Matt Kahn:
Paul Krugman has published a perfectly reasonable piece about the politics of climate change mitigation.
... Given that Dr. Krugman is a brilliant economist, I'm surprised by how lazy his piece happens to be. He turns to discussing the psychological mindset of Republicans rather than delving into the political economy of why we are stuck in this "bad equilibrium" of having no carbon mitigation incentives.
Permit me to fill this void.
This is a property rights issue. Suburban households and workers in fossil fuel intensive industries and consumers of electricity generated by fossil fuels will face higher energy prices and employment risk if the carbon tax ramp up is fast. These individuals are aware of this and are currently voting against such policies. ...
What if the set of "losers" from the policy could be identified by a trusted third party. Suppose this group has 100 million people and each of them lose $10,000 on average in present discounted value from the carbon tax. This equals $1 trillion dollars in losses. Suppose that 10% of the population are committed progressives who are willing to not free ride, so there are 30 million in this group.
1 trillion /30 million = $33,000 tax per progressive. So, I am suggesting a credible market mechanism for Tom Steyer and Paul Krugman to purchase the policy they want. Now, this group prefers to use "democracy" to achieve this shift in property rights. Right now fossil fuel users don't pay a carbon tax. Who has property rights here? My mechanism explicitly acknowledges that the polluters [do] and allows the progressives to purchase this right.
Coase lives!
via greeneconomics.blogspot.com
Ten things I think I think (with apologies to Peter King):
- Polluters (i.e, consumers and firms who enjoy low-cost, dirty energy) are granted the property rights because of historical precedent. This is a very strong statement.
- My understanding of the Coase theorem is that the property rights could also be granted to the pollutees, negotiation could take place, compensation made and externalities are internalized.
- Assignment of property rights to polluters or pollutees will only work without huge transactions costs.
- There are other ways to get the incentives correct and grant pollution rights to pollutees if that is what we as a society choose to do (via "democracy").
- Cap-and-trade with freely distributed permits, in contrast to auctioned permits, give property rights to polluters up to the number of permits granted.
- Cap-and-trade with free permits doesn't grant polluters 100% rights and fossil fuel users are ignored (i.e., aren't compensated for higher prices) so it might not solve the political economy problem.
- A revenue neutral carbon tax compensates those hurt by the tax with a lump sum payment that could make them whole.
- A revenue neutral carbon tax might come closer to solving the political economy problem than both cap-and-trade with free permits or reliance on free market environmentalism.
- The "psychological mindset of Republicans" (i.e., anti-science) has a lot to do with the current impasse over climate policy.
- Scare quotes around democracy? That's scary.
