Re: [geo] Re: [CCP] Grow trees fast and bury them?I am reluctant to burden this
list with a very long message, but for those interested I append some
references to work I finished a decade ago but was little noticed (peer review
imperialism again) by an economics profession heavily bent on selling the price
theoretic carbon tax cum emissions permit programme. And a policy community
who had found all that price theory so hard to understand at college that they
thought their professors must have been right.
So they were/are uncritical of a body of theory that had been blown apart by
the publications of Stiglitz and colleagues exposing the neglected information
requirements of competition theory, by Simon and colleagues demonstrating that
the bounded rarionality of managers is incapable of handling such information,
even if available, and by the empirical studies of consumer choice by Khanemann
and colleagues showing that the rationality of consumers is quite different
from the neo-classical axioms. So the policy process sailed ahead based on
Baumol and Oates's pioneering work applying neo-classical price theory to
environmental externalities without noting that the models treat only emissions
as the control variable and without knowing that terrestrial nature absorbs
(and emits) ten times as much CO2 as fossil fuels, never mind what happens over
the oceans.
Also, with a few honourable exceptions, the profession ignored the economics of
technological change which involves increasing returns to scale and cannot be
fitted into neo-classical price theory that needs universal diminishing returns
for its 'convexity' propositions. So neo-classical economics has driven policy
makers to the proposition that putting a price on carbon is the most important
thing to do (e.g. Stern) even though economics 101 teaches us that prices
should result from convergence of demand with the costs of production and the
first thing to do is to decide what needs to be done to procure climatic
security and then find the cost and price.
Prima facie what needs to be done is technological innovation that gets the
energy industry off fossil fuel dependency. Increasing returns to scale
results from decreasing costs that come from experience, the so-called learning
curve, so that there is a beneficial inter temporal externality, with the
greatest benefits from the pioneer innovators whose experience is available to
all posterity minus 1 year, rather than second year innovators, whose
experience is available to posterity minus 2 years, and so on. So a
dynamically efficient supply-side price signal to specialist producers
decreases over time, per contra all the policy prescriptions that envisage
carbon prices increasing at the rate of interest (at least until a backstop
technology comes along, to save the world).
Fortunately this can be quite easily fitted into a permit system by making
permit issue dependent on technology take up. 100 permits this year for 1 per
cent approved renewable energy, 80 next year, 75 the following 66 in the 4th
and so on so that, with permit price transmitted to consumers of $1 per ton, or
1€/ton of CO2, then the reward for innovation is $€100 this year, $€80 next
year $€75 in year 3 $€66 in year 4 and so on Of course the (small) permit
price that gets transmitted through to generalist consumers who don't learn
much from experience goes up at the rate of interest and the two prices
converge at 100 per cent renewable obligation until some backstop technology
takes over. Given knowledge of the learning curve there is an optimal
trajectory as shown in the last of my earlier papers, but as we can only make
an educated guess we can be only roughly right - but better that than being
precisely wrong by relying solely on a generalized incentive for emissions
reductions.
Apart from introducing learning by doing, brought into the literature by Ken
Arrow in 1962 (but neglected by the profession -- save for W Brian Arthur's
work on concepts such as lock-in of established technologies and Romer's work
on endogenous growth -- for decades and yet to penetrate into the dim recesses
of environmental economics) all the above is consistent with the perfect
competition assumption of price taking and fits quite easily into emissions
trading schemes.
However, as noted above, price theory is in tatters but keeping the price
theoretists happy keeps a lot of worrying people off the streets, as Keynes
remaked of the stock market casino I believe [would that he had been around
last year] So a scheme for driving technological change that fits in with
emissions trading has much to be said for it (as with the experience of flue
gas desulphurization, which its EPA authors claimed a triumph for price theory).
As noted by W Brian Arthur, however, businessmen ususally favour competition
for everyone else while seeking a nice little rent returning non-competitive
niche for themselves. So the bite from "allocating permits usefully" (APU) as
I have called the above scheme comes from the obligation to do something,
quite what determined by the nature of the renewable energy that attracts the
permit issue. Taking the need for negative emissions seriously, this means
permits for forestation schemes, for CCS schemes and for biochar schemes, all
conducted according to best practice and forgetting the ridiculous
additionality provision of the CDM. And the tiny price to non-specialist
consumers will probably induce a lot of money saving efficiency measures if
accompanied by enough out-reach and communication.
Reviewing my book "Responding to Global Warming", hard-nosed Oxford Economist
Wilfred Beckerman ("small is silly") commented that "the chances of such a
logical scheme being adopted by environmental negotiators are negligible".
Maybe nature is getting impatient. Maybe the logical French can come to the
rescue?? [ some references below, all available electronically, I believe,
save for the 2000 paper, unfortunately, for which recourse to library interloan
may be needed]
Hope this does not seem too greatly self-regarding but it is tiresone to see
people re-inventing the wheel
Cheers
Peter
1999. “Comparative Static Analysis of Proportionate Abatement Obligations
(PAO’s) – A Market Based Instrument for Responding to Global Warming”, NZ Econ
Papers, 33(1), 137-147. (google NZEP)
1999 . “Tradeable Abatement Obligations (TAO’s)”. Discussion Paper No. 99.09,
Department of Applied and International Economics, Massey University,
Palmerston North. (Google Massey Uni DAIE papers)
1999 “Allocating Permits Usefully (APU)”: Joint Implementation Quarterly,
5/3. (google JIQ)
2000 “An Information Perspective on Dynamic Efficiency in Environmental
Policy” Information Economics and Policy, 12, March, 47-68 (google IEP)
2000 “Asymmetric Learning by Doing and Dynamically Efficient Policy:
Implications for Domestic and International Emissions Permit Trading of
Allocating Permits Usefully”, Energy and Environment, 11/6, 665-679 .(not
available electronically)
2006 “Reconciling emissions trading with a technology based response to
potential abrupt climate change” Special Issue of Mitigation and Adaptation
Strategies for Global Change, Vol 11/2, 501-519 Google MITI)
2007 “Policy Instruments for a Sustainable Future” , Policy Quarterly, IPS,
Victoria University of Wellington (Google IPS, VUW)
----- Original Message -----
From: Bonnelle Denis
To: [email protected] ; John Nissen ;
[email protected] ; Geoengineering
Sent: Tuesday, October 20, 2009 8:28 PM
Subject: [geo] Re: [CCP] Grow trees fast and bury them?
Hello,
Giving the CO2 a price may be implemented in two ways, which operate
differently:
- As concerns everybody as a consumer of gasoline for his/her car, natural
gas or fuel oil for house heating, etc., a real-size feasibility experiment is
going on in France, where the government tries to pass a bill for a new tax,
which should be 17 €/ton of CO2 (25 $) at once, and with a final goal of 100
€/ton (in quite any other country, it should also be paid for electrical power,
but not in the French project, due to the high rate of nuclear and hydro
power). Previously, only smaller Scandinavian countries had introduced such a
CO2 tax. One of the most prominent member of the commission who designed this
tax (and proposed a 32 €/t price at once) is former Prime Minister Michel
Rocard, who is also Nicolas Sarkozy's ambassador for Arctic climatic issues.
What the current political debate shows is that it would have been absolutely
impossible to create such a tax without granting every individual with a
rebate. The reasons for this is that the people who live in distant suburbs (in
France, there are fewer of them than in the US, but they are often the poorest)
can't do without driving a car and using fuel oil to heat their home, and can't
be blamed for it.
- Another hot issue is that the businesses should be taxed as well, and some
opponents to the carbon tax raise the fact that, due to excess initial CO2
emission authorizations (allowances ?), the existing European cap and trade
mechanism generates an "industrial process CO2 price" which is currently lower
than 17 €/t, which individuals deem as unfair. So, these Kyoto-related European
quotas will have to be restricted so that this industrial CO2 price rise above
17 €/t, otherwise no CO2 tax can be passed.
- For our debate, I think that a clear conclusion can be drawn : a 100 %
rebate is absolutely needed for individuals, and very little money can be
granted for carbon burying projects from a CO2 tax financing ; but businesses
could rather easily be authorized to compensate their CO2 emissions (this is
the true rationale and principle of a "cap and trade" scheme) through such
projects, so that any technology which would eliminate CO2 at a lower price
than, today, 17 €/t, and, tomorrow, 50 or 100 €/t, will become economically
sustainable.
Best regards from France,
Denis Bonnelle.
De : [email protected] [mailto:[email protected]]
De la part de Mike MacCracken
Envoyé : mardi 20 octobre 2009 04:46
À : John Nissen; [email protected]; Geoengineering
Objet : [geo] Re: [CCP] Grow trees fast and bury them?
Just a note that I believe some of the bills in Congress tend in these
directions. Congressman Van Hollen has a proposal much like the Hansen one and
I understand that a senator has one that gets income from cap and trade system
and then distributes most of money as suggested by Hansen, but holes back
something like a quarter to work on non-CO2 greenhouse gases (just to note that
CO2 only contributes about half of the 21st century warming influence of 21st
century emissions—of course CO2 warming influence goes much longer due to long
lifetime). At some point, it is going to be understood that geoengineering is
also something to be considered, and I understand some government sponsored
planning activities are underway. Thus, things have gone a good way beyond Jim
Hansen’s proposal (that is, it has led to some legislative proposals, and some
do keep some back for various purposes—some for R&D, some for help to
developing nations, some for dealing with other gases, etc.--and it is for this
reason, that is, the dilution of the signal to the consumer, that Jim has
seemed to be holding fast to a 100% rebate).
Mike
On 10/19/09 11:31 AM, "John Nissen" <[email protected]> wrote:
[snipped, PR]
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