Monday, December 14, 2009

In the Spirit of Copenhagen: A Disappointing and Poorly Organized Post

So much for good timing.

I had hoped to write this blog post, my very first from this side of the international dateline, against the back drop of the Copenhagen Summit. It behooved me, I thought, in breaking my short hiatus from The Chorography to write something, if of not superior quality than at least with a degree of topicality. This blog, I had planned to note, has so far spilt very little of its proverbial ink on the topic of climate change. Maybe, I was then going to ponder, this is a reflection of that issue's lack of ambiguity (at least within this group). Or maybe with people like Bono parading around Africa in aviators and playing a poor man's Thomas Friedman for the New York Times, to even broach the topic (and on a blog of twenty-somethings no less) would be to risk cliche-ridden didacticism and embarrassing predictability and a comment section left forever empty, the blogospheric equivalent of a cleared cafeteria table. Or maybe, I was going to conclude my extensively thought-out and unnecessarily longwinded introduction, we as a group just aren't particularly interested in the topic. And then, at long last, I would lay out an undoubtedly clever segue into my actual point.

But it looks like, at least for the time being, I can skip all of that. As you've probably all read by now, the summit has been suspended and may very well be on the way to a formally acknowledged, Robert's Rules of Order sanctioned collapse. If even the most cynically pessimistic of you are disappointed by the fact that the governments of the world can't even agree on what will and will not be discussed at a conference on a topic as monumentally important as this one, imagine how disappointed I am at the loss of an awesome lead-in.

So, of less and less relevance by the hour, here are some people arguing on the internet about cap and trade.

Last week, the well known climatologist James Hansen wrote an opinion piece for the New York Times laying out the case (or at least, his case) against CAP. Send in the blockquotes:
Because cap and trade is enforced through the selling and trading of permits, it actually perpetuates the pollution it is supposed to eliminate. If every polluter’s emissions fell below the incrementally lowered cap, then the price of pollution credits would collapse and the economic rationale to keep reducing pollution would disappear. (NYT)
There are many convincing arguments that can be made in opposition to cap and trade. If I understand Jansen correctly, his would not one of them. The point of a cap and trade regime (or at least, half the point) is that there is a cap. "[T]he economic rationale to keep reducing pollution...disappear[s]" for only as long as polluters are emitting under the cap. Once the cap is reached, prices begin to climb (if not long before that). In terms of the overall emissions, this really isn't that different a concept than simply setting a restriction on all carbon pollution. That a price mechanism is involved doesn't change that the fixed quantity remains a fixed quantity.

More convincing are those arguments made by Jansen (and others; a more entertaining presentation of this side of the argument comes from Annie Leonard. Here's a link*) that current proposals (Waxman-Markey) are full of political give-aways that effectively neuter the intent of the bill. And I tend to agree. With permit give-aways, rather than a permit auction, and offset provisions, it does seem likely that a lot of carbon will find a way to seep through those loopholes.

What I don't understand however is how both Jansen and Leonard can use the failings of a particular bill to condemn the entire concept in all of its manifestations. I suppose they may believe that the concept of CAT itself is inherently susceptible to political manipulation, but how is that so different from carbon tax, the most commonly suggested policy alternative?**

Peter Dorman takes up this issue in particular (as a part of an extensive and readable defense of cap and trade over at Econospeak):
A comparison between a nasty, highly compromised carbon cap and a pure, hypothetical carbon tax is meaningless. Once the carbon lobby gets its hands on a tax, the picture will be just as ugly. You can bet that whole industries will be exempted from the tax. You will be able to dodge the tax by making contributions to tree-planting or some other activity across the globe (offsets). The tax revenues will go into the same special interest trough that permit revenues have trickled into. And of course the tax will be much, much too low.
For his part on the other side of the Op-Ed page, Paul Krugman takes the Jansen article to task. With more optimism then most, he writes that even a cap and trade, as "nasty" and "highly compromised" as the one from the House, is better than the political alternative, which he assumes perhaps correctly to be nothing.
For here’s the way it is: we have a real chance of getting a serious cap and trade program in place within a year or two. We have no chance of getting a carbon tax for the foreseeable future. It’s just destructive to denounce the program we can actually get — a program that won’t be perfect, won’t be enough, but can be made increasingly effective over time — in favor of something that can’t possibly happen in time to avoid disaster. (NYT)
Most of the advantages Krugman identifies in a CAP system have very little to do with its economic or environmental merits, but its political palatability. On the economics, Krugman tries to make the point that Jansen doesn't really understand what he's talking, that the entire theoretical argument is irrelevant, because in principal a fixed price for carbon (a tax) and a fixed quantity of carbon (a cap) have the same economic affect. In principal.

What this ignores is that econometrically speaking, there is enormous uncertainty about how our national (to say nothing of the global) economy will react to a particular restriction on carbon emissions. If, for example, carbon reductions of any amount will come at an extremely high cost, an absolute cap at any amount below the current emissions trendline will produce equally high permit prices. If, on the other hand, those first marginal reductions come at a very low price (that is, it really is just a matter of insulating your warehouse and buying a few scrubbers) a cap just below the trendline will lead to very modest prices. And so, in the case of uncertainty, the same cap may correspond to two very different hypothetical tax rates. So in principal, the two regimes may be the same, but in principal only.

So far all the participants in the argument above have been operating under the assumption that, to paraphrase Al Gore, the issue of climate change is fundamentally a problem of political will. That is, given the right price, the economy can be re-incentivized to produce to impliment the existing technical methods and innovate and/or invent the new ones necessary to reduce emissions to any amount. But the most compelling argument that I've heard against a cap and trade regime (and only possibly because I heard it incessantly for four months) was that offered by Chris Green, a professor of mine (and Elias') at McGill, who dismissed that line of thinking completely. As he argued, the reason that cap and trade worked so well in reducing sulfur emissions over the course of the last two decades was because the technology to make those reductions was already available and relatively cheap to deploy. Putting a small price on sulfur emission was able to sufficiently jump-start an economy-wide adjustment away from sulfur-intensity that was already technically feasible but, outside the CAP framework, not profitable.

Such is not the case with climate change, according to Green. As far as alternative energy goes, none, not separately and not together, can produce anything near the energy we consume through the burning of fossil fuels. Which is to say that we cannot begin to seriously reduce our carbon emissions unless we a) deliver some serious technical innovation to the areas of solar, wind, biofuel, hydro, nuclear, etc, or b) accept large scale economic decline for at least the short-term.

As the argument goes then, the emphasis should not be on seriously reducing carbon now but instead, beginning to stabilize the growth of global emissions while diverting enormous amount of capital towards R&D in the above mentioned areas. And because of the aforementioned uncertainty regarding the relative adaptability of the U.S./Global economy to carbon shortages (Green was of the mind that the demand curve for carbon was highly inelastic and therefore a cap below a certain point--and at what point we don't know--would be likely to result in destabilizing permit prices), a carbon tax was the better, more straight forward source of that capital.

And so, as in all debates in economics (or anywhere now that I think about it), where one falls on this issue depends entirely on the set of assumptions brought to the table. Unless of course you're in Copenhagen, in which case you've already left the table.

* As far as I could tell, there are no skulls in this video. Sol will probably hate it anyway.
** For what it's worth, according to James Boyce, a pretty good looking cap and trade bill has been introduced in, of all places, the U.S. Senate.

4 comments:

  1. So I guess the talks are now back on?

    As for the mystery of the missing climate change-centred blog posts, I think it's a combination of a couple things:
    1. You and Lion may be the only people who understand what exactly Cap and Trade will mean.
    2. We are all in agreement over three things, rendering most discussion pointless: one, that climate change is real, two, that we would be comfortable with any action over none, and so won't be griping over caps and credits and what have you, and three, I don't think any of us would step forward to argue against any kind of legislation or policy-making for being too harsh. I might just be extrapolating but I think if there were objections to climate change efforts they would be unanimously critical of it for being lax, rather than strict.

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  2. Good points.
    I figured it was the unanimity of opinion on the issue more than anything else. But on the other hand, I can't think of too many political issues of any kind where opinions within this group would vary in any meaningful way. Maybe Afghanistan. Or whether Adam Davidson should or should not eat a glass salad niçoise.
    Maybe it's also that the topic of climate change is rarely the subject of a specific media event like Copenhagen. Overall, to the extent that it is mentioned in the news media to which this blog tends to respond, global warming seems to hum along as background noise. Occasionally another scientific report will come out and be mentioned briefly by someone somewhere, but more often than not climate change is a presented as a single progressive issue among many, and one that rarely makes its own news.

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  4. I'll admit that the only feeling I have on climate change is resignation. Ben is completely right to say that the only real solution is a substantial winding down of our current economic life. That entails a very large number of (relatively) wealthy people accepting, willingly, a large reduction in their standard of living. Americans, at least, only agree to countermanding their self-interest when it's pitched by Republicans as tax reform.

    I fully confess that my attitude is unproductive and leaves me defenseless against the charge of hypocrisy. But whadda we really do? The language of modern economics is itself antithetical to adapting to climate change. Obsession with growth stands squarely in the way of effecting sustainability. We clearly have more than we can successfully manage, but the consensus is that more than that would still be better. That sort of thinking could be put to rest in a few generations, only we don't have that kind of time and there isn't nearly the intellectual apparatus needed to do it.

    So I guess what I'm saying is, climate change is a problem that in my opinion is realer and on a grander scale than things that we normally discuss here, and for that reason it feels unapproachable. What can I really add by lamenting the fact that people are unwilling to face it? I don't even wanna face it. I can't even imagine what it really means.

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