In the context of the latest fuel strikes by European fishermen, George Monbiot has an excellent piece in the July 8th Guardian that explores the role of governments in subsidizing the destructive “tragedy of the commons” that is ocean fisheries.

It is, however, a shame that Monbiot makes no reference to what many observers are starting to realize:  that the solution to solving over-fishing lies in getting the government out of the business of political management of the resources that fishermen depend on, and putting responsibility, control and incentives to invest in resource management back in the hands of fishermen. 

Although government interference in resource markets has been a resounding failure (witness the destruction of the US salmon fisheries), a light at the end of the tunnel has appeared in the form of privatization through “ITQs” or Individual Transferable Quotas, as noted by:

Ron Bailey, science correspondent of Reason, in “How to Save New England’s Fishing Villages; If only the fishers will allow it” (September 28, 2005) and in”Pick Your Poissons; Economic and ecological diversity for fisheries“(August 25, 2006); and by

Birgir Runolfsson, in Cato’s Regulation, in “Fencing the Oceans A Rights-Based Approach to Privatizing Fisheries” (vol. 20, no. 3, 1997).

Further, Jonathan Adler, law prof at Case Western Reserve University, has a very interesting discussion of how the enforcement of antitrust laws have frustrated cooperative fishery management  (March 2002).

While these materials focus on domestic marine fisheries, similar strategies are needed at regional levels.

[Note to first-time readers: the title is tongue-in-cheek.]

I have previously blogged on libertarian, non-state approaches to climate change; allow me to use this post to pull together for diligent readers various recent sources of opinion and information on carbon taxes – which are much more transparent, easier to implement and, if rebated, are much more likely to both be ethically fairer to citizens (and thus more poltically sustainable) and involve much less pork than cap and trade policy proposals:

–  Dr. James (“PublicTrials”) Hansen – “Carbon Tax and 100% Dividend” proposal (dated June 6, 2008) (be sure to check out his many lucid posts on scientific aspects of climate change as well):

“Carbon tax and 100% dividend” is spurred by the recent “carbon cap” discussion of Peter Barnes and others. Principles must be crystal clear and adhered to rigorously. A tax on coal, oil and gas is simple. It can be collected at the first point of sale within the country or at the last (e.g., at the gas pump), but it can be collected easily and reliably. … The entire carbon tax should be returned to the public, with a monthly deposit to their
bank accounts ….

The worst thing about the present inadequate political approach [cap and trade] is that it will generate public backlash. Taxes will increase, with no apparent benefit. The reaction would likely delay effective emission reductions, so as to practically guarantee that climate would pass tipping points with devastating consequences for nature and humanity.

Carbon tax and 100% dividend, on the contrary, will be a breath of fresh air, a boon and boom for the economy. The tax is progressive, the poorest benefitting most, with profligate energy users forced to pay for their excesses. …

Special interests and their lobbyists … will fight carbon tax and 100% dividend tooth and nail. They want to determine who gets your tax money in the usual Washington way, Congress allocating money program-by-program, substituting their judgment for that of the market place. …  Helping Washington figure out how to spend your money is a very lucrative business.

I note that Hansen has drawn on Peter Barnes, who has long advocated the “Sky Trust” concept, which asserts that citizens are the owners of the atmospheric commons and involves the state in charging and collecting revenues.  Barnes has more recently backed similar proposals, such as Hansen’s “Carbon Tax and 100% Dividend” and the “Cap and Dividend” approach floated last winter by James Royce and Matt Riddle.

Spin analyst George Lakoff has recently examined and compared the moral and cognitive footings of the Warner-Lieberman-style cap and and trade and the Cap and Dividend approaches in “Comparing Climate Proposals: A Case Study in Cognitive Policy”. 

–  Lewis Hay, III, Chairman and CEO of FPL Group, Inc. – speech to the 2008 Florida Summit on Global Climate Change in Miami (June 25, 2008):

[It is] an undeniable reality … that global climate change is real, that human activity is one of the causes, and that we must take action to slow, stop, and reverse the emission of greenhouse gases into the Earth’s atmosphere. …
The United States has been debating climate change at least since the first congressional hearings on the topic were held in the mid-1980s by a little-known Representative from Tennessee named Al Gore. More than 20 years later, it is time for the country to take meaningful action. Every day we delay, another 18 million tons of CO2 are released into the atmosphere, most of which will remain there for close to a century. And with every year of inaction, the carbon reductions needed to deal successfully with climate change become larger and harder to achieve.

There are still a few global warming skeptics left in the world – often big emitters of CO2 – who continue to hope that the science is wrong and advocate taking little or no action toward reducing carbon. They want to keep freely emitting CO2 like there is no tomorrow. We cannot let these people have their way, or there might not be a tomorrow.

So how do we go about reducing the amount of carbon that our economy pumps into the atmosphere? … In the process of producing various goods and services – including electricity – carbon dioxide is released with potentially huge costs on society. But the producers and consumers of goods and services don’t pay those costs. They are external to the transaction, which is to say that society pays them. The goal of public policy toward climate change must be to push those costs back onto the parties responsible for carbon emissions. In short, we must “put a price” on carbon, which will create powerful incentives to emit less of it.

Will that price impose an undue burden on the U.S. economy? The global warming skeptics say yes, but I disagree. If we do nothing to reduce the amount of CO2 pouring into the atmosphere, we are not avoiding the cost. We are simply pushing both the cost associated with the growing consequences of global warming and the future cost of CO2 reductions down the road, onto our children and grandchildren. And if we do take action, I am confident the cost will be far lower than projected. America’s economy is driven by a fierce entrepreneurial spirit. Tell a capitalist there’s money to be made in finding cost-effective CO2 reductions, and watch the market burst with cost-effective solutions.

Now I happen to believe that the simplest and most effective way to start putting a price on carbon is with a continuously escalating fee – or a “tax” as the big carbon emitters like to call it. Under a carbon fee that starts modestly and rises steadily over time, companies will find it more and more expensive to use dirty fuels. And if there’s one way to get the attention of America’s CEOs and their boards of directors, it’s to hit them in the bottom line. Equally important, if there’s one way to get Americans to consume less high-carbon energy, it’s to steadily raise the price of goods and services produced with high-carbon fuels. Eventually, everyone will embrace conservation and switch to low-carbon energy alternatives. …

Under any cap-and-trade program that would give away most of the allowances to emit carbon based on historical emissions, the biggest emitters – the very same companies that have seriously harmed our environment and done nothing to reduce their carbon footprint – could reap unearned windfall profits, just as has happened in parts of Europe. To put it bluntly: They would be paid to pollute, turning cap-and-trade into what I call “cap-and-evade.” …

When carbon carries a cost, power companies will also work a lot harder to clean up their fossil fuel fleets. … Of course, the real gains are to be had by shutting down old, inefficient coal plants across the country. Those dinosaurs, which have operated way beyond their intended useful life, account for more than 480 million tons of the CO2 pumped into the atmosphere every year and should be taken offline. And if carbon is priced appropriately, they will be.

I refuse to believe that we are powerless to change the future. On the contrary, I believe that through commitment, effort and intelligence, we will not only come up with the right policy response to climate change, but that our innovation-driven economy will find the best technological solution to climate change – one that curbs emissions even as it controls costs. Some of us in the electric power industry are ready to lead the charge into a clean energy future. To those who stubbornly cling to a carbon-based past that cannot last, we kindly ask that you step out of the way.

– Keith Crane, senior economist and James Bartis, senior policy researcher at the RAND Corporation, “On Carbon Dioxide, a Better Alternative“ (Washington Post, November 29, 2007):

The only effective way to begin reducing greenhouse gas emissions and slow global climate change is to make it more expensive to emit carbon dioxide. Unless businesses and consumers pay a price for carbon dioxide, neither will make the investments in technology and changes in energy use needed to dramatically reduce emissions.

Most of the climate change legislation currently before Congress proposes a complicated “cap-and-trade” system. This would set a limit on emissions below current levels and then allocate permits to pollute that could be bought and sold. The alternative would be to impose a direct tax on carbon dioxide emissions. …

The attraction of cap and trade for its supporters is that the cap sets a limit on emissions of carbon dioxide. But it’s difficult to get the limit right. The cap may be set too high to induce firms to make the large investments needed to reduce emissions. Or it may be set so low that costs skyrocket and political support to combat climate change falters.

The major disadvantage to cap and trade is that the price tag for reaching the target is highly uncertain. In contrast, a tax on emissions provides businesses and consumers with certainty about costs, while leaving the size of the reduction less certain. …

Instead, we suggest a tax on carbon dioxide in which all the proceeds collected by the government would be returned to Americans each year when they file income taxes. In contrast to current congressional proposals for cap and trade, a tax on carbon dioxide refunded directly to individuals would cut emissions while cushioning the impact on the pocketbooks of American families. ...

A carbon dioxide tax with refund is fair because the people responsible for the most emissions would pay the most. The tax would also be progressive. Many Americans with lower incomes would find the refund would more than defray the higher costs of gasoline and electric power.

A tax is simple and can be phased in quickly. It encourages individuals and businesses to make long-term decisions with confidence, rather than trying to guess what the future price of permits will be. With a tax and refund, consumers would only pay the extra costs associated with carbon abatement measures.

A carbon dioxide tax with refund can be implemented easily. It can be collected at a few key links in the supply chain: refineries, power plants or pipelines. …

A carbon dioxide tax can be easily adjusted as lower-cost means of reducing emissions are tapped and new technologies become available to tackle more difficult sources. The tax could be started low, but with a clear schedule of increases so that individuals, local governments and businesses will begin now to make the changes and investments required to dramatically reduce emissions within 15 years. …

U.S. consumers and industry need to reduce carbon dioxide emissions. A refunded carbon dioxide tax is the best way to achieve reductions. It is simple, good for the planet, and imposes the least additional costs on the American economy as compared to any other policy alternative. Most importantly it can be crafted to ease the burden on families and protect industries from unfair competition in the global marketplace.

–  Ken Cohen, vice-president for public affairs, ExxonMobil – “ExxonMobil’s top executives on climate-change policy” (February 14, 2007):

[T]here are two debates that one can be participating in right now. One is: is climate change real? What is the cause? Call it the blame game or whatever you want. And the other discussion is: what we do about it?

We prefer to be involved in the second discussion, which is what do we do about climate change – what policies make sense to both produce the energy which the world absolutely has to have and do it in a way that starts us on a path to reduce emissions associated with the production and use of energy. …

Some have said for instance that we need to stabilise CO2 emissions at 550 parts per million. But that is more of a political conclusion than a scientific conclusion. It may be that we’ll learn that 550 ppm is not an aggressive enough target. It may be that science will tell us that the target needs to be something lower than 550 ppm. …

So yes, the policies need to be adjusted. Or conversely, it could be that the anthropogenic contribution can be mitigated somehow by sinks or what have you as we learn more. So, what we are trying to convey is: we know enough now to say that we need to be on a path to start addressing anthropogenic emissions. But we also need to keep the science effort going and we need to keep in mind the economic impacts of the policies. …

We are believers in the market system as the most efficient allocator of resources. We believe for example that markets do a much better job of picking winners and losers on the technology side than governments. So we believe that when we design policies we need to harness the power of the market system as best as we can within the policy that we are designing. … We are not saying, ‘laissez-faire’, just let the market operate. …

Politicians know this very well, one of the elements on our first principles is not political attractiveness. You don’t hear much discussion for example about a carbon tax. Yet most economists who look at this issue say that the most effective way to address carbon emissions would be with a carbon tax. …

In fact, from an efficiency standpoint, from spreading the cost of carbon across the economy in an efficient and uniform and predictable way, as a way to maximize the use of markets, as someone who studied economics, yes I think that a carbon tax ought to be looked at with equal force as the other options.

Now, as we said before, the devil is in the details and there are a number of questions. Whether it is going to be a regressive tax? What would the rate of the tax be and making sure you don’t exclude people from it; what is the revenue going to be used for; are we going to take out another regressive tax? Or are we going to take that money and use it for some other purpose? So there are major issues that would need to be addressed, but from an economist’s standpoint and in fact, this is the favored option.

– Ken Green, Steven Hayward and Kevin Hassett of AEI (The American Enterprise Institute for Public Policy Research ), “Climate Change: Caps vs. Taxes” (June 2007):

Most economists believe a carbon tax (a tax on the quantity of CO2 emitted when using energy) would be a superior policy alternative to an emissions-trading regime. In fact, the irony is that there is a broad consensus in favor of a carbon tax everywhere except on Capitol Hill, where the “T word” is anathema. Former vice president Al Gore supports the concept, as does James Connaughton, head of the White House Council on Environmental Quality during the George W. Bush administration. Lester Brown of the Earth Policy Institute supports such an initiative, but so does Paul Anderson, the CEO of Duke Energy. Crossing the two disciplines most relevant to the discussion of climate policy— science and economics—both NASA scientist James Hansen and Harvard University economist N. Gregory Mankiw give the thumbs up to a carbon tax swap.

There are many reasons for preferring a revenue neutral carbon tax regime (in which taxes are placed on the carbon emissions of fuel use, with revenues used to reduce other taxes) to emissions trading. Among them are: [the following are paragraph headings only]:

–        Effectiveness and Efficiency
–        Incentive Creation
–        Less Corruption
–        Elimination of Superfluous Regulations
–        Price-Stabilization 
–        Adjustability and Certainty
–        Preexisting Collection Mechanisms
–        Keeping Revenue In-Country 
–        Mitigation of General Economic Damages

A cap-and-trade approach to controlling GHG emissions would be highly problematic. A lack of international binding authority would render enforcement nearly impossible, while the incentives for cheating would be extremely high. The upfront costs of creating institutions to administer trading are significant and likely to produce entrenched bureaucracies that clamor for ever-tighter controls on carbon emissions. …

A program of carbon-centered tax reform, by contrast, lacks most of the negative attributes of cap-and-trade, and could convey significant benefits unrelated to GHG reductions or avoidance of potential climate harms, making this a no-regrets policy. A tax swap would create economy-wide incentives for energy efficiency and lower carbon energy, and by raising the price of energy would also reduce energy use. At the same time, revenues generated would allow the mitigation of the economic impact of higher energy prices, both on the general economy and on the lower-income earners who might be disproportionately affected by such a change. Carbon taxes would be more difficult to avoid, and existing institutions quite adept at tax collection could step up immediately.  Revenues would remain in-country, removing international incentives for cheating or insincere participation in carbon-reduction programs. Most of these effects would remain beneficial even if science should determine that reducing GHG emissions has only a negligible effect on mitigating global warming. …

Coal-based energy prices would be affected more strongly, which is to be expected in any plan genuinely intended to reduce GHG emissions. A number of possible mechanisms are available to refund the revenues raised by this tax. On net, these tools could significantly reduce the economic costs of the tax and quite possibly provide economic benefits.

– Margo Thorning, Senior Vice President and Chief Economist at the American Council for Capital Formation (November 1, 2007 interview on E&E TV):

Margo Thorning: I think Senator Lieberman and Warner are to be commended for their efforts to reduce greenhouse gas emissions, because I think we’re all united that that’s a goal we need to put a lot of resources into. …

Q: One of the bill’s ideas is to set up a financial board of sorts that would oversee the new greenhouse gas market. What’s your take on setting up a board of regulators?

Margo Thorning: I think the idea of expecting regulators to know what the price of carbon should be is probably not very well grounded. It does serve as a backstop in that I assume if prices got so high that producers and households were experiencing severe economic pain they could say, well, just go ahead and emit. But it creates uncertainty, because for someone trying to invest in new equipment, if they don’t know what the price of carbon will be, that adds to the risk of the investment. That’s the problem with a cap-and-trade system and that’s what’s happening in Europe. Investors don’t know what the price of carbon will be from one month to the next or one year to the next and it’s been very volatile. So that makes the cost of capital higher, investment more uncertain, and produces less investment. An advantage of a carbon tax, if you want to impose some sort of penalty on carbon use, is that an investor knows, given the projected say set of increases in carbon prices from one year to the next, he knows what the carbon price will be and he can factor that in to what kind of capital equipment he buys, what sort of transport fleet he puts in place, and it provides more certainty. And it also, a carbon tax, provides a stream of revenue for the government to spend on new technology or to pay for offsetting the burden on low income individuals of higher energy prrevenue-neutralices.

Q:So, if you were given the opportunity to sort of write your own proposal of how the U.S. should reduce emissions and not hurt itself economically, you’d go with the carbon tax?

Margo Thorning: I would go with the carbon tax and more incentives for new technology development. And I would change the U.S. tax code, because we have the slowest depreciation allowances for new energy investment of 12 countries that we compared recently. We have very high capital costs for new investment because depreciation is so slow and our effective tax rate is very high, because our corporate tax rate is the highest in the industrial world. So our companies are disadvantaged vis-à-vis our trading partners because of our tax system.

Q: So, if a cap and trade is not the way to go as you’re saying, why has the business community come out in support of a cap and trade?

Margo Thorning: Well, a significant portion of the business community would prefer a carbon tax and there’s beginning to be more discussion about that. So I think one reason some in the business community have supported a cap and trade is they expect to make money on it. They’ve maybe made emission reductions or expect to be able to make emission reductions. They expect to be winners. On the other hand, new companies or companies that are expanding that need more credits will be losers. So the winners under a cap-and-trade system, as is for example in Europe, the big electric utilities have been winners because they’ve been able to pass forward to consumers the price of the carbon credit even though they were given those credits by the government. So people who expect to make money on it naturally are supportive.

– major economists:

• Terry Dinan of the Congressional Budget Office’s Microeconomic Studies Division – “Policy Options for Reducing CO2 Emissions” (outside reviewers were Billy Pizer (Resources for the Future) and Martin Weitzman (Harvard)(Feb. 2008):

Given the gradual nature of climate change, the uncertainty that exists about the cost of reducing emissions, and the potential variability of the cost of meeting a particular cap on emissions at different points in time, a tax could offer significant advantages. If policymakers chose to specify a long-term target for cutting emissions, a tax could be set at a rate that could meet that target at a lower cost than a comparable cap. In addition, if policymakers set the tax rate at a level that reflected the expected benefits of reducing a ton of emissions (which would rise over time), a tax would keep the costs of emission reductions in balance with the anticipated benefits, whereas a cap would not. …

CBO draws the following conclusions:
A tax on emissions would be the most efficient incentive-based option for reducing emissions and could be relatively easy to implement. …

Analysts generally conclude that a tax would be a more efficient method of reducing CO2 emissions than an inflexible cap. The efficiency advantage of a tax stems from the contrast between the long-term cumulative nature of climate change and the short-term sensitivity of the cost of emission reductions. Climate change results from the buildup of CO2 in the atmosphere over several decades; emissions in any given year are only a small portion of that total. As a result, limiting climate change would require making substantial reductions in those emissions over many years, but ensuring that any particular limit was met in any particular year would result in little, if any, additional benefit (avoided damage). In contrast, the cost of cutting emissions by a particular amount in a given year could vary significantly depending on a host of factors, including the weather, disruptions in energy markets, the level of economic activity, and the availability of new low-carbon technologies (such as improvements in wind-power technology).

Relative to a cap-and-trade program with prespecified emission limits each year, a steadily rising tax could better accommodate cost fluctuations while simultaneously achieving a long-term target for emissions. Such a tax would provide firms with an incentive to undertake more emission reductions when the cost of doing so was relatively low and allow them to reduce emissions less when the cost of doing so was particularly high. In contrast, an inflexible cap-and-trade program would require that annual caps were met regardless of the cost, thereby failing to take advantage of low-cost opportunities to cut more emissions than were required by the cap and failing to provide firms with leeway in years when costs were higher.

The efficiency advantage of a tax over an inflexible cap depends on how likely it is that actual costs will differ from what policymakers anticipated when they set the level of the cap. Given the uncertainties involved, such differences are likely to be large—and, therefore, analysts generally conclude that the efficiency advantage of a tax is likely to be quite large. Specifically, available research suggests that in the near term, the net benefits (benefits minus costs) of a tax could be roughly five times greater than the net benefits of an inflexible cap. Put another way, a given long-term emission-reduction target could be met by a tax at a fraction of the cost of an inflexible cap-and-trade program. …

Administering an “upstream” tax or cap-and-trade program for CO2 emissions would involve taxing or regulating the suppliers of fossil fuels—such as coal producers, petroleum refiners, and natural gas processors. Compared with a “downstream” design, which would tax or regulate users of fossil fuels, an upstream approach would have two administrative advantages. It would involve regulating a limited number of entities, and it would not require firms to monitor actual emissions. Rather, each firm’s tax payment or allowance requirement could be based on the carbon content of its fuel and the amount it sold.

An upstream tax may be somewhat easier to implement than an upstream cap-and-trade program because many of the entities that would be covered by either policy are already subject to excise taxes. A CO2 tax could build on that existing structure. …

With harmonized taxes, lax monitoring or enforcement by any one country could reduce the incentives for emission reductions in that country. But with linked cap and-trade programs, laxity in one area could undermine the integrity of allowances throughout the entire system. …

A tax would have significantly lower start-up costs than a cap-and-trade program with grandfathering provided that policymakers did not decide to grant exemptions based on historical production or emissions data. Further, implementing a tax would not require the government to set up a process for auctioning allowances.

• CLIMATE CHANGE: Expert Opinion on the Economics of Policy Options to Address Climate Change, US GAO (Government Accounting Office) (May 2008)

• Greg Mankiw, “One Answer to Global Warming: A New Tax” (September 16, 2007) (Mankiw also keeps a list of other economists who are in his pro-tax “Pigou Club”, for which the anti-statist “No Pigou Club” is a useful counter-tonic):

Using a Pigovian tax to address global warming is also an old idea. It was proposed as far back as 1992 by Martin S. Feldstein on the editorial page of The Wall Street Journal. Once chief economist to Ronald Reagan ….

Those vying for elected office, however, are reluctant to sign on to this agenda. Their political consultants are no fans of taxes, Pigovian or otherwise. Republican consultants advise using the word “tax” only if followed immediately by the word “cut.” Democratic consultants recommend the word “tax” be followed by “on the rich.”

Yet this natural aversion to carbon taxes can be overcome if the revenue from the tax is used to reduce other taxes. By itself, a carbon tax would raise the tax burden on anyone who drives a car or uses electricity produced with fossil fuels, which means just about everybody. Some might fear this would be particularly hard on the poor and middle class.

But Gilbert Metcalf, a professor of economics at Tufts, has shown how revenue from a carbon tax could be used to reduce payroll taxes in a way that would leave the distribution of total tax burden approximately unchanged. …
The case for a carbon tax looks even stronger after an examination of the other options on the table. … [T]he history of cap-and-trade systems suggests that the allowances would probably be handed out to power companies and other carbon emitters, which would then be free to use them or sell them at market prices. In this case, the prices of energy products would rise as they would under a carbon tax, but the government would collect no revenue to reduce other taxes and compensate consumers.

The international dimension of the problem also suggests the superiority of a carbon tax over cap-and-trade.

– Robert J. Shapiro, chairman of Sonecon, LLC, “Addressing Climate Change Without Impairing the U.S. Economy: The Economics and Environmental Science of Combining a Carbon-Based Tax and Tax Relief” (June 2008):

This study examines one such approach: Apply a tax or charge to fuels based on their carbon content, at the levels required to reduce emissions sufficiently to move to a path that over time would stabilize GHG concentrations in the atmosphere at sustainable levels; and use most of the revenues to reduce other taxes for people and businesses. This strategy would change the relative price of different forms of energy based on their carbon content, so that people and businesses have strong incentives to shift to alternative and less carbon-intensive fuels, and more energy-efficient technologies. The consequent economic burden on individuals and businesses would be largely offset by reductions in payroll taxes or in their effective burden, increasing the public’s willingness to accept a carbon-based tax.

Our analysis found that this strategy can reduce GHG emissions in the United States to levels consistent with substantially lowering the risks and threats of climate change, without slowing economic growth or reducing gains in people’s incomes to a significant degree, or imposing a regressive burden on low- and moderate-income Americans. …

Many economists support this approach to climate change, because it would directly and predictably raise the relative price of goods and services based on their carbon intensity, and so directly encourage consumers to prefer less carbon-intensive fuels, and products and businesses to adopt or develop less carbon or energy-intensive materials, technologies, production processes and fuels. Economists and governance experts also note that a carbon tax would not create the new price volatilities, administrative burdens, and large opportunities for evasion and fraud that could characterize a cap-and-trade program. By setting a predictable price for carbon emissions, it also creates clear and known incentives to develop and deploy more climate-friendly technologies and fuels.

Critics argue that it would raise costs and prices, and would dampen economic growth. They further note that no one favors higher taxes or the economic distortions they can cause, and consequently voters will resist paying a substantial new tax simply to avert unknown, adverse effects decades from now. We propose to address these shortcomings by returning the revenues from a carbon-based tax to households and businesses through other forms of tax relief, so that economic growth and the incomes of most households would be much less affected.

This carbon-based tax policy design should be preferable economically and politically to top-down regulation or cap-and-trade programs. To begin, traditional regulation and cap-and-trade programs treat a plant or industry’s initial carbon emissions as effectively “free,” up to the point of the regulatory ceiling or cap, while a carbon-based tax extracts a cost for emissions from the first part per million. In addition to the economic costs of introducing new volatility in energy prices, cap-and-trade programs and regulatory caps would impose other administrative and monitoring costs on consumers and businesses that would be generally comparable to a carbon-based tax, only in less obvious ways and in many cases with no additional revenues that could be rebated to offset their effects. … [C]onsumers and businesses also will end up paying the billions of additional dollars required to administer, monitor and enforce a cap and trade or regulatory system. … Moreover, much as voters would likely oppose significant new, climate-related taxes without offsetting tax relief, they will likely resist climate change regulation or a cap-and-trade program when they recognize the actual costs. …

Using the NEMS modeling system, we test the proposition that applying a new tax package on energy sources based on their carbon content, and using 90 percent of the revenues to reduce payroll taxes or their equivalent could bring down projected CO2 emissions to a path that should stabilize their atmospheric concentrations at levels safe for the global climate, and without materially affecting most people’s incomes or the economy’s capacity to grow and create jobs. 

• others, as summarized by The Wall Street Journal(Feb. 9, 2007),

– George Will (as previously blogged)

Prominent climatologist Dr. James Hansen, Director of the NASA Goddard Institute for Space Studies and Adjunct Professor of Earth and Environmental Sciences at Columbia University, who has long been warning of the long-term consequences of man’s essentially uncontrolled experiment with the world’s climate through emissions of GHGs (CO, methane and CFCs), soot and agricultural practices, has recently ramped up his message that urgent action is needed in order to avoid triggering “dangerous” climate change in the form of rising temperatures and an irreversible melting of the Greenland and Antarctic ice caps. 

1.  Hansen has apparently decided that it is time to take the gloves off in a battle that he thinks requires government action, which action he views as having been delayed by fossil fuel firms that have benefitted from (and underwritten efforts to stall movement away from) the status quo.  Accordingly, in order to shift the political balance, Hansen has decided to call not merely for decreases in GHG emissions, but direct leverage against the fossil fuel companies (in an op-ed at the Huffington Post):

Special interests have blocked transition to our renewable energy future. Instead of moving heavily into renewable energies, fossil companies choose to spread doubt about global warming, as tobacco companies discredited the smoking-cancer link. Methods are sophisticated, including disguised funding to shape school textbook discussions.

CEOs of fossil energy companies know what they are doing and are aware of long-term consequences of continued business as usual. In my opinion, these CEOs should be tried for high crimes against humanity and nature. If their campaigns continue and “succeed” in confusing the public, I anticipate testifying against relevant CEOs in future public trials. …

The fossil-industry maintains its stranglehold on Washington via demagoguery, using China and other developing nations as scapegoats to rationalize inaction. In fact, we produced most of the excess carbon in the air today, and it is to our advantage as a nation to move smartly in developing ways to reduce emissions. As with the ozone problem, developing countries can be allowed limited extra time to reduce emissions. They will cooperate: they have much to lose from climate change and much to gain from clean air and reduced dependence on fossil fuels.

(emphasis added)

Is this rhetoric appropriate?  Certainly not, even as the frustration that underlies it is an understandable manifestation of the frustration that is common (and perhaps unavoidable) in politicized fights over the use of government to satisfy one’s preferences over the preferences of others (viz., “rent-seeking”).  Granted, much is at stake (particularly if Hansen’s views of the risks are correct), and my sympathies are with Hansen (I am persuaded that his concerns have merit, and the rent-seeking by fossil fuel firms is undeniable), but such rhetoric is inappropriate as long as it is unsupported by allegations of actual criminal behavior – as opposed to simple frustration that the fossil fuel firms have been effective in lawfully manipulating the political system for their private gain. 

While a libertarian may sanction the use of moral suasion and opprobrium – even civil litigation – to strong-arm one’s opponents, calling for criminal sanctions by the state against those have successfully manipulated politicians and bureaucrats is a step that simply compounds the underlying illness of statist rent-seeking.

One suspects that Dr. Hansen is simply playing a public relations game, and is not serious about the “state trials”, as he has not called for the firms to be muzzled, but rather expressed his opinion and hope that they should some day be held to account for their actions.  Well, Dr. Hansen is certainly entitled to his opinion AND to castigate fossil fuel firms for behaviors that he objects to; while his rhetoric is disturbing, at least he’s only volunteering to be a witness and not prosecutor, judge and jury.

Sadly, differing preferences over how to use resources are inevitably politicized when there are no clear owners of such resources or ownership is socialized through government ownership or regulation.  The fossil fuel companies and their heavy users have clearly been rather adept at manipulating political levers up until now; whether Dr. Hansen’s effort to turn up the heat on them will be effective or simply provides them with more ammo remains to be seen.

2.  On another level, I do think that Hansen’s rhetoric on this is unfortunate, as it is likely to detract from his scientific message, which he elucidates very well in articles, presentations and scientific publications available at his Columbia U. webpage (linked above).  It also draws attention away from his specific policy positions, which have been critical of pork and bureaucratic management of the type presented by the Warner-Lieberman bill.   Hansen has recently expressed strong preference for a simple carbon tax that is fully rebated on a per capita basis, as further noted in the same op-ed (in which Hansen sounds very much like George Will, who also prefers a carbon tax over cap and trade):

Carbon tax on coal, oil and gas is simple, applied at the first point of sale or port of entry. The entire tax must be returned to the public, an equal amount to each adult, a half-share for children. This dividend can be deposited monthly in an individual’s bank account.

Carbon tax with 100 percent dividend is non-regressive. On the contrary, you can bet that low and middle income people will find ways to limit their carbon tax and come out ahead. Profligate energy users will have to pay for their excesses.

Demand for low-carbon high-efficiency products will spur innovation, making our products more competitive on international markets. Carbon emissions will plummet as energy efficiency and renewable energies grow rapidly. Black soot, mercury and other fossil fuel emissions will decline. A brighter, cleaner future, with energy independence, is possible.

Washington likes to spend our tax money line-by-line. Swarms of high-priced lobbyists in alligator shoes help Congress decide where to spend, and in turn the lobbyists’ clients provide “campaign” money.

Hansen’s “tax and 100% dividend” proposal, which he floated earlier this month, is based on Peter Barnes’s “Sky Trust” cap and dividend approach outlined in “Who Owns the Sky: Our Common Assets and the Future of Capitalism” (Island Press, Washington, D.C., 2001) and reviewed here.

3.  Libertarian legal scholar Jonathan Adler cited Hansen’s op-ed at the Volokh Conspiracy blog; I copy below a few comments that I noted in response:

Jon, first, let’s not forget that Hansen is specifically addressing not only oil cos but also the coal firms like Peabody and Massey – firms that are leaving massive messes because either they deal in publicly owned and bureaucratically administered land or because they’ve managed to capture the police, prosecutorial, judicial and political machinery where they operate, as well as the favor of the administration and federal regulators [see my blog post here].

Second, all of his words about public trials notwithstanding, Hansen is obviously waging battle in the courts of public opinion, which is obviously something he has every right to and, far from infringing libertarian principles, seems entirely consistent with them. As Gene Callahan has recently noted,

One way negative externalities can be addressed without turning to state coercion is public censure of individuals or groups widely perceived to be flouting core moral principles or trampling the common good, even if their actions are not technically illegal. Large, private companies and prominent, wealthy individuals are generally quite sensitive to public pressure campaigns.

After all, if libertarians had their way and government stepped out of the roads and regulatory businesses, it’s long been the libertarian position that private actions, including lawsuits against road owners, would lead to voluntary collective actions and large damage suits that would better manage resources by incentivizing reductions in pollution and other externalities. (In this context, there are, of course, private action suits now under way against the major fossil fuel firms for climate change damage; these face obvious hurdles, but a libertarian might wish for success, simply to breathe a little more life into common law remedies and take the pressure off of the demands for state action.)

Libertarians do not, as a matter of principle, object to informal public pressure. It is simply Hansen’s implication that criminal trials are more appropriate than the common law tort mechanism – which is sadly not too well known and admittedly rather withered due to the success in polluters in subverting injunctive remedies and in capturing the resulting regulatory process – that offends.

On the policy end, of course Hansen does have a statist proposal, but it is probably the cleanest one out there: the carbon tax and 100% rebate proposal, which would put all carbon tax revenues back in the pockets of Americans and than cut short alot of the rent-seeking and pork-management efforts now underway. That’s why George Will has recently concluded that a carbon tax is the best approach.

Australian economist John Quiggin (whom I’ve cited previously on climate change costs) has a post up with this title, both at his own blog and at Crooked Timber.  Does anybody care to comment?

My own response to John was as follows:

John, thanks for this piece. As a libertarian who believes that
climate change IS a problem, I share some of your puzzlement and have
done considerable commenting
on this issue. Allow me to offer a few thoughts on various factors at
work in the general libertarian resistance to taking government action
on climate change:

– As Chris Horner noted in your linked
piece, many libertarians see “global warming [as] the bottomless well
of excuses for the relentless growth of Big Government.”  Even those who
agree that is AGW
is a serious problem are worried, for good reason, that government
approaches to climate change will be a train wreck – in other words,
that the government “cure” will be worse than the problem.

–
Libertarians have in general drifted quite far from environmentalists.
Even though they still share a mistrust of big government,
environmentalists generally believe that MORE
government is the answer, while ignoring all of the problems associated
with inefficient bureaucratic management (witness the crashing of many
managed fisheries in the US), the manipulation of such managment to
benefit bureaucratic interests, special interests and insiders
(wildfire fighting budgets, fossil fuel and hard rock mining, etc.) and
the resultant and inescapable politicization of all disputes due to the
absence of private markets. Libertarians see that socialized property
rights regimes can be just as “tragedy of the commons” ruinous as cases
where community or private solutions have not yet developed, and have
concluded that, without privatization, government involvement
inevitably expands. Thus, libertarians often see environmentalists as
simply another group fighting to expand government, and are hostile as
a result.

– Libertarians are as subject to reflexive, partisan
position-taking as any one else. Because they are reflexively opposed
to government action, they find it easier to operate from a position of
skepticism in trying to bat down AGW scientific and economic arguments (and to slam the motives of those arguing that AGW
must be addressed by government) than to open-mindedly review the
evidence. This is a shame( but human), because it blunts the libertarian
message in explaining what libertarians understand very well – that
environmental problems arise when property rights over resources are
not clearly defined or enforceable, and also when governments
(mis)manage resources.

Regards,

Tom

I copy below comments I made on June 11 (Tokyo time) on Bob Murphy‘s June 4 blog post, Cap and Trade Is Not a “Market Solution”, that have apparently been held up for moderator approval (perhaps because my three links triggered the blog’s spam defenses?):

Bob, I thank you for posting your piece from IER, which has stimulated a relatively even-tempered and productive discussion.

But allow me to express a little disappointment.  Even as I agree fully with the gist of your post (the largely self-evident and unsurprising point that politicians prefer, as an alternative the more honest, open and politically less-palatable approach of direct Pigouvian taxes of the type supported by a wide range of mainstream economists, to address the concerns of scientists, economists, business leaders and others about man’s contribution to ongoing climate change by dressing up such taxes as a “market approach” involving a cap and trade program), I think that:

(1) you unfairly conclude that, since it will be government that will be implicitly pricing carbon emissions, such pricing “won’t reflect genuine economic scarcity” at all, when Austrian approaches do not deny that lack of property rights will result in economic actors ignoring external costs, but simply indicate the government pricing of resources can only imperfectly reflect economic factors;

(2) you’ve gone to a bit of unjustified rhetorical excess with your statements that:

– “[t]his is no more a “market price” than if the government decided to sell people permits giving them permission to sneeze”:  rather, it’s more like the government trying to price grazing rights, resources extraction rights or other user fees on “public lands”– yes, such prices are not market prices (and are perhaps more likely to be underpriced rather than overpriced), but that does not mean that they do not represent or at all reflect valuable resources.

– “Cap and trade is not a market-based solution” – while not a true market solution, a cap and trade approach is clearly one that makes use of markets.

– “Cap and trade … can therefore be justly viewed as a tax, stealthy or otherwise, on energy – the lifeblood of our economy” – this not only overbroad, as it would only tax certain types of energy, and overdramatic, it completely ignores the point that certain activities (a wide array not limited to combustion of fossil fuels, including release of other GHGs) are perceived as adversely affecting (now and in the continuing future) many within the country as a result of externalities involving an open-access and unowned and unmanaged commons, which is precisely what expressly motivates (actually or allegedly) so many – including many in your profession – to support Pigouvian approaches;

(3)  surprisingly, you failed to take the opportunity to add to the discussion by informing your readers of Austrian concerns, including the following:

– the calculation problem;

– whether, as you note it posting here, there is any reasonable basis to “trust governments around the world to implement the scheme ‘properly'” (by exploring problems with rent-seeking and bureaucratic incentives);

– whether it is desirable for the government to presume that it should act as the owner of the atmosphere in creating emissions rights (as opposed to citizens generally or long-standing/homesteading users of fossil fuels), and the related ethical issue of creating rights to emit that cut off those who may be harmed from any direct remedy (such as a share of the proceeds of the sale of rights); and

– the underlying institutional problem of lack of clear or enforceable property rights (for which past interferences by government have some responsibility); and

– whether growing concerns (and private responses) regarding the shared global issue (affecting nations with different circumstances and legal systems than ours) of increasing GHG emissions might be addressed less expensively and more rapidly by voluntary actions and national and international litigation rather than by coordinated action by various governments and implemented by individual nations.

None of these points is easily addressed, but they would help to provide a Austrian framework that may be useful to your readers. 

(4)  Finally, it is disappointing that you completely failed to take on any of your mainstream colleagues (such as those in Gregg Mankiw’s “Pigou Club”  http://en.wikipedia.org/wiki/Pigou_Club) who support either carbon taxes or cap and trade approaches. 

I understand that you’ve got a paper in the works addressing Nordhaus, but he’s hardly the only one writing specifically on climate change; I hope you will also be looking at Marty Weitzman at Harvard, Richard Tol and a few others noted here and here:

http://mises.org/Community/blogs/tokyotom/archive/2007/12/16/the-social-cost-of-ignoring-carbon.aspx
http://mises.org/Community/blogs/tokyotom/archive/2007/10/17/reason-congratulations-to-al-gore.aspx

Sincerely,

TT

[Snark Alert!]

A recent article in Nature Geoscience that shows that measurable climate change – this time the expansion of the tropics – is outpacing predictions. The actual article is abstracted here: http://www.nature.com/ngeo/journal/vaop/ncurrent/abs/ngeo.2007.38.html

Amazing how the strong belief system of “scientists”/fervent AGW co-religionists (government employees of course; this time NOAA) has actually been measurably changing the climate!

A press release by Nature Geoscience reported the following:

The tropical belt, defined by its typical rain and wind patterns, has started to expand during the last few decades as a result of climate change, according to a progress article published online this week in Nature Geoscience. This ongoing expansion, emerging from a number of independent studies, will affect climate worldwide as the dry subtropical zones are pushed polewards and could come to encompass the Mediterranean region, the southwest USA, Mexico, southern Australia, South Africa and parts of South America.

Dian Seidel and colleagues review recent studies on the width of the tropical belt from independent signs such as changes in atmospheric temperatures, winds and ozone observations, which all distinguish the tropical from the subtropical regions. According to their findings, the tropics have expanded by about 2.5 degrees latitude over the past 25 years or so – an expansion that had not been expected to occur before the end of the twenty-first century from climate model projections.

http://www.researchsea.com/html/article.php/aid/2502/cid/1/research/global_warming__tropics_expand_poleward.html?PHPSESSID=7fd07c5de7cdecb1cee48d05146bbdbd

A further report provides the following background:

Climate models predict that global warming could be causing the tropics to expand. So far, they have suggested a creep of 2°of latitude north and south, but only over the next century.

To find out what has happened so far, a team led by climate scientist Dian Seidel of the National Oceanic and Atmospheric Administration in Silver Spring, Maryland, examined the stratosphere for signs of change in the tropics. She and colleagues surveyed five sets of data collected by satellites and weather balloons from 1979 to 2000. The data showed that tropical climate patterns, such as increased ozone concentrations and temperatures, in the stratosphere had expanded by up to 4.5°of latitude–depending on the observations–in the Northern Hemisphere during that short period. …

Atmospheric scientist John Wallace of the University of Washington, Seattle, says the survey “makes a compelling case that the tropical belt has widened substantially over the past 30 years,” and if it continues at the same rate, “it will have major societal implications.”

http://sciencenow.sciencemag.org/cgi/content/full/2007/1203/3?rss=1 

The lead hysteric/scientist results reportedly said: 

“Dr Seidel said the surprisingly rapid expansion of the tropics could lead to “profound changes in the global climate system”. Of greatest concern were shifts in rain and wind patterns that would affect natural ecosystems, agriculture and water resources in the world’s subtropical dry belts, including southern Australia. …

“Dr Seidel and her colleagues analysed results from five different types of measurements of the tropics, including ozone levels and temperature.

“These independent studies all found that the tropical zone had expanded between 1979 and 2005 within estimates ranging from two to eight degrees of latitude. This was already greater than the 2-degree expansion by 2010 that climate change models have predicted under the most extreme warming scenario.”

http://www.smh.com.au/news/environment/greenhouse-robs-rainfall-in-farm-belt/2007/12/02/1196530481803.html

More coverage here.

http://www.nature.com/ngeo/journal/vaop/ncurrent/abs/ngeo.2007.38.html

http://news.nationalgeographic.com/news/2007/12/071203-expanding-tropics.html?email=Inside07Dec07

How convenient – government “scientists” happen to find consistent evidence, across a number of parameters, that climate change is occuring, and faster than predicted by climate models. 

How can we possibly trust this information from the government-funded AGW scientific cartel, whose only incentive is to keep the “climate change” goose well-fed, so they can keep collecting golden eggs from taxpayers?

Perhaps a more accurate headline would be “Scientists Again Prove Climate Models Wrong!”  That would be just as correct, and make me feel better, too.

[updated] A great new post by libertarian Ron Bailey of Reason here:

Congratulations to Al Gore
But be wary of the man’s proposed solutions for global warming.
Ronald Bailey | October 12, 2007
http://www.reason.com/news/show/122960.html

1.  Here are some excerpts (emphasis added), followed by a copy of my comments over at Reason:

[Gore is] wrong to characterize global warming as a moral and spiritual problem. Man-made global warming is not some kind of environmental sin. It’s just another commons problem that has emerged as human civilization continues to develop. Most environmental problems arise in what are called open-access commons. That is, people pollute air and rivers, overfish lakes and oceans, cut down rainforests, and so forth because no one owns those natural resources and therefore no one has an interest in protecting them.

The point is clearest in the case of tropical forests and fisheries. No one owns the forests or fisheries, so anyone may exploit them. No one has an incentive to leave any trees or fish behind because, if they do, someone else will harvest them and get the benefits for themselves. In other words, those who immediately benefit from exploiting the resource do not bear the long-run costs of its ultimate destruction. This mismatch between benefits and costs is a recipe for disaster. Similarly, no one owns the global atmosphere, so there is no incentive for anyone to protect it from various pollutants, including greenhouse gases that tend to raise average global temperatures.

Generally, humanity has solved environmental problems caused by open-access situations by either privatizing the relevant commons or regulating it.  …

As a skeptic of government action, I had hoped that the scientific evidence would lead to the conclusion that global warming would not be much of a problem, so that humanity could avoid the messy and highly politicized process of deciding what to do about it. Although people of good will can still disagree about the scientific evidence for climate change, I now believe that Gore has got it basically right. The balance of the evidence shows that global warming could well be a significant problem over the course of this century. …

Yale economist William Nordhaus … calculates that the optimal policy would impose a carbon tax of $34 per metric ton carbon in 2010, with the tax increases gradually reaching $42 per ton in 2015, $90 per ton in 2050, and $207 per ton of carbon in 2100. A $20 per metric ton carbon tax will raise coal prices by $10 per ton, which is about a 40 percent increase over the current price of $25 per ton. A $10 per ton carbon tax translates into a 4 cent per gallon increase in gasoline. A $300 per ton carbon tax would raise gasoline prices by $1.20 per gallon. Following this optimal trajectory would cost $2.2 trillion and reduce climate change damage by $5.2 trillion over the next century. …

Man-made global warming is an economic and technical problem of the sort that humanity has solved many times. For example, forests are expanding in rich countries because they have well-developed private property rights. Also in rich countries, regulations have helped once polluted rivers and lakes to become clean and have drastically cut air pollution. One of the keys to solving environmental problems is economic growth and wealth. …

In any case, global warming is not the result of environmental sin; it is the result of human progress creating another commons problem. … I have no doubt that man-made global warming is an economic and technical problem that an inventive humanity will solve over the course of the 21st century.

Still, congratulations are in order to Al Gore for being recognized by the Nobel committee for his persistence in trying to get humanity to pay attention to this new commons problem.

2.  Here is a digest of my comments to Ron:

Basically, a great post, but I’ve got a few small quibbles.

1.  You were right last year when you said that “In the end, the debate over global warming and its obverse, humanity’s energy future, is a moral issue.”
http://www.reason.com/blog/show/113924.html

2.  I share your understanding of the economics and institutional problem and agree that a straightforward explanation of these is important for very many.

3.  However, you forget what evolutionary psychology, Ostrom and Yandle have explained to us so well about how our innate moral sense drives and underpins mankind’s success as a species by enhancing our ability to cooperate and to overcome commons issues.
Ostrom: http://conservationcommons.org/media/document/docu-wyycyz.pdf
Yandle: http://www.fee.org/publications/the-freeman/article.asp?aid=4064

Our long history of developed rules and institutions (informal and formal now overlapping) are based on our moral sense and the effectiveness of these rules depends critically on our moral investment in accepting their legitimacy – witness our views on murder, theft, lying and “not playing by the rules” – and in voluntarily complying with them.

Our moral sense reinforces our judgments about when rules/institutions are not working and the need to develop new ones in response to changing circumstances and new problems.  When we see a problem that we think requires change, it is unavoidable that we respond to the status quo, the behavior of people within it and the need for change with a moral sense. 

This is simply a part of our evolutionary endowment.  (Of course, other parts of our endowment accentuate our suspicions of smooth talkers and help us catch free riders and looters and to guard against threats from outsiders.)

4.  Accordingly, while it’s unclear how deliberate Gore’s talk of “a moral and spiritual challenge” and “lifting the global consciousness” is or whether this is a productive approach for some people, I think it is fairly clear that, in order to build consensus for a solution to the climate commons problem (and other difficult commons problems) and to ensure that any agreed solutions are actually implemented, we will need to bring our moral senses to bear.

In other words, it is RIGHT to worry about climate change, but no meaningful/effective “solution” can be reached or implemented unless it is FAIR and the parties involved have sufficient TRUST (backed by information) in each other.

5.  You have understated the AGW problem, especially in light of the inertia both in our energy systems and in the climate, the long duration of CO2 and other GHGS, and the rapidity with which the climate is already changing – faster than even this year’s IPCC reports: http://www.carbonequity.info/docs/arctic.html

6.  It is surprising that in referring to Nordhaus you have not indicated the ways in which it seems clear that Nordhaus has understated the costs and risks of climate change and the utility of acting sooner rather than later, as noted by Weitzman, Sterner & Persson, Quiggin and others, or that by “revenue recycling” as noted by McKitrick we can substantially reduce the costs of carbon abatement policies.
http://www.economics.harvard.edu/faculty/Weitzman/papers/JELSternReport.pdf
www.rff.org/Documents/RFF-DP-07-37.pdf
http://johnquiggin.com/index.php/archives/2006/11/17/stern-on-the-costs-of-climate-change-part-1/
http://www.uoguelph.ca/~rmckitri/research/co2briefing.pdf

7.  You fail to note that while there are real costs to our economies to build climate change institutions, once established in principle any resulting carbon pricing reflects real costs and is not a “cost” to the economy.

8.  It is a puzzle that you did not note that the most powerful way to call forth the investment and behavior changes that would help us to “find a cheap, low-carbon source of energy” and to limit GHG emissions would be to find ways that would effectively price GHG emissions.

9.  Finally, one further comment on this:

“One of the keys to solving environmental problems is economic growth and wealth.  … So keep in mind that anything that unduly retards economic growth also retards ultimate environmental clean-up, including global warming.”

Not sure what you’re driving at here.

As far as developing countries go, efforts by Western nations to address climate change are actually net subsidies to them (by dampening Western demand for fossil fuels) and are providing incentives and investment for growth.

And as for Western economies, at least in principle internalizing externalities by enclosing commons (that have provided value which has not been factored into GDP) doesn’t retard economic growth, but enables it by forestalling the destruction of resources, permitting greater wealth-generating private transactions and reducing inefficiency.