Environmental Economics

Trade with Cap'n Trade

From the Financial Times:

Senior Democrat senators said on Wednesday they would change a provision that imposes carbon taxes on imports following warnings that the clause in the House’s cap-and-trade bill could spark a global trade war.

The House’s bill contained tough provisions to impose carbon tariffs, aimed at protecting American companies’ competitiveness against imports from countries without equivalent carbon emission controls to those in the US.

...

A recent report from the WTO said that such “border tax adjustments” could in theory be made consistent with WTO rules, but trade lawyers stress that crafting such laws is likely to be very difficult in practice

The economics here are simple:  If the U.S. prices carbon domestically (through Cap and Trade), then imports have to be priced accordingly, or the world price for similar products will be lower than the domestic price.  The result will be more domestic purchases of foreign produced carbon intensive products and potentially leakage of U.S. industry to non-carbon pricing nations who potentially produce similar products with lower carbon efficiency than domestic manufacturers currently use.  This has been the U.S.'s stance in international carbon negotiations all along and the primary reason the U.S. never signed onto Kyoto.  Now, domestic carbon policy without border price adjustments puts domestic producers at a competitive disadvantage and will likely result in more imports of carbon intesive products and potentially higher carbon emissions globally. 

Guest Post: Waxman-Markey: The Devil is in the details

Jim Roumasset, Professor of Economics, University of Hawaii

Waxman-Markey: The Devil is in the details

Ever wonder what's in all those 1500 pages (including the 300 page amendment added the day of the House vote)? That's a lot of details. Here are a few items warranting further economic input.

How Cap'n Trade is supposed to work

Sulfur dioxide emissions are regulated by a cap and trade system in the U.S.  If cap and trade is working properly, allowance prices and emissions should smoothly adjust to demand side effects (recession?) and supply side (new regulations?).  Like this (from Reuters):

U.S. power plant emissions of sulfur dioxide dropped sharply in the first half of the year as the electricity industry prepared for tighter regulation in 2010, Genscape said Monday.

Sulfur dioxide emissions were down 24 percent compared to the first half of 2008, much more than would be expected due to the recession and lower electricity demand, the power industry data provider said in its quarterly review of energy trends.

"The industry is clearly going through a dress rehearsal for the implementation of the Clean Air Interstate Rule (CAIR) in 2010, and judging by allowance prices as well as the fundamental data, it is a stellar performance," Genscape said.

...

All environmental economists don't strongly favor a carbon tax

From the sent items folder:

About a month ago I asked RESECON subscribers to participate in a short survey about cap-and-trade and carbon tax policy. Of the 1133 recipients of the RESECON email there were 203 responses from environmental economists. Thanks!

While I haven't yet analyzed the data, I am finally getting around to reporting the results of the penultimate question:

Considering two economic incentive-based environmental policies that could be used address climate change, which do you prefer?

Cap-and-Trade - 71
Carbon Tax - 111
Neither - 3
Don't Know - 2

Here is the bar chart: http://www.env-econ.net/images/Q%239.png

I'll get the rest of the results out ASAP.

Another economist in the Waxman-Markey camp

In "Another comment on Waxman-Markey", Charles Kolstad (co-editor of the AERE journal, Review of Environmental Economics and Policy) concludes:

Although the bill has its shortcomings, at its core it is an impressive piece of legislation. If the senate trims some of the glaring defects, then the U.S. will become the world leader in taking global warming and climate change seriously.

I'm an idiot

Find out just how BIG an idiot I really am:

The U.S. House of Representatives voted on June 26, 2009 to pass the American Clean Energy and Security Act, commonly known as the Waxman-Markey Bill. While, as of this posting, it has yet to pass the Senate, the bill promises an unprecedented and sweeping package of climate legislation, the full ramifications of which are yet to be determined.

But will the bill actually accomplish all of its purported goals? And how? What effects, short and long-term, will the bill actually have on the U.S. economy and the current path of climate change?

The Energy Collective conducted a live, interactive webcast in which energy experts and TEC blogger board members Jesse Jenkins of the Breakthrough Institute and John C. Whitehead of Appalachian State University dug into the bill and provided insight into its likely effectiveness in a number of key areas.

Listen to a recording of the discussion here:

http://theenergycollective.com/TheEnergyCollective/43961

Aw, shucks

From the inbox:

Tim and John, 

Thank you for your posts on Environmental Economics about the ACES bill. 

The Sierra Club has put together this YouTube video that thanks activists, staff and allies for their hard work getting ACES through the House and casts an eye towards the Senate.  Please feel free to post on your blog!

http://www.youtube.com/watch?v=uY4jZD8hjPQ&fmt=18

Carbon taxes vs cap-and-trade

Ps vs Qs in Green Inc:

If the nation’s goal is to reduce greenhouse gas emissions and promote the development of clean energy, is it easier to do this by managing the price of emissions and renewables, or by fixing the amount by which they are to be reduced (emissions) and produced (renewables)?

This may sound like an obscure policy distinction, but it is an old debate among environmental economists — and one that has gained new import in the debate over the climate bill passed by the House of Representatives last week.

“The issue of prices vs. quantities resurfaced with a vengeance in the climate change debate about which control mechanism should be favored,” said Martin Weitzman, a Harvard economics professor, in an e-mail message.

Mr. Weitzman is considered by many economists to have written the seminal paper on this subject in 1974 — a time when, according to Mr. Weitzman, most economists supported a tax on pollution.

“There was almost no discussion about the quantity side, such as cap-and-trade,” he said. ...

“A surprisingly large (to me) number of prominent economists in this area supported a carbon tax, but to no avail,” noted Mr. Weitzman of Harvard, who is also in the carbon tax camp.

But setting a price target carries the risk that the price will be wrong — too high or too low to achieve the objective — although it can in theory be adjusted over time.

Don't miss this opportunity!

From the Energy Collective:

Tune in Thursday, July 2 at 12:00 EST
 
The U.S. House of Representatives voted on Friday to pass the American Clean Energy and Security Act, commonly known as the Waxman-Markey Bill. While it has yet to pass the Senate, the bill promises an unprecedented and sweeping package of climate legislation, the full ramifications of which are yet to be determined.
 
But will the bill actually accomplish all of its purported goals? And how? What effects, short and long-term, will the bill actually have on the U.S. economy and the current path of climate change?
 
The Energy Collective presents a live, interactive webcast in which energy experts and TEC blogger board members Jesse Jenkins of the Breakthrough Institute and John C. Whitehead of Appalachian State University will dig into the bill and provide insight into its likely effectiveness in a number of key areas. Participants will have the opportunity to participate and ask questions by following along on twitter with the hashtag #talkaces.
 
Don't miss this opportunity to participate in a live, in-depth discussion with other energy experts and aficionados. Dial in Thursday at 12:00 EST at:

Toll Free Number: 1.800.868.1837
Access Code:  74378755#

And discuss online on twitter with the tag: #talkaces

Stavins on Waxman-Markey

I could have written this sort of post myself but the opportunity costs would have been enormous (National Climate Change Policy):

Like any legislation, the Waxman‑Markey bill has its share of flaws, but its cap-and-trade system has medium and long‑term targets for reducing greenhouse gas emissions that are sensible, and the cap‑and‑trade system is — for the most part — well designed.  With some exceptions, the bill’s cap‑and‑trade system will achieve meaningful reductions of carbon dioxide and other greenhouse gas emissions at minimal cost to the economy. ...

My comparative advantage is as a cut-and-paster.