commission, which this week issued warnings to businesses that they will face whopping fines of up to $1.1m if they blame the carbon tax for price rises.

It says it has been “directed by the Australian government to undertake a compliance and enforcement role in relation to claims made about the impact of a carbon price.”

...

There will be 23 carbon cops roaming the streets doing snap audits of businesses that “choose to link your price increases to a carbon price”.

Instead, the ACCC suggests you tell customers you’ve raised prices because “the overall cost of running (your) business has increased”.

Update:  Obama loves the Aussie carbon tax

Addressing the press in Australia, where legislators passed a carbon tax earlier this month, Obama praised Prime Minister Julia Gillard for pursuing “a bold strategy” to trim industrial emissions that most scientists say are contributing to global warming.

Wherein, To My Great Surprise, I actually Agree with James Hansen

James Hansen wrote an editorial supporting a revenue-neutral carbon tax, and while I don't really agree with all of his justifications or economics, I do agree with his ultimate conclusion --that such a tax would be fairer, more efficient, less growth-killing, and ultimately more effective than the Frankenstein mess of parts that makes up the current cap-and-trade bill.

To be fair, I have been on this point for a while, having advocated a carbon tax offset by a payroll tax reduction to make it revenue neutral for some time, including in my most recent film.  I don't think I have to tell my readers that I am not big on taxes nor am I of the belief that any strong action on CO2 emissions is necessary.

However, I am largely indifferent between a sales tax on fuel and an equal sized sales tax on labor (which is effectively what payroll taxes are).  There is no doubt that a reduction in payroll taxes would be a helpful step in this recession, and if folks would sleep better at night with less carbon emissions, I can tolerate trading one for another.

Jonathon Adler has more, including Paul Krugman's negative reaction to the plan  (did this guy really once win the Nobel Price in economics?)

I Hate to Repeat Myself, But...

Remember this -- a climate bill will have impact on CO2 emissions in direct proportion to how much it raises fossil-fuel-related energy prices.  When supporters of the bill say things like "it won't raise prices very much" they are in effect declaring "this bill will not solve the intended problem."

Below is a map of some of the climate actions being proposed.  As portrayed here, the current cap-and-trade bill is perhaps the worst of all choices, realizing limited gains (as demonstrated by programs in Europe and their supporters own estimates) combined with high costs.  The program is expensive to administer and much of the higher costs to consumers end up as subsidies to large corporations and green pork.

climate-actions

The combination plan of a large carbon tax offset by payroll tax reductions was discussed here.

My Climate Plan

From the comments of this post, which wondered why Americans are so opposed to the climate bill when Europeans seem to want even more regulation.  Leaving out the difference in subservience to authority between Europeans and Americans, I wrote this in the comments:

I will just say:   Because it's a bad bill. And not because it is unnecessary, though I would tend to argue that way, but for the same reason that people don't like the health care bill - its a big freaking expensive mess that doesn't even clearly solve the problem it sets out to attack. Somehow, on climate change, the House has crafted a bill that both is expensive, cumbersome, and does little to really reduce CO2 emissions. All it does successfully is subsidize a bunch of questionable schemes whose investors have good lobbyists.

If you really want to pass a bill, toss the mess in the House out. Do this:

  1. Implement a carbon tax on fuels. It would need to be high, probably in the range of dollars and not cents per gallon of gas to achieve kinds of reductions that global warming alarmists think are necessary. This is made palatable by the next step....
  2. Cut payroll taxes by an amount to offset the revenue from #1. Make the whole plan revenue neutral.
  3. Reevaluate tax levels every 4 years, and increase if necessary to hit scientifically determined targets for CO2 production.

Done. Advantages:

  1. no loopholes, no exceptions, no lobbyists, no pork. Keep the legislation under a hundred pages.
  2. Congress lets individuals decide how best to reduce Co2 by steadily increasing the price of carbon. Price signals rather than command and control or bureaucrats do the work. Most liberty-conserving solution
  3. Progressives are happy - one regressive tax increase is offset by reduction of another regressive tax
  4. Unemployed are happy - the cost of employing people goes down
  5. Conservatives are happy - no net tax increase
  6. Climate skeptics are mostly happy -- the cost of the insurance policy against climate change that we suspect is unnecessary is never-the-less made very cheap. I would be willing to accept it on that basis.
  7. You lose the good feelings of having hard CO2 targets, but if there is anything European cap-and-trade experiments have taught, good feelings is all you get. Hard limits are an illusion. Raise the price of carbon based fuels, people will conserve more and seek substitutes.
  8. People will freak at higher gas prices, but if cap and trade is going to work, gas prices must rise by an equal amount. Legislators need to develop a spine and stop trying to hide the tax.
  9. Much, much easier to administer. Already is infrastructure in place to collect fuel excise taxes. The cap and trade bureaucracy would be huge, not to mention the cost to individuals and businesses of a lot of stupid new reporting requirements.
  10. Gore used to back this, before he took on the job of managing billions of investments in carbon trading firms whose net worth depends on a complex and politically manipulable cap and trade and offset schemes rather than a simple carbon tax.

Payroll taxes are basically a sales tax on labor.  I am fairly indifferent in substituting one sales tax for another, and would support this shift, particularly if it heads of much more expensive and dangerous legislation.

Update: Left out plan plank #4:  Streamline regulatory approval process for nuclear reactors.

Update #2: Readers of TJIC wonder if this is effective, calling it just a rebate of the tax.  I answered in the comments as follows:

I think "rebate" is the wrong way to think of it. Of COURSE if you paid a higher price and then had the exactly that amount rebated to you, then it would not be a very powerful incentive. But that is not what is being proposed.

I think things are easier if you consider payroll taxes to be a sales tax on labor, which they are in effect. So we have a sales tax regime, with differing tax levels on different types of products. If we raise taxes on one item, but drop taxes on the others, then sales of that one item are certainly going to suffer. Its price just went up relative to all the other things we buy. Let's imagine a simplified world where we can buy any of 10 items (call them A, B, C, etc), each priced at $10, and we have $100 in income. Now imagine the same world tilted such that we have $105 of income and all items are $10 except "A" which now costs $20 each. On average, most people will buy less "A" and more of other stuff.

I'm a libertarian, so I grit my teeth at such games. I don't like the taxes in the first place. I don't like the government playing outcomes games with taxes. But my point is that if we are going to insist on doing something to limit CO2, then shifting the sales tax burden so that total taxes are the same but taxes on fuels are higher while taxes on labor are lower strikes me as a substantially lower cost solution than any of the other alternatives being suggested.

Over-Under

As I wrote before, Waxman-Markey puts most of the onus for CO2 reduction on refiners and transportation fuels, so that is the area we will see the most price increase if the bill passes.

So I ask you, after putting this huge effective tax on refiners, which will also in some cases force refiners to shut down capacity and produce less fuel, how long will it be before a politician starts to demagogue oil companies for rising gasoline prices and/or fuel shortages?

This is at the end of the day why Congress wanted cap-and-trade rather than a carbon tax.  By putting the tax on unsympathetic targets like oil companies, Congress and Obama can pretend that inevitable consumer price increases are the oil companies greedy fault, and not related to the actions in Washington.

Government Regulates to the Mean, Plus More on Hidden Taxes

One of the seldom discussed problems with government regulation is that typical regulation is aimed at the "mean"  -- the mean worker, the mean industry participant, the mean driver, whatever.  The problem is that there are 300 million of us with vastly different lives and different preferences.  One-size-fits-all regulations are often a poor fit for many of those regulated.

Take the Fair Labor Standards Act (which includes minimum wages, maximum work weeks, record-keeping requirements, etc).  The Fair Labor Standards Act is written for factory workers who come in the door at 9AM, punch a time clock, work under the direct supervision of management, and punch out at 5PM.

Many of my workers are running isolated campgrounds.  They work out of their home (their RV).  While they have scheduled tasks, like cleaning the bathrooms, many of their hours come in spurts (e.g. someone comes to their RV and asks them a question).  The nearest manager from the company might be hundreds of miles away, and there may not even be electricity to power a timeclock.  All of this adds up to a hugely awkward compliance problem for many of the details of the FLSA.  But comply we must.

Yesterday's new proposed CAFE regulations on car fuel economy is another example.   It appears that the average MPG requirement for new cars will increase from 27.5 today to 42MPG in 2016.  The obvious question is -- of all the actions we could take to reduce CO2 emissions, is this the least costly and/or most efficient?

Well, nobody knows, and I don't think that anyone in the "science-based" Obama administration has even tried to put pen to paper on this question.  And, even if they did, their answer would be largely irrelevant because they would likely, again, be regulating to the mean.

I am sure the folks passing this kind of stuff picture a mean commuter driving 25-30 miles each day each way to work.  But what about me?  I drive 2 (actually 1.9, but we will round up).  That makes a 4 mile daily roundtrip commute.  Assuming I drive a car at the CAFE standard, this new regulation will save me 0.05 gallons of gas per day, or ten cents per day at $2.00 gas prices.

Obviously, it makes zero economic sense for me to be regulated in this way.  The fuel economy of my car for my daily commute is virtually irrelevant, because I chose to locate my house and my business within a few miles of each other.  It is a terrible investment for me to pay, both in higher costs and lost features, for a car with higher MPG.  Though my decision-making was not driven by gas consumption (it was driven by my time, which is way more valuable to me than a gallon of gas**) one could argue that I have already made a huge gas-use-reduction investment in terms of the location of my home, and thus a further investment in gas-use-reduction via my car is not necessary.

On Hidden Taxes

We can tease one other lesson from this regulation.  In regulating CO2 in transportation, the Obama administration had another choice -- a carbon tax.   A carbon tax on fuel would easily cause CO2 emissions to be reduced over time from cars  (in fact, it probably would do a better job, as history has shown that higher MPG standards actually lead to increased driving and thus have equivocal impacts on CO2 emissions).

Further, a carbon tax would have the advantage of putting 300 million people to work figuring out the most productive ways to reduce emissions.  Those who drive most, or have the greatest ability to cut back on driving and shift transportation modes, are going to be the ones to preferentially reduce emissions.

So why not a carbon tax?  Well, the politicians have all explained this pretty directly -- because they do not want to pay the political cost of raising taxes, particularly on something like gas whose price gets so much media attention.  Having demagogued oil companies as evil for so many years for raising gas prices, politicians were not able to bear the irony of themselves being responsible for higher gas prices.

So instead, they will force cars to be built more fuel efficiently, which will almost certainly raise the price of cars (as well as reduce choice and certain features).  These higher costs and reductions in choice are most certainly a tax on consumers, but they are an indirect tax.  They show up as rising prices and perhaps falling attractiveness of auto makers' product lines, which consumers will blame on auto makers, not the Congress or Obama.

So Obama will continue to say he has never raised taxes on the middle class, when in fact he has just made their cars $1500 more expensive.  Some day, we may live in a world where politicians are called to task for this kind of bait and switch, but my guess is that Obama gets away with it.

** Postscript: The one constant of all leftish regulation is that it puts about zero value on my personal time.  Every regulation seems to be about my spending more of my time in exchange for conserving some other supposedly scarce resource.  But I have never panicked that we are going to run out of oil or tungsten or iridium or whatever.  But I do know that I am going to run out of time, just like everyone else.   It is the only commodity I am positive is zero sum.

Jeff Flake is Freaking Brilliant

The Republicans have lost the knack for being a minority party in opposition.  Nowadays, they waste tremendous time and effort playing he-said-she-said with Nancy Pelosi or Jon Edwards, while blithely voting for more pork and trillions in new spending.  Obama, after all, wouldn't have his favorite and best tool (TARP) for building a Mussolini-style corporate state without Republican votes.

While it strikes me that a capable opposition would certainly know how to turn a knife in a political scandal, it also should be ready to introduce principled alternatives to key legislation.   The best such proposals are ones that attempt to achieve the stated goals of the majority party better and faster than the majority's own legislative efforts.

Which brings us to Jeff Flake, who is becoming a master of this.   When Nancy Pelosi and Barack Obama spouted platitudes about openness in government (without really taking any steps to achieve it) Flake came along and introduced bill after bill challenging the Democrats put their money where their mouth is on earmarks and transparency.  I have always been a big fan of Congressman Jeff Flake, who represents a district not far away from my home.  Though we don't agree on every issue, there are few, if any, politicians whose judgment I trust more.

Flake's most recent initiative is one close to my heart.  As readers know, I have good scientific reasons for believing the threat of CO2 emissions has been grossly overstated.  However, if we are going to commit to reducing CO2, we might as well do it intelligently, and Flake's proposal is very close to one I have been pushing for some time:

Conservative House members Jeff Flake (R-AZ) and Bob Inglis (R-SC), along with Rep. Dan Lipinski (D-IL), have introduced an alternative to the cap-and-trade proposal developed by House Democrats: HR 2380, the "Raise Wages, Cut Carbon" Act of 2009. Their proposal is for a carbon tax that will gradually increase over time, offset by a reduction in payroll taxes.

Of course I think this is brilliant, because it is my idea as well.  But it is also a brilliant opposition strategy.  Flake's approach is far better than the cap-and-trade mess the Democrats have gotten themselves in  -- not just because it would work better, but because it actually hits key supposedly liberal objectives better than does the Democrat's bill.  Specifically:

  • Fairness. Sure, everyone is correct that a carbon tax can be politicized, but I do not think it can be gamed nearly as much as cap-and-trade.  For evidence, I turn to California.  California has both a cap-and-trade legislation, rule-making for which has been thrown to the California Air Resources Board (CARB); and it has carbon-tax-like excise taxes, which we generally call sales taxes.  Sure, there are some special case sales tax categories aimed a politically connected groups, but in general the sales tax system in California is simple and mostly fair.  More importantly, it is a layup to administer.  Contrast that to CARB, which has been slogging away in cap-and-trade related rule-making for years, and has everybody both pissed off and panicked.  Should cow flatulence be counted?  Should National Forests be able to sell offsets?  How do you create any kind of fair offset accounting given the shenanigans in Europe?  Should we allow Californians to have black cars? (seriously)  This is a perfect A-B test, as the legislators are the same in both cases -- sales taxes are simple and fair, cap-and-trade is a mess.
  • Openness and transparency. It is clear that Obama's stated commitment to openness and transparency was all so much BS.  But why not nail him to that cross anyway?  Few if any of the general public understand cap-and-trade.  It is a tax, but it is inherently hidden from view, and passed through to consumers buried in rates in a way that offers politicians maximum deniability.  Everyone understands a sales tax, or the gas tax.  The system and its costs will be right out front (which is exactly what Democrats secretly DON'T want, which is what makes this a clever opposition tactic).
  • Progressiveness. For all their talks about the common man and being progressives, the advocates of cap-and-trade are pushing what is possibly the most regressive tax increase of all time.  Again, there is a kind of political money laundering that hides the tax, but it is a tax none-the-less, and will hit the poor the hardest when electricity and fuel prices inevitably increase.  Flake's proposal to take the proceeds of the tax and use them to reduce the payroll tax is a great one -- offset one regressive tax with another, while at the same time putting in place incentives for job creation.

Postscript: My 2007 energy plan was as follows (assuming the need to do something about CO2)

  1. large federal carbon tax, offset by reduction in income and/or payroll taxes
  2. streamlined program for licensing new nuclear reactors
  3. get out of the way

A Helpful Primer on the Politics of a Carbon Tax

Kevin Drum and Joe Romm offer a helpful primer on the politics of a carbon tax.  Unfortunately, they are a little shy in coming out with exactly what they mean, so I will add in a few helpful explanations.

1. A carbon tax, particularly one capable of deep emissions reductions quickly, is a political dead end....

What they are referring to is that though both are approximately equally costly, the government imposed costs of a cap and trade are better hidden from the consumer than those of a carbon tax, thus making it a more palatable plan for politicians.  By raising costs to producers, and then having the producers inevitably raise prices to the consumer, wily politicians can blame the producers,  not themselves, for the price increases.

2. A carbon tax that could pass Congress would not be simple. Advocates of a tax argue that simplicity is one of its biggest benefits.  Again, those advocates seem bizarrely unfamiliar with the tax code in spite of the fact that they pay taxes every year....

Basically, they are arguing that Congress is incapable of producing a simple, clean law.  Politicians used to be able to do this (the US Constitution will fit on the back of a cereal box -- the new EU proposed constitution barely fits in a large 3-ring binder) but have obviously lost the knack.  Or, more likely, as public choice theory tells us, as the dollar stakes have been raised, politicians are incapable of resisting the pressure of huge sums of money at stake for targeted tweaks and overrides for politically favored groups.

By the way, the comparison he is making to the US income tax code is a false one.  The carbon tax is much more like a sales tax, and many state governments in the US (though not all) maintain very simple and easy to administer sales tax systems with single rates and little complexity.  Our sales tax return in New Mexico, for example, consists of three numbers and a signature on a form about the size of a 3x5 card.

3. A carbon tax is woefully inadequate and incomplete as a climate strategy. Why?  Well, for one, it doesn't have mandatory targets and timetables.  Thus it doesn't guarantee specific emissions results and thus doesn't guarantee specific climate benefits.  Perhaps more important, it doesn't allow us to join the other nations of the world in setting science-based targets and timetables.  Also, a tax lacks all of the key complementary measures "” many of which are in Waxman-Markey "” that are essential to any rational climate policy, but which inherently complicate any comprehensive energy and climate bill.

Basically, their argument here is that they don't like the fact that the success of a carbon tax relies on the unmanaged, bottom up responses to higher prices by 300 million Americans acting in their own best interests and finding their own individual solutions to carbon reduction.  The authors instead prefer a few people in Washington, heavily influenced by a number of special interest lobbyists, setting policy and picking winners.  "Complementary measures" is shorthand for government picking of winners and subsidizing of ... whatever the hell Congress chooses to subsidize.  It is a great way to wrap pork in a nifty new green wrapper.

I think most folks who are not naive understand that what the authors are advocating for here is doomed to be hopelessly politicized -- this is, after all, how we got massive ethanol subsidies that do zero for carbon emissions.  But even if one believes the politicians in charge are monks of public service making purely science-based decisions, these guys still are advocating for at most a few hundred people making the major carbon reduction priority decisions from the top rather than 300 million making them from the bottom up.

Besides, isn't this argument deeply contradictory.  In points 1 and 2, they basically argued that the legislative process is deeply politicized and it is naive to think otherwise.   But then, in point 3, they make an argument for top down planning over bottom up response to planning that can only be even marginally valid if the process is not politicized and science, and not political pull, rule decisions.

Postscript: A couple of related stories, first from the Washington Times:

House Speaker Nancy Pelosi and House Energy and Commerce Committee Chairman Henry A. Waxman, both of California, were among the Democrats -- then in the minority -- who slammed Vice President Dick Cheney for holding closed-door meetings to draft energy policy early in the Bush administration.

Republicans "invited energy lobbyists to write the energy bill that gouges consumers with big payoffs to Big Gas and Big Oil," Mrs. Pelosi said in 2005. "They have turned Washington, D.C., into an oil and gas town when it is supposed to be the city of innovation, of new, of fresh ideas about our energy policy."

But the sweeping climate bill Mr. Waxman and Rep. Edward J. Markey, Massachusetts Democrat and chairman of the panel's key environmental subcommittee, introduced at the end of March includes a provision that benefits Duke Energy Corp., a founding member of the U.S. Climate Action Partnership (USCAP), whose climate plan released in January the lawmakers have frequently called a "blueprint" for their climate legislation.

The exemption would save Duke Energy -- along with other firms now building new coal power plants -- from having to spend millions of dollars outfitting its Cliffside, N.C., power plant currently under construction with "clean coal" technology.

"The USCAP companies must be delirious over the freebies that they've received after writing the blueprint for [the House draft bill]," said Larry Neal, deputy Republican staff director for the House Energy and Commerce Committee.

The second is from the Washington Examiner via Watts Up With That

In exchange for votes to pass a controversial global warming package, Democratic leaders are offering some lawmakers generous emission "allowances" to protect their districts from the economic pain of pollution restrictions.

Rep. Gene Green, D-Texas, represents a district with several oil refineries, a huge source of greenhouse gas emissions. He also serves on the House Energy and Commerce Committee, which must approve the global warming plan backed by President Barack Obama.

Green says Rep. Henry Waxman, D-Calif., who heads the panel, is trying to entice him into voting for the bill by giving some refineries favorable treatment in the administration's "cap and trade" system, which is expected to generate hundreds of billions of dollars over the coming years. Under the plan, companies would pay for the right to emit carbon dioxide, but Green and other lawmakers are angling to get a free pass for refineries in their districts.

"We've been talking," Green said, referring to a meeting he had with Waxman on Tuesday night. "To put together a bill that passes, they have to get our votes, and I'm not going to vote for a bill without refinery allowances."

It's Supposed to be Painful

Megan McArdle points out the real problem that carbon taxes and other CO2-abatement approaches have -- they only really work if it they are painful.  I mean, the whole point is not supposed to be to raise government revenue or just arbitrarily raise prices.  The whole point is to change behaviors, and the most powerful tool for behavior change is price changes.

Global warming activists are talking about 80% CO2 reductions.  This is an enormous number, especially since the relative cut has to be even higher to account for future growth, as reductions are generally pegged to current (or as in Kyoto, past) CO2 emissions levels.

A 40-cent gas tax is not going to do it.  Or, looking at how much behaviors changed when gas prices recently went up to $4, a $2.00 gas tax is not going to do it.  The Europeans have $6+ gas taxes and that is not enough to reach the levels activists want for this country.   It is likely going to take $10+ gas to even start to get the reductions in use and the shifts to much more expensive carbon-less technologies that would be required to hit 80% type goals.

All this means that we are NEVER going to have a carbon tax that really reflects the necessary rates to hit the emissions targets Obama and the alarmists claim to be committed to.  That is why we will get backdoor taxes that try to hide the tax and shift the blame away from Congress.    But none of these schemes, including cap and trade, will have any meaningful impact unless they lead to consumer price increases that change behaviors of the end users**.  But these approaches are preferable to lawmakers, as they somewhat disguise the relationship between legislation and prices, and give them some ability to blame private companies for the price increase, even where these increases are the inevitable result of carbon caps.

Postscript: This is further complicated because the major technologies the government is attempting to subsidize as part of meeting these goals are virtually useless.  Two in the transportation sector - ethanol and electric vehicles - are of questionable merit.  Ethanol has about zero efficacy in reducing Co2, and may actually increase it (but it is essential if one wants to win the Iowa caucuses).  Electric vehicles have some potential, but their impact is dependent on how electricity is generated.  Based on the current mix, shifts to electric vehicles just shift emissions from one place to another without much net reduction.  If someone were to propose a massive nuclear and electric vehicle program, they might convince me they were on to something.

**PS#2: I suppose you could reach these goals without fuel price increases.   Two alternatives:

  • Mandate certain transportation and other technology solutions, as well as certain limits (e.g. maximum house size, maximum number of TV's, etc).  This still has cost, though, in terms of enormous losses in personal liberty as well as likely enforced higher costs of major purchases, like cars.  So this is still likely a price increase, it just shows up in a different place.  Also, this may well not work -- there is very good evidence that without price changes in fuel, consumers react to higher MPG in their cars by driving more, thus sibstantially dilluting the carbon effect.
  • Enforce carbon limits combined with price caps on fuel and electricity.  This would be effective, probably, but of course would result in massive shortages of gas and electricity.  The rationing challenge would be enormous.

Who Do You Know Who Has Said All This?

Via Reason:

Obama has promised that no family earning less than $250,000 per year will pay one dime in higher taxes. But the companies that have to pay for permits will pass that cost on to consumers in the form of higher prices for electricity and other products. So these families will pay $645 billion, only some of which will be returned in the form of lower income taxes, for a system that is terribly inefficient.

The solution, of course, would be a straight-forward tax on carbon, the proceeds to be refunded through the payroll tax system. But unlike the hidden tax of cap-and-trade, a carbon tax is out there for the voters to see. And given the choice between a stealthy tax and a visible tax, politicians will pick the former every time.

The Big Lie

I try to never use "lie" or "liar" when discussing politics.  They have become perhaps the most abused and overused words in political discourse, and seldom do they add much to a discussion.

But I simply have no other way to reconcile Obama's promise that he is not raising taxes on 98% of Americans with his imposition of a cap-and-trade system for CO2.

For years, Al Gore supported a carbon tax on fuels as a way to fight CO2.  As I have written a number of times, if one really feels the need to reduce CO2 emissions (which I don't), then a carbon tax is far, far more efficient, fair, and effective than a cap-and-trade system.  There are only two advantages to a cap-and-trade system over a carbon tax, and neither has anything to do with Co2 mitigation or program effectiveness:

  1. The tax is hidden, so politicians can pretend the did not really impose a tax.  The author of California's AB32 cap-and-trade system admitted as much to me in a face-to-face debate we had last year
  2. There are numerous opportunities for politically favored companies to create dubious offset and measurement systems under cap-and-trade which don't exist under a more straight-forward carbon tax.  Which may explain why Al Gore, who sits on the board of over $2 billion in investments in such companies peddling various offset quackery, now supports cap-and-trade over the carbon tax

Here is the basic economics, a topic on which it is rapidly becoming clear that Obama is completely ignorant**.   First, we have to assume that whatever cap-and-trade system that is implemented is actually effective at reducing CO2 emissions.   This is far from an absolute given, as it can be argued that the European system has done all of about nothing to reduce Co2 emissions (they will claim that it has been effective, but the majority of European CO2 emissions have come from a) British coal-replacement strategy, initiated for reasons other than Co2; b) fall of the inefficient Soviet economies and the shut down of their worst polluting industries; and c) unification of Germany.

But, assuming that cap-and-trade actually reduces CO2, then it HAS to increase costs for consumers.  There is no way around it.  It will do one or both of the following:

  1. Raise prices due to increased producer costs.  An example is electricity generated from any sort of fossil fuel will simply have to be more expensive
  2. Raise prices due to increased scarcity.  In industries where the supply and demand dynamics do not allow cost increases to be passed to consumers, then reduced production and scarcity will result.  In the electrical industry, older coal plants that can't afford to pay for the Co2 permits may need to shut down.

Recognize that this HAS to occur, especially #2, or the cap-and-trade system won't be working.  Another way to put it is 1 and 2 above are what designers of the system want and expect to occur.

So how is this not a tax?  Well, this is an old, old strategy.  Rather than tax consumers directly, the government taxes business.  When companies inevitably pass the cost on, it is not the government at fault, it is the business for being greedy and raising prices.  Politicians insulate themselves from criticism.

Further, Obama and the environmental crowd have been laying the groundwork over this for years by arguing that such "green" initiatives actually help the economy and improve efficiency.  They have no proof of this, but they repeat it A LOT.  Repeat something enough, and some people believe it.  This despite the fact that there is no way in the world that obsoleting perfectly good production capacity and requiring its replacement (e.g. coal plants) is a net positive for the economy.  (It can be a net positive for human well-being, but to say it is net positive for the economy is to fall into the broken windows fallacy).

So expect that when power companies inevitably raise prices due to cap-and-trade, politicians will respond by saying that the companies are being greedy and simple minded, and if they were really smart, the cap-and-trade system would not have cost them anything.  It would have made them more efficient.  it would have been a net positive.  And that this failure of theirs to see this probably will drive calls on the left for more government oversight and regulation of these industries.

Don't believe me?  Think this last paragraph is exaggerated?  Well, here are two things to think about.  The first is from our former Arizona governor, arguing that she got a bunch of government employees into a bull session in a conference room for an hour or so, and they all decided that cap-and-trade would be a net benefit to the power industry:

Napolitano brushed aside questions of what effect the plan will have on utility rates.

"First of all, that it may increase electric bills doesn't mean it will increase them now," Napolitano said...

Napolitano said there is "lots of data" to suggest that utilities eventually will be able to save money "by moving to a system of "˜green' energy.""¦

on a long-term basis, there may be cost savings.

So if utilities raise their rates, its obviously because they are greedy profiteers, because all of us here in government think it's obvious that paying for carbon allowances should result in cost savings.  If it doesn't, well, maybe we are smarter than they are, and have to provide more government leadership of the industry.

They would never go that far, you say?  So why has Obama created a government commission to restructure the auto industry on the implicit assumption that a couple of smart government guys in a room can do what the industry itself has not been able to do for 30 years?

** This is not to say that Obama does not have highly educated economic ad visors.  But the President's own knowledge, assumptions, comfort-level and outlook on a subject are critical, no matter what the quality of his advisers.  For example, even if I were crazy enough to want the job, I would never run for President because I know, by outlook and knowledge, I am not qualified to manage foreign policy or be commander-in-chief of the military.  Sure, I could surround myself with advisers, but there are proven limits to the "rely on advisers" approach.  I might argue that Bush's foreign policy is an example of such limits.

Carbon Tax vs. Cap and Trade

Coyote, December 2007:

I can for a moment place myself in a position where I would imagine being worried about CO2 and dependence on fossil fuels.  For someone who really cares about these things, here is what a rational energy plan would look like:

  1. large federal carbon tax, offset by reduction in income and/or payroll taxes
  2. streamlined program for licensing new nuclear reactors
  3. get out of the way

Ronald Bailey, today:

Interestingly, Sen. Bob Corker (R-Tenn.) suggested to Gore during the hearing that a better proposal would be to impose an across-the-board carbon tax which would then be reimbursed entirely by cutting the payroll tax.

He has much more on problems of cap and trade in the article.  I have written many times on a carbon tax vs. cap-and-trade, indexed here.

Another Reason Why We'll Never See A Carbon Tax, But Instead Will Get A Crazy Cap-And-Trade Scheme

I have written enough on how much superior carbon taxes are to cap-and-trade as a CO2 reduction methodology (if we really are going to do "something," which I hope we don't).  An index of these articles is here.

In the title, I say "another" reason, becuase the number one reason we won't see a carbon tax is that politicians greatly prefer an indirect tax over a direct one, even if it is far more inefficient.  This was explained directly and clearly to me by the author of California's cap-and-trade program.

Close behind this, in second place, is the fact that cap-and-trade spawns a dizzying array of lobbying and special interest influence possibilities that carbon taxes do not, and all those lobbyists mean more power and campaign contributions for politicians.

But here is another reason why it will never happen:  Too many very influential Democrats have substantial investments in start-up companies whose entire existance depends on living in the cracks of cap-and-trade, particularly in generating various dubious offset schemes.  Al Gore is the most obvious example, but apparently Obama's new climate czar Carol Browner sits on boards of such companies as well.

I Have Been On-Board For A While

I don't think that anthropogenic global warming will be substantial enough to justify massive and expensive interventions to limit Co2.  I won't go into the reasons for this statement, as I have a whole other blog dedicated to climate.  If you are unfamiliar with the arguments that Co2 is likely warming the Earth, but not by nearly as much as alarmists claim, you might start with some of these videos.

However, it seems almost inevitable that the new Congress and Administration will do "something" on Co2, if for no other reason that it has become a self-image issue on the left  (i.e. I am a good person because I care about global warming).  We libertarians are seldom very good at engaging on issues of how such government interventions should be done best.  Every time people ask us our opinion of how to structure such a program to do the least harm, we get about 5 seconds into an answer before we just break down and start yelling, "this is crazy!  Do nothing!  Leave us alone!" (actually, emissions laws are one of the few areas where government regulation helps to protect private property rights).

Bryan Pick at Q&O points to a number of folks advocating an increase in carbon taxes offset by reductions in payroll taxes (Bryan's plan is more comprehensive than this, and is here).  I actually advocated something similar over a year ago.  Here is my logic chain:

  1. The carbon tax is a much, much better approach to reducing CO2 than cap-and-trade systems.  Cap-and-trade is bad for the same reason that politicians like it -- it offers a near infinite playing field for lobbying, special rules, influence-peddling, special exemptions, government chosen winners, etc. while hiding the fact that it is in fact a huge new tax.  My more detailed argument on this can be found here and here and here.
  2. A new carbon tax should be revenue neutral.  After all, the point in the first place is not to raise revenues, but to provide a pricing signal that Americans need to switch away from carbon-based fuels.
  3. A good place to offset revenues is the payroll tax.  Both fuel taxes and payroll taxes are criticized for being regressive, so it is an easy place to try to forge a compromise with the left.  Further, the payroll tax acts effectively as a tax on hiring, so a reduction would certainly be welcome any time, and particularly in a recession.
  4. We need to create a streamlined licensing program for nuclear reactors.  Utilities, particularly ones dependent on coal today, need a realistic option to continue to provide power at reasonable cost in their communities.  Solar and wind are just not reasonable alternatives today.  Nukes are the only carbon-free scalable generating technology we have.

Again, I don't think the dislocations required here are worth the effort, but this is the best way to do it if we must.

Postscript: By the way, here is one thing no one is telling you.  Folks in Congress have tossed around carbon and fuel tax ideas that might add, say 25 cents per gallon.  But if we are truly in thrall to the climate alarmists and take their recommendations, then Co2 outputs must be reduced 50-80% in this country.  We are talking about reducing Co2 output to levels before 1920!  To do this will require a truly massive tax.  Just to scale it, over the last year gas prices doubled by about $2 a gallon, and total miles driven fell by less than 5%.   Europe is at around $8-$9 gas and are nowhere near these climate goals.  I don't think it would be too much to say that gas prices would have to top $20 to reach these goals.

This is why I think the most likely case for climate regulation is that we will have some kind of tax or cap system but that this system will be far short of anything that will really reduce Co2 or even stop its growth.  The costs are just too high, and the benefits too shaky.  You can see that in Europe, as countries back off Kyoto goals  (and even Kyoto goals are far short of what alarmists think we need to be hitting).  And any progress they have made against Kyoto goals has mainly been accidents of changing enconomic and political structures rather than the result of any real targeted action.  What we will get is something that costs a lot without accomplishing much, but will make the left feel better about themselves.  Sound familiar?

A Civics Lesson in One Sentance

A month or two back, I was participating in the California Regional Council of Rural Counties annual meeting.  At this conference, I was there to have a sort of informal debate on climate change with Joe Nation, a former California State legislator and currently a private consultant on climate issues.

To some extent my role was frustrating for the audience, because they were already stuck with complying with California's AB32 (a sort of state CO2 cap and trade system) and arguing that such legislation was pointless only served to upset them  (my presentation, both in powerpoint and video is here).  By the way, we often lump "government" together, but I can tell you that while the governor and the legislature of California may be 100% behind CO2 alarmism, the county commissioners were very sympathetic to the skeptic position.

Anyway, towards the end of my presentation I made a plea for a carbon tax over cap-and-trade, and said in fact that California's AB32 was living proof of my argument.  The California Air Resources Board (CARB), which is tasked with implementing the plan, has already added hundreds of people to its staff and worked for over two years, is still no where near finished with rule-making.  The complexity, and the battling political constituencies, is simply mind-boggling.  It is already clear that the result is going to be a Byzantine, Rube Goldberg structure of detailed industry-specific reporting and permitting rules.  Nearly 100% of CARB's time is taken up today with various groups running to them begging for some sort of special treatment (think "carbon bailout" and you will get the idea).  No one thinks the process is fair or rational.

Under cap-and-trade, every single industry will report greenhouse gasses, have industry and firm-specific limits, myriads of permits, etc.  For example, we had detailed discussions that day of how cattle flatulence will be treated and measured.  The alternative is a carbon tax, which is dead simple.  There is one single rate to set - the tax per weight of carbon in fuel.  Fuels with more carbon per BTU, like coal, thereby get higher taxes.  The system works like a sales tax, and could be administered by the BOE (who runs the California sales tax system) in its sleep.

The cap-and-trade system is far more expensive than a carbon tax.  By the basic laws of supply and demand, both systems have to raise the cost of burning certain fuels by about the same amount to get about the same reduction in use.  But the cap-and-trade system brings a huge overhead burden, both in government bureaucracy as well as compliance costs, that make it far, far more expensive for the same amount of benefit.  Until he started sitting on the boards of companies who depend on these inefficiencies in the cap and trade system to make money, Al Gore advocated a straight carbon tax over cap-and-trade.

But we had an opportunity that day.  Because the man who claims to be the author of AB32 is none other than Joe Nation, who was right there in the room.  So we asked him why he took this approach.  Here is what he said, really a civics lesson in one sentence:

I tried pass a carbon tax first, but there was absolutely no support for it among legislators [the same ones who overwhelmingly supported AB32]

If you can understand why this is, you can understand a lot about government.   Because all these concerns that you and I might have about crafting rational public policy are not important to legislators.  Here is how they think about it:

  • Private implementation and compliance costs are meaningless to legislators.  There is no public measurement or accountability for these costs, and most of these costs fall on businesses, who can be ignored as unsympathetic in political discourse.  I operate in Mono County, California, and they put out a new set of reporting requirements driven, they said, by the needs to save a few hours a year of their auditors' time.  But compliance with these new rules costs our company 10-20 hours, at least, a year.  And we are just one of many, many companies reporting.  I complained that it was crazy for them to ask taxpayers to spend hundreds of hours of labor to save them just a few, but they could not have cared less.
  • For legislators, particularly in California, creating large new bureaucracies is good.  It creates a patronage relationship between the legislators and these new government employees that is almost quasi-feudal.  Public employees are an enormous source of support for incumbent politicians, and these bureaucracies also offer future employment opportunities for legislators once they leave office (nice article here).
  • First, last, and always, the vast majority of politicians are gutless.  That means if they can pass the same tax in a way that is more hidden (ie cap-and-trade vs. carbon tax) they will prefer this approach, even if it means the tax is substantially less efficient.  In the case of cap-and-trade, since costs are hidden and spread around like peanut butter rather than easily identifiable, they can pretend the costs don't exist and, if someone starts worrying about rising electricity costs that result, simply blame the rising costs on the evil power/oil/coal/etc companies.  Obama has brilliantly taken this one step further, by outrageously claiming, in the broken windows fallacy of all time, that cap-and-trade will actually boost the economy through green job creation.
  • A carbon tax gives politicians very little room to extract personal value from the electorate.  Really, there is only one number for everyone to argue over.  But cap-and-trade is a Disneyland for lobbyists.  There can be special exemptions, industry specific caps, firm-specific caps, geography-specific caps.  Once everyone sees the first few guys giving campaign donations and parading into CARB for special treatment, everyone feels like they have to in order to avoid being the one guy left out.  My guess is that cap-and-trade will spawn more lobbying than any other legislation in US history.  And politicians, no matter what their public stance, love lobbying, because everyone who comes to ask them for something knows there has to be a quid pro quo.

Update:  A number of related thoughts and posts here, at Reason.

Why Politicians Favor Cap and Trade over a Carbon Tax

There are a lot of incredibly good reasons to favor a carbon tax over cap-and-trade if we simply most reduce CO2 emissions.  Even a minor inspection of the inner workings of the California Air Resources Board under their AB32 cap-and-trade style program provides lists of examples of abuses, rent-seeking, inefficiency, etc. under cap-and-trade.  But Joe Nation, one of the California legislators who authored AB32, told me that he could not get even a 5-cent gasoline tax through a legislature that enthusiastically embraced the 100x (or more) expensive AB32.  Why?  Silly rabbit, because public costs of cap-and-trade can be fudged, hidden, ignored, and, when they absolutely have to be recognized, blamed on private companies.

Via a reader, here is our Arizona governor discussing the costs of cap-and-trade in Arizona:

Napolitano brushed aside questions of what effect the plan will have on utility rates.

"First of all, that it may increase electric bills doesn't mean it will increase them now," Napolitano said.

Brave, isn't she?  They are already preparing the story line to blame private industry for future price increases:

Napolitano said there is "lots of data" to suggest that utilities
eventually will be able to save money "by moving to a system of 'green'
energy."...

Fox said that, on a long-term basis, there may be cost savings.

You get that?  We smart government guys conducted a lot of really high-power circle jerks among graduate students and the consensus was that forcing the electrical industry to obsolete much of its current capacity and rebuild with some other uproven but more expensive technology would save them money in the long term.  If utilities raise prices, it's because they were not smart enough to figure out what we already know and they are just greedy capitalist pigs so blame them for the price increases, not use faithful public servants.  You see?  Cap-and-trade is like money laundering for taxes.  The tax is there, but its hidden well enough that a lazy media will not bother to trace it back to its owner.

But I wouldn't want you to take my assertion on faith (as Obama does with his 5 million green jobs promise), so lets look at what will have to happen.

The exact goals are hazy, but it appears our governor has committed the state to cutting CO2 emissions by 15% over the next 10 years.  One of the main ways that calling CO2 "pollution" is misleading is to imply it is some kind of combustion by-product, like soot or SO2, that could be scrubbed out.  But it is not.  It is fundamental to combustion.  So a 15% cut in CO2 emissions is 10-15% cut in power generation  (we likely get numbers lower than 15% by assuming cuts in production are preferentially from higher carbon sources like coal plants). 

So, basically this law requires the state's electrical utilities to obsolete 10% of its installed capacity, and either a) have tons of rolling blackouts; b) raise prices enough to force a large cut in demand  (remember, demand must be cut 10% AND all future growth must be halted); or c) the industry must spend hundreds of billions of dollars to build a ton of capacity in some other technology.  Option a will never fly politically.  Option c is almost sure to fail as well.  The permitting and construction processes can take decades.  From a cold start, I don't think its possible to rebuild 10+% of the states generation capacity in 10 years, either in nuclear or some other not-yet-ready technology.  The numbers simply don't work.  The only possible way I can imagine is maybe to install a zillion natural gas turbines, but to make the CO2 balance work out, you probably would have to rebuild 15% or more of the capacity, not just 10%, because there would still be some carbon emissions. 

Really, realistically, one is left with option b.  Prices are going to go up (just they would have to in option c to pay for replacement production capacity).  The price increases would be about as much as the carbon tax would have had to be to get the same effect, but price increases are corporation's fault while taxes are politicians' fault.  See?  The only good news is that the price increase will go to private players rather than the government.  That is until someone thinks to put in a windfall profits tax on utilities that are making lots of money on the government-enforced shortage.