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***Carbon gets personal

by ThatBritGuy Sat Jul 22nd, 2006 at 07:45:59 AM EST

From The Register

The government is ready to consider introducing personal, tradable carbon allowances, the environment secretary will say this evening, as part of its efforts to persuade members of the general public to reduce their energy consumption.

The move has been described as "a good idea whose time has not yet come" by environmental campaigners. They argue that it is premature to shift this kind of responsibility onto consumers who still have very little choice about the kinds of energy they use.

Environment secretary David Miliband said the scheme would cover people's use of electricity, gas, petrol and air travel. He argued that a trading scheme would be fairer than tax increases, because only those who exceeded their allowances would have to pay.

The idea is that everyone would be set a carbon ration. Those who chose to reduce their emissions could then sell the excess to other people.

Interesting, but - how can anyone monitor energy use accurately enough to police a scheme like this? There are obvious points in the supply chain where monitoring becomes possible, but making the monitoring personal will require a huge database, and possibly some kind of ID scheme.

From the front page - whataboutbob


And what about life or death situations where someone needs a hospital trip but has run out of carbon? How do they buy a surplus, and from whom? Does this mean there will be an eBay style carbon market for individuals, or a central carbon trading agency which will let you extend your ration with a credit card payment? Who sets prices, and how will carbon trades be monitored?

Questions, questions...

The Register feature does a good job of highlighting the schizophrenia of UK government policy, which on the one hand is considering initiatives like this one, on the other is cutting back on low-carbon transport schemes and building airports instead.

So can we expect a similar scheme for industry, especially nuclear engineering and construction, or will some businesses be inexplicably exempt?

I'd be all for a monitoring scheme that worked across the economy to make carbon costs realistic. But as the Greens point out - how can you cut back on consumption when there are no low consumption options for you to buy?

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Urrgh, more complex quotas. Let's have carbon taxes instead. Keep it simple or it won't work.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Wed Jul 19th, 2006 at 07:57:33 PM EST
Interesting, but - how can anyone monitor energy use accurately enough to police a scheme like this? There are obvious points in the supply chain where monitoring becomes possible, but making the monitoring personal will require a huge database, and possibly some kind of ID scheme.
Just add a carbon tax to the utility bills. What's so hard and intrusive about that?

Nothing is 'mere'. — Richard P. Feynman
by Migeru (migeru at eurotrib dot com) on Thu Jul 20th, 2006 at 06:05:13 AM EST
Three reasons.

Firstly, a tax doesn't cap or monitor production, it only discourages it. With a tax it's hard to quantify how much production is being affected. And if many people choose to dip into their pockets regardless, it may not be affected at all.

Secondly it introduces the idea of carbon budgeting in a very direct and accessible way. If you know you're allowed X kg of CO2 a year, you have an incentive to monitor and minimise your own production.

Thirdly utility bills aren't the only factor. Transport costs need to be included too. And there's no point taxing CO2 producing energy sources unless customers are given alternatives. Currently, mostly they're not. (I was on a hydro tariff for a long time here, but it soon morphed into a tariff with a vague promise to 'encourage investment in renewables' which is not quite the same thing.)

So I think it's a better idea in outline than taxation, which is indirect and fuzzy and likely to be only partially effective.

The problem is monitoring and implementation, which won't be simple and will be easy to do badly.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Thu Jul 20th, 2006 at 06:28:47 AM EST
[ Parent ]
With a tax it's hard to quantify how much production is being affected.

On the contrary, the best way to ensure you get accurate figures on things is to tax them.

The quotas need to be made shorter-term than yearly, for people's safety. maybe monthly, or even weekly? You don't want large numbers of poor people freezing to death in the last 3 months of the tax year.

We're really talking about rationing. I can't imagine a rationing system that won't be perceived as intruding in people's privacy.

Nothing is 'mere'. — Richard P. Feynman

by Migeru (migeru at eurotrib dot com) on Thu Jul 20th, 2006 at 06:40:20 AM EST
[ Parent ]
On the contrary, the best way to ensure you get accurate figures on things is to tax them.

Not necessarily. It depends on implementation. A petrol tax at the pumps will tell you how much petrol is being used, but it won't tell you anything else.

If - e.g. - everyone had a smart card with details of their car's emission rating on it that was swiped while buying petrol, that would provide much more information than taxing at source.

Similarly buying a plane ticket would require a smart card swipe, or equivalent, and would offer a precisely calculated carbon ration for the journey. Taxing avgas fuel at source wouldn't offer this personal accounting.

It's the difference is between monitoring consumption directly, and attempting to assess consumption using indirect source measures.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Thu Jul 20th, 2006 at 07:50:55 AM EST
[ Parent ]
No, I think Migeru is correct about the taxation approach. There is a reason why we dislike burning carbon-based fuels, and that reason has a cost. It might be pollution or incipient depletion or whatever, but it has a cost. (It's hard to calculate that cost.) Once you know the cost on a per-unit basis, you apply that cost as a tax. Then when individuals make tradeoffs they are properly taking into account the social cost of the carbon (in this case).

This is straightforward and conventional economics.

The issue of "the poor people will not be able to heat their houses" is a completely separate topic. If you have a part of your population that can't heat its houses for some reason, then an assistance program is needed, but the assistance should be in the form of cash so that the tradeoff of costs (including the social tax) is still in play. Otherwise you just give oil to poor people to waste.

There is nothing new about any of this, in concept. The problem is, as usual, getting it put in place by political systems that reward the wrong actions.

by asdf on Thu Jul 20th, 2006 at 11:23:23 PM EST
[ Parent ]
it has a cost. (It's hard to calculate that cost.) Once you know the cost on a per-unit basis, you apply that cost as a tax.

You don't need to know the cost to apply a tax. You start with a tax rate compatible with your best guess and with political and economic expediency. Then each year you can recalibrate the tax rate based on measurable demand trends.

Nothing is 'mere'. — Richard P. Feynman

by Migeru (migeru at eurotrib dot com) on Fri Jul 21st, 2006 at 05:17:06 AM EST
[ Parent ]
(It's hard to calculate that cost.)

Doesn't that make that hard to quantify as a tax rate? How exactly do you calculate the financial effects of a kilo of CO2?

This is straightforward and conventional economics.

That would seem to be part of the problem, yes.

The issue of "the poor people will not be able to heat their houses" is a completely separate topic. If you have a part of your population that can't heat its houses for some reason, then an assistance program is needed, but the assistance should be in the form of cash so that the tradeoff of costs (including the social tax) is still in play. Otherwise you just give oil to poor people to waste.

What is the source of the bizarre tendency in economics to treat monetary accounting as if it's more real than anything else on the planet, and more real than physical reality itself?

A good quota system is directly enforceable. If national CO2 production has to be X tons to meet Kyoto (or post Kyoto) requirements, a quota system means that you can bring it close to X tons.

With taxation, money sloshes around from one place to another, extra bureaucracy is wasted on financial subsidy schemes (which will never be fair, because a flat subsidy can't be, and a banded subsidy is abstract and crude) and the actual rate of CO2 production becomes more, not less, difficult to quantify.

With a tax is that you can never know how much CO2 is really being produced. You can know that someone bought y liters of petrol, but you have no idea if it went into a low-ghg high-efficiency Prius or into a Chelsea Tractor.

The fallacy behind taxation is the belief that if you make prices high enough, consumption will automatically drop.

The problem with this is that it's clearly not true. We've seen this with oil, where a doubling in the oil price has had no real effect on consumption.

Also, in the real world the relationship between cost and consumption is never a simple linear function. With something like oil, the curve is more likely to be catastrophic (in the technical sense) than linear, when demand suddenly collapses beyond a certain price point.

Taxes are also politically negotiable. With a quota it's much harder to justify moving the goal posts for political reasons.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Fri Jul 21st, 2006 at 06:50:45 AM EST
[ Parent ]
I really need to write up my idea that the quota system would put money on a carbon standard. This may or may not be a god thing.

Nothing is 'mere'. — Richard P. Feynman
by Migeru (migeru at eurotrib dot com) on Fri Jul 21st, 2006 at 07:04:21 AM EST
[ Parent ]
One problem with a quota system is that it immediately results in a black market, because you've skewed the supply curve in a way that is immediately visible to consumers.

If you apply a carbon tax close to the source, which is controlled by a few highly visible players, the overhead is low and it's harder to develop a black market.

Also, who will decide whether oil is better spent on tractors or hybrid cars?

by asdf on Fri Jul 21st, 2006 at 08:53:11 AM EST
[ Parent ]
Well, I am assuming that a liquid system for individuals to trade carbon certificates for money exists.

Nothing is 'mere'. — Richard P. Feynman
by Migeru (migeru at eurotrib dot com) on Fri Jul 21st, 2006 at 08:55:58 AM EST
[ Parent ]
You can know that someone bought y liters of petrol, but you have no idea if it went into a low-ghg high-efficiency Prius or into a Chelsea Tractor.

who will decide whether oil is better spent on tractors or hybrid cars?

"Chelsea Tractor" is a British way to refer to all-terrain vehicles driven by wealthy urbanites.

Nothing is 'mere'. — Richard P. Feynman
by Migeru (migeru at eurotrib dot com) on Fri Jul 21st, 2006 at 09:01:03 AM EST
[ Parent ]
I was wondering about that...  :-)

So, who will decide whether oil is better spent on SUVs or hybrid cars?

by asdf on Sat Jul 22nd, 2006 at 08:48:49 AM EST
[ Parent ]
The more I think about this the more interesting it gets. Tell me how this, taken to its ultimate consequences, doesn't end up putting money on a carbon standard.

Nothing is 'mere'. — Richard P. Feynman
by Migeru (migeru at eurotrib dot com) on Thu Jul 20th, 2006 at 06:54:02 AM EST
If we extrapolate wildly from your brilliant graph matching GDP growth(?) to oil extraction(?) (I forget the actual axes of the graph) it would seem money is already on a carbon standard, we're just not properly aware of the fact.
by Metatone (metatone [a|t] gmail (dot) com) on Thu Jul 20th, 2006 at 11:04:08 AM EST
[ Parent ]
(here it is for those who might not know what we're talking about)

The axes are "average US hourly wages in constant $" and "global oil production".

Nothing is 'mere'. — Richard P. Feynman

by Migeru (migeru at eurotrib dot com) on Thu Jul 20th, 2006 at 11:08:45 AM EST
[ Parent ]
The Register feature does a good job of highlighting the schizophrenia of UK government policy, which on the one hand is considering initiatives like this one, on the other is cutting back on low-carbon transport schemes and building airports instead.

So can we expect a similar scheme for industry, especially nuclear engineering and construction, or will some businesses be inexplicably exempt?

They've evidently not received the memo that says such schizophrenia is entirely consitent with New Labour's neocon affiliation. Shaft the poor and middle classes whilst increasing the profits of the mega rich who run industry, finance and share options generally.

keep to the Fen Causeway

by Helen (lareinagal at yahoo dot co dot uk) on Thu Jul 20th, 2006 at 08:09:12 AM EST
Suppose that a per-capita carbon quota is established, and people are issued "tradable carbon credits" on that basis. There would have to be a mechanism for trading said carbon credits for money (a "carbon exchange") but individuals are supposed to be able to trade their spare carbon credits easily. The most effective way to deal with this would be to establish something similar to retail banks with "carbon accounts". In fact, regular banks would probably be the preferred providers of carbon accounts. You carbon account would be linked to your regular money account, and to your debit card. The bank would allow you to transfer credit between the money and carbon accounts at the "prevailing carbon exchange rate" plus a small commission. When paying for services involving carbon emissions, you would be given a money price and a carbon price, and the option to pay one price with the other credit in whole or in part, at the "prevailing carbon exchange rate" plus a small commission.

Carbon quotas would be determined by some "subsistence" criterion and would hopefully add up to less than the country's Kyoto (or successor treaty) quota. The remaining quota could be auctioned by the government (as if issuing bonds) for financial institutions and industry to buy (to cover the "deposit requirements" necessary to run the "carbon credit accounts", and to cover the carbon emission needs of the industry above "subsistence", respectively). Carbon credits would be traded at commodities markets, and a futures market would develop.

This would effectively put currencies on a carbon standard. Countries would not have the choice of incresing their carbon credit supply: it would be fixed by the successor treaty of Kyoto. There would have to be an international body issuing carbon credits to the various countries (proportionally to population, I suppose: wealthy, energy-intensive countries can pay their surplus use easily).

This is beginning to sound a lot like Keynes' ignored proposal at Bretton Woods (an International Clearing Union at which countries would have accounts denominated in "Bancors", and with control over exchange rates).

Nothing is 'mere'. — Richard P. Feynman

by Migeru (migeru at eurotrib dot com) on Fri Jul 21st, 2006 at 05:57:18 PM EST
But all you're doing is creating a second currency system that (hopefully) tracks the flow of carbon through the economy. If you tax the carbon as close to its source as possible, the cost is attached to the carbon at that point, and the regular economy automatically tracks it for you.
by asdf on Sat Jul 22nd, 2006 at 08:52:21 AM EST
[ Parent ]
Well, you can do rationing or you can do taxes. Taxes are not very good at enforcing quotas, but having a quota and making carbon credits convertible (one of the advantages of that is that it prevents a black market from arising) has some unusual implications, at least as I see it.

Nothing is 'mere'. — Richard P. Feynman
by Migeru (migeru at eurotrib dot com) on Sat Jul 22nd, 2006 at 02:34:12 PM EST
[ Parent ]
people should get paid to drop out of the system.

if you can enjoy a low carbon lifestyle you should get free theatre tickets, public transport, and an organic food allowance.

maybe a yurt thrown in, with a few panels on top!

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Mon Jul 24th, 2006 at 07:20:20 AM EST


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