"The public should not pay for a carbon levy"

I couldn't agree more.*

From FT Alphaville:

Carbon taxes should be raised. But all of that revenue must be paid back if the levy is to gain support from businesses and households

John Llewellyn, an economist and founder of Llewellyn Consulting, explains why raising carbon taxes — and redistributing the proceeds — is the best means to lower carbon emissions. 

The world’s present approach to reducing greenhouse gases is not working. And it is not, despite the enthusiasm surrounding COP26, ever likely to work.

A mish-mash of treaties, pledges, targets, exhortations, prohibitions, subsidies, and regulations all claim to reduce greenhouse gas emissions. Yet the myriad decision-takers in modern complex economies, individually and collectively, are failing to take the actions necessary to meet the objectives set out under the Paris agreement.

So what incentive would be up to the task? What is required is unequivocal certainty that the price of carbon emissions is henceforth going to be sufficiently high that producers and investors have no doubt whatsoever about the future profitability of producing sustainable alternatives; and consumers have no doubt about the financial gain to be had from changing their patterns of expenditure. In short, what is needed is a tax on all greenhouse-gas emissions.

Yet this highlights the reason why it is so difficult for decision-takers to do what it will take to keep climate change in check. Transition, if it is to be successful, will substantially raise the cost of emitting carbon. That will in turn raise costs for businesses and households. A fact that is politically unpalatable.

But there is a way around it: simply give the money raised by such a levy back to the electorate, every last cent of it.

At first blush, this proposal is bemusing. Raising the price of carbon in and of itself makes people worse off. They hate that. Typically they vote down politicians who propose it. So what is the point of raising a tax and then giving it all back?....

....MUCH MORE 

The key is the per capita rebate. Bill Gates gets the same rebate as the little old lady who ventures out of her apartment once a week, despite Gates' Sasquatch-sized carbon footprint.

What you've done is raise the price of carbon relative to the rest of the economy but eased the burden on those who emit less. Without Orwellian personal carbon allotments.

*Some prior posts:

June 2009
Climateer Investing on Carbon Trading and Traders

Our preference is "Cap-and-Tax (auction) with 100% Rebate" not Cap-and Trade.

The post immediately below, "Richard Sandor, Barack Obama and the Founding of the Chicago Climate Exchange (CLE.L)" got me to thinking about the carbon markets.
Proponents repeat the mantra that cap-and-trade is a "market based 'solution'". This is, of course, nonsense.

Just as an economist using the tools of science (mathematics) doesn't make economics a science, carbon traders using the tools of markets doesn't make carbon trading market based.

The carbon markets are an entirely artificial construct, beholden to political paymasters for their very existence. Which may be why so many political types are planning to profit from them.
Directly, think Al Gore's Generation Investment Management's investment in carbon project developer Camco or Lord Nicholas Stern's Vice-Chairmanship of IDEACarbon's parent IDEAGlobal or indirectly as a source of campaign contributions for pols still in office, or an unaccountable slush fund in the case of the U.N.

The word artificial led me to think of it's cousin, artifice. Here's the Oxford Pocket definition:

ar·ti·ficen. clever or cunning devices or expedients, esp. as used to trick or deceive others: artifice and outright fakery.

The securities attorneys among our readers will recognize the word from the common state security law usage "...employ any device, scheme, or artifice to defraud".
Coincidence?
Here's the view from Russia, quoted in The Bored Whore of Kyoto:

"I don't know if climate change is caused by burning coal or sun flares or what," said the Moscow-based carbon cowboy. "And I don't really give a shit. Russia is the most energy inefficient country around, and carbon is the most volatile market ever. There's a lot of opportunity to make money."

Here's a former Goldman Sachs trader:

The whole reason for the existence of traders is to make as much money as possible, consistent with what's legal...I lived through this: if you didn't manipulate the market and manipulation was accessible to you, that's when you were yelled at.

-Former Goldman Sachs trader
New York Times, May 8, 2002

Here's Lord Stern at the Bali Climate Conference where the largest NGO contingent were the gang from the International Emissions Trading Association, 336 representatives including lawyers, financiers, emissions traders, consultants, certifiers and emissions trading experts... the IETA made up 7.5% of the 4483 Non-Governmental Organisation (NGO) delegates registered for the U.N. shindig:

“Bali will set in motion a process that will define the structure
of the carbon markets for decades to come”
“By 2020 the global carbon market could be worth EUR 240-
450 billion”
-Sir Nicholas Stern

"This (climate change) is much too important to leave to environment ministers"
-Sir Nicholas Stern
to Finance Ministers basking in Bali

November 2012
Do You Hear the Carbon Tax Drumbeat?

It was quite a few years ago that I realized a carbon-tax-with-100%-rebate was the best approach to get what you want less of (carbon) with the least vigorish going to my Wall Street confreres.

Now that Exxon is backing the idea I'm wondering if there was a flaw in the thinking. I trust the oil majors about as much as I trust a commodity trader or...

September 2020
"The Royal Navy’s Triumph over Slavery"

When carbon markets were all the rage—we preferred tax-and-100% rebate, less opportunity for rent-seeking and graft but a tough sell to the powers-that-be who would profit from said rent-seeking and graft— when they were all the rage one of our pithy little analogies was:

"When Britain decided to end slavery,
Wilberforce didn't set up a cap-and-trade system"

—from our October 2007 post "Cap-and-Trade Market in Babies" 

It was a bit surprising how many intelligent, educated people would ask: "Who's Wilberforce?"

And many, many more

Do You Hear the Carbon Tax Drumbeat?

It was quite a few years ago that I realized a carbon-tax-with-100%-rebate was the best approach to get what you want less of (carbon) with the least vigorish going to my Wall Street confreres.

Now that Exxon is backing the idea I'm wondering if there was a flaw in the thinking. I trust the oil majors about as much as I trust a commodity trader or...

From Bloomberg:
Carbon Fee From Obama Seen Viable With Backing From Exxon

Exxon Mobil Corp. (XOM) is part of a growing coalition backing a carbon tax as an alternative to costly regulation, giving newfound prominence to an idea once anathema in Washington. 

Conservative economists and fossil-fuel lobbyists united in 2009 to fend off climate-change legislation that would have established a cap-and-trade mechanism. They are now locked in a backroom debate over a tax on carbon-dioxide emissions that could raise an estimated $100 billion in its first year.

A carbon tax would force electricity producers, refiners and manufacturers to pay a fee for the greenhouse gases they emit. It is gaining interest as lawmakers and President Barack Obama pledge to simplify the corporate tax code and raise revenue to narrow the deficit. The devastation from superstorm Sandy following the wildfires and drought of this summer have also increased concern about global warming.

“It does fit with the Republican idea of cleaning up the tax code, and to have a clean instrument for addressing this problem,” John Reilly, co-director of the Massachusetts Institute of Technology’s Joint Program on the Science and Policy of Global Change, said in an interview. Given this year’s weather disasters, “it’s hard to stand up and say global warming is a hoax,” he said.

The idea still faces long odds. Oregon Democratic Senator Ron Wyden said in Washington today that rounding up support for a carbon tax “is going to be a big lift politically.” Asked about it yesterday, Obama said he doubted there was enough political agreement for the tax, though he warned against delay in combating climate change....MORE 

There appears to be a very sophisticated media campaign pushing the tax idea, I'll dig up the examples we've spotted over the last couple weeks. It's quite a list. 

Europol: $7.4 Billion Lost from Carbon Trading Fraud in Europe

UPDATE II: "More Carbon Trade Fraud: "France Probes $230 Million Carbon Trading Fraud"
UPDATE: Another slam on Krugman: "Woman Who Invented Credit Default Swaps is One of the Key Architects of Carbon Derivatives, Which Would Be at the Very CENTER of Cap and Trade"
Original post:
So much for Krugman's:

...Oh, and the argument that if you create a market, you’re opening the door for Wall Street evildoers, is bizarre. Emissions permits aren’t subprime mortgages, let alone complex derivatives based on subprime; they’re straightforward rights to do a specific thing. It will truly be a tragedy if people generalize from the financial crisis to block crucially needed environmental policy....
From his Dec. 7 post: -Unhelpful Hansen

From Mr. Krugman's very own New York Times:

Post Updated | 3:53 p.m. Europol, the European Union’s law enforcement arm against organized crime, announced on Wednesday that carbon-trading fraud has cost the bloc’s governments $7.4 billion in lost tax revenue over the last 18 months.

“We have an ongoing investigation,’’ said Soren Pedersen, Europol’s chief spokesman, in a telephone interview on Thursday from The Hague. “We’re afraid the fraud is not completely finished yet, unfortunately. But it’s positive to see that actions are being taken and we hope soon it will disappear.”

FourSix member countries have changed their tax codes to protect against a recurrence, the agency said. The fraud involved adding the European Union’s value-added tax to the price of carbon dioxide permits sold to businesses. Fraudulent brokers then disappeared before turning the tax over to the government, according to Europol....MORE

From The Europol press release:

The European Union (EU) Emission Trading System (ETS) has been the victim of fraudulent traders in the past 18 months. This resulted in losses of approximately 5 billion euros for several national tax revenues. It is estimated that in some countries, up to 90% of the whole market volume was caused by fraudulent activities....

From yours truly, one week ago:
GOP utters the "T" word for dealing with carbon

Long time readers know we are adamantly opposed to allowing Wall Street anywhere near the carbon piggy bank. The numbers are so big and the opportunities for traders to act like traders so numerous that I have come to the conclusion (festering in my fevered brain since the Rio shindig in '92) that the better option is to run the money through the U.S. treasury.
That was not an easy thing to write but if we were to cap-and-tax or cap-auction-100% rebate and/or eliminate the payroll tax we would be practicing the basic economics taught in Econ 10: tax what you want less of, don't tax what you want more of....

From The Big Picture:

via RJ Matson, NY Observer

Creative Writing: "How CBO budget scoring devalues efficiency ... WITH PUPPIES!"

I tried sending this link to a friend who can't pull it up. When she tries the link up she gets "Database Error: Unable to connect to your database. Your database appears to be turned off or the database connection settings in your config file are not correct...." I'll just copy it out and get back to the other Aryans in the next post.
My smartest tech guy, Siva, (a streetwise Hindu boy, Caltech postdoc) starts talking DNS; SQL or some such.
I thought Sanskrit was a litugical language.
From Grist:

The Congressional Budget Office is back in the news, after director Doug Elmendorf testified before Congress about the economic impacts of clean energy legislation. Opponents of that legislation rushed to hype a few of his comments out of context, and succeeded, as usual, in getting their voices amplified in the Washington Post.

Elmendorf didn’t say anything that wasn’t already in the CBO’s analysis of the Waxman-Markey bill, which was released in June and discussed to death at the time. Despite what you’d think from hysterical headlines, the top-line conclusion of that report was that the bill would reduce the federal deficit. The lowest-income quintile would gain in purchasing power; the middle class would pay modest costs. Those costs are, by CBO’s own admission, almost certainly lower than the analysis projects, since it doesn’t count the benefits of the aggressive energy efficiency provisions (or the economic benefits of avoided climate change). Overall, the CBO paints an incredibly optimistic picture of the economic costs of clean energy legislation, even given the flaws and conservative biases of its analysis.

Anyway, much ado about nothing, again. Just so we walk away from this latest hubbub having learned something, though, let’s take a look at some serious issues around the CBO, specifically its budget scoring and how it undercounts the cheapest, fastest source of clean energy: efficiency.

To acknowledge up front: it’s not easy to talk about CBO scoring without putting people to sleep. It’s not easy to talk about energy efficiency without putting people to sleep. CBO scoring of energy efficiency? That’s x-treme sleepy. We’re going to need puppies.

Despite its obscurity, CBO budget scoring is actually quite important. It shapes legislation in subtle but pervasive ways. In particular, undercounting the potential for efficiency systematically distorts energy policy in ways that favor delay, compromise, and defensiveness. The good news is that properly accounting for efficiency opens the door to clean energy policy that’s fiscally responsible and environmentally accountable.

To understand why CBO accounts poorly for efficiency, some basic background on CBO scoring is necessary. Don’t worry. This guy will help you through it.

The t-word

First, we’re talking about budget scoring here, not broader economic scoring (which CBO also does, as does the EPA, as do any number of think tanks and consultancies). Budget scoring is a narrow assessment of legislation’s projected effect on the federal budget, and only CBO does it. There are big problems with the broader analyses, too, but it’s budget scoring that has the most tangible effect on the legislative process.

Budget scoring matters because Obama and congressional Democrats promised that the climate bill will be deficit neutral. It “won’t add a dime to the deficit,” as Sen. John Kerry (D-Mass.) has put it. Who decides if the bill is deficit neutral? That’s the CBO.

The most important aspect of climate bill scoring is that the CBO treats pollution allowances as federal revenue, and allocating those allowances—handing them out—as spending. It effectively treats cap-and-trade as an indirect tax (like excise taxes, or customs duties). This has all sorts of implications.

The 25% haircut

For reasons we won’t get into, the CBO assumes a fixed nominal GDP—that is, they assume that legislation will not change the overall size of the economy, by either spurring or slowing growth. Practically speaking, that means any tax revenue that comes out of the private economy must, by definition, reduce private spending and thereby reduce taxable income, to balance the scales. In this case, the requirement to buy pollution allowances will lower the taxable income of the businesses and individuals who pay for them. That in turn will lower federal revenue from direct (income) taxes. So you get a new revenue stream, but at the cost of losing a little bit of the old revenue stream.

How big is the collateral damage to direct tax revenue? Rather than try to calculate that percentage for every piece of legislation and every set of taxed entities, the CBO (along with the Joint Committee on Taxation and the Treasury Department’s Office of Tax Analysis) has settled on a standard number, which it applies across the board: 25%. So for every buck that’s raised via an indirect tax, a quarter is lost in direct taxes and only $0.75 can be slated for new spending; $0.25 has to be set aside to balance the budget (assuming a balanced budget is the goal). This revenue offset is colloquially known, by the tiny number of people who have reason to know such a thing colloquially, as the “25% CBO haircut.”

Because the CBO treats pollution allowances as tax revenue, they take the haircut. Climate policy watchers will recall that the Kerry-Boxer climate bill introduced late last month was virtually silent on allowance allocation. The only thing it did specify is that 25% of the allowances would be set aside to reduce the deficit. However the allowances are allocated, whomever they’re given to, as long as 25% are set aside the result is guaranteed to be scored deficit neutral. That provision is what justified Kerry’s “won’t add a dime” boast.

(Incidentally, for a more in-depth but still relatively clear explanation of the haircut, see the CBO’s immortal tract, “The Role of the 25 Percent Revenue Offset in Estimating the Budgetary Effects of Legislation” [PDF].)

Sidebar: What about the House? or Get a haircut, ya hippie!

You may be wondering: why didn’t the Waxman-Markey bill in the House reflect this same 25% haircut? How come it got away with setting aside under 10% (through 2025) of allowances for deficit reduction?

A partial answer is that the House operates within what used to be the standard Congressional budget window: 10 years. That is to say, for House bills, “deficit neutral” means “deficit neutral for the first 10 years.” The House can use various budgetary tricks, e.g. selling future years’ allowances to the near-term, to pad revenue during the crucial 10-year window. It’s a bit dodgy, but then so is the pretense that human beings are capable of predicting economic circumstances more than 10 years out with any precision.

The Senate, though, loooves deficit hawkery. Loves it! Just wants to kiss it. Senators compete to see who can be more Serious about the deficit; it’s like Deficit Idol on the Sunday cable talk shows. The Senate not only passed a budget point of order forbidding legislation that increases the deficit inside 10 years, it passed another that prohibited legislation “that would cause a net increase in deficits in excess of $5 billion in any of the four 10-year periods beginning in 2018 through 2057.” (What, are they joking? What about the 2058 budget?!?)

Because of this delightful and not-at-all stupid and shortsighted provision, to get through the Senate, legislation has to be scored deficit neutral effectively in perpetuity. That’s a lot harder than appearing deficit neutral for 10 years, especially in regards to a program that most economic forecasts (wrongly!) show rising steadily in price in the post-2020 years.

One more wrinkle: offsetting offsets

One important twist is that the revenue offset (haircut) can itself be offset by ... are you ready for this? ... an offsetting offset. (Yes, the CBO really calls it that.) In the haircut analogy, an offsetting offset would be Rogaine. Or maybe extensions.

Remember, the revenue offset is a reduction in direct taxes caused by an indirect tax. An offsetting offset is when tax revenue is spent in a way that raises other incomes, which thereby raises (re-raises?) direct tax revenue. It offsets the offset! Are we having fun yet?

What kind of spending counts as an offsetting offset, thus avoiding the haircut? Any revenue returned directly, via tax cuts or credits, to a taxable entity (a business or an individual) qualifies.

If, by contrast, revenue goes to, say, state energy efficiency block grants, federal RD&D, rebates to low-income households with no taxable income, transit assistance, jobs training programs, international reforestation, or any of a gazillion other worthy investments, it takes the haircut. It is assumed to be displacing spending in the private economy, and since the CBO assumes fixed GDP, that means someone’s taxable income must take a hit.

OMFG another wrinkle!

If revenue is returned directly to a taxable entity but with strings attached—mandates about how the money must be spent—then it does take the haircut. The CBO figures that’s tantamount to government spending through an intermediary, which like all government spending displaces private spending. This will turn out to be a crucial distinction.

Offsetting offsetting offsets

Just kidding. Here’s a puppy.

Luvagod tell us why any of this matters

OK! Right now, in the Kerry-Boxer bill, 25% of allowances are set aside for deficit reduction. That leaves 75% of the allowance money from cap-and-trade to be spent on buying votes various good causes.

Here’s the thing, though: before the final legislation is done, that 25% will go down. It will be partially offset, because some of the revenue will be spent on direct transfers to taxable entities, and direct transfers get no haircut. In fact, the more that’s spent on direct transfers, the more of the total pie there is to spend.

This creates a somewhat perverse incentive structure. Since Congress would obviously like to have 100% of the revenue to spend, that’s going to bias decisionmaking in favor of direct transfers: tax cuts and tax breaks, aka the same crappy tax-based energy policy the U.S. has been limping along with for 30 years. Any other spending gets that extra 25% cost tacked on.

Direct transfers aren’t necessarily bad policy: they include the good (rebates to consumers to shield them from energy price increases), the pretty good (subsidies for renewables), and the not-so-good (subsidies for polluters). But a great deal of what we’d like government to help with is included in all that spending that does get the haircut—most importantly, energy efficiency programs.

So, in budget terms, tax credits cost what they cost; energy efficiency programs cost what they cost plus 25%.

What about all those kickbacks to utilities?

Good question.

As noted the other day, utilities get lots and lots of allowance value (about 40%) in Waxman-Markey. Do those handouts take the haircut? The utilities (LDCs) are expected to use the revenue for “consumer benefit,” but what does that mean in budget terms?

Remember, direct transfers to taxable entities don’t take the haircut, unless there are strings attached. So is allowance value given to LDCs a form of direct transfer to businesses and utilities? That wouldn’t take the haircut. Or is it a direct transfer to LDCs, with strings attached on how it’s to be used? That would take the haircut.

What a fun wonky question! Let’s savor it with a wagon full of puppies.

A CBO letter to Waxman (PDF) clarifies the treatment of LDC allocations ... a little. But some questions remain.

The letter seems to say that LDC allocations won’t take the haircut. For one thing, the bill doesn’t yet mandate that the money be used for consumer benefit, it just strongly suggests it (see this post for more). As far as what counts as consumer benefit, the letter explicitly cites reductions in electricity rates or fixed-dollar rebates. But that distinction matters; if utilities just lower electricity rates, the electricity price signal will be muted and other forms of carbon use will become proportionately more expensive. A fixed-dollar rebate returned separately would keep consumers whole while still preserving the motivating force of the price signal. Could the bill mandate that “consumer benefit” be in the form of fixed-dollar rebates? It’s unclear.

What if the bill mandates that some percentage of utility allowance money go to energy-efficiency programs (rather than being returned directly to ratepayers)? Bam: haircut. Here’s what it says in the letter:

One might argue that this example [spending on utility efficiency programs] is similar to the previous example in which the LDCs kept consumers’ electricity prices from rising (and in which federal revenues did not fall) because both involve giving resources back to consumers. However, this example differs from the earlier one due to the increase in electricity prices that, by the assumption of fixed nominal GDP, must be offset by lower spending elsewhere in the economy.

Now, this would make sense if spending on efficiency were like any other spending. But it isn’t! Yes there would still be an “increase in electricity prices,” but there would be a corresponding decrease in energy bills. That’s the whole point of efficiency improvements: they produce ongoing savings, functionally equivalent to rebates, in perpetuity. Every dollar not spent on energy is money that can be used for other purposes. It doesn’t lead to “lower spending elsewhere in the economy.” (It’s worth noting that utility efficiency programs are incredibly cost-effective means of reducing emissions—about the most cost-effective way currently available.)

It’s a little crazy that handing money to electricity ratepayers doesn’t take the haircut, but handing energy savings to ratepayers does. If anything, the transfer of value via efficiency is economically more advantageous; every efficiency investment effectively establishes a grant fund that produces savings year in year out.

The CBO should revisit this issue. The utilities should be required to spend a good chunk of the allowance value on efficiency programs, and policymakers shouldn’t be punished with a 25% cost hit for making that decision.

State efficiency programs too?

Yes. Allowance value granted to states to fund energy efficiency programs should not suffer the haircut. As long as there’s good monitoring and verification, state efficiency programs save taxpayers money, thus increasing their take-home income. It’s an offsetting offset by god!

Beyond budgeting

The bias against efficiency—counting it as a cost but refusing to take account of its benefits—extends beyond budget scoring to broader economic analysis as well. Economic models assume that cost-effective efficiency investments would already have been made by the private sector (no one leaves money lying on the street, etc.). So government efficiency investments must displace more efficient private sector spending.

In sharp contrast, research from the McKinsey & Co., based on ground-up research, shows that the 2020 target in Waxman-Markey can be met at negative cost. If Kerry and Boxer made the improvements to the bill recommended by the American Council for an Energy-Efficiency Economy, the legislation would not only create more jobs but offer households $283 annual savings by 2020. (If, instead, Kerry and Boxer integrate the energy bill that passed through the Energy Committee—the American Clean Energy Leadership Act—it would leave enormous potential savings on the table.)

If it was more widely understood that U.S. taxpayers could save billions of dollars by lowering greenhouse gas emissions, the political landscape would look very different. The vote count would look very different. The federal budget would look different too.

Aw, now look what I did:

Police Raid at Deutsche Bank World Headquarters (DB)

Yeah, I got your market-based solutions.
Straight-up CO2 tax-with 100% rebate is the only policy move that keeps the loot out of the hands of the traders and the plutocrats. Of course the politicians will consider it their money but at least they can be hunted for sport.
From the Globe and Mail:
Prosecutors raid Deutsche Bank headquarters as carbon probe widens 

State prosecutors searched offices of Germany’s biggest lender, Deutsche Bank, on Wednesday in a widening probe linked to a tax evasion scheme involving the trading of carbon permits.

Frankfurt public prosecutors said they were investigating suspicions of severe tax evasion, money laundering and obstruction of justice against 25 bank staff and had arrested five of them.

Around 500 police and tax inspectors searched Deutsche Bank premises and private residences in Frankfurt, Duesseldorf and Berlin, prosecutors said in a statement.

Tax inspectors clutching backpacks and suitcases were seen leaving Deutsche Bank’s headquarters in Frankfurt, where about 20 police minibuses and two large coaches were parked outside.

Eight policemen wearing dark blue overalls and armed with handguns were stationed in the lobby.

In October, a financial source familiar with the matter said Deutsche had suspended a handful of employees after it was criticised by a judge last year during a trial into tax evasion on carbon permits. It was unclear when the traders were suspended....MORE

And from Reuters:
Deutsche Bank co-CEO drawn into widening tax evasion probe

Solar tax breaks, rebates in Canada

...It also launched a pilot project in parts of Peel region that will see zero-interest loans offered to any household wanting to install a solar PV or thermal system, as well as geothermal and small wind turbine systems. Such a program eliminates a major barrier to solar technology adoption: high upfront costs

A retail sales tax rebate on all solar equipment has been extended until the end of 2009, and the province will also offer a $500 rebate on the purchase of a solar domestic hot water system, matching the rebate offered by the federal government. That's $1,000 off a system that typically costs $5,000 to $6,000.

As for larger solar thermal projects done for industry or government institutions, the province over the next four years is also matching a federal commitment to pay 25 per cent of any project, to a maximum of $80,000. Those combined contributions could cover half of a project's cost....

From theStar.com

To which After Gutenberg responds:

On the other hand, to throw a bit of Lake Ontario cold water on the pitch, a 2005 policy analysis from Greenpeace failed to designate either Canada or Siberia as one of the five most promising regions in the world for development of large scale, thermal solar projects. Conversely, it indicated that such application is inappropriate for those regions.

In promoting cool, green Canadian companies, Tyler just might be stretching his credibility a bit too far. But, in all fairness, we eco-warriors do like to see photographs of toasty, solar-heated, housing in the middle of cruel winter, accomplished with a combination of passive solar, low-cost solar thermal, black paint and duct tape. With considerable engineering, it even could be justifiable and certainly has appeal since it demonstrates homeowner cleverness.

For my money Oregon is the place you oughta be, load up the truck and move to Sublimity.

Tuesday, June 19, 2007

"free money" for Oregon business owners who invest in solar.

That headline is a quote, I couldn't make it up. This either: In many cases, the incentives and credits paid end up being more than the actual cost of the system.

Alrighty then, time to hit the Oregon Trail.

From EnergyDaily

"Debating Stimulus at Harvard and Stanford"

A follow up to Thursday's "Larry Summers For World Bank: So Much Wrong, So Little Time".
I had a couple friends ask me why I was in favor of Romer's even bigger stimulus. I wasn't and I didn't agree with the thrust of the HuffPo's piece. I wanted it on the blog as another post pointing out Larry Summers' over-inflated sense of self.

A key part of Keynes' argument for stimulatory spending in downturns is the concommitment running of surpluses once the crisis has passed. Since no government, Republican or Democrat, seems to have read that part of The General Theory of Employment, Interest and Money, we're screwed.

We are in a position where the marginal utility of deficit spending is greatly reduced, to the point that the multiplier effect of a dollar of deficit spending is far less than 1.
If you doubt this, check the ten-year forecasts in the President's recently unveiled 2013 budget (hulking huge PDF). Table S-1 on page 205 is a good start.

From Professor Taylor's (he of the rule) Economics One blog:

Larry Summers and I debated “Did Fiscal Stimulus Help the Economy?” at Harvard this week. There was no video streaming or recording, and I will not try to summarize the back and forth (which the overflow crowd seemed to enjoy), but here is a summary of things I said in my opening remarks. There will be a follow-up debate at Stanford on April 4 which will be recorded.

The issue we are debating today is central to economic policy. It’s an issue where there‘s obviously a great deal of disagreement. Students want to know why there’s disagreement, and the point-counterpoint of debate is an important way to learn. So I thank Harvard for sponsoring this debate, and I thank you all for coming.

I have been doing a lot of empirical research on the impact of discretionary Keynesian stimulus packages—the temporary and targeted packages intended to counter recessions and jump-start the economy by increasing government purchases, transfer payments, or tax rebates. I don’t find convincing empirical evidence that they helped the economy, or that they increased economic growth in any significant or sustained way. In fact, by increasing unpredictability about policy and by raising uncertainty about increased deficits and debt, they are likely to have harmed the economy.

Let me start with a few points of clarification:

First, I want to emphasize that I not saying that permanent or long-lasting changes in fiscal policy, such as tax reforms that lower marginal tax rates, cannot help the economy, or that the automatic stabilizers are ineffective. This debate focusses on temporary discretionary fiscal stimulus packages.

Second, I am not objecting to certain features of macroeconomic theory that are sometimes labeled Keynesian, such as that wages and prices are sticky, or that aggregate demand has a role in short run fluctuations, or even that people’s expectations matter, though I would emphasize that expectations have important rational characteristics. For me such complications—which I have been researching for many years—suggest the need for fewer discretionary policy actions and more systematic rule-like ones.

Third, I take a longer perspective than the February 2009 stimulus package and the related cash for clunkers and first time home buyer programs. There were also fiscal stimulus packages in 2008 and 2001, as well as in the 1970s.

The basic idea behind Keynesian stimulus packages is presented in basic college courses: A shift down in aggregate expenditures can be countered by increasing government purchases—augmented by possible multiplier effects—which shift up aggregate expenditures and fill the “gap.” Temporary changes in tax payments and transfers work the same way except that increased consumption is supposed to fill the gap.

Estimated macro models used for policy evaluation—whether old Keynesian or new Keynesian—have this basic mechanism built into them. However, they differ greatly in their predictions of the policy impact because of different assumptions about expectations, the marginal propensity to consume, the speed of price adjustment, and crowding out of other spending. For example, Christina Romer and Jared Bernstein used old Keynesian models to predict the effect of the stimulus package of 2009 before it was implemented. They predicted large effects of the package with multipliers around 1.5. In contrast, in research with John Cogan, Volker Wieland and Tobias Cwik, I used a new Keynesian model to predict the effects of the 2009 stimulus. We predicted a much smaller effect, with multipliers averaging 0.5, even less when you include transfer payments.

The problem with using these existing macro models to answer the question of this debate “Did fiscal stimulus help the economy?” is that they will simply repeat the same prediction story over and over again. You learn virtually nothing if you use the same models to evaluate the impact that you used to predict the impact.

So it is necessary to look at what actually happened, to look at the changes in aggregate consumption or GDP due to the stimulus packages, and that is what I have done. For the parts of the packages which include temporary tax rebates or temporary tax cuts I find no significant consumption effect using regression analysis and controlling for other factors that affect consumption. If you look at a chart of the tax rebates in 2008, for example, the evidence is striking: There was a big increase in personal disposable income at the time of the rebate, but no similar change in consumption. This is exactly what the permanent income or life cycle theories of Milton Friedman and Franco Modigliani tell us. People largely saved the injection of cash. The same thing is true for the 2001 and 2009 stimulus packages....MORE

GOP utters the "T" word for dealing with carbon

Long time readers know we are adamantly opposed to allowing Wall Street anywhere near the carbon piggy bank. The numbers are so big and the opportunities for traders to act like traders that I have come to the conclusion (festering in my fevered brain since the Rio shindig in '92) that the better option is to run the money through the U.S. treasury.
That was not an easy thing to write but if we were to cap-and-tax or cap-auction-100% rebate and/or eliminate the payroll tax we would be practicing the basic economics taught in Econ 10: tax what you want less of, don't tax what you want more of.
From the Houston Chronicle:

Maybe it's the threat of the EPA having say over carbon emissions, but all of the sudden lawmakers whose only position on climate change legislation was to "kill the bill" are starting to show signs of compromise, reports our colleague Jennifer Dhlouy.

"We need to dispense with this somewhat blind loyalty to economywide cap-and-trade," said Sen. Lisa Murkowski of Alaska, one of a handful of Republicans who have signaled they might support a climate change bill. "We need to be encouraged to look to all of the alternatives, and, unfortunately, so many of them have just been kicked to the side with the discussion about cap-and-trade. We've kind-of boxed ourselves in."

Among the ideas being considered by the GOP Senators:

• A "cap-and-dividend" where any more raised by auctioning off emissions credits would be directly paid back to tax payers, in theory neutralizing consumer costs.

• A simple carbon tax, which a number of energy executives have said they'd support over cap-and-trade, is also being floated....MORE

WSJ's Total Return Blog Saying Farewell

From Total Return July 21, 2015:

This post is the last for the Journal’s Total Return personal-finance blog. WSJ.com’s Your Money page will continue to be the go-to spot for articles about all aspects of personal finance, while MoneyBeat continues as the paper’s hugely popular real-time blog about markets and investing.

As we say farewell to Total Return, a look at the most popular posts of the 12 months through June highlights some of the biggest issues in personal finance over this period.

1. TurboTax Users Get an Apology and $25 Each (By Laura Saunders, Jan. 22, 2015)
Ah, the wrath of consumers who feel they have been taken advantage of. Intuit’s TurboTax tax-preparation business triggered a revolt among longtime customers when it required many of them to buy a more-expensive version of the software to do their 2014 tax returns. The highest-traffic Total Return post over the past year, written by Tax Report columnist Laura Saunders, reported on the company’s initial apology to customers, which came with a $25 rebate to affected customers. Why “initial”? The company subsequently reversed the changes to its products for the 2014 tax year and for the future.

2. Best Books for Investors: A Short Shelf (By Jason Zweig, Nov. 25, 2014)
Jason Zweig, author of the Intelligent Investor column, wrote here that he is “often asked, especially as the holiday gift-giving season approaches, which books I recommend for investors.” His answer was clearly a subject of great interest, with the second-highest readership of the past year’s Total Return posts. Jason lists 15 books, including two about Warren Buffett.

3. More Americans Renounce Citizenship, With 2014 on Pace for a Record (By Laura Saunders, Oct. 24, 2014)
As Laura explains here, tax experts say a growing number of renunciations by U.S. citizens and permanent residents “is linked to a five-year enforcement campaign against U.S. taxpayers who have undeclared offshore accounts.” The government’s efforts have made ordinary banking and financial arrangements difficult for many Americans living abroad and have potentially exposed some people to large tax penalties. When the Treasury Department subsequently published its fourth-quarter list of people giving up their passports or green cards, the final number reported for 2014 was indeed a record: 3,415 individuals....

...MORE

"No Morals, No Mayfair: A Tax-Advantaged Hedge Fund Manager’s Lament"

 From DealBreaker, October 7:

Dubai’s nice and all, but kind of boring. Also he’d like his $500 million back.

Some years ago, a London trader named Sanjay Shah stumbled upon a handy little loophole called Cum-Ex. This cute little maneuver allowed banks such as Shah’s to agree to sell a stock prior to a dividend payout but deliver it after, allowing both sides to claim a tax rebate in spite of it only having been paid once. And when Shah fell victim to Rabobank’s financial-crisis-era layoffs, he took that useful bit of knowledge to his hedge fund, Solo Capital Partners, which used it to wildly successful ends that ultimately cost national tax authorities billions upon billions.

Shah does not feel bad about it, because he did not write the law.

“Prove that any law was broken,” Shah said. “Prove that there was fraud. The legal system allowed it….” To the authorities trying to extract him from his exile, he has a piece of advice: know your tax code.

“It’s very nice to put somebody’s face on a front page of a newspaper and say ‘Look at this guy living in Dubai, sitting on the beach every day sipping a Pina Colada while you’re broke and you don’t have a job’,” he said. “I would say look at your legal system.”

He also doesn’t feel bad about it because it’s not his job to feel things.

“Bankers don’t have morals,” the 50-year-old said on a video call. “Hedge-fund managers, and so on, they don’t have morals….”

....MORE

Thanks to a reader for giving me a heads-up on the Cum ex crowd.

Carbon Tax: "Back to the Future"

A follow-up to our earlier "Cap-and-Trade: No Wall Street Intermediaries (BAC: GS; JPM; MS)".

We haven't mentioned Eleanor since 2007*, definitely an oversight, she has pretty good access on the gauche side of the aisle.

You know our thinking, don't let Wall Street anywhere near this. Either a tax with 100% rebate or Cap, 100% auction, 100% rebate; no offsets, no financial intermediaries.
If you set up a Cap-and-trade system with minimum and maximum annual prices and an electronic trading platform you make the so-called 'market-based system' a virtual tax.

If you ever hear a carbon trader say the lack of offsets will raise the price you know you've got a duplicitous (two-faced: dup=two) argument. The whole point of the exercise is to raise the price.
If someone's pitching low-cost cap'n trade they are making a political rather than an economic argument.
Then you cut the payroll tax dollar for dollar to encourage what you want (labor, i.e. work) and discourage what you don't want: the marginal BTU.
From NewsWeek, by Eleanor Clift:

The idea of a carbon tax, proposed by Al Gore 17 years ago, is winning new converts.
As world leaders gather in Copenhagen to pursue a reasonable set of targets to cap greenhouse gases, there is a growing realization in Washington that the Senate bill designed to address climate change is doomed. Republican Sen. James Inhofe, a global-warming denier, says the bill passed by chairman Barbara Boxer's Senate Environment and Public Works Committee could get only 29 votes, an assessment shared across the political spectrum. "The Boxer bill is ancient history," says the Sierra Club's chief climate counsel, David Bookbinder.

At the same time, there is a new sense of urgency that action must be taken to address what the weight of scientific evidence suggests is a deadly warming caused by human greenhouse-gas emissions, primarily carbon. The legislation currently before the Senate would cap overall carbon output and allow various business interests to trade permits to pollute like so many shares of stock. Wall Street loves cap-and-trade because permits could be securitized just like credit-default-swap schemes, but few others are wild about it, or even understand how it works, and it seems too heavy a lift for Senate Democrats facing reelection.

Against this backdrop, another idea is gaining momentum, one that seems even more improbable: a carbon tax. Its proponents call it "Plan B," and it is predicated on the anticipated failure of cap-and-trade...MORE.

*In 2007 I was kicking around the idea of measuring CO2 in units called "Gores", equal to 150 kilograms (Al was top ticking his weight at the time). I mentioned the idea in "Global Warming, Al Gore and Eleanor Clift" and showed off a bit of ADHD:

...Today she got off a couple good lines. Regarding a possible Bloomberg entry into the presidential race she said:
"...A billion dollars would make a difference"

Commenting on the Democrats she mentioned "Al Gore hovering over the field"

This is a vision I've had (and where I tie the post thus far to Climate Change) for a month or more.

It first came to me when I realized the EIA would be reporting later this month that the United States emitted almost exactly 6000 million metric tonnes of CO2 in 2006, which is handily divisible by the 300 million population.

That economy-wide 20 tonnes per person figure is, of course, not anyone's individual CO2 footprint (Quick. Compute the carbon mass. How many grams of carbon in one mole of CO2? You, smartass, you in the back: forget about the isotopes. If you're too precise, you're precisely wrong. The answer is_____.).
Because 20 tonnes of CO2 is as foreign to most people as an octonion (not eight onions), I tried to put it in terms normal people could visualize.

Then I saw this picture of Grammy nominated presenter, Webby and Oscar winner, Senator, Vice-President, former future president, Al Gore.

It occurred me, if people could visualize CO2 as X number of ex-V.P.'s floating over them, they might have a better grasp of just how much carbon dioxide we pump out.
(after the terror subsided, of course)

I'd guess that Al's weight top-ticked at over 300 pounds but giving him credit for his stated commitment to shed some, I set 300 pounds as equal to one gore (note small g).

Thus it's simple arithmetic to see that each American's share of our national CO2 output could be represented by 147 gores floating over every one of us.

Taking this a step further, a kilogore (one thousand gores) is equal to the CO2 apportionment of 6.8 Americans. This is also a Kilogore, but it's Theola (and a misspelling) . Singing "The Love of My Man". So every time you see seven Americans, picture 1029 former vice-presidents floating above them. Singing. The love of my man.

If you're bored, weigh the universe in gore units. I'd guess it's under a yotta (1,000,000,000, 000,000,000,000,000), which makes me sad. Although I like the "yottagore" I wanted to introduce the prefix "lotta" as in lottagore. We'll leave peta-gore to Tipper. (The Love of My Man)....

Carbon Tax Finds Sudden New Support In France, China, Japan

Cap, 100% auction, 100% rebate. (and no financial intermediaries)
From Energy Intelligence:

In the short span of just a few weeks, political leaders in France, China and Japan have all demonstrated to varying degrees that they are warming to the idea of a carbon tax of some sort as a tool for reducing greenhouse gas emissions. As time runs out for countries to position themselves politically for global climate talks this December in Copenhagen, Beijing and the new government in Tokyo are taking a harder look at a carbon tax, while France's stated intention is to implement such a tax by January. The momentum promises to reinvigorate debate on the pros and cons of carbon taxes versus the cap-and-trade structure widely accepted to date.

Both schemes would aid in gradually eroding the economics of carbon-intensive fuels and better positioning low- or no-emissions energy sources such as wind, solar, hydroelectricity and nuclear. But a carbon tax, proponents argue, would be more reliable and predictable for those held accountable for emissions, such as power generators, gas distributors and petrochemical companies. It wouldn't subject participants to the volatility of carbon prices, allowing them to better plan their operations, advocates stress....MORE

Joining the widely disparate members of the Pigou Club.

"The Great Ricardian Equivalence Throwdown!"

A twofer. First up, Noahopinion:

Y'all know I cannot resist wading into a good macro throwdown.

This week's econ-blogosphere mayhem started when Paul Krugman wrote a post about the idea of Ricardian Equivalence (the idea that the timing of taxes doesn't matter), and why it doesn't imply that fiscal stimulus can't work. As an example of someone who does think that Ricardian Equivalence makes stimulus a non-starter, Krugman cited some remarks by uber-macroeconomist Robert Lucas:

But, if we do build the bridge by taking tax money away from somebody else, and using that to pay the bridge builder — the guys who work on the bridge — then it’s just a wash. It has no first-starter effect. You apply a multiplier to the bridge builders, then you’ve got to apply the same multiplier with a minus sign to the people you taxed to build the bridge. And then taxing them later isn’t going to help, we know that.

Krugman's argument: Ricardian Equivalence says that the timing of taxes can't matter for the economy, not that the level of government spending can't matter.

Mark Thoma concurred: Ricardian Equivalence does not say that stimulus can't work, and Ricardian Equivalence is wrong anyway. But if it were right, it would only be an argument against tax-rebate stimulus, not against government-expenditure stimulus.

Then Krugman came under fire from David Andolfatto, who says that Lucas's statement was obviously not talking about Ricardian equivalence, and, hence, Krugman must not understand what Ricardian Equivalence is. Steve Williamson takes a somewhat less harsh line, saying that Krugman must not understand what Lucas was trying to say.

Krugman fired back, as did Andolfatto and Williamson. Much fun was had by all....MORE

And from New Monetarist Economics:

Ricardian Equivalance Heat 

Here's the latest word from Paul Krugman on Ricardian equivalence. First Lucas doesn't understand it. Now, not only does David Andolfatto not understand it, he can't read either. What's the world coming to? Who taught that idiot Andolfatto anyway? Send him back to Surrey for reading lessons. Maybe he should consider going back to drywalling.

Here's what Krugman says:

I accused Lucas of not understanding Ricardian equivalence. Here’s Lucas’s argument:

But, if we do build the bridge by taking tax money away from somebody else, and using that to pay the bridge builder — the guys who work on the bridge — then it’s just a wash. It has no first-starter effect. There’s no reason to expect any stimulation. And, in some sense, there’s nothing to apply a multiplier to. (Laughs.) You apply a multiplier to the bridge builders, then you’ve got to apply the same multiplier with a minus sign to the people you taxed to build the bridge. And then taxing them later isn’t going to help, we know that.

That’s saying that the spending response to expected future taxes leads to a fall in consumption that exactly offsets the expansionary fiscal policy. If that’s not a Ricardian equivalence argument, what is it?

What's Lucas saying? There's a bridge, it's funded by increasing taxes. Lucas says it doesn't make any difference that the government does this. He also says the answer doesn't change if the taxes that pay for the bridge are current taxes or future taxes. The last part of that is Ricardian equivalence....MORE

Environmental Defense, NRDC Strangely Silent on Obama CO2 Plan

I just checked the websites for the NGO members of USCAP; ED, WRI, NWF,NRDC and the Nature Conservancy for their reaction to Barack Obama's Cap-and-Auction proposal for allocating Carbon Dioxide emissions permits.
See Update below


Not a peep. No comments at all. Zilch, nil, nada.
Not even a mention that the Portsmouth speech happened.
As we quoted in "Eco-Hypocrisy Corporate Style IV":

"Corrupted by wealth & power, your government is like a restaurant with only one dish. They've got a set of Republican waiters on one side & a set of Democratic waiters on the other side. But no matter which set of waiters brings you the dish, the legislative grub is all prepared in the same Wall Street kitchen."
Huey Long

Here are some more blog reactions to cap-and-auction:
From Environmental Economics
Presidential endorsement

Please note: The Environmental Economics blog endorses no political candidate, regardless of the promised position in the government (e.g., Council of Economic Advisors). However, we might endorse a policy proposal from time to time. In that spirit we endorse Obama's carbon cap:...

...Did he mention trading of these allowances (I think so but I don't want to overuse The Google)? That would be even cooler. Although, once you auction the allowances, the need to trade is diminished as competition for allowances encourages firms to bid near their marginal abatement costs.

From Portfolio.com's Market Movers:
Barack Obama Gets it Right on Cap-and-Trade

It's great news that the centerpiece of Barack Obama's energy plan is a 100% auction cap-and-trade mechanism. Ryan Avent and Peter Dorman have some niggles, which are on point, but the big picture – that a cap-and-trade system should be based on auctioning permits rather than allocating them – is the main thing, and I look forward to the presidential candidates from both parties following Obama's lead on this one.

It would be interesting to see what Mark Gimein thinks. Gimein, guest-blogging at Time.com, describes a carbon tax as "one bad way to fight global warming that both Democrats and Republicans love". I'm not at all sure that a carbon tax is loved by either side of the aisle, and I'm not sure that it's a bad way to fight global warming, either. But if you ask someone like Greg Mankiw, he'll tell you that the differences between a carbon tax and a 100% auction cap-and-trade system are really pretty small. So if the former is a bad idea, does that make the latter a bad idea as well?

EconoSpeak and Climateer Investing are on the same page:
The Obama Carbon Plan

2008 will be the year America debates climate change policy, hopefully without descending completely into election-year inanity. 2009 will be the year we get a policy. For an issue of this magnitude, that’s a fairly short time frame, so every turn of events counts.

Today Barack Obama has gone on record with his own approach. By my reckoning he got almost everything right, but there’s one huge missing piece. He is right on:

• setting a serious target: an 80% reduction in emissions by 2050 is the minimum we should aim for, if we take the scientific evidence seriously. We can get there only by starting soon and staying on course.

• capping carbon emissions: a cap is necessary if we are going to try to live within ecological limits, and it is far preferable to a carbon tax, as I’ve argued earlier on this august site.

• auctioning the permits: as Obama said, letting the cows out of the Barnes, “Businesses don’t own the sky, the public does...”

• rejecting offsets: he doesn’t even mention them.

• investing in a non-carbon future: we need basic R&D, infrastructure and other initiatives to turn our economy around.

The only element that’s lacking is a commitment to rebating most of the auction revenues back to the people on a per capita basis. Economically, this is necessary to protect real incomes and avoid a dangerous contraction of consumer demand. (The higher energy prices we will be paying under any reasonable cap will be in the hundreds of billions of dollars.) Politically, it is necessary to win support for tough limits on carbon emissions. After all, if it is true that we own the sky, we should share in the income it generates. Finally, a per capita rebate would constitute the most progressive income redistribution program since the New Deal, a big consideration at a time of spiraling inequality.

So how do you finance those green investments if you give the money back? Answer: by ending pork barrel subsidies to the nuclear and fossil fuel mafias ($24B give or take a few) and rethinking national security, for starters. NB: if rebating the auction proceeds on an equal share basis is highly progressive, withholding a big chunk of it for other uses is highly regressive. Finance public investment out of taxes.

Here's The Bellows:
Solutions

David Roberts and Brian Beutler are discussing the Obama energy plan, and as they note, there are some things to like. Best of all is the stringent cap-and-trade program for which permits are auctioned off. That’s a big deal, and if we’re not going to go the carbon tax route, then this is the second best option.

I’m a lot less excited about the billions of dollars promised to research efforts on things like carbon capture and sequestration, or “the next generation of biofuels and fuel delivery infrastructure, accelerating commercial production of plug-in hybrid vehicles, promoting larger-scale renewable energy projects and low-emission coal plants, and making the electricity grid digital.” Not that those wouldn’t be great things. It’s just that 1) if we price carbon correctly, firms will have lots of incentives to do this stuff anyway, without billions in public money. And 2) there are large opportunity costs to spending money on projects for which the payoff is unsure–namely, we can’t spend that money on things NOW that we KNOW will pay off....

Update: The ever-vigilant Director of internet strategy for ED sent this email:
"Hi, just wanted to let you know that there's a very good reason why Environmental Defense is not commenting on Obama's plan. We're incorporated as a 501c3 charitable organization, so we're not permitted to engage in electioneering. If we appeared to endorse or oppose any candidate, our tax status would be in jeopardy. Saying anything about Obama's plan would cross that line."

Issue tax rebates as bonds indexed to commodities (with Anti-spin)

From iTulip:
(scroll down)

The Treasury paid soldiers during the inflationary period of the American Revolutionary War with bonds indexed to a basket of commodities. Can the method be applied to tax rebate checks?...

....AntiSpin: Not bad but they are still missing the story. We call it the Inflation Abatement Check because it might just about cover a year’s inflation costs for the average recipient. For example, the DOE and DOT say an American auto is driven about 12,000 miles a year and gets an average of 24 MPG. The average price of a gallon of regular gas a year ago was $2.27 versus $3.11 today. The average car owner will spend about $375 more this year than last year just on gasoline, or 63% of that $600 “rebate” check. Sum the higher costs of energy, food, utilities, insurance, and tuition and that $600 check is already spent by inflation. Sad that so many recipients think they are going to be able to save it.

But maybe there's a better way. The picture above is of the world's first known inflation-indexed bond. They were issued by the Commonwealth of Massachusetts in 1780 during the Revolutionary War. Robert Shiller made the discovery in his research in 2003: "These bonds were invented to deal with severe wartime inflation and with angry discontent among soldiers in the U.S. Army with the decline in purchasing power of their pay.">>>MORE

Replace Kyoto protocol with global carbon tax, says Yale economist

Speaking of flanking maneuvers... (see post immediately below), this isn't one. This is a direct assault on the cap-and-trade crowd by one of the heavyweights of the environmental econ biz.
Take a look at Professor Nordhaus' c.v.
Here's the story from The Guardian:

The Kyoto protocol is reckless gamble that penalises participating countries, Copenhagen climate change congress told

The world should dump the "inefficient and ineffective" Kyoto protocol and replace it with a global carbon tax, leading economist William Nordhaus said yesterday.

"To bet the world's climate system on the Kyoto approach is a reckless gamble", he told the climate change congress in Copenhagen. "Taxation is a proven instrument. Taxes may be unpopular, but they work. The Kyoto model is largely untested and the experience we have tells us it will not meet our objective — to stablise the world climate system."

This week's meeting of more than 2,000 scientists and policy-makers is intended to lay the groundwork for a major UN summit in Copenhagen in December that hopes to negotiate a new climate treaty to succeed the Kyoto protocol.

Nordhaus, professor of economics at Yale university, critricised the Kyoto system in trenchant terms. "The developed countries that have emissions reductions targets account for only half of the world's carbon emissions. Our models show that a 50% non-participation results in a 250% increase in the cost to those who are participating, and this is a huge penalty we can no longer afford.">>>MORE

The article doesn't say what the use of proceeds would be. As one of Nordhaus' many co-authors over the years was James Tobin (one of at least three Nobelist co-authors in the c.v.), I fear this may lead to an international 'soak the U.S. citizen' plan, à la the Tobin Tax.

But even that might be preferable to the 20% middleman rake-off we'd see under C&T.

The cleanest approach is Tax & 100% Rebate. Keep the money out of the hands of the politicians.

International Carbon Trader Advises Obama: "Trade Carbon Internationally"

Whoa! Didn't see that one coming.
Lord Stern is Vice-chair of IdeaGlobal, parent of IdeaCarbon.
Don't let Goldman Sachs and the rest of the banksters do to our world what they did to theirs.
Tax and 100% rebate.
From Greentech:

Lord Stern to Obama on Crafting Carbon Cap and Trade: Don’t Give In to Pressures

Here the advice to Barack Obama and Congress from Nicholas Stern, a former World Bank chief economist, about what not to do in crafting a carbon emissions cap-and-trade program:

“Don’t be pushed too hard by domestic pressure and move as quickly a possible the auctioning of permits. Do allow international trading and buying of credits.”...

...“We should tax things that are bad. We are not paying the price of destruction,” Stern said. “There are $250 billion worth of energy subsidies [worldwide], mostly in hydrocarbon, and we should get rid of all of them.”

Asked whether the United States should choose a carbon tax instead of a carbon cap-and-trade program, Stern said both. He noted that European countries levy heavy gasoline gases, and the EU is trying to tighten its cap-and-trade program and broaden the program’s coverage to include more industries. The current cap-and-trade program covers about 40 percent of EU’s emissions.

Stern said a cap-and-trade program such as the EU’s generates incentives for developing countries to embrace renewable energy generation and other greentech ideas. As part of EU’s program, companies that need to buy emissions permits can buy from those who have built solar or wind energy projects in the developing world and garnered credits that can be sold to make a profit....MORE

The problem with buying Clean Development Mechanism (CDM) carbon credits from developing nations is not the documented, multi-billion dollar CDM frauds, it is the fact that using the so-called cheaper alternative to meet a cap means that American ratepayers will be building infrastructure in China and then, as caps ratchet down, have to build infrastructure all over again in the U.S.

Oh, then there's the fact that hiring carbon traders as mercenary tax collectors means that up to 20% of the cash flows will go to them.

On top of the fact that on some CDM projects 60% of the proceeds go to the middlemen, developers, verifiers, bureaucrats, traders, promoters ad nauseum.

It's time for the politicians to reach between their legs and see if they got a pair.

(old Lehman line, ca. 1984).

Some of our previous posts on Nick Stern:

Sir Nicholas Stern: Carbon Cowboy

“Bali will set in motion a process that will define the structure
of the carbon markets for decades to come”
“By 2020 the global carbon market could be worth EUR 240-
450 billion”
-Sir Nicholas Stern

Climateer "Quote of the Day" (International Dateline Edition)

"This (climate change) is much too important to leave to environment ministers"
-Sir Nicholas Stern
to Finance Ministers basking in Bali

Carbon Credits Undervalued For Phase II - IDEAcarbon's Global Carbon Report Shows Carbon Price At Odds With Market Drivers

Deutsche Bank said something similar in "You're Not Buying Enough Carbon Credits" Deutsche Bank"....

‘No patenting of clean technology, please’

That's Nicholas Stern talking. I'm curious how my florescent green venture capitalist friends will react.
For the most part they were okey-dokey with Sir Nick when he was downplaying the costs of mitigation.*...

Sir Nicholas Stern: Cost of Carbon Biz Has Doubed to 2% of World Economy

No it hasn't.
Sir Nick was low balling the cost of his proposals last year.
On May 31, 2007 we wrote:

...we're starting to get to the real number and we should be able to keep it all under a third-of-a-trillion dollars per year for the U.S. contribution (before adding in direct costs like putting vodka in your tank but that's okay, the Stern number of 1% of World Gross Product should be 2% minimum so we've got incorrect estimates piling on incorrect estimates anyway).

I don't know why he was having fun with numbers but he was. If a humble blogger can work the abacus I'm pretty sure Stern knew....

Russian stock markets plunge

From the AP:

Mechel criticism rattles investors, heavy trading sends Russian stock markets down

Investors piled out of Russian stocks Friday after the abrupt departure from the country of a foreign oil boss and the prime minister's unexpected severe criticism of a large steel firm.
MICEX, the exchange where the bulk of trading in Russian stocks takes place, plunged 5.5 percent by the close of markets, while the RTS Index lost 5.6 percent to sink to its lowest point since March.

After Prime Minister Vladimir Putin's scathing attack on Mechel late Thursday, heavy trading in New York sent the steel and coal maker's stock down nearly 40 percent, wiping more than $5 billion off its value -- though shares rose around 20 percent in early trading in New York on Friday....MORE

In other Russia news (from FT Alphaville):

Investment group alleges $230m Russia fraud

Suspected fraudsters have allegedly stolen $230m from the Russian tax authorities in a complex scheme involving forgery, impersonation and the theft of three investment companies, according to Hermitage Capital Management, formerly the country’s largest foreign portfolio investment manager. The perpetrators allegedly fraudulently re-registered the ownership of the companies before using them to make false tax rebate claims, according to the fund manager.

FT Editor's Choice Russia headline:

TNK-BP chief is ‘forced out’ of Russia - Jul-24

Climate Cap-and-Trade Schemes as Corporate Welfare . And: Cap and Trade and Selling Out

Econ 10: Tax what you want less of, don't tax what you want more of.
Tax and rebate 100%.
You won't find two more different publications than Reason and CounterPunch, yet here they are, both making arguements against Cap-and-Trade. We also have a special guest appearance from James "Gaia Hypothesis" Lovelock. First up, the headliner from Reason:

Yesterday, the Goracle (as Dana Milbank of the Washington Post affectionately refers to him), otherwise known as the former Vice-President, Nobel Peace Laureate, and Oscar-Winner Al Gore, testified before a Senate committee on the dangers of man-made global warming. Among other things, Gore told the committee:

If Congress acts right away to pass President Obama's Recovery package and then takes decisive action this year to institute a cap-and-trade system for CO2 emissions - as many of our states and many other countries have already done - the United States will regain its credibility and enter the Copenhagen treaty talks with a renewed authority to lead the world in shaping a fair and effective treaty. And this treaty must be negotiated this year. Not next year. This year.

Gore was talking about the United Nations' global warming treaty negotiations that are supposed to be wrapped with a new agreement at the end of this year in Copenhagen, Denmark. Currently, the treaty negotiations aim basically at extending the cap-and-trade model of the earlier Kyoto Protocol. People who are concerned about global warming should seriously rethink their support of cap-and-trade schemes. As the Guardian explains, Europe's emissions trading scheme (ETS) is very profitable for some corporations:...MORE

(regular readers saw the gist of the Guardian story yesterday in "A second carbon windfall")

Next up, Alexander Cockburn's CounterPunch has a different gripe:

Shortly after the Inauguration, President Obama and his new EPA head Carol Browner received a thank-you letter from over 325 conservation-oriented organizations, and within it were flowing words of praise for candidate Obama’s pledge of support for a doomed-to-fail cap and trade carbon economy and associated spending to “safeguard wildlife and natural resources from the impacts of global warming”.

A number of the groups behind the letter are the usual suspects; they sold their environmental souls years ago, if they ever had them at all. So it is no surprise to look down the list and find the likes of The Nature Conservancy, Environmental Defense Fund, Trout Unlimited, and the National Parks Conservation Association.

What is surprising is that these ‘conservation’ corporations were able to dupe so many other local, regional, and national organizations into supporting such a fraudulent approach to the problem of climate change.

A soulless organization like The Nature Conservancy pays more attention to its revenue streams and the whims of the corporate entities behind the dollars than it does to global warming, the pillaging of our national forests, and the levels of pollution in our rivers and lakes. So of course it supports the creation of a new false economy that has great potential to generate cash flow for the stakeholders behind it....MORE

Dual (tandem?) HT's: Carbon Tax Center

Finally, from New Scientist:

One last chance to save mankind

With his 90th birthday in July, a trip into space scheduled for later in the year and a new book out next month, 2009 promises to be an exciting time for James Lovelock. But the originator of the Gaia theory, which describes Earth as a self-regulating planet, has a stark view of the future of humanity. He tells Gaia Vince we have one last chance to save ourselves - and it has nothing to do with nuclear power

Your work on atmospheric chlorofluorocarbons led eventually to a global CFC ban that saved us from ozone-layer depletion. Do we have time to do a similar thing with carbon emissions to save ourselves from climate change?

Not a hope in hell. Most of the "green" stuff is verging on a gigantic scam. Carbon trading, with its huge government subsidies, is just what finance and industry wanted. It's not going to do a damn thing about climate change, but it'll make a lot of money for a lot of people and postpone the moment of reckoning.

I am not against renewable energy, but to spoil all the decent countryside in the UK with wind farms is driving me mad. It's absolutely unnecessary, and it takes 2500 square kilometres to produce a gigawatt - that's an awful lot of countryside.

What about work to sequester carbon dioxide?

That is a waste of time. It's a crazy idea - and dangerous. It would take so long and use so much energy that it will not be done....MORE

That's about as diverse a set of links as you're likely to find on one page.