Its not my pain, its our collective pain.

Check out this analysis of Waxman Markey from the Breakthrough Institute:

https://www.yousendit.com/download/cmczeW44Q1BqV0FLSkE9PQ

The details on the actual cost imposed on carbon emissions from slide #36 are especially interesting:

Price floor:  $10/ton at outset, rises 5% each year
EPA estimate:  $12-15 per ton 2015; $15-20 per ton in 2020
CBO estimate:  $15 per ton 2011; $26 per ton 2019

Those numbers should be compared to H.R. 2380 The Raise Wages, Cut Carbon Act of 2009, which immediately imposes a strict tax of $15/ton on carbon dioxide producers at the mine, well or point of import; guarantees to have the tax at $26 by 2019; requires that tax rises to $100/ton over three decades; and which allows for no breaks, offsets, gimmicks or subsidies for polluters. See summary at: http://inglis.house.gov/sections/issues/current/rnct/The%20Triple%20Win%20(2).pdf

One has to wonder.

Taxes or cap and trade makes no difference. What must be included in any calculus on emissions is Life Cycle Assessments of chemicals and materials. The lack of credible and verifiable databases and models for these metrics is a disgrace! The knowledge on embedded emissions could drive innovation in manufacturing and inform consumer behaviour throughout supply chains and on retail level. Caps or tax on smokestack emissions is like playing with half the deck of cards. Its just stuipid.

No disrespect at all intended regarding Tolstoy or Russian names. My analogy to War and Peace is just to suggest that wading into a sea of acronyms and regulatory details can be quite intimidating and confusing for those of us that aren’t very experienced in it.

Instead of being a level playing field for everyone in the economy, the Cap and Trade solution will inevitably be an insiders game where very specialized experts have the best rewards. In my opinion, we already have more than enough special interest groups gaming the economy.

As for your question – today we raise massive levels of taxation with all sorts of arcane rules so that the social engineers in Washington can buy political patronage allocating resources to folks they determine to be deserving.

You personally first taught me the most important economic impact of taxation and the fundamental principal of Pigouvian taxes – Taxes work extremely effectively in discouraging exactly what is being taxed.

According to the April 2009 Monthly Treasury Statement of Receipts and Outlays for The United States Government for Fiscal Year 2009 Through April 2009, issued by the US Treasury Department, over 88% of all federal revenues were derived from directly taxing either payroll or personal income. In other words, what our government most effectively discourages through our tax policy is work and job creation.

Call me old fashioned, but I believe that if we are serious about helping low income people, the best way to do so is to have a thriving economy with jobs available. And the best way to encourage a job creating economy is to stop taxing work so ridiculously heavily.

If the government really wants to eliminate the economic impacts of environmental policies on low income people, they should focus on policies that encourage rather than actively discourage economic activity and job creation. Unlike the social engineering in Waxman Markey, H.R. 2380, “The Raise Wages, Cut Carbon Act of 2009″ takes a much simpler approach by offsetting all revenues gained through carbon taxes with an equivalent cut in payroll taxes, which are by far the most regressive and irrational form of taxation in this country. So the real solution to carbon emissions is also a very effective job creating solution to the economic slump we are in.

Perhaps the party labels aren’t right on the sponsors, or the rhetoric might not be quite as pleasing, but as a self proclaimed liberal, I would think you would want to focus on a solution that actually creates jobs and economic opportunity rather than one that is so focused on corporate welfare and financial derivatives and only throws bones at social justice as an after thought, while actively depressing economic activity through effectively increasing tax burdens on everyone.

As you suggest yourself, it seems to me that your tender heart strings are being played quite beautifully by some powerful special interests that are laughing all the way to the bank.

Fred

While I know you think a tax probably should be absolute without such social tinkering, let’s be real and understand that as a percentage of income this will hurt the poor more than most and unless you can find some way to make it somewhat progressive, this may be the largest political factor against it and just watch the coal companies play to us liberals on this. Thoughts???

Best,
Joel

You raise good points in suggesting we not allow striving for ideal prevent us from making progress. Is it reasonable to insist on something at least modestly useful instead of allowing demonstrably counterproductive legislation to pass due to the pretty rhetoric disguising it?

Raising James Hansen’s concerns suggests we might want to actually follow his advice. Please note that in a recent presentation at Dartmouth College, James Hansen was unambiguous in declaring “Cap and Trade is not going to work……in Europe it has been completely ineffective.” He instead advocates a major carbon tax sufficient to give every American a several thousand dollar a year direct cash rebate, making his proposal the most progressive form of taxation.

And if we are to follow our leaders on this stuff, I will again relay what the President and his budget director had to say before deciding to cave in to the mounting pressure to support a corporate welfare bill masquerading as an environmental solution.

The Wall Street Journal quotes the President saying just in March “If you’re giving away carbon permits for free, then basically you’re not really pricing the thing and it doesn’t work — or people can game the system in so many ways that it’s not creating the incentive structures that we’re looking for.” White House Budget Director Peter Orszag was even more clear in his March testimony to Congress: “If you didn’t auction the permit, it would represent the largest corporate welfare program that has ever been enacted in the history of the United States”.

As for Jo’s question on why a carbon tax is better.

1) Of all the things governments throughout history have tried, the only thing they have all been universally successful at is taxing people.

2) In general the more complex government solutions are, the less effective they have proven to be. Any bill such as Waxman Markey, which is longer than Tolstoy’s “War and Peace” and which has more confusing acronyms than “War and Peace” has confusing Russian names, is an invitation for abuse and corruption. Good legislation shouldn’t require more than five or ten pages. For comparison, WikiAnswers.com states that the Constitution of the United States “is printed on 6 pages: pages 1-4 are the base text of the constitution, page 5 is the letter of transmittal and page 6 contains the Bill of Rights.”

3) Unlike the SOx and NOx markets, the wide open possibilities for defining “carbon offsets” is an invitation for abuse and unverifiable nonsense being counted instead of actual emissions reduction.

4) Most importantly, establishing highly specialized specialized government controlled programs trading attributes with definitions always changing and in which only specialized experts with inside connections can trade, is not a market solution just because some legislator labels these bureaucratic constructions as such. Simple carbon taxes are a true market based solution. Real market based solutions provide clear direct feedback signals to the real economy where we all transact business. All of the environmental attribute markets confuse rather than clarify the real costs of the solutions we favor in the real marketplace. All of them are at best a very poor substitute for real market based solutions like putting a real price on the “economic externalities” of fossil fuel use. The best example of this is what happened last summer when the price of oil went to $150 a barrel and the price of gasoline followed. The demise of stupid services and products in the marketplace, like the GM Hummer, and the success of real solutions, like fuel efficient cars will be brought about not by hidden side “markets”, but by real prices for carbon emission for everyone. The same will apply for clean electricity generation solutions and everything else we favor. Let’s put the price signals directly into the real economy and allow the free market to work.

5) Suggesting that passing a tax can only happen if you disguise it and call it something else is a cop out. British Columbia, a major center of fossil fuel production, passed a straight carbon tax last year and just a couple weeks ago, with that carbon tax at the center of election debates, the supporters of that tax were re-elected. Most of Europe has had high gas taxes for decades. Across all political perspectives, opinion leaders almost universally favor a carbon tax over cap and trade. Only the politicians refuse to go along, because carbon taxes don’t easily allow for the handouts of credits to their political supporters the way cap and trade does.

6) Under the Inglis bill, 100% of carbon tax revenues would be returned to people impacted in the real world through a reduction of payroll taxes so the inevitable economic pain of an effective carbon policy will be offset by a reduction of the most regressive taxes in the US economy. Under Waxman Markey, those revenues are being handed to political supporters, so the added cost of reducing carbon emissions will inevitably create a backlash against environmental advocates and future effective means of addressing these issues.

7) Effective legislation addresses complex interactions in our economy through simple easily communicated solutions. The “Freedom Tax” proposal that several of us from NESEA have been debating for years, and which is described in my earlier post “Actually Mr. President, There Is A Solution”, has all the benefits of the Inglis bill plus an added benefit of a ratchet mechanism that would very effectively reduce speculation and volatility on world petroleum markets, thus stabilizing many of the economic impacts of energy price volatility in the economy.

8.) Effective legislation would put a firm bottom on the price of carbon emissions so that competing solutions like solar, wind etc, have a predictable market to sell into. Cap and Trade has proven in Europe to be a complete failure in that regard. This is precisely the role a simple carbon tax would play very simply and very well.

Bottom line: a good legislative solution would have a variety of definitive positive impacts. Knowledgeable observers of Waxman Markey see its primary impact as further weakening the economy to provide a massive derivatives market for speculators to play in, handing out corporate welfare to the politically connected, and doing little or nothing at all effective to reduce carbon emissions. It will drive up the cost of living for everyone, thus driving grass roots political support away from real solutions to environmental problems while achieving no useful benefits. If that is the best we can get out of Congress, we should not only reject the bill itself but also reject the re-election bids of everyone in Congress supporting such foolishness.

You make some excellent arguments on a carbon tax versus a cap and trade regime and have supported it very well. And like Jo, I would rather have a carbon tax as well since it seems that it could be initiated far more quickly than a cap and trade program and would probably be less subject to any sort of gaming — – and I am even one who is suspicious of the REC market doing what it was first intended to do.

Unfortunately, politics is the art of the possible and too many times in order to get any type of forward motion you have to sort of swallow hard, hold your nose and take what you can get rather than what you would precisely desire. I have, unfortunately, had to experience that and it is probably one reason why I had a very short political career. But by being an active participant in the process rather than standing on the sidelines where it’s pretty easy to criticize and throw stones, I learned a great deal.

I guess part of the thing on climate change is that we are being told by some of the top scientists like Jim Hansen that this is a pretty time sensitive issue and if we don’t begin to act on it within just a very few years we may have some irreversible results. So under those circumstances, do we let the perfect (let’s say a carbon tax) become the enemy of the good (cap and trade– and I know you would say it was not so good) and then half the battle is on to come to agreement on that cap and trade over the next five years? It’s sort of like on Star Trek where you have the Kobayashi Maru simulation that you lose either way. In this case I suppose political shenanigans as we have experienced for millennium may be the more acceptable in the near term than no action at all.

I think your best point, however, is that the cap and trade in the way it is being formulated may actually do very little and as a compromise I might suggest that if certain reductions are not met by certain dates by that method, the legislation should contain a trigger point that would automatically go into effect to enact a carbon tax. In this way you would get the best (or worst) of both worlds. The danger in this is you may lose valuable time in reducing the emissions to where you need to have them in the 2050 era but at least you have built something into it that if one mechanism is not working all parties know that another one is waiting in the wings to immediately spring to action when those parties fall short.

I will also agree that to put some of the same people in charge of carbon emissions who had previously been involved in financial markets does scare the hell out of me but this time let’s make sure we have regulators who regulate and send people to jail without passing GO. Remember there was someone (Marakopoulis –badly spelled here) who blew the whistle on Bernie Madoff but under eight years of the Bush regime we hardly had what one would call real regulators. I guess that is sort of the nice thing about a carbon tax, it is direct and it does not depend upon the whims of free-market regulators who may see the world in a different way.

Thanks for making us all think Fred, I think these are issues that need to be brought up and debated both in this forum and maybe even at BE10.

Best,
Joel

I completely agree with you that the biggest problem with the Waxman/Markey bill is the handouts of credits to the biggest polluters.

But I have questions about your overall dismissal of Cap and Trade as a viable means of reducing GHGs.

For example, as you may recall, pre-Clinton, regulating markets was the norm. Granted, markets are far more complex today but couldn’t we address a number of your concerns regarding the potential for increased market volatility and an asset bubble through rigorous regulation and verification of offset credits?

I wonder what kind of regulation is in place for the European Cap & Trade market or RGGI?

Like you, I would prefer a carbon tax. I’d also prefer a single payer health care system. But, both do seem unrealizable in today’s political environment despite public opinion.

If second best is what we have to work with, isn’t rigorous regulation what we should be fighting for?