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Sherwood's Soapbox

Global Warming and Carbon Control

Are we guilty of warming the planet? I don't know. From what I've read of the science, we know enough that CO2 is a factor in climate temperature. Doesn't matter if the cause is the sun getting a bit hotter, or our activity, it would be a good idea to control CO2 levels.

One is a carbon capping scheme. If you emit CO2, you have to buy a permit each year for it. These permits are auctioned off by the government. One problem is tracking the emitters. This can be solved by applying the tax at source. So the coal, oil, and natural gas companies will have to buy permits for the amount of carbon they put into the economy. This makes it manageable to control and check. The big advantage of a carbon capping scheme is that you cut the number of tons of permits you sell each year. Cut by 1% each year, you are guaranteed that you will produce 10% less CO2 in 10 years.

Carbon Caps = More Chaos

I don't the idea of a carbon permit. Here's why:

Economists in their talk of supply and demand talk about elastic supply demand curves and rigid curves. The whole idea of supply and demand is that when the supply is short, the price goes up until the demand drops to meet it. And for a lot of things this makes a fairly smooth curve. Price of beef goes up, I eat more chicken. When apples are cheap, I eat more apples. These are elastic supply curves.

What about gasoline or electricity? It only takes a small shortage of gasoline to send the price through the roof. Very few of us can do a lot in the short run about how much gas we use. Oh sure, on the scale of months, we carpool more, we go the lake less often. If we aren't a young male, with too much testosterone, we may even slow down a bit. We try to drive the Subaru instead of the F150 when we can. In the long run, people buy more efficient smaller cars. But still a 10% shortage in gasoline produces a lot more than a 10% rise in price.

Electricity is even worse. Figure it out. Can you cut your kilowatt hours used in half, without getting a second mortgage?

Putting a carbon cap on the economy imposes a shortage. But given the track record of economics as a predictive science, no one knows what the resultant price will be. This is bad for any energy intensive business. They do not know what their costs will be next year.

Carbon Tax = Predictable Prices.

If, instead, you put a carbon tax in place, you don't know how much you will reduce carbon use, but at least everyone has an idea what the cost will be.

Now people can plan. The bean counters will look at the published carbon tax hikes for the next 10 years, will mutter into their spreadsheets and will say, "We should replace all the windows in 2010, replace the furnaces in 2012, upgrade the insulation in the building in 2015. We hope by that time LED lights will be cheap enough to replace all the fluorescents. And by the way, we need to look at a closer supplier for the doohickeys. In five years the transport costs will be larger that the dohickeys themselves.

A carbon tax shows up as higher costs for energy and for some raw materials. As the price climbs, recycling starts looking better. Transport is a bigger part of the pie. Buy local makes sense. Or create pools and buy a freight car load. (Trains are substantially more energy efficient than trucks.)

Now to keep the system fair, other taxes should be lowered, so the tax burden on the average joe is still the same. I pay more for gas at the pump, but I pay less income tax. It should even out. But I can get ahead if I trade that Cherokee in for a Honda.

Gradual phase-in

The other thing is that it should come in gradually. If it starts at about $10 per tonne and takes 25 years to get to $100 per tonne, then people have time to wear out that Cherokee, auto plants can convert from Cherokees to Hybrid Fusions, clean diesel can replace gas, and the gradual rise in electrical power can encourage windmill farms at a rate that the construction crews can keep up with.

Level playing field

Carbon taxes only work if everyone plays. So carbon has to be taxed when it comes into the country. Otherwise it's cheaper to buy from PennState Oil. Whether you give a credit when carbon goes out of the country is slightly different depending on what effect you want on your carbon economy.

Tax the carbon when it comes out of the ground. It's simple, it's easy. It makes life predictable.

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Read, laugh, cry. Send me a line and tell me why this idea won't work. Convince me and I'll issue a retraction, and grant you a kudo for correcting my ignorance.

Send email to soapbox@sherwoods-forests.com

Note that, unless you tell me otherwise in your letter, I may publish it, or quote it in a future rant