Posted by: bridget | 13 December 2006

Carbon, Sovereignty, and Economics

The pachyderm turns her attention away from nanotubes and to carbon dioxide emissions. The NY Times reports on the costs of an overheated planet, while the Independent reports that cows are more harmful to the planet than cars or power plants. The NY Times calls for, as usual, either limitations on CO2 emissions or a tax on CO2 emissions. The tax would amount to about $0.18 on a gallon of gasoline and would double the cost of coal. Liberal economists believe that this will ultimately save the consumer money and fail to realise that the costs will be passed on to the consumer.

1. Taxation of emissions: Should the government tax carbon dioxide emissions, it should not do so on the theory that the world is a country whose head is the United Nations. It should do so on the belief that emissions will be cleaned up, eventually, and to tax a system in accordance with its true costs. The problem with this is that the taxes will undoubtedly go into a general slush fund, to be used for purposes beyond which they were intended. If Congress actually segregated the national budget and created separate accounts for various enterprises (as was once done with Social Security), such a venture may make sense. However, in reality, this will only tax consumers who use socially undesirable products and then re-tax all Americans to pay for the clean-up.


2. Capping emissions: The other option, caps on emissions that can be bought and traded, is more noxious. While the pachyderm endorses the free market and economic solutions to problems, she finds this “solution” to be even more miserable. The ability of businesses to continue operation is predicated on the idea that the government will be able to:

  • establish reasonable CO2 limits for the entire American economy;
  • distribute emissions rights in a fair and just manner; and
  • re-assess appropriate caps for each company on a regular basis to ensure that the caps are aligned with production.

Basic thermodynamics tells us that it takes substantially more energy to separate out mixed materials than it does to mix them. (Think of putting cream into your morning coffee.) Despite this, the pachyderm disagrees with the idea of using caps to decrease pollution: it will be an admininstrative nightmare, subject to political corruption; will hamper the economy; and will make it far too easy for America to be a city-state in the world, not an sovereign nation.

2.1 Caps and politcal favours: The NYT, in its usual irrationality, endorses the idea that emissions rights can be given out to curry political favour. Companies will then have to factor in campaign contributions into their annual budgets, a cost that will inevitably be passed along to middle-class Americans. Disfavoured companies will have to either severely curtail their emissions (and therefore production) or pay overly inflated prices for the “right” to emit.

2.2 Economics of Capping Emissions: While the free market will set the price of the right to emit a ton of CO2, that price is not connected to any real-world service or good; it is merely an artificial government limitation on one aspect of doing business. Such a “cap” will act as a tax on businesses that are not favoured by the agency that distributes such rights.

2.3 Economics of Caps v. Taxes: A tax on emissions will encourage companies to develop alternate technologies, which will be developed and used as economically viable: companies and individuals who pollute will cease to do so if there is a less-expensive alternative than the true cost of the status quo. Companies may also increase production (and, correspondingly, CO2 output) without increasing their marginal cost. Caps (and the right to buy and sell them) may cause some companies to severly cut down on their production but remain profitable by selling the right to their emissions. Companies that desire to increase production will face a higher marginal cost for their goods, as they will have to pay a king’s ransom for caps beyond their allocation. The pachyderm disapproves of any system which discourages production.

3. The Usual Suspects: The Independent’s article about pollution from cows highlights another point: to be effectual, the cap system will require the government to develop an arsenal of limits for every possible pollutant and impose those limits on most sources of pollution. The technology to get cows to be environmentally-friendly creatures is a long way off, and hell will freeze over before Americans convert to vegetarianism. America is not Europe: our population is expanding, which means a corresponding increase in food, transportation, goods, and energy needs. Given that, the government should focus on environmentally-friendly production of materials, energy, and transportation while also encouraging the development of environmental clean-up technologies.

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