[NatureNS] The Environment: Carbon Tax versus Cap & Trade

Date: Thu, 02 Oct 2008 12:21:47 -0300
From: Joan Czapalay <joancz@ns.sympatico.ca>
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&gt; some way: the benefit will help some worthy goal, or it w
Thank you, Chris - I found your comments to be very well organized and 
helpful. I agree with Blake and Randy, that all of us who love nature 
have to become informed and political about the protection of it. 
Cheers, Joan

Christopher Majka wrote:
> Hi folks,
>
> I'm far from being an expert on this, however, I think it is important 
> to keep two things in mind:
>
> 1) Unchecked, the continuing emission of greenhouse gases will have 
> enormous, potentially catastrophic, consequences for our civilization. 
> The results of the Intergovernmental Panel on Climate Change make this 
> clear.
> [ http://www.ipcc.ch/ ]
>
> 2) Hence, we need to take some action. There are, as I understand it, 
> two main approaches:
>
> *a) Carbon Taxes:* economists tend to like this approach since it sets 
> a definite (and increasing) price on carbon that everyone (consumers, 
> & business) pay across the boards. It's a clear economic mechanism 
> that puts a price on pollution. As governments ratchet up the tax, the 
> incentives become ever stronger to cut down on carbon emissions. Both 
> the Liberals (with their Green Shift) and the Greens (with a nearly 
> identical plan) propose this. 
>
> The difficulties are two-fold: i) it's tough to sell this politically 
> (consumers have visceral reactions to the idea of "taxes" even if they 
> get them back with a decrease of income tax); and ii) there is no 
> definite indication as to by how much carbon emissions will actually 
> fall, and how quickly this will happen, since carbon taxes are just 
> economic incentives.
>
> *b) Cape and Trade:* environmentalists tend to like this approach 
> since it sets a definite (and decreasing) cap on carbon emissions. It 
> doesn't impact consumers directly but instead targets industrial and 
> other large carbon emitters. A cap is set and any excess emission 
> beyond the cap must be compensated for by purchasing carbon credits 
> from enterprises that have made savings in their carbon emissions (or 
> are doing better than the norm). This punishes the slackers (they have 
> to spend extra funds to purchase credits) and rewards pro-active and 
> efficient companies and enterprises who have done well (they make 
> extra profits by selling carbon credits). 
>
> It is easier to sell this to consumers (and hence the electorate) 
> since they don't have to pay anything up front. Also, as the cap 
> ratchets down from year to year, the incentive to become more 
> efficient increases. The NDP has proposed a Cap and Trade system.
>
> The difficulty (from the standpoint of economists) is that prices 
> under cap and trade are not set. Enterprises auction or trade carbon 
> credits via a market mechanism and they can sell/trade for as much or 
> as little as the market will bear. It can be argued that there will be 
> trickle-down costs to consumers as the slacker corporations simply 
> pass along their higher costs (for purchasing carbon credits) to their 
> customers. However, the same reasoning indicates that costs for 
> commodities from the pro-active businesses should be less since their 
> costs are correspondingly less from having an extra income stream from 
> selling carbon credits. Some also criticize cap and trade saying that 
> it could be complicated to set up.
>
> The Kyoto Protocol (which appears to have Canada abandoned) had a cap 
> and trade mechanism built into it. The European Union Emission Trading 
> Scheme (EU ETS) is now largest multi-national, greenhouse gas 
> emissions trading scheme in the world and was created in conjunction 
> with the Kyoto Protocol. 
> [ http://en.wikipedia.org/wiki/European_Union_Emission_Trading_Scheme ] 
>
> Also, in the United States, 26 states, tired of the US Federal 
> Government's inaction, have themselves formed three networks to work 
> collaboratively to reduce the impacts of climate change. 
>
> a) The Northeast Regional Greenhouse Gas Initiative 
> (RGGI: Connecticut, Delaware, Maine, Maryland, Massachusetts, New 
> Hampshire, New Jersey, New York, Rhode Island, and Vermont) 
> [ http://www.rggi.org/home ] have already started a cap and trade 
> system (the first auctions were last week in which all available 
> allowances were auctioned of at a cost of $3.07/ton). They are being 
> closely watched by;
>
> b) Midwest Greenhouse Gas Reduction Accord 
> (MGGRA: Iowa, Illinois, Kansas, Michigan, Minnesota, Wisconsin and (in 
> Canada) Manitoba); [ http://www.midwesternaccord.org ] and
>
> c) The Western Climate Initiative 
> (WCI: Arizona, California, Montana, New 
> Mexico, Oregon, Utah, Washington, and (in Canada) British 
> Columbia, Manitoba, Quebec, and Ontario. 
> [ http://www.westernclimateinitiative.org ] 
>
> Who are both interested in in setting up regional cap and trade 
> networks. Hence, in a Canadian, North American, and global context, 
> the cap and trade approach has a significant head start and is rapidly 
> being adopted in many jurisdictions.
>
> Cheers,
>
> Chris
>
> On 2-Oct-08, at 9:21 AM, Paul S. Boyer wrote:
>
>> Another article on Norway's carbon tax points out that since the 
>> inception of this tax, Norway's carbon footprint has increased 14%. 
>>  Yet another article says that it has decreased 14%, but only 2% of 
>> the decrease is attributable to the tax 
>> [http://ideas.repec.org/p/ssb/dispap/337.html].  Meanwhile, other 
>> countries without a carbon tax have had their footprint decrease 
>> (notably the USA).  The /Wall Street Journal/ reported on Tuesday 
>> that the carbon footprint in Norway has increased 15% since the tax 
>> was instituted 
>> [http://blogs.wsj.com/environmentalcapital/2008/09/30/emissions-impossible-norway-taxes-carbon-emissions-rise/]. 
>>  According to the article, Norwegians are buying more, bigger, and 
>> more expensive cars, and are driving more.  They like the lifestyle. 
>>  (I think /joie de vivre/ in Norwegian is /glede for liv/.)  They are 
>> doing fine, with much petroleum production, and one of the highest 
>> wealth-levels in the world.  Their new tax probably has essentially 
>> no practical or measurable effect on world climatic conditions 
>> whatsoever, and the policy is not transferable to other countries 
>> whose situations may be quite different.  However, although the tax 
>> is reportedly highly unpopular among some (see "Carbon tax tops 
>> Norway grievances" 
>> at http://www.scandoil.com/moxie-bm2/financial/politics_/carbon-tax-tops-list-of-norway.shtml) 
>> <http://www.scandoil.com/moxie-bm2/financial/politics_/carbon-tax-tops-list