Hansen on cap-n-trade vs carbon tax

Hansen has finally realised why cap-n-trade is more “popular” than a carbon tax. Of course I said this ages ago. JH says (I think it’s in there somewhere; the text I’m quoting is from an email):

In my testimony I noted that a “Cap” raises the price of energy, just as does a simple honest carbon tax on oil, gas and coal at the first sale at the mine or port of entry. “Cap” is a pseudonym, disguising the fact that it is a tax, assuming that the public is a bunch of dummies, who will never catch on. With all its hooks and eyes, Cap&Trade will allow a lot of funny business. At least we would get a few Wall Street millionaires back in business, via speculation and gaming the Cap&Trade system (funded by John Q. Public, of course).

On the train I read on politico.com that the number of lobbyists in DC working to influence federal policy on climate change increased in the past few years by 300% to 2,340 lobbyists — four climate lobbyists for every member of Congress. At least the alligator shoe business is doing well. Not too good for alligators, though.

A Carbon Tax & 100% Dividend would not let Congress enrich their favorites or divine winning technologies. Instead, the winners would be innovators who invent products with improved energy efficiency or develop carbon-free energies, which allow people to reduce their carbon tax. Of course, if you don’t trust your innovation skills, it is easier to pay a lobbyist to get Congress to adopt a jury-rigged Cap&Trade system.

2340 lobbyists. They are outnumbered by the at least 2500 people, mostly young people (but everybody welcome), who plan to converge on Washington March 2 (despite inclement weather) to peacefully protest the Capitol Power Plant, which our Congress insists must be powered substantially by coal (our coal-black Senate seems to be the culprit). The Capitol Power Plant is just the symbolic target — the real aim is to influence Congress to adopt legislation that will rapidly phase out coal use. See http://capitolclimateaction.org/

The question is: who will Congress listen to? Protesters (bringing no gifts – it’s hard enough to pay their own way) or lobbyists (with lobbying expenditures last year of about $90M).

Young folks, if you need an indication of what you are up against, let me give you one example. Peabody Coal (a.k.a. Peabody Energy) hires Dick Gephardt, paying him $120,000.00 per quarter in 2008. The amount of money going into lobbying is increasing rapidly. As Shakespeare would say, gird up your loins.

Unfortunately, whilst JH’s analysis is fair enough, I’m not very convinced by his solution.

5 thoughts on “Hansen on cap-n-trade vs carbon tax”

  1. Well, tax as well as caps I think would be different for different group just as other taxes are different for different companies and people… so you will have lobbying there to.

    More important… USA are not alone and should thing abut how to work with the rest of the world.


  2. I’m not very convinced by his solution.
    By “his solution”, I guess you mean the public forcing government to introduce legislation that will phase out coal power? It’s not very clear from the quote…

    Why are you not convinced?

    [Ah no, what I meant was that he appears to be trying to solve the problem of too-many-lobbyist-for-cap-n-trade by marching in favour of a carbon tax -W]


  3. If a carbon tax is set according to how much CO2 ends up in the atmosphere, that definitely would reduce the amount of gaming that an industry could do. They might be able to go to whatever agency is in charge of administering the tax and argue how much CO2 their activities or product produce, but they would need verifiable data to back that up. In a cap situation there’s plenty of wiggle room to argue for how much they should be allowed to emit.

    The other downside to cap and trade that Hansen doesn’t get into in this missive is that with cap and trade, the price for emitting CO2 is artificial. It is determined by how scarce carbon credits become. If caps are set too low, then carbon credits become so scarce that industries will be able to afford neither them nor the modifications to reduce emissions. If caps are too high, then credits will be too cheap and won’t encourage any innovations on the part of industries that emit CO2. So, cap and trade becomes all about government finding and maintaining a ‘sweet spot’ in level of the caps. That sounds very challenging, to say the least.

    With Hansen’s fully refundable carbon tax, there is still a little bit of that with setting the tax on the carbon, but it seems fairly reasonable to start relatively small and then raise it over time. This reduces the shock to the economy and gives everyone time to adjust and start changing habits.


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