Climate change

[hrothgar]

ok, are those of you proposing carbon taxes saying that the money collected from such a tax will go toward r & d of "new" technology?

 

I am proposing that carbon taxes are good, in and of themselves.

Don't care much what the resulting funds are used for.

I suspect that implementing a revenue neutral carbon tax would be the most palatable solution.

 

Here's the theoretical version of a revenue neutral carbon tax.

 

Carbon gets taxes, which shifts the slope of the budget line.

The income which is collected from the tax is returned to consumers which shifts out the budget line.

The revenue transfer continues until the consumer has enough money to hit their original utility curve.

 

At the end of the day, the consumer is as happy as they were before, but is producing less carbon but consuming more of other goods.

[WellSpyder]

I suspect that implementing a revenue neutral carbon tax would be the most palatable solution.

...

The revenue transfer continues until the consumer has enough money to hit their original utility curve.

I agree that a carbon tax that corrects for a negative externality should generally lead to a better outcome, and that this does not depend in any way on the money being invested in "green" energy.

 

But isn't there a danger in your analysis that "revenue-neutral" is not the same as "utility-neutral"?

[phil_20686]

I agree that a carbon tax that corrects for a negative externality should generally lead to a better outcome, and that this does not depend in any way on the money being invested in "green" energy.

 

But isn't there a danger in your analysis that "revenue-neutral" is not the same as "utility-neutral"?

 

If your point is that even a revenue neutral tax here would have a cost, then yes, that is correct. A good way to see it is to think of the economy as producing things out of peoples labour. More expensive = more labour, so by moving to lower carbon energy, we are necessarily devoting a larger percentage of our labour to energy than we were, and that must mean that we are producing less of other stuff than we would be.

[hrothgar]

I agree that a carbon tax that corrects for a negative externality should generally lead to a better outcome, and that this does not depend in any way on the money being invested in "green" energy.

 

But isn't there a danger in your analysis that "revenue-neutral" is not the same as "utility-neutral"?

 

Back when I taught Econ 101, we would present different approaches with dealing with externalities,

Shifting income until you can reach the original utility curve is the prefer approach in theory.

 

In practice, no one has perfect information about utility curved. As a result, you're forced to use a revenue neutral approach. Its not as good, but its easier to implement.

 

Either way, the important lesson is "Don't make the best the enemy of the good"

[WellSpyder]

If your point is that even a revenue neutral tax here would have a cost, then yes, that is correct.

No, that's not quite my point. It is presumably possible for a revenue neutral tax change to have a benefit, if the tax you are reducing to make the overall effect revenue-nuetral had a bigger negative impact that the new tax you are introducing. Indeed, one hopes this will often be the case if the new tax has been introduced to offset a negative externality while the tax being cut was there as a revenue-raising mechanism.

 

Back when I taught Econ 101, we would present different approaches with dealing with externalities,

Shifting income until you can reach the original utility curve is the prefer approach in theory.

What I was trying to get my head round was the issue of how you shift income. It is all very well to say that you shift incomes to offset the impact of the tax, but the income has to come from somewhere...

Is the argument simply that because you are reducing negative externalities there has to be enough spare utility somewhere in the system to enable you to achieve a Pareto improvment? (sorry if this is obvious, it's a long time since I did the equivalent of Econ 101)

Either way, the important lesson is "Don't make the best the enemy of the good"

Happy with that lesson, and with the general message that a tax on things that have a negative impact on others is a good thing in general - including a tax on carbon if that is having a harmful effect.

[hrothgar]

 

What I was trying to get my head round was the issue of how you shift income. It is all very well to say that you shift incomes to offset the impact of the tax, but the income has to come from somewhere...

Is the argument simply that because you are reducing negative externalities there has to be enough spare utility somewhere in the system to enable you to achieve a Pareto improvment? (sorry if this is obvious, it's a long time since I did the equivalent of Econ 101)

 

 

"Shifting income" is easy. You use the proceeds to the tax to give money back to individuals.

 

Consider the following example:

 

Tristian and Isolde are a pair of happy consumers living in Peoria. A carbon tax gets enacted. The price of all the goods and services that Tristian and Isolde purchase increase. The price of the most carbon intensive products increase the most. Assume for the moment that the government has perfect information. The government knows exactly how much Tristian and Isolde spent on products before the tax and how much they spent after the tax. The government uses this information to give Tristian and Isolde a lump sum payment sufficient that they could buy exactly the same basket of goods after the tax as they did before the tax. Standard economic theory says that Tristian and Isolde will still change their purchasing power based on the change in relative prices. (They'll achieve a higher level of utility if they switch away from expensive carbon intensive products towards cheaper products).

 

In reality, the government doesn't have perfect information and it can't perfectly tweak all of the necessary transfer payments. However, it should be able to do better than the existing free market solution which doesn't factor any kind of price into carbon emissions and creates a significant deadweight loss.

[billw55]

"Shifting income" is easy. You use the proceeds to the tax to give money back to individuals.

 

Consider the following example:

 

Tristian and Isolde are a pair of happy consumers living in Peoria. A carbon tax gets enacted. The price of all the goods and services that Tristian and Isolde purchase increase. The price of the most carbon intensive products increase the most. Assume for the moment that the government has perfect information. The government knows exactly how much Tristian and Isolde spent on products before the tax and how much they spent after the tax. The government uses this information to give Tristian and Isolde a lump sum payment sufficient that they could buy exactly the same basket of goods after the tax as they did before the tax. Standard economic theory says that Tristian and Isolde will still change their purchasing power based on the change in relative prices. (They'll achieve a higher level of utility if they switch away from expensive carbon intensive products towards cheaper products).

 

In reality, the government doesn't have perfect information and it can't perfectly tweak all of the necessary transfer payments. However, it should be able to do better than the existing free market solution which doesn't factor any kind of price into carbon emissions and creates a significant deadweight loss.

Easy in theory only.

 

In reality, government promises these rebates to Tristian and Isolde in order to gain their support for the big new tax. Once the tax is passed, the revenues are routed to pet projects, pork for constituents and contributors, bloated government pensions, etc. The rebates never happen, or are a fraction of what they were promised to be.

 

I am strongly opposed to any new taxes until the government proves themselves responsible to handle the money honestly. I am not holding my breath waiting for this. Even for causes with almost universal support: example, more lotteries and casinos, funds go to education! Everybody loves education, right? But then the funds don't actually get there. I have seen this story enough, I won't be fooled by carbon taxes.

[luke warm]

I won't be fooled by carbon taxes.

i think you're missing the point... most people who favor carbon taxes do so *regardless* of what's done with the revenue... they are good, these folks say, in and of themselves... why? well i'm not quite sure... we for sure can't implement enough alternate forms of energy to do what needs doing in this country, at least not yet

[hrothgar]

i think you're missing the point... most people who favor carbon taxes do so *regardless* of what's done with the revenue... they are good, these folks say, in and of themselves... why? well i'm not quite sure...

 

C02 production is an example of what's know as an externality.

 

Externalities occur when the private cost of production does not match the social cost of production. In this example, release carbon dioxide into the atmosphere imposes costs on society as a whole which are not reflected in private decisions regarding what quantity of good should be produced/consumed. As such, rational profit maximizing individuals will chose to produce/consume larger quantities of goods than is optimal from the perspective of society. The purpose of a carbon tax is to align the private costs and the social costs associated with carbon production.

 

As I said before, this is Econ 101 type stuff.

[luke warm]

As I said before, this is Econ 101 type stuff.

does econ 101 tell us how society is to function w/out carbon based fuels, or when they are so cost prohibitive that industry (and employment) shuts down?

 

on the bright side, the whole earth could be made up of vast areas of ocean front properties, even in antartica... from the dreaded fox.com

 

The surprising discovery came from a study of drill cores obtained from the seafloor near Antarctica. The results, published in the journal Nature, show that warm ocean currents and high carbon dioxide (CO2) levels in the air boosted temperatures, allowing tropical vegetation to grow where visitors today meet only icebergs and freezing cold.

[hrothgar]

does econ 101 tell us how society is to function w/out carbon based fuels, or when they are so cost prohibitive that industry (and employment) shuts down?

 

No, but it does teach us how to deal with inane hypotheticals and ridiculous strawmen.

[onoway]

What I was trying to get my head round was the issue of how you shift income. It is all very well to say that you shift incomes to offset the impact of the tax, but the income has to come from somewhere...

 

One question: if you are looking to have people use less petroleum products and you want money to support R & D into alternative sources of energy, why not start by removing ALL subsidies to the oil and gas industry? The taxpayers would then not have to pay any new taxes and the money given to the oil companies (or not now collected in tax revenues) would then be available for other projects. The price of fuel would go up (the oil companies aren't going to give up their many millions of $ per year profit margins without a fight) so consumption would go down.

 

There are some who suggest that without the taxpayer subsidies to the oil industries, alternative energies would be far more cost competitive than they now seem to be.

[luke warm]

evidently i haven't been taking agw as seriously as i should have... from john kerry:

 

Sen. John Kerry (D-MA) on the Senate Floor: I believe that the situation we face, Mr. President (this would be senate president Harry Reid who, an anonymous source told me, stole a car in Nevada and drove it under the influence - this source knows this to be true because he also drives cars in Nevada), is as dangerous as any of the sort of real crises that we talk about today we had a hearing in the Foreign Relations Committee on the subject of Syria, and we all know whats happening with respect to Iran, and nuclear weapons and the possibility even of a war. Well, this issue [global warming] actually is of as significant a level of importance, because it affects life itself on the planet,

so there you have it, now it's official - a nuclear iran and biochem weapons in syria (in hezbooah's hands?) are on a par with gw... i wonder if his use of the term "real crises" was a freudian slip of some sort? yes, this is a u.s. senator

 

There is a strong incentive to use the cheapest form of energy possible. Carbon Tax makes fossil fuels more expensive, and thus diverts resources towards building renewables. It also puts incentives on company to take steps to save energy, but they have that anyway through energy prices.

what do we do about the need for energy in the meantime? and do we trust the gov't or private industry to do whatever it is we're going to do? remember solyndra? (and many other such failures)

[phil_20686]

what do we do about the need for energy in the meantime? and do we trust the gov't or private industry to do whatever it is we're going to do?

 

Carbon tax makes renewable energy cheaper than fossil fuels. From then on the private sector will do it. It has proved incredibly adept at profit maximisation, you just have to set up a market so that profit maximisation runs in the direction that is also good for the country.

[phil_20686]

i think you're missing the point... most people who favor carbon taxes do so *regardless* of what's done with the revenue... they are good, these folks say, in and of themselves...

 

If you hold the total tax rate constant, then carbon taxes are a good idea. The reality is that governments decide what they are going to spend money on, and then think about raising the money for them. Carbon tax is preferred to almost any form of wealth or income tax on the general grounds that consumption taxes are more economically efficient, and that in this case you are getting a positive benefit out of distorting the market in your favour.

[phil_20686]

One question: if you are looking to have people use less petroleum products and you want money to support R & D into alternative sources of energy, why not start by removing ALL subsidies to the oil and gas industry? The taxpayers would then not have to pay any new taxes and the money given to the oil companies (or not now collected in tax revenues) would then be available for other projects. The price of fuel would go up (the oil companies aren't going to give up their many millions of $ per year profit margins without a fight) so consumption would go down.

 

There are some who suggest that without the taxpayer subsidies to the oil industries, alternative energies would be far more cost competitive than they now seem to be.

 

I think this would in general be good thing. Fuel is much roe expensive in Europe than in the US, entirely for tax reasons, and this has resulted in much less driving and much more fuel efficient cars. You should note of course, that fuel duty is a type of carbon tax, it just isn't dressed up that way.

[phil_20686]

Shifting income until you can reach the original utility curve is the prefer approach in theory.

 

Its not clear to me that this is possible in theory. Well it is if you denote things in monetary value, but then NGDP is entirely determined by the central bank so that is almost a non-statement.

 

Consider the following scenario, an economy of 100 produces only energy and widgets, on fossil fuels you need 25 people to produce the energy, so you make 75 widgets per year. If you move to renewables, it takes more of your productive capacity (==is more expensive), and now 30 people work in energy and you only produce 70 widgets.

 

The reality is that you can never return to the original production of energy+widgets, you either have less of one or less of the other on the new utility curve.

[Cyberyeti]

I think this would in general be good thing. Fuel is much roe expensive in Europe than in the US, entirely for tax reasons, and this has resulted in much less driving and much more fuel efficient cars. You should note of course, that fuel duty is a type of carbon tax, it just isn't dressed up that way.

It has also been horribly distorting, fuel has historically been much more expensive in England than in France, so French hauliers fit vast fuel tanks in their lorries, fill up in France then bring a load across the channel and work in England for a while, undercutting the locals.

 

In general the US could do with higher fuel prices for the reasons you outline, but it would be political suicide to introduce them.

[luke warm]

If you hold the total tax rate constant, then carbon taxes are a good idea. ... Carbon tax is preferred to almost any form of wealth or income tax on the general grounds that consumption taxes are more economically efficient, and that in this case you are getting a positive benefit out of distorting the market in your favour.

while this may be true, i don't think that's what liberal politicians in this country have in mind... there's no way they'd add a carbon tax in such a way as to make overall taxation revenue neutral... remember hillary in pakistan a few years ago? she chided them on lack of taxation, saying words to the effect of "in america we tax everything that moves, and most things that don't"

[Al_U_Card]

Or you can listen to Dr. Muller himself. (He starts about 4 minutes into the show.)

 

http://bradblog.com/audio/GreenFront_RichardMuller_080112.mp3

[Al_U_Card]

Here is the abstract:

 

A cap is imposed on the carbon tax rate if the total tax revenue is not allowed to increase. Using recent data on the carbon-intensity of the economy and the overall tax take, I show that this cap constrains almost any climate policy in at least some countries. A larger number of countries, emitting a substantial share of global carbon dioxide, cannot fully participate if the carbon tax (or equivalent alternative regulation) is high enough to meet the 2ºC target. For that target, the carbon tax revenue in 2020 is greater than 10% of total tax revenue in every country.

 

from a discussion paper by Richard Tol.(Department of Economics, University of Sussex, Institute for Environmental Studies and Department of Spatial Economics, Vrije Universiteit, Amsterdam)

 

Neutral or neutered?

[PassedOut]

Summer Heat Trends Linked to Climate Change

 

A new statistical analysis by NASA scientists has found that Earth's land areas have become much more likely to experience an extreme summer heat wave than they were in the middle of the 20th century. The research was published in the journal Proceedings of the National Academy of Sciences.

 

The statistics show that the recent bouts of extremely warm summers, including the intense heat wave afflicting the U.S. Midwest this year, very likely are the consequence of global warming, according to lead author James Hansen of NASA's Goddard Institute for Space Studies (GISS) in New York.

 

"This summer people are seeing extreme heat and agricultural impacts," Hansen says. "We're asserting that this is causally connected to global warming, and in this paper we present the scientific evidence for that."

Hot summer here in Michigan's UP too. It's good that we've got plenty of water...

[Daniel1960]

PassedOut,

 

While this summer has been rather hot and dry here in Michigan, it has been exceeded in the past records - see the following. Many Michigan cities have record highs from 1936 that still stand, including Detroit at 104, Saginaw at 111, and the highest ever recorded in the state in Mio at 112. In Detroit, the mercury topped 100 for an entire week - the only time it has ever happened (this year, we have had 3 days). Other cities: Grand Rapids - 108 (1942), Midland - 106 (1941), Ann Arbor - 105 (1941), Traverse City - 105 (1941), Battle Creek - 104 (1940), Holland - 102 (2012). All told, half the states have record highs dating to the 1930s, including five states which topped 120 (both Dakotas). South Carolina is the only state to break its all-time high this year (113), and the last state prior to break its all-time high was Arizona, back in 2007.

 

http://curryja.files.wordpress.com/2012/07/christy-testimony-2012.pdf

 

That said, I have difficulty with people who claim a particular weather event is caused by global warming. Every year, some place has a particularly hot summer (usually at the expense of someone's cold summer). This year, it is the US Midwest. Last year, it was Western Russia. Our warmth has come at the expense of Europe. Witness the summer olympic games in London, which some have already called a misnomer. July in England was 1.2C below average, and much wetter (13th wettest in the past century), which is really saying some for summer in England. Through the first half of 2012, temperatures globally are the 12th warmest in the past 15 years, surpassing 1999, 2008, and 2011. In fact, the past 18 months have been the coldest globally, since 2000-2001.

 

Every year, someone experiences a heat wave, and every year, someone links it to global warming. Temperatures did rise from 1980-2000, but most of the rise was an increase in the coldest temperatures; low temperatures and winter temperatures.

[ArtK78]

Just because certain records have not been surpassed does not mean that this year's weather (and last year's weather) does not show a continuing trend towards extremes. I know that here, in New Jersey, the summers lately have been hotter, summer and winter storms have been more severe, and the winters more extreme over the past few years than in any in my recollection.

 

Of course, there was a period in my youth between 1960-1975 which was noted for mild winters in this area. Not so anymore.

[luke warm]

Just because certain records have not been surpassed does not mean that this year's weather (and last year's weather) does not show a continuing trend towards extremes.

nor does it necessarily mean that they are caused by gw, much less agw