C
Captain Compassion
Guest
Call their tax
Why not tie carbon taxes to actual levels of warming? Both skeptics
and alarmists should expect their wishes to be answered
Ross McKitrick
Financial Post
Tuesday, June 12, 2007
http://www.canada.com/nationalpost/....html?id=d84e4100-44e4-4b96-940a-c7861a7e19ad
After much effort, G8 leaders last week agreed to "stabilize
greenhouse-gas concentrations at a level that would prevent dangerous
anthropogenic interference with the climate system." This is the same
wording as in Article Two of the UN Framework Convention on Climate
Change, signed in 1992. In other words, after months of negotiations,
world leaders agreed on a text they had already ratified 15 years
earlier.
Global-warming policy is stuck in a permanent stalemate for very basic
reasons. Important divisions of opinion still exist on the extent of
humanity's influence on climate, whether or not the situation is a
crisis, whether and how much greenhouse-gas emissions should be cut,
if so how to do it, and what is the most we should be prepared to pay
in the process.
With this stalemate in mind, I would like to propose a thought
experiment about a climate policy that could, in principle, get equal
support from all sides.
The approach is based on two points of expert consensus. First, most
economists who have written on carbon-dioxide emissions have concluded
that an emissions tax is preferable to a cap-and-trade system. The
reason is that, while emission-abatement costs vary a lot, based on
the target, the social damages from a tonne of carbon-dioxide
emissions are roughly constant. The first ton of carbon dioxide
imposes the same social cost as the last ton.
In this case, it is better for policy-makers to guess the right price
for emissions rather than the right cap. Most studies that have looked
at that the global cost per tonne of carbon dioxide have found it is
likely to be rather low, less than US$10 per tonne. We don't know what
the right emissions cap is, but, if we put a low charge on each unit
of emissions, the market will find the (roughly) correct emissions
cap.
Second, climate models predict that, if greenhouse gases are driving
climate change, there will be a unique fingerprint in the form of a
strong warming trend in the tropical troposphere, the region of the
atmosphere up to 15 kilometres in altitude, over the tropics, from 20?
North to 20? South. The Intergovernmental Panel on Climate Change
(IPCC) states that this will be an early and strong signal of
anthropogenic warming. Climate changes due to solar variability or
other natural factors will not yield this pattern: only sustained
greenhouse warming will do it.
Temperatures in the tropical troposphere are measured every day using
weather satellites. The data are analyzed by several teams, including
one at the University of Alabama-Huntsville (UAH) and one at Remote
Sensing Systems (RSS) in California. According to the UAH team, the
mean tropical tropospheric temperature anomaly (its departure from the
1979-98 average) over the past three years is 0.18C. The corresponding
ing RSS estimate is 0.29C.
Now put those two ideas together. Suppose each country implements
something called the T3 tax, whose U.S. dollar rate is set equal to 20
times the three-year moving average of the RSS and UAH estimates of
the mean tropical tropospheric temperature anomaly, assessed per tonne
of carbon dioxide, updated annually. Based on current data, the tax
would be US$4.70 per ton, which is about the median mainstream
carbon-dioxide-damage estimate from a major survey published in 2005
by economist Richard Tol. The tax would be implemented on all domestic
carbon-dioxide emissions, all the revenues would be recycled into
domestic income tax cuts to maintain fiscal neutrality, and there
would be no cap on total emissions.
This tax rate is low, and would yield very little emissions abatement.
Global-warming skeptics and opponents of greenhouse-abatement policy
will like that. But would global-warming activists? They should --
because according to them, the tax will climb rapidly in the years
ahead.
The IPCC predicts a warming rate in the tropical troposphere of about
double that at the surface, implying about 0.2C to 1.2C per decade in
the tropical troposphere under greenhouse-forcing scenarios. That
implies the tax will climb by $4 to $24 per tonne per decade, a much
more aggressive schedule of emission fee increases than most current
proposals. At the upper end of warming forecasts, the tax could reach
$200 per tonne of CO2 by 2100, forcing major carbon-emission
reductions and a global shift to non-carbon energy sources.
Global-warming activists would like this. But so would skeptics,
because they believe the models are exaggerating the warming
forecasts. After all, the averaged UAH/ RSS tropical troposphere
series went up only about 0.08C over the past decade, and has been
going down since 2002. Some solar scientists even expect pronounced
cooling to begin in a decade. If they are right, the T3 tax will fall
below zero within two decades, turning into a subsidy for carbon
emissions.
At this point the global-warming alarmists would leap up to slam the
proposal. But not so fast, Mr. Gore: The tax would only become a
carbon subsidy if all the climate models are wrong, if greenhouse
gases are not warming the atmosphere, and if the sun actually controls
the climate. Alarmists sneeringly denounce such claims as "denialism,"
so they can hardly reject the policy on the belief that they are true.
Under the T3 tax, the regulator gets to call everyone's bluff at once,
without gambling in advance on who is right. If the tax goes up, it
ought to have. If it doesn't go up, it shouldn't have. Either way we
get a sensible outcome.
But the benefits don't stop there. The T3 tax will induce
forward-looking behaviour. Alarmists worry that conventional policy
operates with too long a lag to prevent damaging climate change. Under
the T3 tax, investors planning major industrial projects will need to
forecast the tax rate many years ahead, thereby taking into account
the most likely path of global warming a decade or more in advance.
And best of all, the T3 tax will encourage private-sector climate
forecasting. Firms will need good estimates of future tax rates, which
will force them to look deeply, and objectively, into the question of
whether existing climate forecasts have an alarmist bias. The
financial incentives will lead to independent reassessments of global
climate modelling, without regard to what politicians, the IPCC or
climatology professors want to hear.
Policymaking in the real world is messy, and ideas that sound good in
theory can come out hopelessly gummed up with extraneous provisions
that dilute or contradict the original purpose. But as a thought
experiment, I find the T3 tax clarifies a lot of issues.
In my view, the ideal global-warming policy is a carbon tax, and the
optimal rate is zero. I like the T3 tax in part because I think it
would result in this outcome over time. Yet those whose fears of rapid
warming lead them to demand stronger policy measures, including an
emissions cap, should, in principle, be able to support the same
mechanism. Especially in light of the long stalemates over
carbon-dioxide emissions policy, I doubt any other policy could
command equal support from such polarized camps.
--
There may come a time when the CO2 police will wander the earth telling
the poor and the dispossed how many dung chips they can put on their
cook fires. -- Captain Compassion.
Wherever I go it will be well with me, for it was well with me here, not
on account of the place, but of my judgments which I shall carry away
with me, for no one can deprive me of these; on the contrary, they alone
are my property, and cannot be taken away, and to possess them suffices
me wherever I am or whatever I do. -- EPICTETUS
Celibacy in healthy human beings is a form of
insanity. -- Captain Compassion
"Civilization is the interval between Ice Ages." -- Will Durant.
Joseph R. Darancette
daranc@NOSPAMcharter.net
Why not tie carbon taxes to actual levels of warming? Both skeptics
and alarmists should expect their wishes to be answered
Ross McKitrick
Financial Post
Tuesday, June 12, 2007
http://www.canada.com/nationalpost/....html?id=d84e4100-44e4-4b96-940a-c7861a7e19ad
After much effort, G8 leaders last week agreed to "stabilize
greenhouse-gas concentrations at a level that would prevent dangerous
anthropogenic interference with the climate system." This is the same
wording as in Article Two of the UN Framework Convention on Climate
Change, signed in 1992. In other words, after months of negotiations,
world leaders agreed on a text they had already ratified 15 years
earlier.
Global-warming policy is stuck in a permanent stalemate for very basic
reasons. Important divisions of opinion still exist on the extent of
humanity's influence on climate, whether or not the situation is a
crisis, whether and how much greenhouse-gas emissions should be cut,
if so how to do it, and what is the most we should be prepared to pay
in the process.
With this stalemate in mind, I would like to propose a thought
experiment about a climate policy that could, in principle, get equal
support from all sides.
The approach is based on two points of expert consensus. First, most
economists who have written on carbon-dioxide emissions have concluded
that an emissions tax is preferable to a cap-and-trade system. The
reason is that, while emission-abatement costs vary a lot, based on
the target, the social damages from a tonne of carbon-dioxide
emissions are roughly constant. The first ton of carbon dioxide
imposes the same social cost as the last ton.
In this case, it is better for policy-makers to guess the right price
for emissions rather than the right cap. Most studies that have looked
at that the global cost per tonne of carbon dioxide have found it is
likely to be rather low, less than US$10 per tonne. We don't know what
the right emissions cap is, but, if we put a low charge on each unit
of emissions, the market will find the (roughly) correct emissions
cap.
Second, climate models predict that, if greenhouse gases are driving
climate change, there will be a unique fingerprint in the form of a
strong warming trend in the tropical troposphere, the region of the
atmosphere up to 15 kilometres in altitude, over the tropics, from 20?
North to 20? South. The Intergovernmental Panel on Climate Change
(IPCC) states that this will be an early and strong signal of
anthropogenic warming. Climate changes due to solar variability or
other natural factors will not yield this pattern: only sustained
greenhouse warming will do it.
Temperatures in the tropical troposphere are measured every day using
weather satellites. The data are analyzed by several teams, including
one at the University of Alabama-Huntsville (UAH) and one at Remote
Sensing Systems (RSS) in California. According to the UAH team, the
mean tropical tropospheric temperature anomaly (its departure from the
1979-98 average) over the past three years is 0.18C. The corresponding
ing RSS estimate is 0.29C.
Now put those two ideas together. Suppose each country implements
something called the T3 tax, whose U.S. dollar rate is set equal to 20
times the three-year moving average of the RSS and UAH estimates of
the mean tropical tropospheric temperature anomaly, assessed per tonne
of carbon dioxide, updated annually. Based on current data, the tax
would be US$4.70 per ton, which is about the median mainstream
carbon-dioxide-damage estimate from a major survey published in 2005
by economist Richard Tol. The tax would be implemented on all domestic
carbon-dioxide emissions, all the revenues would be recycled into
domestic income tax cuts to maintain fiscal neutrality, and there
would be no cap on total emissions.
This tax rate is low, and would yield very little emissions abatement.
Global-warming skeptics and opponents of greenhouse-abatement policy
will like that. But would global-warming activists? They should --
because according to them, the tax will climb rapidly in the years
ahead.
The IPCC predicts a warming rate in the tropical troposphere of about
double that at the surface, implying about 0.2C to 1.2C per decade in
the tropical troposphere under greenhouse-forcing scenarios. That
implies the tax will climb by $4 to $24 per tonne per decade, a much
more aggressive schedule of emission fee increases than most current
proposals. At the upper end of warming forecasts, the tax could reach
$200 per tonne of CO2 by 2100, forcing major carbon-emission
reductions and a global shift to non-carbon energy sources.
Global-warming activists would like this. But so would skeptics,
because they believe the models are exaggerating the warming
forecasts. After all, the averaged UAH/ RSS tropical troposphere
series went up only about 0.08C over the past decade, and has been
going down since 2002. Some solar scientists even expect pronounced
cooling to begin in a decade. If they are right, the T3 tax will fall
below zero within two decades, turning into a subsidy for carbon
emissions.
At this point the global-warming alarmists would leap up to slam the
proposal. But not so fast, Mr. Gore: The tax would only become a
carbon subsidy if all the climate models are wrong, if greenhouse
gases are not warming the atmosphere, and if the sun actually controls
the climate. Alarmists sneeringly denounce such claims as "denialism,"
so they can hardly reject the policy on the belief that they are true.
Under the T3 tax, the regulator gets to call everyone's bluff at once,
without gambling in advance on who is right. If the tax goes up, it
ought to have. If it doesn't go up, it shouldn't have. Either way we
get a sensible outcome.
But the benefits don't stop there. The T3 tax will induce
forward-looking behaviour. Alarmists worry that conventional policy
operates with too long a lag to prevent damaging climate change. Under
the T3 tax, investors planning major industrial projects will need to
forecast the tax rate many years ahead, thereby taking into account
the most likely path of global warming a decade or more in advance.
And best of all, the T3 tax will encourage private-sector climate
forecasting. Firms will need good estimates of future tax rates, which
will force them to look deeply, and objectively, into the question of
whether existing climate forecasts have an alarmist bias. The
financial incentives will lead to independent reassessments of global
climate modelling, without regard to what politicians, the IPCC or
climatology professors want to hear.
Policymaking in the real world is messy, and ideas that sound good in
theory can come out hopelessly gummed up with extraneous provisions
that dilute or contradict the original purpose. But as a thought
experiment, I find the T3 tax clarifies a lot of issues.
In my view, the ideal global-warming policy is a carbon tax, and the
optimal rate is zero. I like the T3 tax in part because I think it
would result in this outcome over time. Yet those whose fears of rapid
warming lead them to demand stronger policy measures, including an
emissions cap, should, in principle, be able to support the same
mechanism. Especially in light of the long stalemates over
carbon-dioxide emissions policy, I doubt any other policy could
command equal support from such polarized camps.
--
There may come a time when the CO2 police will wander the earth telling
the poor and the dispossed how many dung chips they can put on their
cook fires. -- Captain Compassion.
Wherever I go it will be well with me, for it was well with me here, not
on account of the place, but of my judgments which I shall carry away
with me, for no one can deprive me of these; on the contrary, they alone
are my property, and cannot be taken away, and to possess them suffices
me wherever I am or whatever I do. -- EPICTETUS
Celibacy in healthy human beings is a form of
insanity. -- Captain Compassion
"Civilization is the interval between Ice Ages." -- Will Durant.
Joseph R. Darancette
daranc@NOSPAMcharter.net