Tackling climate change with new permits to pollute

Jan 06, 2009

A new way to reduce carbon dioxide emissions and tackle climate change had been unveiled by leading economists.

Under the proposals, companies would buy what are in effect permits to pollute, but the price of those permits would be controlled because the government would retain enough, at a fixed price, to stop the cost increasing above that level.

The economists, whose work is published today along with two other research papers, say it could appeal to supporters of a carbon tax and also to those who favour the alternative, so-called cap-and-trade.

"It may well to turn out to be the kind of proposal that the new White House and the new Congress wind up converging on,'' says Professor Robert N. Stavins, Albert Pratt Professor of Business & Government, at the John F. Kennedy School of Government, Harvard University, and Editor of the Review of Environmental Economics and Policy (REEP) which is publishing the papers.

He added, "These papers on domestic US climate policy could not be coming at a more important time. The eyes of the world are turned towards Washington. People worldwide are not just asking how the new administration will participate in the global measures going forward, but more importantly, asking what the US is going to do domestically.''

The three papers looking at different ways of tackling carbon emissions are published tomorrow in the online edition of the Oxford University Press journal.

Until now there have been two options for reducing emissions - carbon tax and cap-and-trade. A carbon tax is a tax on the carbon content of fossil fuels. The result is that the more CO2 a company emits, the greater the cost, with most or all of the money raised from the tax possibly redistributed to the public, because the aim is to discourage emissions rather than raise revenue. The problem with this approach is that it leaves uncertain the quantity of emissions reduction that will be achieved.

In the second approach, cap-and-trade, the government would set a limit for the annual emissions, and companies would buy permits or allowances for set amounts. Again, the money raised would be redistributed. While that would directly tackle the amounts of gas produced, the downside is that there is no control on the price of the permits and hence the cost of emissions reductions, resulting in significant cost uncertainty.

The neat solution proposed in one the papers[1] is a hybrid cap-and-trade, where allowances are issued and bought, but a ceiling price enforced by the Government holding back a=2 0proportion of them. They would have a predetermined set price which would ensure that the market price of those already issued would never rise about that price.

"The government would hold allowances for the purpose of selling them at a predetermined price,'' says Professor Stavins. "As a result they will keep the price of allowances in the market from ever going above that that level, thereby eliminating the upside cost uncertainty that has been of great concern to private industry.''

A second paper[2], suggests a carbon tax with a modification to protect poorer households who may suffer disproportionately. The more tax that energy providers pay, the greater the price rise to consumers. This paper proposes a novel system for distributing the money raised, with the lowest income group getting a credit worth 2.7 per cent of income and the highest income group, a credit worth 0.8 per cent of income.

The third paper[3] argues that a cap-and-trade approach has a number of important advantages, and that a system of tradable permits offers a great deal of flexibility in allocating the value of emissions: `Trading promotes cost-effectiveness, broad participation, and equity in the international context, without the high-level coordination that a tax would require,'' it says.

Publications:

[1] Balancing Cost and Emissions Certa inty: An Allowance Reserve for Cap-and-Trade
Brian C. Murray (Director for Economic Analysis, Nicholas Institute, and Research Professor, Nicholas School of the Environment, Duke University), Richard G. Newell (Gendell Associate Professor of Energy and Environmental Economics, Duke University), and William A. Pize r (Senior Fellow at Resources for the Future). Review of Environmental Economics and Policy

[2]Designing a Carbon Tax to Reduce US Greenhouse Gas Emissions
Gilbert E. Metcalf (Department of Economics, Tufts University) Review of Environmental Economics and Policy

[3]Cap-and-Trade, Rehabilitated: Using Tradable Permits to Control U.S. Greenhouse Gases
Nathaniel O. Keohane Review of Environmental Economics and Policy

Source: Oxford University

Explore further: A multi-model geoengineering assessment looks at potential climate effects

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User comments : 15

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GrayMouser
5 / 5 (5) Jan 06, 2009
And when the market starts trading these certificates what happens?

Does anyone want to speculate on pollution futures?
Velanarris
4 / 5 (4) Jan 07, 2009
And when the market starts trading these certificates what happens?

Does anyone want to speculate on pollution futures?
I would get into this as a short term market investment.

If it's going to be forced upon me by people hoping to profiteer from the venture, well, I'm not letting them do it sans the rest of us.
MikeB
5 / 5 (1) Jan 11, 2009
This is just an absolutely wonderful idea!!! We don't pay enough for the things we need, and this will help in that regard!! Also we all know that we are not paying enough taxes, so these solutions can squeeze even more money out of us and into government coffers while it will seem to be the corporations fault!!!
What a wonderful life, what a wonderful country!!

The only thing is... what do we do when we simply cannot pay anymore?
lengould100
1 / 5 (2) Jan 12, 2009
The US is so far from "paying too much taxes" now that it's ridiculous. Most other countries at least don't run their governments at a deficit. Quit the childish whining about taxes and grow up.
Velanarris
3.7 / 5 (3) Jan 12, 2009
The US is so far from "paying too much taxes" now that it's ridiculous. Most other countries at least don't run their governments at a deficit. Quit the childish whining about taxes and grow up.


Know what you're talking about before you post.

Average US taxation 45%
Average UK taxation 20%
Average French Taxation 33%
Average Russian Taxation 13%


Only one even close to the US from what I've seen is Austrailia at 45%.

This is required taxation only, this does not include luxury taxes, which the US and UK are very high on including tolls, VAT, and congestion taxation.

All governments with a FIAT currency run at a deficit. That's how FIAT works, and why it fails.
Arkaleus
5 / 5 (1) Jan 12, 2009
Indulgences, my son. Be purged of the blackness of carbon by the tinkling of silver coins into the charity box. Te deums to the soldiers of the new faith!
theophys
not rated yet Jan 13, 2009
Average US taxation 45%
Average UK taxation 20%
Average French Taxation 33%
Average Russian Taxation 13%

Well,if this is acurate, which I honestly don't know, then I don't see why Americans whine about socialized healthcare so much. If countries can succefully implement it with less taxes, what's the big problem?
MikeB
not rated yet Jan 13, 2009
If you like socialized health care so much, declare your self emancipated from your parents, make them drop you from their insurance and just use the county health care and emergency rooms for your medical needs. We already have it man... just use it.
Velanarris
1 / 5 (1) Jan 13, 2009
If you like socialized health care so much, declare your self emancipated from your parents, make them drop you from their insurance and just use the county health care and emergency rooms for your medical needs. We already have it man... just use it.
There's quite a bit of truth here. We do already have it, and it is because of the social programs that we have such a high tax rate.

Most people immigrating to America are hard working people who want to be here and work for themselves and the country. The small percentage, even if it is just 1%, equates out to several thousand if not tens of thousands of people who just come here to suck up social services. Effectively they leech the system and create our high tax rate. Many other countries with socialized systems restrict the system so that in order to get care you must be a citizen, or give preference to citizens, as they damn well should. In the US we can't do that. Partially due to our creed where we state to give us your poor, sick, huddled masses, etc, and mostly due to the intense vein of democrat liberalism. Now I'm not saying it's a bad thing, I'm saying, where's the money comming from? Our taxes, our very high taxes.



The reason why it's a problem is because the majority of the money used to fund it is considered discretionary, meaning the government can strip it from the program whenever they wish.

I'm currently IT in the healthcare field and we've had the legs cut out from under us by the government funding wise due to the diversion of our discretionary funding. Money we would have used to make our infrastructure more secure and responsive was used to build new toll booths that they're considering tearing down and increasing gas tax instead. The reason why socialized systems I disagree with socialized systems is personal responsibility. I can elaborate but it will just bring us back to the socialism vs capitalism discussion we had earlier, which we both saw as a stalemate as it's almost completely opinion based.
superhuman
not rated yet Jan 17, 2009
I'm currently IT in the healthcare field and we've had the legs cut out from under us by the government funding wise


So, after all those claims about being a scientist and having degrees in physics, history and engineering a need to whine about government led you to out yourself and it turns out you work in IT? Can't say I'm surprised, no wonder you knowledge is so shallow and superficial.

That makes you just another lier who tries to boost their ego on the internet, what makes you particularly harmful is that you spread tons of disinformation and waste time of people who have real knowledge.

Below is just a tiny sample of the lies and nonsense you propagate:

V: "Being an atheist and a scientist..."
http://www.physor...439.html

V: "I fail to see the relevance but I hold degrees in physics, history, and engineering."
http://www.physor...587.html
In the above thread you prove beyond any doubt that you DON'T have a degree in physics

And here are some other threads where you prove your ignorance and complete lack of understanding of GW and physics, you even admit it at the end of the first one
http://www.physor...649.html
http://www.physor...454.html
Velanarris
1 / 5 (1) Jan 17, 2009
I'm currently IT in the healthcare field and we've had the legs cut out from under us by the government funding wise


So, after all those claims about being a scientist and having degrees in physics, history and engineering a need to whine about government led you to out yourself and it turns out you work in IT? Can't say I'm surprised, no wonder you knowledge is so shallow and superficial.

That makes you just another lier who tries to boost their ego on the internet, what makes you particularly harmful is that you spread tons of disinformation and waste time of people who have real knowledge.

Below is just a tiny sample of the lies and nonsense you propagate:

V: "Being an atheist and a scientist..."
http://www.physor...439.html

V: "I fail to see the relevance but I hold degrees in physics, history, and engineering."
http://www.physor...587.html
In the above thread you prove beyond any doubt that you DON'T have a degree in physics

And here are some other threads where you prove your ignorance and complete lack of understanding of GW and physics, you even admit it at the end of the first one
http://www.physor...649.html
http://www.physor...454.html



Look guys, I have a stalker.

Anyone who questions can be a "scientist"

My degrees are associates degress.

And as for complete ignorance, who spent their time chasing someone down on the internet?
superhuman
not rated yet Jan 17, 2009
Chasing someone? I've wasted so much more time on disputes with you, the above is a result of just 3 google queries.

I am going to append it to discussions to warn others not to make the same mistake of treating you seriously, you are just an annoying internet pest.
Velanarris
1 / 5 (1) Jan 18, 2009
I'm not the one side tracking a discussion to argue with someone I've followed around on a website after he made me look foolish, now am I?
superhuman
not rated yet Jan 20, 2009
I'm not the one side tracking a discussion to argue with someone I've followed around on a website after he made me look foolish, now am I?


Side tracking a discussion? It was you who mentioned how poor you are at your IT job, I was surprised since you claimed to be a scientists with multiple degrees so I decided to confront it with your other statements and it turns out you are not only an ignorant you are also a liar.

There's only one person on this site who you made look foolish, it's you.
Velanarris
not rated yet Jan 21, 2009
Side tracking a discussion? It was you who mentioned how poor you are at your IT job, I was surprised since you claimed to be a scientists with multiple degrees so I decided to confront it with your other statements and it turns out you are not only an ignorant you are also a liar.


Inserting a lot of words in my commentary aren't you?

I'm sorry, where did I say I was personally poor?

Where did I say I was a professional scientist? I know I've said "being a scientist and an atheist", but everyone who follows the methodology is a scientist in their own right.

And as for my degrees, I do hold my 3 degrees, they're simply associates degrees, are you downranking my education by virtue of what it is?

Personal slander only serves to make yourself look foolish, and much like other debaters of your caliber, once flustered, you have no other recourse but to personally attack the people you hold conversations with. Very sad commentary on your character and ability to communicate.