On 1/19/06, Patrick Bond <[EMAIL PROTECTED]> wrote: > This is excellent, because a year and a half ago I sat drinking beer in > Oxford with George and two of his best buddies for quite a while, trying to > make these points. His friends were resolutely pro-Kyoto, including pro-CDM. > So George has broken well and truly from faith in that particular market. (I > haven't heard from Peter Dorman in a while, but think of him as a superb > left economist advocating carbon trading as a global-sclae redistributive > strategy - but surely after all the evidence, partially gathered in the book > we published last year, *Trouble in the Air* at http://www.ukzn.ac.za/ccs > under 'energy advocacy' - Peter must have had a rethink by now.) > > One influence - cited in George's footnotes - is Larry Lohmann from The > Cornerhouse in SE England, who has just written a superb critique of Tom > Athanasiou and Paul Behr, posted at Paul's blog on global warming. It > relates clearly to PEN-L concerns about the imperialism of market ideology: > > *** > > A Note on Ideology (Part 1) > > > Paul raises a question about "the extent to which 'ideology' is influencing > our perceptions" in the current debate over carbon trading. As it happens, > that's a theme that I, too, think it might be useful to discuss at this > point. > > I've often noticed a peculiar phenomenon. Often, when consultants, World > Bank officials, or even some physical scientists or NGOs who back the idea > of putting a lot of resources into experimenting with carbon markets can no > longer offer any reasoned reply to substantive questions about those markets' > effectiveness, they tend to retreat to the claim, "Oh, well, you're just > being ideological", or "that's just your anti-market ideology speaking". > > Being a keen student of political psychology, I've also often observed my > own instinctive reaction to this move. Which is a temptation to retort that > it is the consultants, Bank officials, etc., who are being unrestrainedly > "ideological" while I, of course, am merely trying to follow the evidence > wherever it leads.
I've written about this both (briefly) in the equequity blog and on the lbo-list. (I also have written an unpublished book on the subject for which I'm seeking a publisher.)I make a strong argument (I think) that neither emissions trading NOR green taxes are the most efficient way to reduce carbon emissions, but rather a combination of regulations, public works, and secondarily green taxes in the form of a green capital tax. Why is both emissions trading and green taxes an inefficient way of reducing carbon emissions. Because they are largely driven by fossil fuel consumption and fossil fuel demand is extremely price inelastic. In the short run there is the factor that while some savings may be acheived by simple behaviour changes, past a certain point you are giving up the ability to heat your home, get to work and in general have to give up other things vital to a decent life - so in the face of higher energy prices you will give up something else and simply pay for more energy. In the longer run capital investments can reduce such consumption without giving up vital things. But a combination of unequal access to capital, split incentives (where the person who make the investment is not the one who would obtain the savings), transaction costs of energy savings vs. other investments, and other factors* mean capital investment does not occur as you would expect in the face of rising energy prices - you do not see investment of a large percent of the expected NPV of potential savings. One way this is desribed is that homeowners leave $1000 bills on the floor, and factor owner $100,000 bills. Some empirical examples: In the USA the EPA did a study of potential boiler savings in the Great Lake area in hopes of reducing pollution there. One company turned down an investment in improving boiler efficiency that would have paid for itself in 18 weeks. Another example is attic insulation in home state of Washington. EPA figures suggest the optimimum attic insulation level is R45-50 here, and when I recently increased my insulation to that level this winter I got 20% of my investment back within 2 months (simply pay back - not including interest). What is the average level of insulation in this state? R38. Why? Because R38 is the level regulations require. Another example; a lead book chain in the UK required its leading vendors to deliver books in reusable plastic cartons instead of cardboard. This reduced waste carboard and the energy need to make them. (The plastic cartons should last for years.) But you don't have to look at energy costs for payback. Labor savings in opening latched plastic crates vs. cutting open boxes paid back costs within six weeks of the new program.What was the motivation for adapting this program? Not the savings, but new UK waste reduction regulations. Aside from regulation, a serious carbon control program would involve public works. For example, any serious reduction in carbon will need more public transit available in the transit poor U.S. You need available alternatives if people are going to get out of their cars; simply punishing them by raising gas prices when cars (or buses which burn about the same fuel per passenger mile) are all most USA residnets have. So you need public works such as electric trains so they can get where they need to go. Does that mean getting price signals right is without value? Of course not. But the key decisions in regard to carbon emissions are made at the time of capital investment and capital like spending. (By capital like spending I'm referring to things such as personal cars, and toaster which are consumption but are also tools of consumption - with on-going operating costs, which of which a certain percentage is locked in once the purchase is made. Maybe one of you economists can suggest an existing term of the ecomic art for this.) So the best formm of green tax is in a feebate. Basically you look at a capital good (such as industrial machine or computer) or a capital like good (such as an automobile) and you look at it's projected energy consumption compared to some target. If it is exactly on target, the tax is zero. If projected lifetime consumption is above that target, it is taxed the NPV of that excess consumption. If projected consumption is below that target, fees from poor performing targets are used to subsidize it's cost. Thus when you go to buy a car, the low efficiency models are taxes, and high efficiency models are subsidized, so that instead of dealing with flows your up front cost incorporates the social cost or benefit of your good (or capital investment if you are buying a means of production.) I would add that this is secondary. Regulation and public works are more important. Note that I am not saying that price signals have no effect; I'm not claiming that demand elasticity is zero. But I'm pointing out that empirical evidence suggests that regulation and public works have much greater effect than price. So this is a strong argument against the efficiency of market means - even when that market means is green taxes.
