cap and trade versus a carbon tax

[jk]

i was going to post this in the cap and trade thread, but that has devolved into a debate about global warming/climate change. for the purposes of this thread, i don't care if climate change is real or a conspiracy. a cap and trade bill has passed.

the argument is made that cap and trade systems allow for the cheapest, most efficient reductions in carbon production. otoh, they also create a huge new financial market for fire-men to play in. so it remains an open question what part of the efficiency savings are going to end up at goldman sachs, et al. [question: more than 100%?]

the alternative, which i was disappointed was NOT discussed in the cap and trade thread, is to just tax carbon. a straight tax on energy at its source according to its carbon content. nuclear or solar power would not be taxed directly, but of course all carbon inputs - the diesel running the construction trucks and so on - would have been taxed at production and those costs passed on. if the government is concerned about regressive effects various rebates can be constructed.

question: why not just a straight tax instead of cap and trade? any evidence or data?

[c1ue]

Re: cap and trade versus a carbon tax

JK,

I think you answered your own question.

A straight tax similar to a public utility regulated expense would not allow the gamers to both create and profit in a new market.

As already existing cap & trade examples show - the ultimately problem with these 'market' based methods is the normal ebb & flow of prices eventually allow status quo pollution to be cheaper than either buying credits or reducing pollution output.

Yet another example of bulls**t equilibrium free market economic thinking. Go Obama.

[jtabeb]

Re: cap and trade versus a carbon tax

question: why not just a straight tax instead of cap and trade? any evidence or data?

VERY VERY SIMPLE.

A cap and trade is a MARKET (and you know what FIRE likes to pull with markets don't you, esp. unregulated two-Party derivative contracts).

A straight Carbon Tax is for all intents and purposes (of blowing another bubble) TOO TRANSPARENT. Literally.

You are less likely to have the vast amount of credit/debt products under a straight carbon tax because the ledge entries are transparently verifiable, NOT SO IN CARBON CAP and TRADE.

So in summary it boils down fundamentally to the structural choice of how to implement this mechanism. If the there is TOO MUCH transparancy then fraud and malfeasance and crony capitalism can not thrive, and who on wallstreet or in washington wants that? (what kind of bubble would you have with out the afore mentioned key aspects).

(Please note: form a pure stand point of efficacy, a straight carbon tax wins by miles. Also there is less crony capatilism in the straight carbon tax, witness the 85% carbon credit give-away to pollution intensive industries. Not to say that you WOULD NOT HAVE crony capitalism in a straight carbon tax, but that only it would be much easier to spot and sort out.)

[flintlock]

Re: cap and trade versus a carbon tax

Yep, this is all just about weasels trying to find a way to make a buck, wrapped up in BS about saving the world. I'm sure there are some involved with good intentions. But the real power players who can actually make it happen, they could care less.

[WildspitzE]

Re: cap and trade versus a carbon tax

i was going to post this in the cap and trade thread, but that has devolved into a debate about global warming/climate change. for the purposes of this thread, i don't care if climate change is real or a conspiracy. a cap and trade bill has passed.

the argument is made that cap and trade systems allow for the cheapest, most efficient reductions in carbon production. otoh, they also create a huge new financial market for fire-men to play in. so it remains an open question what part of the efficiency savings are going to end up at goldman sachs, et al. [question: more than 100%?]

the alternative, which i was disappointed was NOT discussed in the cap and trade thread, is to just tax carbon. a straight tax on energy at its source according to its carbon content. nuclear or solar power would not be taxed directly, but of course all carbon inputs - the diesel running the construction trucks and so on - would have been taxed at production and those costs passed on. if the government is concerned about regressive effects various rebates can be constructed.

question: why not just a straight tax instead of cap and trade? any evidence or data?

http://www.itulip.com/forums/showthread.php?t=9575

I've done some diligence after such post (and others I made where people were arguing that this thing didn't have legs).

As I stated before, and I've confirmed it, there is a large amount of FIRE infrastructure going into this.

The first step after this "commodity" is legislated out of thin air is to create a way of valuing it and trading it, basically throwing liquidity behind it.

Once there is a liquid pricing mechanism established, finding ways of leveraging it is easy -- and the ultimate goal. At first it will be simple and innocuous forms, and then you'll see more complicated forms. Securitization will be back again, and eventually a secondary market for these securitizations will be created.

[cjppjc]

Re: cap and trade versus a carbon tax

http://www.itulip.com/forums/showthread.php?t=9575

I've done some diligence after such post (and others I made where people were arguing that this thing didn't have legs).

As I stated before, and I've confirmed it, there is a large amount of FIRE infrastructure going into this.

The first step after this "commodity" is legislated out of thin air is to create a way of valuing it and trading it, basically throwing liquidity behind it.

Once there is a liquid pricing mechanism established, finding ways of leveraging it is easy -- and the ultimate goal. At first it will be simple and innocuous forms, and then you'll see more complicated forms. Securitization will be back again, and eventually a secondary market for these securitizations will be created.

Fire never dies. I'm going to guess I've never written Fire before. It is like a beast. I'm also afraid it is the only way.

[bill]

Re: cap and trade versus a carbon tax

The House Energy and Commerce Committee met to mark up legislation that would reduce greenhouse gas emissions.


http://www.c-spanarchives.org/librar...5-1&highlight=

http://www.c-spanarchives.org/librar...0-1&highlight=

http://www.c-spanarchives.org/librar...101&highlight=

http://www.c-spanarchives.org/librar...102&highlight=

http://www.c-spanarchives.org/librar...103&highlight=

http://www.c-spanarchives.org/librar...4-1&highlight=

http://www.c-spanarchives.org/librar...101&highlight=

http://www.c-spanarchives.org/librar...102&highlight=

http://www.c-spanarchives.org/librar...103&highlight=

http://www.c-spanarchives.org/librar...104&highlight=

http://www.c-spanarchives.org/librar...2-1&highlight=

http://www.c-spanarchives.org/librar...101&highlight=

http://www.c-spanarchives.org/librar...102&highlight=

http://www.c-spanarchives.org/librar...103&highlight=

[santafe2]

Re: cap and trade versus a carbon tax

question: why not just a straight tax instead of cap and trade? any evidence or data?

Breaking the program question from the warming issue is an excellent idea jk. I had been in favor of a carbon tax until earlier this year but this bill may actually function more efficiently. I know many, (most?), of the posters on iTulip think either program is nonsense so I won't delve into why I think a carbon tax or cap and trade is a good idea, I'll just compare the two programs at a high level.

As you noted, a carbon tax can be very straight forward. A polluting cost per ton of pollutant is set and paid by the producer and their customers. The revenue side of the equation can be managed in somewhat the same way as a cap and trade program but it has the following major issues:

1. The cost of the tax is set by government regulators and or politicians and not by the market.
2. Once prices are set, the market determines the amount of pollution the market will bear.

If the idea is to create less pollution and use less fossil fuel a carbon tax is a less efficient way to manage toward that goal than is cap and trade. Under a carbon tax program, regulators set a carbon cost and the market determines if it should use the same fuel and pass on the new costs or switch to a less polluting fuel source. There is no guarantee that any change will take place, only that energy costs will go up.

With a cap and trade program, pollutants are capped and the value of polluting permits is set by the market. It's true that cap and trade will require more regulation than a carbon tax but it is also a much more robust system and has a better capacity to link local, national and international market places. I tend to favor markets regulated by government than government attempting to create and manage a market.

[snakela]

Re: cap and trade versus a carbon tax

In theory at least cap&trade creates shared property rights of public resources. In that same vein though, every american should get mailed a carbon credit for their equal share of air that they could then hoard or sell.

Who thinks that is going to happen vs. favored companies being allocated credits?

I'd just like to know which iBanks are getting a bunch so i can buy the stock.

[santafe2]

Re: cap and trade versus a carbon tax

In theory at least cap&trade creates shared property rights of public resources. In that same vein though, every american should get mailed a carbon credit for their equal share of air that they could then hoard or sell.

The idea of hording is a critical issue which the bill may address and regulators will have to manage. By it's very nature, (a cap), there is a limited number of polluting permits to be held. Should, for example, GS buy all the permits issued to every electrical utility and natural gas supplier in the nation for say 10% over their base value, they would control roughly 40% of all the permits. Would they then control the market? Will they have the power to manipulate the permit market at that point? Can they securitize their holdings? I don't know the answer to these questions yet but it will be important for all of us to understand these issues and ensure our representatives understand them.

Who thinks that is going to happen vs. favored companies being allocated credits?

Who gets the credits and how that will change over time is spelled out in the bill.

[jk]

Re: cap and trade versus a carbon tax

The idea of hording is a critical issue which the bill may address and regulators will have to manage. By it's very nature, (a cap), there is a limited number of polluting permits to be held. Should, for example, GS buy all the permits issued to every electrical utility and natural gas supplier in the nation for say 10% over their base value, they would control roughly 40% of all the permits. Would they then control the market? Will they have the power to manipulate the permit market at that point? Can they securitize their holdings? I don't know the answer to these questions yet but it will be important for all of us to understand these issues and ensure our representatives understand them.

Who gets the credits and how that will change over time is spelled out in the bill.

i would assume that permits will have an expiration date to avoid the issues of hoarding, so they will function similarly to options, i.e. they represent an option to burn some carbon, with a known date of expiration.

[radon]

Re: cap and trade versus a carbon tax

Yep, this is all just about weasels trying to find a way to make a buck, wrapped up in BS about saving the world. I'm sure there are some involved with good intentions. But the real power players who can actually make it happen, they could care less.

I guess I should send my congressman a letter thanking him for giving me something to buy once I'm forced out of treasuries.

[jk]

Re: cap and trade versus a carbon tax

btw, i think that the options/permits will likely trade INVERSELY to the price of oil. anyone see a reason that's wrong?

[radon]

Re: cap and trade versus a carbon tax

btw, i think that the options/permits will likely trade INVERSELY to the price of oil. anyone see a reason that's wrong?

Coal and politics?

[LargoWinch]

Re: cap and trade versus a carbon tax

Glad to be back on my desktop...I can now embed.

So let me start here, I agree with Buffett; Cap and Trade is a tax:

Even more relevant is this paper from the CBO outlining the "sharing of the revenues" i.e. your taxes...

05-07-Cap and Trade Testimony