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FT: We need new taxes.

by Colman Thu Apr 26th, 2007 at 08:15:58 AM EST

As Fran noted this morning, the FT isn't impressed by the state of the carbon trading market:

The burgeoning regulated market for carbon credits is expected to more than double in size to about $68.2bn by 2010, with the unregulated voluntary sector rising to $4bn in the same period.

The FT investigation found:

  • Widespread instances of people and organisations buying worthless credits that do not yield any reductions in carbon emissions.
  • Industrial companies profiting from doing very little Ė or from gaining carbon credits on the basis of efficiency gains from which they have already benefited substantially.
  • Brokers providing services of questionable or no value.
  • A shortage of verification, making it difficult for buyers to assess the true value of carbon credits.
  • Companies and individuals being charged over the odds for the private purchase of European Union carbon permits that have plummeted in value because they do not result in emissions cuts.

Today's Editorial Comment calls for the introduction of carbon taxes rather than markets:

[...]

While short-term politics favour markets, taxes would be better in the long term, because industry needs certainty for investments years hence. A government committing to painful taxes signals the seriousness of its intentions.

[...]

Both carbon taxes and markets put undue burden on the poor. Governments should counter such regressive carbon taxes by lowering taxes on labour. Yet most of the political appeal of markets is that they hide the true costs to consumers. That is why carbon markets exist in the first place. For this reason it is unlikely that governments would offset the invisible burden of markets by changing visible taxes.

Smart market design could overcome most problems with tradeable permits: price caps could prevent undue harm to the economy; and intelligent regulatory regimes could prevent other forms of gamesmanship. Yet markets are bound to be more complicated than taxes. When in doubt, keep it simple. Markets for carbon are potentially good. But taxes would be better.

I have a better idea than lowering taxes on labour: increase social support payments to take account of the new taxes. Otherwise, that sounds like the most sensible way of dealing with it. There should be no exclusions for airlines or anyone else and countries who refuse to participate should be subject to trade sanctions to level the playing field.


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Yep!

"Once in awhile we get shown the light, in the strangest of places, if we look at it right" - Hunter/Garcia
by whataboutbob on Thu Apr 26th, 2007 at 08:17:57 AM EST
Hint to the FT editors: really poor people don't benefit much, if at all, from reductions in labour taxes.
by Colman (colman at eurotrib.com) on Thu Apr 26th, 2007 at 08:19:54 AM EST
I still don't understand how taxes will do more than dent emissions, at best.

Taxes only stop carbon when it becomes too expensive to emit. Unless finance ministries have prescient powers far beyond the usual human norm, taxes make it very hard to accurately estimate carbon reductions. Some people will prefer to - and be able - to pay without making any reductions at all.  

It's like suggesting that if you tax beans, people will stop farting.

If you want to set hard limits, do exactly that - give everyone a tradeable carbon ration and aggressively go after anyone who 'spends' beyond it.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Thu Apr 26th, 2007 at 08:26:01 AM EST
You just keeping raising the tax until you get the reductions you need.

If you want to set hard limits, do exactly that - give everyone a tradeable carbon ration and aggressively go after anyone who 'spends' beyond it.

How? How is my carbon ration offset against the food, or furniture that I buy?
by Colman (colman at eurotrib.com) on Thu Apr 26th, 2007 at 08:29:57 AM EST
[ Parent ]
... argument.

The basic situation that the FT detected is that in a cap and trade market with a slack cap, the "low hanging fruit" under the cap and trade regulation includes a lot of things that are not really gains.

Tighten the cap and tighten the regulations, and you substantially increase the amount of actual carbon emissions reduction achieved, as well as making for a much thicker market, therefore substantially reducing price instabilities.

My preferred social dividend in the US context is half distributed per resident citizen, half distributed in proportion to payroll taxes paid.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Thu Apr 26th, 2007 at 11:49:33 AM EST
[ Parent ]
Not if you announce the increases well in advance on a rolling basis. Business doesn't, or shouldn't, demand certainty. It does need predictability: if this happens then this will happen. If carbon emissions aren't on target in five years time then the tax rate will rise. You can make decisions around that. It's chopping and changing that makes investment decisions harder to make.
by Colman (colman at eurotrib.com) on Thu Apr 26th, 2007 at 11:53:28 AM EST
[ Parent ]
... which gives a baseline on top of which is added the permit cost to industry, and certainty on quantity outcome.

If we rely on a carbon tax as a single silver-bullet, then we need to adjust the carbon tax annually in case it fails to meet targets. A quintennial adjustment would be too large and attract too much political opposition.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Thu Apr 26th, 2007 at 12:04:56 PM EST
[ Parent ]
You can project the changes out in advance on a rolling (say) five-year basis, so 0.3% a year for the next five years, and add the change for the next period next year and so on. We're not trying to get a sudden change here - we can't - but a gradual one.
by Colman (colman at eurotrib.com) on Thu Apr 26th, 2007 at 12:10:28 PM EST
[ Parent ]
... tax will persistently high-ball, but I expect in the US political economy for the tax to persistently low-ball, so a five year ratchet is a recipe for increasing the amount by which it falls short, and the size of the increment required to catch up will galvanize political opposition on a quintennial basis.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Thu Apr 26th, 2007 at 12:24:18 PM EST
[ Parent ]
My preferred social dividend in the US context is half distributed per resident citizen, half distributed in proportion to payroll taxes paid.

Explain ?
by Colman (colman at eurotrib.com) on Thu Apr 26th, 2007 at 11:54:30 AM EST
[ Parent ]
You collect some form of pure green tax ... intended to change prices, but for which you do not wish to drain purchasing power from the economy ... the amount is split into two halves. One half is distributed in equal amounts to ever resident citizen, the other half is distributed in proportion to payroll taxes paid.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Thu Apr 26th, 2007 at 12:01:40 PM EST
[ Parent ]
My preferred social dividend in the US context is half distributed per resident citizen, half distributed in proportion to payroll taxes paid.

I could go along with that after the health affect costs of pollution have been deducted from the fund.  Until these various externalities are quantified and monetarized the MBAs running the world won't give a damn.

Skepticism is the first step on the road to truth. -- Denis Diderot

by ATinNM on Thu Apr 26th, 2007 at 04:35:53 PM EST
[ Parent ]
I don't understand why deducting them from the fund would change anything. Adding them to the fund would seem to be a lot more useful in terms of making the MBA's take the pollution into account.
 

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Thu Apr 26th, 2007 at 11:55:24 PM EST
[ Parent ]
That's exactly why rationing is the only scheme that will work - because it will make carbon consumption completely explicit in every item that's for sale.

You think those flowers from Nigeria are cheap? They are - but wait until you see how much they cost in emissions.

Manufacturers would have to create carbon accounting systems. But if you tax emissions, you have to create a carbon accounting system of some sort anyway.

You wouldn't necessarily have to account for every last mg. Cars are already aligned in emission bands. It wouldn't be impossibly hard to group other items in similar bands.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Thu Apr 26th, 2007 at 03:19:38 PM EST
[ Parent ]
... as long as the petroleum refineries and oil product imports are required to buy carbon permits for their carbon content, then the consumers of the fuel will have the cost of the permits included in the price. Cars, trucks, a backyard gas or diesel electric generator to run the lights and music at an outdoor event ... whatever.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Thu Apr 26th, 2007 at 11:58:23 PM EST
[ Parent ]
Yet most of the political appeal of markets is that they hide the true costs to consumers. That is why carbon markets exist in the first place.

Whoa, there goes the "markets are best for price discovery" and "perfect information".

"It's the statue, man, The Statue."

by Migeru (migeru at eurotrib dot com) on Thu Apr 26th, 2007 at 08:32:59 AM EST
I know: a sudden burst of reality. I'm assuming that normal service will resume soon.

Maybe we should write an LTE encouraging them?

by Colman (colman at eurotrib.com) on Thu Apr 26th, 2007 at 08:35:03 AM EST
[ Parent ]
I mean, they just demolished the argument for market liberalisation in energy markets as well as infrastructure/service separation in utilities and transportation.

Jerome already wrote an op-ed [which was never run in the UK edition?] about how the effect of market (marginal) pricing for energy was never explained to the public.

"It's the statue, man, The Statue."

by Migeru (migeru at eurotrib dot com) on Thu Apr 26th, 2007 at 08:40:29 AM EST
[ Parent ]
... in consumer sovereignty to think that consumers are the ones that most need to receive the information about the cost of emitting carbon per ton.

Consumers need to be presented with a different price differential for products of carbon-using and non-carbon-using products ... they really do not need to know in detail how much of the change in price differential is a result of that.

Its those engaged in long term development and investment projects that need the information. Give them a thick market in carbon emission permits, and they'll have that information.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Thu Apr 26th, 2007 at 11:52:17 AM EST
[ Parent ]
As noted in this morning's salon:


Green Conservatism: Pro-Freedom, Pro-Market, Pro-Environment

I'd like to offer you a different view: You can be totally committed to conservative principles -- to individual liberty, a market economy, entrepreneurship and lower taxes -- and still be a Green Conservative.

(...)

So what is Green Conservatism? Here are its basic values:

(...)

  • Green Conservatism favors minimizing carbon loading in the atmosphere as a positive public value.

    (...)

  • Green Conservatism believes that we can realize more positive environmental outcomes faster by shifting tax code incentives and shifting market behavior than is possible from litigation and regulation.

I know he starts by announcing the "lower taxes" mantra, but the last point "shifting tax code incentives" is precisely the kind of weasely words designed to hide tax hikes (increase some to decrease others)


In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Thu Apr 26th, 2007 at 08:39:17 AM EST
Gingrich is a Social Dominate who will say anything to garner power.  


Skepticism is the first step on the road to truth. -- Denis Diderot
by ATinNM on Thu Apr 26th, 2007 at 10:48:19 AM EST
[ Parent ]
Governments should counter such regressive carbon taxes by lowering taxes on labour.

So, if by "taxes on labour" they mean income tax, they recommend that the revenue collected through progressive taxes should be cut to "compensate" for the increase in revenue from a regressive tax. Which makes the entire tax system more regressive. Plus, no net gain in revenue, which going forward we'll surely need (the dike-building bill alone is going to be horrendous).

The fact is that what we're experiencing right now is a top-down disaster. -Paul Krugman

by dvx (dvx.clt št gmail dotcom) on Thu Apr 26th, 2007 at 09:17:19 AM EST
Concurrently with raising carbon taxes a carbon tariff should also be instituted.  Otherwise the tax will privilege manufacturers in China and other areas where the rulers don't care about the effects of pollution.

Skepticism is the first step on the road to truth. -- Denis Diderot
by ATinNM on Thu Apr 26th, 2007 at 11:00:59 AM EST
... are doing it at the same time, because it will certainly be challenged in the WTO.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Thu Apr 26th, 2007 at 11:44:56 AM EST
[ Parent ]
Needs to be part of a trade round or we need to take the WTO out and put it out of our misery. Either works for me.
by Colman (colman at eurotrib.com) on Thu Apr 26th, 2007 at 11:50:23 AM EST
[ Parent ]
... to allow for this, but it depends on how that language is interpreted. The current interpretation sets an insanely high bar ... in essence, a tariff that is implemented to support an enviromental (or other social) objective must be shown to be the only way to conceivably pursue that objective.

So you can shoot down a ban on, for example, tuna caught with techniques that kill dolphins by proposing an alternate policy that could arguably achieve the same end, without every having to show that the alternate policy is efficient, nor whether it actually has any hope of being implemented or, if requiring agreement among different nations, being agreed to.

If that interpretation is shifted to being the most reasonable policy to pursue that objective, there may be an opening.

And the best way to push through a test case that involves that kind of change in interpretation would be heavy pressure from the US combined with the EU.

Obviously that kind of pressure would never emerge without a change in US president.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Thu Apr 26th, 2007 at 11:59:34 AM EST
[ Parent ]
And on just that topic: BBC on "Border Tax Adjustments".
by Colman (colman at eurotrib.com) on Thu Apr 26th, 2007 at 01:08:31 PM EST
[ Parent ]
... the jargon. "BTA's".

Note that a US BTA (assuming a US cap and trade or carbon tax is put into place ... which means, after 2008) could provide a combined carrot/stick for performance by being based on carbon emissions per US$ GDP at current exchange rates so that ... given that a cap and trade is the policy most likely to be implemented given the US division of executive and legislative powers ... that determines the number of carbon permits that must be bought to import a certain quantity from a particular country.

On that measure, it seems highly likely that China would face a steep BTA.

Countries emitting less than the US per US$ GDP could be excused from the tax.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Thu Apr 26th, 2007 at 01:26:13 PM EST
[ Parent ]
... a tariff that is implemented to support an enviromental (or other social) objective must be shown to be the only way to conceivably pursue that objective.

You put the monkeys in charge of the banana plantation and this is the sort of nonsense that results.

Skepticism is the first step on the road to truth. -- Denis Diderot

by ATinNM on Thu Apr 26th, 2007 at 04:25:25 PM EST
[ Parent ]
... that was the technical term for it, sorry. The common phrase is "fox in charge of the chicken coop", but "monkeys in charge of the banana plantation" is the technical description.

You have specialists in international trade decide whether a specific policy is required to protect a certain endangered species, and they take the threat of trade restriction more seriously than the loss of a line of DNA that developed before we developed fire or language.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Fri Apr 27th, 2007 at 12:01:42 AM EST
[ Parent ]
I agree it would have to be a global effort.  There are problems.  For the US NAFTA comes into play.  The China trade is using Mexico to tranship goods due to US ports operating at 100% capacity.  There maybe a similar problem with the EU -- I don't know anything about EU Trade treaties.

Skepticism is the first step on the road to truth. -- Denis Diderot
by ATinNM on Thu Apr 26th, 2007 at 04:21:11 PM EST
[ Parent ]
Amen, Colman.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Thu Apr 26th, 2007 at 11:34:54 AM EST
Hence the term return on investment.
Big Al made a movie.  Big Al hawked it, traveled the world to promote it.  Corporate media endorsed it and here is why, to spawn another industry.  Not a real industry, a parasitic one.
by Lasthorseman on Fri Apr 27th, 2007 at 05:11:38 PM EST


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