> (On the other hand, a market is more efficient than a ban, but more
> complex to administer. ....
"Nick Arnett" <[EMAIL PROTECTED]> responded,
Is the first part "a market is more efficient than a ban" a statement of
faith? I would hope so, since it is hardly provable.
Its not a statement of faith, but I did leave out the arguments for it.
Consider the problem posed by people who try to poison me and others
by releasing pollutants into the air.
Our government decides that this sort of activity should be reduced.
It has two choices:
1. Ban polluting emissions.
This means telling a company that its emissions at its smokestack
must be less than some value, or else the company will pay a
fine. (People often think that a ban means `zero output' of
what is banned, but that is not what is meant in practice, which
is to reduce an output below a certain level.)
A ban also means organizing a policing unit to check smokestack
outputs and/or providing outsiders with a legally permitted
mechanism to check companies' actions and take them to court if
they violate the ban.
2. Organize a market to cause the various companies involved in
electricity production to internalize the cost of pollution; and
to penalize them for producing pollution.
This means deciding on the total amount of the pollutant that
will be permitted into the environment and setting up the the
legal environment that enables people and companies to write
contracts regarding the release of this pollutant.
Suppose an electric power company owns four power plants, all burning coal.
* Two of the power plants are old and can produce 500 MW each of
electricity and release 100 tonnes of ash for every N kwh
produced.
* One power plant is moderately new and can produce 1000 MW of
electricity and releases 50 tonnes of ash for every N kwh
produced.
* One power plant is new and can produce 1000 MW of electricity and
releases 20 tonnes of ash for every N kwh produced.
The average demand for electricity from these plants is 2250 MW; the
peak is 2700 MW.
Consider two ways of paying for the reduction in pollution. Please
bear in mind that the consumer, namely me and others, will end up
paying. I have an interest in a lower electricity bill! Poorer
people have an even greater interest.
1. Ban pollution; for example, state that the permitted pollution
level for each plant be under 40 tonnes/N kwh.
This means that three plants need to be retrofitted: the two old
plants and the middle-aged one.
2. Create a pollution market by stating a total amount of permitted
pollution that (as it happens) leads to exactly the same number of
tonnes of pollutant entering the air per year as in the ban.
This means that the electricity producer pays some cost when
operating the middle-aged plant without having retrofitted it and a
considerable cost when operating the old plants without having
retrofitted them.
The question is, what is the cost to electricity buyers, to gain the
same low level of pollution production?
The banning technique means that three plants will have to be retrofitted.
The market technique means, most likely, that the middle-aged plant
and one of the old plants will be retrofitted. The new plant will
sell its low level of pollution to the other old plant. And that old
plant will be turned off when power demand is below peak. The
electricity customer pays less to reach the same level of pollutant
output.
Generally speaking, the second method, the market technique, costs
less for a given level of pollution.
The reason is that different plants are built with different
technologies and have different ab initio pollution outputs and
different costs of retrofitting. (As a rule of thumb, for the same
reduction in pollution, older plants pollute more and cost more to
retrofit than newer plants, per unit of electricity produced. New
plants, for example, use different kinds of burner than old plants and
build ash collectors into their exhaust systems.)
The same argument applies to `intrinsically polluting' operations,
such as burning fossil hydro-carbon for fuel. If two plants are
equally efficient, then the one burning natural gas will release less
carbon dioxide than the one buring coal, per unit of electricity
output. So the idea is to tax carbon, to encourage a switch to fuels
that use less or no carbon. (I have heard it suggested that in the
US, an effective `carbon tax' would increase the cost of auto gasoline
by 10 or 15 cents per gallon. I have no idea if these numbers are
good suggestions, but such numbers are what the controversy is about.)
If the contrast is between two 1000 MW plants, one burning coal and
the other using uranium, the latter will possibly release a
catastrophic amount of radiation, but the former will continually
release low levels of radiation in excess of what the nuclear plant
releases.
(There is uranium dust in the ash that comes out of of the smokestacks
of coal-fired power plants. I have been told that coal-fired power
plants have been exempted from the radiation release regulations that
nuclear power plants must follow; otherwise, the coal-fired power
plants would be shut down on account of their low level radiation
releases. An aquaintance, a public health specialist, once told me
she researched just how much radiation is released and could not get
good figures. I don't know if the problem has been exaggerated by
nuclear power plant operators or downplayed by those who own both
nuclear and coal-fired plants. As far as I know, natural gas plants
do not release radiation; they don't have much if any radon in the
gas, and no dust.)
The alternative to a carbon tax is to ban fuels that contain carbon,
or ban types of fuel. Thus coal might be banned, but natural gas
permitted.
However, such a ban immediately wastes the sunk investment into coal
burning plants and means that natural gas pipelines must be built to
areas which have readily available coal. The idea behind a
differential tax is that it discourages new investment in the more
expensive fuel and encourages more invenstment in and full use of
plants that use the less expensive fuel.
> For example, it is better for a society to
> spend $100 million to clean up one power plant than to spend $250
> million to clean up 4 old plants; you can use the $150 million for
> lots of things -- for example, out of that you could spend $50 million
> on rich people and $5 million on poor people that other wise would not
> be spent on them. But an artificial market is more difficult to set
> up. You, as a government, have to decide what to permit and how much.
I'm afraid I can't make sense of your example.
I hope the example I gave fills in better what I meant. We customers
of my local electricity company pay for the costs of reducing
pollution. In general, the extra cost of building a new plant to
release low levels of pollution is less than the cost of retrofitting
old plants to reduce the costs of their pollution.
Since I want both less pollution and lower electricity bills, I prefer
the more efficient method.
This is why I favor carbon taxes and other such mechanisms that
cause companies to internalize the costs of what economists call
`external goods' and to penalize the companies for producing outputs
that hurt me and others.
--
Robert J. Chassell [EMAIL PROTECTED]
Rattlesnake Enterprises http://www.rattlesnake.com
