From my understanding, the purpose of a carbon tax is to internalize externalities not factored in price, thus an increase in the price. But what happens when production shifts to countries with no carbon tax? An example China and India, if the West chose to proceed with the tax? Does it make any sense unless implemented on a global scale? Is it really revenue neutral? What happens when price is inelastic?
i am not familier with the topic, but this is off the top of my head to get you interest from someone who knows better production shifts to countries with no carbon tax, and with no trade barriers they will put your local businesses out of work… then again trade barriers are no good, its gona start a barrier war and before you know it noone is trading with noone and the whole world suffers i am not familier with the concept of price being elastic, i never seen the concept of elasticity applying to price… as far as i know it is demands and supplies that are elastic or not (correct me, you may know better) anyway it does not seem to make sense…
There are some subtle differences between a cap-and-trade arrangement and a straight carbon tax arrangement. Politicians who are against both will call cap-and-trade a tax on carbon use because it raises prices over what they would be if there weren’t a cap-and-trade arrangement, but who receives the money and how the price gets set are very different under the two methods. Yes, there is a problem if carbon taxes or cap-and-trade arrangements are implemented unequally across countries. It’s more of a problem if large economies don’t do it, so China and India not being part of an arrangement is a problem, whereas it’s not that problematic if Fiji is left out. The original Climate Change Treaty in 1992 said that the industrialized countries bore a special burden by virtue of (up to then) having contributed most to current greenhouse gas emissions and also because they had reaped the benefits of a “dirty economy” (for lack of a better word) and should therefore bear a greater responsibility for cleanup. At that point, 20 years ago, China and India’s economies were less than 1/10th the size that they are today, and so the fact that they were not included with specific obligations was considered a tolerable omission in the interest of developing a world consensus. It was always imagined that at some later point, countries like China and India would start to have climate change obligations, but that it was more important to get the largest economies in the world on board, since they tend to set the pace, standards, and technological direction for the rest. The cap-and-trade system that underlies the European Trading System and the Clean Development Mechanism was designed five years later, in 1997, when the Kyoto Protocol was developed. Again, the idea was this would be implemented in developed economies, to show that it was feasible, and that it would spawn technological development that would facilitate a low-carbon economy, and that the availability of these technologies would make it more feasible for other economies to undertake some kind of emissions control. This was about 15 years ago, and although China, India, and Brazil had grown, they were still substantially smaller economies than others. In Copenhagen, the basic idea was that China and India and other major developing economies would start to take on climate change obligations (this was also the reason that the Bush administration gave for not trying to ratify the Kyoto Protocol: that it wouldn’t work without China and India and Brazil taking on obligations). However, Copenhagen fell apart with no agreement, despite the fact that China looked willing to take on obligations, and India was also looking cooperative. Note that “climate change obligations” are simply an agreement to reduce total emissions to some percentage relative to some baseline. Developing economies are assumed to need to grow at an increased rate in order to address poverty issues. “Obligations” do not necessarily mean that it will be done by cap-and-trade, or a carbon tax. Countries can choose whatever methods seem appropriate, whether that is taxing, trading, subsidizing clean energy, mandating certain technologies, etc… But for a variety of reasons, the cap-and-trade arrangement is generally felt to be the most economically efficient. Carbon taxes and/or permitting is indeed designed to internalize externalities. If Joe has a carbon-emitting factory, and makes money by selling Bert some great charcoal briquetes, then Joe has made money, and Bert has these great briquets, but Charlie still has to live in a carbon-heated world, and hasn’t been compensated for the fact that Joe and Bert has made his life just a little bit hotter. By having some kind of price hike in there, it means that Joe doesn’t make as much money and Bert is only going to get briquets if he’s willing to sacrifice more for it, so consumption of carbon intensive stuff goes down. At the same time, it sends a price signal to stimulate the development of alternatives that are less carbon intensive. The interesting thing about the environmental price signals is that it doesn’t really matter what the money is actually spent on - all that matters is that the price signal is there. This is one reason that cap-and-trade is often considered better than a pure carbon tax - the market decides what a ton of CO2 is worth, not a political authority. If we aren’t sure exactly how much carbon we need to remove to control the problem, the tradable permit system has the advantage that if the government wants to reduce the emmissions, then it has to pay the private sector in order to remove those permits from circulation. It also allows carbon emitters to hedge their exposure to variable prices and carbon emissions.
Thanks Bchad, that is an excellent piece. Was just reading that Australia will be implementing a carbon tax next year and was wondering whether this is worth the effort given that their emissions are minimal on a global scale and going it alone seems foolhardy. It may be lurking to the left. I would assume that climate change will create a whole new industry, with attendant opportunities?
Mzungu Wrote: ------------------------------------------------------- > Thanks Bchad, that is an excellent piece. > > Was just reading that Australia will be > implementing a carbon tax next year and was > wondering whether this is worth the effort given > that their emissions are minimal on a global scale > and going it alone seems foolhardy. It may be > lurking to the left. > > I would assume that climate change will create a > whole new industry, with attendant opportunities? But on a per capita basis Australia is the largest emitter of carbon pollution in the world, so the majority of Australians would like to see some action taken to reduce their pollution levels. Going it alone is probably foolhardy, but really, someone has to be first and just about every government across the planet has dropped the ball on this one.
newsuper Wrote: ------------------------------------------------------- > > But on a per capita basis Australia is the largest > emitter of carbon pollution in the world, so the > majority of Australians would like to see some > action taken to reduce their pollution levels. > Australia #1? When did that happen? Last OECD statistics I saw still had US at #1, with Australia and Luxembourg tied for second.
Maybe it’s the recession in the US and things going relatively well in Aussieland…
higgmond Wrote: ------------------------------------------------------- > newsuper Wrote: > -------------------------------------------------- > ----- > > > > But on a per capita basis Australia is the > largest > > emitter of carbon pollution in the world, so > the > > majority of Australians would like to see some > > action taken to reduce their pollution levels. > > > > Australia #1? When did that happen? Last OECD > statistics I saw still had US at #1, with > Australia and Luxembourg tied for second. This is from 2004, so I guess it moves around a bit and probably depends on your methodology. http://www.smh.com.au/articles/2004/06/18/1087245110190.html
Greenspan’s opinion about Australia in The Age of Turbulence “In his book, Mr Greenspan says he looked to Australia as a “leading indicator of many aspects of US economic performance”. “The recent housing boom developed and ended in Australia a year or two ahead of the US,” Mr Greenspan writes.” http://www.theaustralian.com.au/news/greenspans-snub-to-keating/story-e6frg6tf-1111114450676