Posts tagged ‘GHG’

Why a Carbon Tax is Superior

I don't think that government action on greenhouse gasses is justified.  That's not to say that man is not helping nature warm the planet some, its that the man-made warming, when you strip away the exaggerations, does not justify the cost of preventing it.  Since I wrote 80+ pages on it here, I won't delve much further into it. 

However, if we are going to take action, a carbon tax is way, way better than cap and trade.  I used to think that cap and trade made more sense, but I have changed my mind.  Cap and trade systems have a lot of potential for error and abuse, but there is one issue that is not adequately discussed:  They are also a huge subsidy and protection for current businesses, effectively penalizing new entrants.

Why?  Because most cap and trade systems begin by giving out emissions credits to current industry incumbents.  These are credits that new entrants will have to purchase, tilting the playing field in favor of current industry leaders.  This is the kind of thing Europeans love, because their largest business interests effectively control the government and keep out new competition, causing their economies to stagnate.  Steven Milloy is one of the few folks raising the red flag on this issue:

Under
the LCEA, the federal government would annually issue rights or
"allowances" to emit GHGs. In the first year of the bill, slated as
2012, allowances would be issued for approximately 6.65 billion metric
tons of GHGs. The amount of allowances slightly decreases every year "“
for example, 6.59 billion metric tons in 2013, 6.53 billion metric tons
in 2014, etc. "“ until it finally levels out at 4.82 billion metric tons
in 2030 and beyond.

These allowances have monetary value "“ a lot.

Owners
of allowances can either use them to pay for their GHG emissions or
they can sell them to other emitters who need allowances. Emitters can
also simply pay the federal government directly to emit GHGs at a cost
of $12 per metric ton of carbon dioxide starting in 2012. This price is
slated to increase annually by the inflation rate plus 5 percent. By
2030 "“ and unrealistically assuming that no inflation occurs "“ the
pay-to-emit price would be about $27.50 per metric ton of carbon
dioxide.

Using the pay-to-emit price, the GHG emissions
allowances issued by the federal government in 2012 will have a
potential market value of $80 billion. The annual market value of these
government-issued allowances will rise to over $100 billion by 2018 and
hit $130 billion in 2030. It will only take about 10 years "“ exclusive
of any inflation "“ for value of the allowances issued by the government
to exceed $1 trillion.

And incredible as it sounds, the bulk of
these allowances "“ 76 percent for the first five years, declining to 47
percent by 2030 "“ will be given away at no charge to special interests
including private industry, farmers and states. This global warming
giveaway works out to a total of $1.34 trillion of free money "“ not
adjusted for inflation "“ that would be handed out to global warming
special interests from 2012-2030. After 2030, the annual amount of free
money handed out is about $65 billion, increasing by 5 percent per
year, exclusive of inflation.

Unfortunately, politicians will always favor an indirect tax over a direct tax because they are gutless and entirely free of any nagging principles.  Cap and trade systems would raise consumer prices at least as much as a carbon tax, but the price increase would appear to be made by industry and not due to a visible government tax.  Congress can point the finger at industry and say, it's not our fault, it's those greedy guys in industry driving up prices.

Further, the carbon tax is hard to game.  Everybody pays.  But cap and trade - Oh the beautiful potential to milk various constituencies for donations!  If the government sets up a program where some groups get credits for free, and some have to pay for them, well of course every industry is going to pour millions upon millions into politician's hands trying to make sure they are in the favored group. 

What a mess.  We are already seeing the huge distortions coming from nutty ethanol subsidies, and that is due to the pressure of just one industry (farmers and ADM).  Just think of the distortions form this program.  There may be a good chance that misguided attempts to manage greenhouse gasses may well be the largest threat to the American economy and free marketplace, well, ever.  Which, by the way, is why every Marxist and socialist on the face of the earth are right at the forefront of the global warming movement.

If you suspect that the world may be warming, but not nearly enough to justify such costs in terms of both dollars and lost freedom, you might want to read this.

Richer and Warmer vs. Poorer and Cooler

For quite a while, I have wanted to see that someone address the question of comparing a richer and warmer world with a poorer and cooler world, and not just assuming that the latter is superior.  As I wrote here, this is one of the most important questions ignored to date by Kyoto supporters.  Supporters of immediate climate change action shout warnings about the dangers of raising the earth's temperature a degree or two.  But what if that comes at the cost of reducing world economic growth a percentage or two?  There is still a lot of work to be done to understand the impacts of a 1-2 degree temperature rise, but it is very, very well understood what 1-2 extra points of economic growth can do, especially in developing countries.  Economic growth reduces starvation, increases life expectancy, improves health care and sanitation, and increases the ability to survive natural disasters.

The Commons Blog links to this study by Indur Goklany on just this topic.  I have not had time to get through it all -- I am just happy someone is even asking the question -- but the Commons Blog folks have:

If global warming is real and its effects will one day be as devastating as
some believe is likely, then greater economic growth would, by increasing
greenhouse gas (GHG) emissions, sooner or later lead to greater damages from
climate change. On the other hand, by increasing wealth, technological
development and human capital, economic growth would broadly increase human
well-being, and society's capacity to reduce climate change damages via
adaptation or mitigation. Hence, the conundrum: at what point in the future
would the benefits of a richer and more technologically advanced world be
canceled out by the costs of a warmer world?

Indur Goklany attempted to shed light on this conundrum in a recent paper
presented at the 25th Annual North American Conference of the US Association for
Energy Economics, in Denver (Sept. 21, 2005). His paper "” "Is a
richer-but-warmer world better than poorer-but-cooler worlds?"
"” which can
be found here, draws
upon the results of a series of UK Government-sponsored studies which employed
the IPCC's emissions scenarios to project future climate change between 1990 and
2100 and its global impacts on various climate-sensitive determinants of human
and environmental well-being (such as malaria, hunger, water shortage, coastal
flooding, and habitat loss). The results indicate that notwithstanding climate
change, through much of this century, human well-being is likely to be highest
in the richest-but-warmest world and lower in poorer-but-cooler worlds. With
respect to environmental well-being, matters may be best under the former world
for some critical environmental indicators through 2085-2100, but not
necessarily for others.

This conclusion casts doubt on a key premise implicit in all calls to take
actions now that would go beyond "no-regret" policies in order to reduce GHG
emissions in the near term, namely, a richer-but-warmer world will, before too
long, necessarily be worse for the globe than a poorer-but-cooler world. But the
above analysis suggests this is unlikely to happen, at least until after the
2085-2100 period.

It is particularly important to do the economic work using the same assumptions that the climatologists use. As I posted before, climate studies tilt the playing field in the favor of warming by assuming huge economic growth rates in developing nations.  This ups CO2 emissions estimates, because it is also assumed that these countries remain inefficient energy consumers.  I have criticized this approach in the past, since it yields ridiculous outcomes (many of these smaller nations end up with economies larger than the US in 2050).  However, if they are going to insist on these assumptions, that should also be the backdrop for estimating economic impact of reductions. Presumably, since in their model CO2 comes disproportionately from developing country growth, then the costs will be seen disproportionately in terms of reduced developing country growth.  Which will have predictable results in terms of malnutrition, starvation, disease, and shorter lifespans.

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Death of Kyoto

Kyoto and similar protocols are dying, and for entirely predictable reasons.  Story in TCS from Buenos Aires.

The conventional wisdom that it's the United States against the rest of the world in climate change diplomacy has been turned on its head. Instead it turns out that it is the Europeans who are isolated. China, India, and most of the rest of the developing countries have joined forces with the United States to completely reject the idea of future binding GHG emission limits. At the conference here in Buenos Aires, Italy shocked its fellow European Union members when it called for an end to the Kyoto Protocol in 2012. These countries recognize that stringent emission limits would be huge barriers to their economic growth and future development.

None too soon for me.