Carbon tAX

Originally posted by vistesd
The tendency will be for people to use more; lower prices will increase their de facto wealth. Maybe they will use more air conditioning to be more comfortable, for example. But they may also spend some of that increased wealth elsewhere: maybe they’ll eat an extra meal out. There are substitution effects and income effects.

Subsitution effec ...[text shortened]... e the same, and eat out more with the freed-up money.

There is likely to be some combination.

The problem for planners is that it is impossible to predict exactly the response of consumers in a complex market to one or more specific inputs. They will respond, but how, and how much are the operative questions.

Central planning has always ended up creating new problems, usually more severe than the ones they sought to fix. With the root problem very seriously questioned, it might be a good idea to wait for more proof that there actually is a problem before creating new ones.

Originally posted by vistesd
"quantity demanded"? 😉

Nice catch. 🙂

Originally posted by Metal Brain
Very poor people will lower their electricity consumption to some extent but I stand by my statement that most people will not. I view carbon taxes as being inefficient at lowering consumption and bad for an economy with anemic growth at best and no growth at worst.

Higher efficiency standards are the way to go IMO.

There will be those in all economic classes that will ignore increased costs, or drop something else which is a lower priority for them. Rich and poor will do this.

Higher efficiency standards are just another version of a tax, higher cost to consumers, for products they don't choose to buy on their own. Things like CAFE standards in automobiles, create problems unforseen by regulators. Earlier CAFE standards resulted in automakers building and selling a lot of fuel efficient cars to meet fleet average standards, and selling them at marginal profit, sometimes at a loss. For more than a decade, most American auto makers made their money selling pickups and SUVs which were not included in CAFE, although those newer trucks did improve their fuel economy.

In the end, government (Congress and the President) is most always a poor predicter of consumer response to their "standards".

Originally posted by normbenign
Why not just let the market sort the problem out, if there is a problem? The wealthiest, most capitalistic countries have already made the most progress controlling industrial polution.

Nobody wants dirty air.

Sure, nobody wants an equilibrium with polluted air, but this is a classic case where individuals do not internalize the full cost of their behavior on the aggregate. If there is some activity that I enjoy a lot but that also pollutes a little bit, then I'll continue to engage in that activity. It benefits me considerably and costs only a little. Unfortunately, for you and everyone else, that polluted air is not breathed by just me. You guys bear some of the cost of my activity as well with no benefit. With everyone facing the same private decision, we end up with a lot more pollution than we would all desire to have, but at the margin nobody finds it in their interest to restrain their contribution to the problem. One way to correct this is with a tax. This increases the cost to the individual causing him to reduce his polluting behavior. For more explanation read up on "Pigouvian taxation."

Originally posted by normbenign
Cap and trade was a scheme concocted by chaletons using fear of nonexistent global warming to rake the public worldwide for billions of $ without any benefit to the environment, even if the root scare was true.

Like I said in another post. A carbon tax or cap and trade are based on the assumption that there is a problem. Blaming carbon taxation for a false alarm on global warming is like calling open heart surgery a stupid procedure because maybe some one doesn't have a heart problem. Great ideas don't work when they are applied to problems they weren't designed to solve.

Originally posted by normbenign
Why not just let the market sort the problem out, if there is a problem? The wealthiest, most capitalistic countries have already made the most progress controlling industrial polution.

Nobody wants dirty air.

The wealthiest, most capitalistic countries have already made the most progress controlling industrial polution.

By letting the unencumbered market do it? Or by enforced costs (e.g., by regulation) that eventually led to market-based responses, as economic agents sought out lower-cost solutions to comply?

You are fond of pointing out that we never really have had unencumbered markets. I am fond of pointing out that, even if we did, the rigorous conditions required for such markets to be efficient have hardly ever held (except in the most primitive sorts of markets). Therefore, there are economic externalities (such as pollution) that markets just do not resolve on their own—except in a zero-transactions-cost (mythical) world.*

I think that some form of “mixed economy” is best (not utopian). There may not be anything such as a collective “society”—aside from the individuals that enter into a social contract—that thinks and decides and acts, granted. But individuals to enter into long-term social contracts, and such contracts can be undermined by “free rider” questions—especially if, for example, the “free rider” dumps his sewage on the others because he is in principle opposed to the “enforced socialism” of a public sewer system. In a zero-transaction-cost (mythical) world, the “market” (no different a construct, in some senses, than “society” ) can handle that via what is sometimes called “the bribe”. In a world with positive transaction costs, that may not be so.**

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* The existence of transaction costs lead to different market “topologies” (such as the “internal market” of the business firm), as economic agents attempt to economize. Well-defined property rights—as part of an overall “governance” structure—are both necessary for any market to function efficiently, and can mitigate transaction costs (e.g., by mitigating uncertainty).

** There is also an ethical question. I’ll put it in quasi-Randian terms: does the threat to the health of his neighbor’s children, by not joining the public sewer system, construe “initiating violence”? Either way, what if his opting out (or free ride, if his neighbors all chip in to pay his sewer connection) financially undermines the whole project—as others follow suit—with negative health consequences for all? How does Randian analysis handle such things? Deny their possibility?

Originally posted by normbenign
The problem for planners is that it is impossible to predict exactly the response of consumers in a complex market to one or more specific inputs. They will respond, but how, and how much are the operative questions.

Central planning has always ended up creating new problems, usually more severe than the ones they sought to fix. With the root problem ...[text shortened]... be a good idea to wait for more proof that there actually is a problem before creating new ones.

This is exactly the argument for cap and trade. With the carbon tax, the central planner has to come up with the appropriate tax rate. Too low and pollution levels remain too high. Too high and you unnecessarily distort economic activity (overcorrect if you will).

Cap and trade solves that. If you know the maximum amount of pollution that you can tolerate, then you issue only that much pollution in permits. Then the free market can exchange those polluting rights to work out the complexities. The price of a permit moves so that permits are distributed optimally across the market.

Originally posted by telerion
Nice catch. 🙂

Naw, man, I knew what you meant--and you were just ignoring the distinction, in the interest of pedagogy, because you know that is conventional talk and this really isn't micro 101. I just couldn't resist the playful nudge... 🙂

Originally posted by normbenign
There will be those in all economic classes that will ignore increased costs, or drop something else which is a lower priority for them. Rich and poor will do this.

Higher efficiency standards are just another version of a tax, higher cost to consumers, for products they don't choose to buy on their own. Things like CAFE standards in automobiles, cre ...[text shortened]... and the President) is most always a poor predicter of consumer response to their "standards".

I used DVD players as an example because they are horribly inefficient and electricity is generated mostly by burning coal. Coal is carbon heavy.

I am not suggesting raising efficiency to the point where the electricity savings would not pay for the increase of cost to the DVD player. I simply think people need help with the number crunching to get the most out of the desired balance. People are mostly ignorant and poor at this judgment of efficiency savings of electricity vs. cost increase of the product.

The only downside I can see is the possibility that a product might be unreliable and money is lost buying something that is not cheap (inexpensive) , but that might just motivate consumers to seek brands with a good reliability record more often. That might not be a bad thing since it will save resources by reducing the amount of DVD players chucked into the landfill per year.

Originally posted by telerion
This is exactly the argument for cap and trade. With the carbon tax, the central planner has to come up with the appropriate tax rate. Too low and pollution levels remain too high. Too high and you unnecessarily distort economic activity (overcorrect if you will).

Cap and trade solves that. If you know the maximum amount of pollution that you can t ...[text shortened]... ities. The price of a permit moves so that permits are distributed optimally across the market.

Cap and trade is too expensive to monitor.

My proposed solution doesn't have that problem and it will not have a negative economic effect at all. Best of all, it can be implemented much faster. Agreements between nations can take forever.

Originally posted by telerion
Sure, nobody wants an equilibrium with polluted air, but this is a classic case where individuals do not internalize the full cost of their behavior on the aggregate. If there is some activity that I enjoy a lot but that also pollutes a little bit, then I'll continue to engage in that activity. It benefits me considerably and costs only a little. Unfortu ...[text shortened]... him to reduce his polluting behavior. For more explanation read up on "Pigouvian taxation."

I follow the concept, without reading up on Pigouvian taxation. I hate jargon.

The problem with your suggestion is that of separating the cost of something from the benefit. This facilitates making others pay for stuff, the most common fraud. Another problem is that of assuring that the tax is used for the advertised purpose, so that later on there isn't a double dip.

As an example, let's use the Federal part of the gasoline tax, originally used to fund building an interstate highway system. Now huge parts of that are diverted to mass transit, or boondoggle projects of influential Senators. In addition, a significant portion of the money is wasted in the handling of it from State to Federal and back again. Besides that, the money is used to influence policy in States by threatening to withhold the promised funding.

Originally posted by Metal Brain
I used DVD players as an example because they are horribly inefficient and electricity is generated mostly by burning coal. Coal is carbon heavy.

I am not suggesting raising efficiency to the point where the electricity savings would not pay for the increase of cost to the DVD player. I simply think people need help with the number crunching to get th ...[text shortened]... it will save resources by reducing the amount of DVD players chucked into the landfill per year.

How about looking at market based solutions, instead of stuff being forced on people, like taxation or fraud like cap and trade?

The sun shines everywhere in varying degrees. Solar panel are currently prohibitively expensive, but they can be built by individuals without engineering degrees, and for a fraction of the retail costs. The same is true of wind turbines.

Something good doesn't have to be done by government, and forced on the public. A lot more people have quit smoking due to knowledge, than because of taxation, or smoking bans.

Originally posted by normbenign
I follow the concept, without reading up on Pigouvian taxation. I hate jargon.

The problem with your suggestion is that of separating the cost of something from the benefit. This facilitates making others pay for stuff, the most common fraud. Another problem is that of assuring that the tax is used for the advertised purpose, so that later on ther e money is used to influence policy in States by threatening to withhold the promised funding.

Government inefficiency and the cost of bureaucracy are certainly good arguments against the knee-jerk urge to cure all externalities with government intervention. So I sympathize to a degree there.

I don't understand this part of your post.
"The problem with your suggestion is that of separating the cost of something from the benefit. This facilitates making others pay for stuff, the most common fraud."

Would you please elaborate on this? What is the cost you are referring to and what is the benefit because these words don't seem to fit with the way I used them? Also is this problem specific to the carbon tax (which tries to explicitly get individuals to embed the social cost of their behavior) or of the cap and trade (which lets the market allocate permits according to willingness to pay)? Or both in some way?

Originally posted by normbenign
How about looking at market based solutions, instead of stuff being forced on people, like taxation or fraud like cap and trade?

The sun shines everywhere in varying degrees. Solar panel are currently prohibitively expensive, but they can be built by individuals without engineering degrees, and for a fraction of the retail costs. The same is true of ...[text shortened]... lot more people have quit smoking due to knowledge, than because of taxation, or smoking bans.

Are you suggesting that businesses are ignoring large profits from solar and wind energy because they are uninformed of sources of cheap labor and simple technologies? Then the problem to global warming is really very simple. Either show companies these $20 bills laying all over the sidewalk or start the business yourself and make billions.

Originally posted by normbenign
How about looking at market based solutions, instead of stuff being forced on people, like taxation or fraud like cap and trade?

The sun shines everywhere in varying degrees. Solar panel are currently prohibitively expensive, but they can be built by individuals without engineering degrees, and for a fraction of the retail costs. The same is true of ...[text shortened]... lot more people have quit smoking due to knowledge, than because of taxation, or smoking bans.

I'm not that passionate about my proposed alternate solution. I am just trying to point out the stupidity of taxing carbon. Cap and trade is incredibly stupid.

Unless I point out that there is an alternative solution that makes more sense these guys will never give up on raising taxes to reduce an essential plant nutrient. However, I do think coal is a dirty fuel that could use reducing to keep mercury, sulfur and lead out of rainwater, lakes and rivers. For that reason I do support more efficient use of electricity.

I don't see much downside to higher efficiency standards of electrical appliances and market based solutions are not very effective in this area. Most people don't care if they waste electricity. I notice it all of the time. Most people think short term.