As regular readers will be aware, I think the ETS is stupid, and we should be imposing a carbon price via carbon taxes instead (Time for carbon taxes? and refs therein, if you’re interested in the history).
But David Hone isn’t, he likes the ETS, and nice person that he undoubtedly is, it cannot be mere coincidence that he has a strong financial interest in the trading scheme. Which is one of my objections to it – the inevitable parasitic class that grows up around it (and part of my despair – because carbon taxes are cleaner, they lack a similar parasitic class, and therefore semi-paradoxically they lack a constituency to argue for them. I wonder if there is a general name for this effect? [*]).
But that wasn’t what I wanted to write about. I wanted to write about his Top ten reasons for voting “yes” to “backloading”. Which is a post full of the arcana of the dealing and arm-twisting and special pleading that are necessary to prop up the no-longer-really-even-bleeding corpse of the ETS for a bit longer. And what all this demonstrates rather clearly is that the pols aren’t capable of handing out carbon trading permits in a sane manner. You can argue about why – I’d say there is a huge element of national pols handing out permits to their chums / favourite national industry; or you could if you like say that the post-2007 crisis has upset their calculations; or you could invent something else. But whatever you invent, you’re faced with the reality that their decision making process has produced the wrong result (unless you opt for saying that the number of permits issued was correct, and that the collapse in price, reflecting the ease of buying enough permits, correctly reflects the fact the Europe is on track for CO2 reduction and doesn’t need to do more. DH himself clearly doesn’t believe that).
Which in turn makes the other way of solving this – carbon taxes – look better. To restate (and I owe the clear statement of this to Timmy) there are two fundamentally different ways of limiting carbon: (a) you (in your wisdom) decide how much you’re going to allow to be emitted, and issue permits to this limit. If you get it right, CO2 is limited to a “safe” level, or at least, its limited to the level you’ve decided on; or (b) you (in your wisdom) decide how much damage carbon does, and tax people this amount. If you get it right, you don’t know (or care) what level CO2 ends up at, because you’ve paid for the damage (say by adaption, or other means) up front. That one para hides a huge amount of complexity, of course [update: it also contains an error by me, which I’ve made elsewhere: Timmy’s view – the std.econ view, I believe – is not that the carbon taxes pay for the damage, but that they factor into the market price the cost of the externalities (i.e., the damage), and therefore allow the markets to price CO2 emissions correctly.].
(a), as the ETS is showing, is very difficult to get right, and prone to all sorts of interference. (b) is I think much easier to get right. Though as I’ve said before, I’d argue for starting below the price you think is right, and ramping it up. To compare and contrast, consider how you’d try to implement a similar strategy in the ETS world.
In other news
I found The Great Crash: The Bankers Weren’t Thieves Or Crooks, They Were Deluded interesting (disclaimer: I wouldn’t be surprised if you can quibble the strength of the conclusions or even the methodology, so don’t expect me to defend this to the death). Partly for the conclusion, which is about what I think, but also for the concept: rather than trying to ask them, or ask people who don’t like them, or investigate them, why not try to find an objective method that discovers what they were actually thinking?
I’ve been disagreeing with mt again, over In Support of Slack. I’m coming to realise that I agree almost invariably with mt over the science, and have since at least since the early nineties, and I agree with quite a number of his desires (fnarr) but I disagree with almost all the details of what he says about our political and economic system (see On getting out more. mt thinks the essay he’s praising is “brilliant”; I think its drivel, or perhaps not-even-wrong. But clearly I haven’t made my point well, since no-one there agrees with me.
[*] It might be Public choice theory.
[Update: there’s another aspect which I’ve just realised, and that’s long-term planning, for electricity generators and heavy industry and so on. You want to plan, which means you’d like to know your future costs. With a carbon tax, with an agreed-though-perhaps-not-in-full-detail long-term ramp-up, you have that. With ETS, we presently have massive volatility -W]
Postscript: the “backloading” plan failed to pass the vote; see for-example mt. I disagree with his “All of which reinforces the need for a global agreement and a strictly limited but suitably empowered global agency to enforce it”. We tried that – Kyoto etc – and it was a disastrous failure. Carbon taxes are the answer. There is no need for an agency, let alone a global one.
Answer: both are complex disciplines. But because they deal with every-day events, amateurs regularly assume that they know enough to dismiss the entire field.
wmconnolley: scienceblogs.com/stoat archive 