Former Fed Vice-Chair Urges — Show The CO2 Price Now! (Two Years Ahead of Time)

(Also posted at The Carbon Tax Center.)

Everyone from the President on down professes to want more hi-tech jobs and cleaner energy. Here’s a prescription for getting them: enact a gradually-rising carbon tax but delay its implementation for two years to avoid dampening the fragile economic recovery.

That’s former Fed Vice-chair and Princeton Econ. professor Alan Blinder’s message in “The Carbon Tax Miracle Cure,” broadcast today from the pulpit of free-market orthodoxy, the editorial page of the Wall Street Journal:

[A] carbon tax… should be enacted now [but] set at zero for 2011 and 2012. After that, it would ramp up gradually… What’s critical is that we lock in higher future costs of carbon today.

Once America’s entrepreneurs and corporate executives see lucrative opportunities from carbon-saving devices and technologies, they will start investing right away—and in ways that make the most economic sense… I can hardly wait to witness the outpouring of ideas it would unleash. The next Steve Jobs, Bill Gates and Mark Zuckerberg are waiting in the wings to make themselves rich by helping the environment. Jobs follow investment, and we need jobs now.

Blinder recommends using carbon tax revenue to reduce the deficit, but underscores the advantages of a carbon tax over other deficit reduction strategies:

[E]very realistic observer knows that closing our humongous federal budget deficit will require a mix of higher taxes and lower spending as shares of GDP. Forget about value-added taxes and other new levies you may have heard about. A CO2 tax trumps them all… reducing our trade deficit, making our economy more efficient, ameliorating global warming, and showing the world that American capitalism has not lost its edge.

Now that “hiding the price” behind cap-and-trade has crashed politically, Prof. Blinder is urging Congress to try the opposite: show the price—two years ahead of time—and let the expectation of a rising price on CO2 pollution do its job creation and climate work. As for the politics, Blinder drags out the familiar Churchill quote: “You can always count on Americans to do the right thing—after they’ve tried everything else.” It’s a cliche, all right, but it might just apply.

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P.S. Check out my other recent post: Obama’s Clean Electricity Standard: “A Menu Without Prices”

Democrats' Trouble: They Let Republicans Con Them (Again)

Recently read Bill Galston's insightful (and short) article The Democrats' Legislative Record: Can't Run on It, Can't Run Away ...

Of the five big legislative actions of the past 2 years,

- Financial Reform
- Wall St Bailout
- GM Bailout
- Healthcare "reform"
- Stimulus,

a recent Gallup poll found that just one is popular with a majority -- financial reform. Galston concludes that...

"...a few things are clear:

• The failure of the stimulus to produce a more hopeful job market has cast a pall over everything else.
• The public regards the year spent debating health reform as a diversion from what it thinks should have been a sustained focus on the economy.
• And whatever its economic merits, the failure of the financial rescue to mete out justice to the financial leaders that got us into this mess has outraged the public’s moral sense. Given its composition, the president’s economic team could not have been expected to be especially sensitive to this concern, and it wasn’t. It was the president’s job to ensure that justice was not just done, but seen to be done. The public doesn’t think he did it. [Emphasis added]
  

The bottom line: the majority can neither run on its record nor run away from it. Its only hope is to convince the American people that giving power to an opposition party in its angriest and least moderate mood would only make things worse."

That's about the most cogent explanation I've seen for the country's current political mood.

Obama started with a stimulus package -- he tried to get Republican votes by throwing away 40% on tax cuts that do little for employment. He garnered no Republican votes in the House and 3 in the Senate which passed it 61 -37. Having spent $787 billion, Obama can't go back for more, even thought the official 11% unemployment rate (really closer to 17%) screams for more. So now the R's are running against the bad economy that they helped assure would stay bad.

When will Dems learn that giving "half a loaf" to the Republicans just means that you only have half a loaf? The Republicans haven't cooperated for a very long time. It's as old as Lucy yanking the football out just as Charlie Brown charges up to kick it... you feel sorry for good 'ol Charlie Brown, but not too sorry for the stupid sap. Too bad the country has to endure yet another fall into a booby trap.

Report from Copenhagen: Forget carbon targets, just set a price

Copenhagen, 19 December 2009

While the mainstream press lamented the COP15 stalemate, and delegates struggled through the night to spin their impasse over “targets” and “verification” into some semblance of progress, the scene was harmonious, even jubilant at Klimaforum, the “people’s climate summit” near Copenhagen’s main train station Friday night.

Klimaforum negotiations coordinator Mathilde Kaalund-Jørgensen proclaimed to a standing room-only audience in the main auditorium that she had been admitted to the Bella Center (off limits to most non-governmental organizations since Wednesday), only to sit through hours of “very boring” speeches by heads of state, droning on about “urgency” and “binding targets.” The UN granted Mathilde just two minutes at its plenary session to introduce the Klimaforum Declaration. The consensus Declaration calls on industrialized nations to recognize and begin to pay their “climate debt” for the Earth’s accumulated greenhouse gas pollution that is already raining destruction and death disproportionately on developing nations. The Declaration rejects carbon trading, carbon markets and offsets as false solutions and perhaps most importantly, includes a clear call for a transparent carbon tax with revenue returned to the people.

The People's Climate Forum (Klimaforum)

After Mathilde’s remarks, Klimaforum closed with a rollicking, diverse celebration, including latin, kletzmer, waltz and folk music, dance and some good laughs. One musician played an impressive solo on an oboe he’d “up-cycled” from a plastic drinking straw. A speaker warned against cynicism and its evil twin, complacency; both block action and engagement. We are all products of an unbroken chain of millions of successful ancestors, he reminded us, who, at least for a moment, felt warmly about their mates. He pointed out that we each carry within us their accumulated success in adapting, cooperating and surviving. The Danish activists who had organized and obtained funding and space for the Klimaforum handed off the effort to a new team already planning an alternative summit at COP16 in Mexico City next year. “The people must lead” they said, “We will not wait for the so-called leaders.”

An apt ending to a week’s searing contrasts between pallid UN events and the lively and productive Klimaforum. Here’s how it went for me.

For the first week and a half of COP15, I divided my time between UN events at the Bella Center and the Klimaforum. While the plenary sessions were grinding along, the UN side events offered a wealth of information and occasional inspiration: British Columbia Premier Gordon Campbell was congratulated for enacting North America’s first revenue-neutral carbon tax which led in May to his comfortable re-election. The German government detailed ambitious plans for 95% reductions in GHG emissions by 2050, pointedly including a scenario in which carbon capture and sequestration turns out not viable. And at a session on monitoring, reporting and verification (MRV) of GHG emissions, I annoyed representatives of big accounting firms by pointing out that their Herculean (and lucrative) business plans to establish baselines and monitor GHG emissions would be unnecessary under a simple upstream carbon tax.

The dynamic shifted on Wednesday. I had planned to go to Bella Center for two side events in the morning and then head to Klimaforum for an afternoon presentation on carbon taxation. I had obtained the secondary credentials the UN was using to limit the number of attendees. On the Metro to Bella Center, delegates were ordered off at the Sundby station half a mile before the center. We marched through half-a-dozen police checkpoints between dozens of idling vehicles containing barking and snarling police dogs and lines of heavily armed police. From some points, we could see and hear throngs of protestors. They had planned a symbolic meet-up uniting supportive delegates inside Bella Center with those approaching from the outside. I saw a troupe of Latina women dressed as ears of corn nearly run down in mid-dance by a police van charging at full speed. Their corn husks crunched against the van as the women dodged, barely avoiding injury.

At the final checkpoint, in line to enter Bella Center, we were serenaded by Bob Marley tunes from a PA system powered by pedalling activists. I waited with two delegates from India. Their take: “Flopenhagen.” Inside Bella Center, guards scanned my credentials. The computer rejected me, and I was brusquely escorted by police armed with Glock 45’s out to the perimeter where the Marley tunes were still playing. Meanwhile, protestors were massing outside the gates; we could hear police yelling at them.

After taking a last look at the spectacle from Sundby station, I headed back to Klimaforum, where I met Friends of the Earth delegates who had also been locked out of Bella Center. FoE had elected not to participate in the demonstrations and try to work within the UN process instead, but it and many other NGOs were excluded anyway. They felt cheated, but also appeared glad to be on the “right side” of the new line between UN insiders and outsiders.

I arrived early to the Klimaforum presentation, Carbon Taxation – A forgotten climate policy tool, by Global Utmaning (Global Challenge), an independent Swedish think-tank. I was glad to meet presenter Carl von Essen who had contacted the Carbon Tax Center about our common pursuit of transparent, predictable carbon pricing. We chatted for a few minutes; he seemed very pleased to meet a rep from CTC. Their presentation was thorough, clear and well documented, covering the advantages of direct carbon pricing in reducing emissions and encouraging alternatives. Von Essen and his colleagues pointed out in countries where carbon revenue has been used to reduce other taxes, such tax shifting has produced economic benefits.

During the Q&A, I congratulated Global Utmaning on a terrific presentation and noted the excellent attendance (150 people packed the room). I mentioned our concerns with cap-and-trade: markets, traders, offsets, lack of clear price signals… and invited listeners to a discussion that I had arranged in the nearby “meshwork” area. Eight enthusiastic participants engaged for over an hour in a very substantive discussion about carbon pricing, including nitty-gritty details like border tax adjustments and ways to make the net effects of carbon taxes income-progressive. (Carl and his colleagues had headed for the Bella Center to try to make a similar presentation there.)

Last week I also attended two Klimaforum sessions featuring prolific and influential Guardian columnist George Monbiot. He decried governments’ focus on increasing supplies of alternative energy rather than directly reducing demand for fossil fuel energy. He’s especially critical of Canada’s plans to unleash the dirtiest fossil fuel: tar sands. I treated him to tea and we had a few minutes to chat. I told him we agreed on the need to reduce energy demand and mentioned our recommended tool: carbon taxes with revenue recycling. “You’re pushing on an open door,” he said encouragingly. At his session later in the week entitled: “Are you getting the climate agreement you came for?,” Monbiot mentioned climatologist Jim Hansen’s trenchant critique of cap-and-trade and called on me during a comment period. I explained some of the flaws of carbon trading and suggested a direct carbon pricing system. Later, Monbiot picked up the point, explaining that a carbon tax is a way to reduce demand for fossil fuels and put alternatives on a stronger footing. Perhaps he’ll adopt revenue-neutral carbon taxing as a future talking point. (Click here for Monbiot’s bristling valedictory from COP15.)

What does it all mean? Like so many, I came to Copenhagen with a vague hope for a “fair and binding” agreement. I now question whether that was even a good framework to begin with. “Fair” now seems to point toward an endless struggle over allocating rights to emit carbon; and “binding” to incessant legal wrangling over monitoring and enforcement. In contrast, Klimaforum showed that leadership doesn’t have to come from the top, whether the UN or our so-called leaders. And sadly, the UN showed that it won’t.

What’s a better framework? How about one major trading bloc (e.g., the European Union or the U.S.) setting a steadily-increasing carbon tax? That would create pressure for others to follow, as the carbon-taxing countries collected (and kept) the laggards’ carbon taxes for them at the border. In effect, penalize the laggards while offering a bounty of tax revenue for those that join. The only international agreement needed — if at all — would be that every country will enact a carbon fee, along with clarification of World Trade Organization rules on border tax adjustments. Nations don’t even need to agree on the same carbon tax rate, since individual countries’ rates can be harmonized at the border.

Forget targets, verification, offsets, trading… And don’t wait for the UN. Just lead: set a carbon price. The world will follow.

Photo: Flickr / Iklimicingenclik.

Meditation with an Apple Tree (at Earthstory)

I attended Earthstory near Petersham, Massachusetts last August where I participated in a "deep ecology" workshop inspired by Joanna Macey.

Trishki facilitated a way for each of us to listen to and connect with a tree. She suggested that we go with a question. Mine was something like this: "Why do I feel anxious about the passage of time?" Trishki said, before you choose a tree to sit with, make sure it's willing.

The first tree whose power caught my imagination was a very big, old oak tree. But as I stepped closer, I saw that the tree's base was surrounded by poison ivy. I took that to be a "no." The next tree that caught my imagination was an old, (long unpruned and wild-looking) apple tree whose trunk curved upward in an appealing, reclining way that invited me to sit with my spine, my trunk, aligned with it.

That's what I did. I snuggled until my bottom, back, neck and head were held comfortably by the tree trunk and when I'd done that, I found myself looking at one of its limbs, borne down by many green apples. The tree was holding onto the soil and rocks that my legs and feet felt below, lifting water and nutrients through its trunk behind me, up, out into its fruit, before me. A caress, of sorts.

I listened. My anxiety, it seemed, was about ego. About accomplishing. About proving something. The tree suggested, "Try this: Just be for a while. I will support you. I am strong and healthy, life is abundant here."

So this is my idea of a prayer answered. I have many "gods," alive and around me. They all will speak to me if only I listen.

Moving Toward a Greener Economy

On July 1, the Washington Post published the following letter to the editor by Greg Ebel, President and CEO of Spectra Energy Corp., which operates natural gas pipelines and gas processing, storage and distribution facilities.

The June 26 editorial "Waxman-Markey" was right to push policymakers toward a better alternative to cap-and-trade emissions policy for addressing climate change. A straightforward, predictable carbon tax would present less room for manipulation while encouraging carbon emissions reductions.

The best carbon tax would be revenue-neutral, attaching a penalty to what we want less of (carbon emissions) while encouraging what we want more of (jobs, technological innovation and efficiency). Such a fee would directly and visibly assess the true costs associated with emissions and drive behavioral change quickly.

A tax doesn't create artificial scarcity, monopolies or rents. Without the profit potential of amassing tradeable carbon permits, industries would less incentive to try to get credits for their favored but non-competitive energy sources. That would be the likely result of the cap-and-trade bill moving through Congress.

What's more, a cap-and-trade system can be gamed. The financial derivatives associated with emissions credits would be traded in a new, hugely complex, multitrillion-dollar carbon market. Instead of turning our environment over to the traders who brought the financial system to its knees, we'd be wise to develop a far simpler system for addressing carbon emissions."

GREG EBEL

Carbon Tax "Vastly Superior" to Cap and Trade

Economist Gary Hufbauer testified to the Senate Finance Committee this morning:

"Climate change is a serious problem that must be addressed by the United States and other countries. To reduce greenhouse gas (GHG) emissions, a carbon tax system would be vastly superior to a cap-and-trade permit system. Carbon taxes would be more transparent, more uniform across all GHG sources, raise more revenue, easier to administer, and more readily adjusted at the border. The Waxman-Markey draft legislation illustrates the enormous complexity, opacity, and rent-seeking inherent in a permit system."

If, like me, you think global scorching could become a plague of biblical proportions, it's pretty important to get the policy right. And even if you're not that concerned about the climate crisis, you might like the idea of tax reform: reducing taxes on our pay, encouraging employment while replacing the revenue with taxes on global warming pollution, discouraging energy waste and encouraging renewable energy. Unlike the 946-page Waxman-Markey bill, most people can understand that.

Why isn't Congress going for a revenue-neutral carbon tax? They seem to think we're too brow-beaten to understand that cap/trade is a hidden, volatile and regressive tax, and they're afraid we won't accept an explicit, predictable, progressive tax shift, just because it's called a "tax."

I won't be shedding any tears when the Waxman-Markey bill goes down in flames, either on the House floor or in the Senate. Then, maybe we can have a mature discussion about what Dr. Hufbauer was describing-- a system that actually works and that would lead other countries to follow.

Magical "Caps" Make Global Warming Go Away?

All you need is a "cap" and climate change will be "all better." That's the heart-warming story that EDF, Pew and the rest of the USCAP crowd have sold to their members, the public and the House Energy & Commerce Committee. Coming Attractions: the "magical cap" fairy tale will soon be playing to the full House.

The Washington Post reported today on very heavy lobbying of the Waxman Markey climate bill. But, the Post says cap/trade advocates are not concerned about handouts of free allowances:

Supporters of the bill say its key component is an iron-clad cap on the nation's emissions that drops over time. They said it doesn't matter how allowances are distributed.

"The environmental goals depend on having a strong cap and a time horizon to encourage innovation," said Nathanial Keohane, an economist at the Environmental Defense Fund. "That's what we see in the bill."

The biggest chunk of free allowances, worth $500 billion, would go to local electricity and natural gas distribution companies, with strings to make sure the firms use them to shield consumers from higher costs. [Emphasis added.]

So the magical "iron clad" cap does it. No need to bother anyone with higher fossil fuel prices...

Fred Krupp of EDF: "You’ve heard a thousand times that the whole point is to send a price signal. The whole point is really a declining cap [for greenhouse-gas emissions]. The cap drives innovation which lowers the costs. As an environmentalist, I’d like to see the costs at the lowest level possible, because that creates the political will to keep going, or even ratchet down the cap." (Wall St. Journal, March 19)

Contrast this with what economists say: Prof. Nordhaus: "Economic participants—thousands of governments, millions of firms, billions of people, all making trillions of decisions each year—need to face realistic prices for the use of carbon if their decisions about consumption, investment, and innovation are to be appropriate... without a strong price signal, there is simply no hope for making the vast number of decisions in a remotely efficient manner... Raising the price of carbon is [thus] a necessary condition for implementing carbon policies in a way that will reach the multitude of decisions and decision makers over space, time, nations, and sectors." [Emphasis added.]

And maybe the best part of the magical cap fairy tale: no need to regulate anything and hardly any need to even to enforce anything.... and we can feed the hungry sharks on Wall Street a new market in carbon trading while we're at it.

So why don't I believe in caps? There are two ways to reduce pollution:

1) Regulation: Prohibit or limit pollution by specifying equipment or performance, for example of power plants, appliances or buildings. And then police and enforce those rules every single day. Intrusive, bureaucratic, inefficient and requires heavy enforcement.

2) Prices: Raise the cost of pollution. That can be done directly with a tax, or indirectly with a cap which (if enforced) would raise prices. A cap says: Here's the amount of pollution we're going to allow, now bid for the limited right to pollute. But if there's a way out of the cap called an "offset" then there's really no cap at all -- the price of polluting becomes the price of the cheapest offset you can find.

Here's what the cap/trade advocates say in defense of offsets:

Offsets reduce costs to the U.S. economy by allowing firms to purchase emission reductions that occur outside the cap when they are more cost-effective, just like a cap-and-trade program allows firms to purchase allowances from other capped firms that can reduce emissions more cheaply.

And here's an example from Friends of the Earth's the "Subprime Carbon" critique of offsets:

[O]ffset projects may be simply disingenuous. Perhaps the most well-known controversies relate to offset projects designed to destroy HFC-23, a chemical byproduct of refrigerant production that is more than 11,000 times more potent than carbon dioxide. Widespread reports of companies purposely creating these very powerful greenhouse gas chemicals — just to destroy them and make money off of the credits — prompted the Kyoto Conference of the Parties to take up this issue at their December 2008 meeting in Poland.

Still believe in magical caps?

How about a revenue-neutral carbon tax instead?