Wednesday, 14 November 2012

Why Conservatives Should Support a Carbon Tax, Part III: They'll Blame You for Going Over the Fiscal Cliff

Did I not correctly predict that Republicans would find themselves disappointed on the morning of November 7? I have another conditional prediction: that if we go over the fiscal cliff, conservative Republicans will be blamed for it more than the President, and more than Democrats.

I've been eager to sell the carbon tax in the form of a revenue-neutral tax swap -- reduce personal and corporate income taxes, and reduce payroll taxes, and pay for them with a carbon tax. $30 per ton will get you about $150 billion in at least the first few years of a carbon tax (after that, revenues may go down if people substitute away from CO2 emissions -- we should hope they do, indicating that emissions are going down!). For fiscal cliff-avoiding purposes, that's not much, but it's something. As part of a larger package of budget cuts, entitlement reform (yes, let me be on the record with my view -- entitlement reform including Medicare should be on the table), tax reform, and unavoidably, new revenues, a carbon tax must be a piece of the puzzle. It will almost certainly be the least obnoxious piece, of all the pieces that will be negotiated. It will be the most transparent piece, being a very obvious price and a very trackable paper trail. It will be the only piece that accomplishes the side benefit of addressing -- partially -- the most dangerous environmental problem the world has ever faced.

So Bill McKibben will blame you for Hurricane Sandy. That won't be fair. And Harry Reid will blame you if the country goes over the fiscal cliff. That won't be fair, either, in my view, since neither Democrats nor Republicans have yet to part with their sacred cows. But if I take away one thing from this election cycle, it is that most Americans really don't like the Tea Party, believe that the Tea Party is steadfastly opposed to anything resembling compromise, and that the Tea Party strongly influences the Republican Party. And so if we go over the cliff, you conservatives are going to get blamed. Cry me a river.

Sunday, 4 November 2012

Why Conservatives Should Support a Carbon Tax, Part II: Sandy

I am sitting here in my parents' darkened West Windsor, New Jersey home, early Sunday morning, November 4, six and a half days after Hurricane Sandy made landfall, and a now a full five working days from the first opportunity for local, state and federal officials to recover from a storm that is now estimated to cost more than $50 billion.

Even more striking than the price tag, however, is the utter helplessness of government officials in getting the New York-New Jersey area back on its feet. As my brother and I, in New Jersey looking after our elderly parents, drove down venerable Highway 1 – perhaps the nation's first real "highway," we could not help but be struck by telephone poles leaning inward toward the highway, threatening to fall down on traffic. Also striking is the sight of cars crawling along Highway 1, gingerly navigating their way through intersections with non-functioning traffic lights. No looting was apparent in broad daylight, but numerous businesses still without power had boarded up their storefronts and secured them with chain-link fences.

I was also in Washington, D.C. on September 11, 2001. Then and there, too, there was a palpable sense of tragedy that had touched everyone. As a professor at George Washington University, I was told to stop my classes immediately and go home, and send all my students home. Outside, from across the hall from my office, I could see a wisp of smoke rising up from the Pentagon, a symbol of invulnerability if there ever was one. Yes, that was a dark time, too, but there was something different about being in Central New Jersey after Hurricane Sandy. Whereas in the aftermath of September 11 troops were out in full force and maintaining order, they were not present in Central New Jersey. We remember then-mayor Rudy Giuliani marching purposefully through the streets of lower Manhattan, ordering first responders around, and generally giving off the aura of defiance in the face of disaster. This time, this place, nothing doing. Governor Chris Christie and President Barack Obama came, did their best, and left, but this time around there was no reassuring presence. This is what is so frightening about climate change, perhaps even more so than terrorism: that nature, unlike Al Qaeda, is capable of overwhelming governmental ability to restore order.

 What does this have to do with a carbon tax and conservatives? A carbon tax will give the Republicans some record on climate change. Right now, Republicans are mostly out-and-out deniers and obstructionists. I have strenuously avoided blaming Republicans for American intransigence on climate change, because I have never seen the point. I still don't think it is productive, but given the consequences of Hurricane Sandy, others will. The front page of Bloomberg News contained a photo of a flooded New York City street, and the enormous headline, "It's Global Warming, Stupid." This is Mayor Michael Bloomberg, the seventh-richest person in America, a Republican, and no freakish tree-hugger. He has endorsed President Obama because he believes that he will do something about climate change, whereas Mitt Romney will still feel beholden to his Tea Party faction.

Not that Bloomberg attributes Hurricane Sandy to climate change, nor could anyone responsibly do so. Really, the best that the best hurricane scientists can say at this point is that climate change will not produce more hurricanes, but it will produce more strong hurricanes. So it is wrong and even irresponsible to attribute Sandy to climate change. But that won't stop people like Bill McKibben, the not-so-smart environmental activist who said after Hurricane Irene that "[Irene]'s got a middle name, and it is global warming." I've always detested McKibben's alarmism, because it detracts from the credible messages that the rest of us are sending. But if we get another Hurricane Sandy next year – as a climate changed-world might give us – what will people say? As mistaken as it is, people are going to start pointing fingers. You don't have to be a political genius or even a Bill McKibben to know who they're going to point their fingers at.

Wednesday, 17 October 2012

Why Conservatives Should Support a Carbon Tax, Part I

A recent poll by the Pew Research Center shows an increase in public belief that climate change is occurring. This was true across a wide range of groups, including conservatives and Republicans.

This thus seems like a propitious time to launch the first in a series of posts urging conservative Republicans to support a carbon tax. I have believed all along that a carbon tax can be completely consistent with conservative principles of limited government. A carbon tax is supported by many conservative economists, including Gregory Mankiw, the Harvard professor that served as chief economic advisor to George W. Bush (and an advisor to Mitt Romney), Kevin Hassett, a Senior Fellow at the American Enterprise Institute (and an advisor to Mitt Romney), and Glenn Hubbard, dean of the Columbia Business School (and an advisor to Mitt Romney). I could go on.

The reason why these and many other prominent conservatives support a carbon tax is because it is a tax on consumption, and not production, which is what the income tax does and what the corporate income tax does. Most of the conservatives who support an income tax only support it if it replaces or reduces some income tax, making the potential carbon tax revenue neutral. There is even talk that Grover Norquist, the uber-libertarian, would support a carbon tax if it replaced income or corporate income taxes. A New York Times oped by Yoram Bauman and myself argued for a revenue-neutral carbon tax. A $30 a ton carbon tax would bring in at least $150 billion per year (at least at first, because over time, if a carbon tax reduces consumption, the revenues from a carbon tax would decline), making it possible to fund tax cuts -- at least a 10% decrease in personal and corporate income tax cuts, with plenty left over.

Perhaps most important from the conservative standpoint, this is a way to agree on something with Democrats, and to re-learn the exercise of compromise and bipartisanship. This may not sit well with Tea Partiers, whose raison d'etre is to fight compromise and bipartisanship, but my prediction is that Congressional Republicans are going to emerge on the morning of November 7 the worse for it. The Republican Party may gain some Senate seats, and may even wrest control. But with Democrats defending 23 seats and the Republicans only defending 10, this is supposed to be a good Republican year. A wash would be a defeat, and if the Republicans suffer defeat by underperformance this November it will be because they will be perceived as being the obstructionist party. Initiating and not just accepting a proposal like a carbon tax offers them a way out, and a way forward.

Saturday, 22 September 2012

Kivalina loses, climate change lawsuits will .... continue?

In Native Village of Kivalina v, ExxonMobil, the village of Kivalina sought damages against ExxonMobil and a 21 other oil companies and electricity generation companies for contributing to global climate change and causing the breakup of their village, which has become uninhabitable because of receding ice and softening permafrost. Apart from the usual tort claims like private and public nuisance, Kivalina alleged that the defendants conspired to mislead the public about climate change, in part by contributing to organizations that have demonstrably propagated misinformation about the causes of climate change. The Ninth Circuit Court of Appeals upheld a district court dismissal of Kivalina's claims on the grounds that their common law claims are displaced by the Clean Air Act, as held in AEP v. Connecticut 131 S. Ct. 2527 (2011). In a separate concurring opinion, district court judge Philip Pro also held that Kivalina lacked standing to sue.

Climate skeptics and energy companies may herald this as a sign that climate change lawsuits have peaked (at least those from plaintiffs suffering environmental harms from climate change, not necessarily regulated industries challenging regulation), but if I were their counsel, I would advise them to be less sanguine. At bottom, courts do not yet feel that they have the "traceability" of harm from defendants emissions to plaintiffs' harm. I have written myself that even an ideal plaintiff -- an Inuit community not unlike Kivalina -- and ideal defendants -- electricity generating firms, which comprise several of Kivalina's defendants -- would have a hard time winning a private or public nuisance lawsuit. This opinion bears out my original forecast. However, the common law will move forward as the evidence of climate change moves forward, and we can only expect the epidemiological evidence of traceability to improve. As far as the displacement holding that seems more fatal to these kinds of lawsuits, I also think that continued frustration with the Clean Air Act (that is my new prediction) will lead to a re-examination of whether the Clean Air Act truly precludes federal common law actions. There are also state common law actions potentially in play.

I also wrote in 2008 that climate change lawsuits are not really the solution. They are potentially a spur for meaningful legislation such as a carbon tax or cap-and-trade program, but climate change lawsuits like Kivalina are premised upon the falsehood that these energy companies are at the root cause of the problem of climate change. To the extent that they participated in a misinformation campaign, I agree. But the dangerous fiction that these lawsuits promote is that blame for climate change lies with these evil barons. They do not. The fault lies not in our energy companies, but in ourselves. That politicians are still afraid to even say "carbon tax" is evidence of our inherent selfishness and disregard for our own children and grandchildren.

Friday, 14 September 2012

POOF! The Breakthrough Institute makes carbon tax proceeds disappear!

The Breakthrough Institute recently published the summary of an analysis they did on whether a carbon tax would provide sufficient incentives for the continued and hopefully increased deployment of renewable energy sources. The question is a very important one -- carbon tax proposals are coming out of the woodworks, and some, like former Rep. Bob Inglis (R-S.C.), would like to do away with renewable energy subsidies and replace them with a carbon tax. Breakthrough does a fair job of answering a question, and in their words, making an "apples to apples" comparison. We know that the renewable energy production tax credit is 1.1 to 2.2 cents per kilowatt-hour produced, while carbon tax proposals are couched in terms of $ per ton of CO2 emitted. So they do something useful in asking whether say, a $20 per ton carbon tax would serve the same purpose as a 2.2-cent production tax credit. But in their haste to throw cold water on the idea that a carbon tax can replace renewable energy production tax subsidies, they make a terrible error: they argue that a "$20 per ton carbon tax would offer just one-half to one-fifth the incentive of today's zero carbon subsidies — but at nearly 10 times the cost." Their conclusion: subsidizing imposes less cost than a carbon tax.

Huh? My libertarian friends (yes, plural) are wondering how that can be. It is because Breakthrough takes the cost of a carbon tax and the cost of a subsidy as expenditures of equal importance. It is not. In the case of subsidies, it is the U.S. government spending the money, and in the case of the carbon tax, it is consumers that are largely spending the money. I am most assuredly not on Mitt Romney's government-is-the-problem bandwagon, but it is not controversial that government spends its dollars less efficiently than private parties do. There is, beyond any partisan chicanery, a cost to government spending money. The marginal cost of public funds heuristically speaking measures the cost of government raising money to do something. It varies across countries, and across purposes, but it is greater than one. Sometimes we want government to do things, and tolerate its inefficient delivery vehicle, and sometimes we must have government provide things such as police, national defense, schooling, and environmental protection. But if we want a wind power plant to be built, it will cost more for government to raise the money and build it than a private party. Ask Krugman.

But Breakthrough commits a much more obvious and telling error: it fails to account for the net gain of the carbon tax proceeds. Yes, carbon taxes cost consumers money, but they act as if the carbon tax proceeds have no welfare consequences. Under revenue recycling proposals, this is money fed back to households, consumers, corporations, and we could debate about the best place to recycle the revenues. But you can't pretend that has no gain.

On the flipside, subsidizing renewable energy has gains not explicitly recognized by the Breakthrough analysis (that I can tell). It is the money pumped into the economy through firms that operate renewable energy sources eligible for the production tax credit (by the way, did you know that "refined coal" is a qualifying renewable energy source? Look it up -- 26 U.S.C. s. 45(c)(7)). Again, you don't have to be Paul Ryan frothing to make the case that expenditure of government money is not as good as putting money in the hands of energy consumers, which revenue recycling would do.

So if the question is, "could we replace the renewable energy production tax credit with a carbon tax and still have the same amount of renewable energy production?" then Breakthrough convincingly answer the question in the negative. But it is an entirely different matter to say that carbon taxes are not as "effective" in promoting renewable energy than subsidies.

Tuesday, 12 June 2012

Environmental Justice: the New Postmodernists are Here

The Center for Race, Poverty, and the Environment has filed an administrative complaint against the Environmental Protection Agency for approving California's AB32 cap-and-trade program. Environmental Justice (EJ) advocates have long agitated against market-based instruments for environmental law and policy, most prominently trading programs. They may not know it, but I think that EJ advocates are postmodernists. The fundamental objection of EJ advocates is that supposedly welfare-enhancing economic instruments to reduce pollution at the lowest cost work systematically to the detriment of socio-economically disadvantaged groups, mostly persons of color. And this all occurs in the name of economic progress. In fact, the whole notion of "economic progress" is, to EJ advocates, an anathema, and contains a hidden agenda to consolidate power over disadvantaged groups.

Now let's rewind to the mid- to late-twentieth century, and revisit, in my circles, one of the most unpopular French philosophers: Jacques Derrida. Derrida pioneered a postmodernist school of thought that sought to overturn conventional acceptance of key words and phrases as descriptors of objective fact. For Derrida and the deconstructionist movement, things and situations are susceptible of multiple interpretations, and how any given individual interprets a thing or situation is a product of that individual's "enculturation," or her personal and social history. Postmodernist deconstruction thus posits that meaning is never really stable. But what grand "metanarratives" do is conceal the consolidation of power under a patina of some objective criteria for policy -- something like Kaldor-Hicks efficient. 

The link between postmodernists and EJ? EJ advocates are one strand of the new postmodernists in environmental law. They see the influence of economics in environmental law as the metanarrative that putatively seeks to enhance societal welfare, but is really just a means for rationalizing the continued oppression of socio-economically disadvantaged groups. Does cap-and-trade enhance the welfare of persons of color? Extreme postmodernists would even deny that this could be answered by empirical investigation. "What do you mean by welfare?" is what postmodernists would reply. There is, in the EJ world, nothing objective about welfare-maximization or cost-minimization. There is only power, the language of power is that of economics.

Wednesday, 11 April 2012

John Garamendi is really dumb. Energy lobbyists are smart.

Those of you who know me would be surprised at the title of this blog entry.

E&E TV recently had a debate among several politicians and Washington-based energy policy wonks, about the wisdom of exporting liquified natural gas. I thought I was leather-skinned as to how dumb our elected Congressional representatives are. Perhaps it was because the voice of reason in the group came from an energy industry lobbyist, Bruce McKay of Dominion Energy; I usually don't feel I learn very much from that demographic. Nor do I feel that California Democrats, a little too smug in their safely liberal districts, lend much value-added to any serious debate, but I usually find them less offensive. Even in this group of modest intellectual endowment, however, the shocking ignorance of Representative John Garamendi stands out, and warranted a special coming-out from my cocoon to denounce his brand of energy nativism.

Here is Garamendi, during the debate, on whether we should export liquified natural gas:

Don't do it. Don't do it. Gas is a strategic asset that America has. It's one of the few things that we really have in abundance, at least at the moment, and our industries are depending upon that natural gas at a reasonable price. We start exporting, we're going to drive that price into the world market price, which is at least twice as high as the current domestic price.
Later, Garamendi, repeating himself, says:
[T]he real key here is that we do have this extremely important strategic asset, one that does allow us to do things that we couldn't do before and if we open the strategic asset to the world market, it will clearly double.
Why is Garamendi so passionate about not exporting energy? Oh, it has to do with locating a plant in his home district!

This is a strategic asset. It allows us, for example Dow Chemical, to come back to America to rebuild its chemical plants and to expand its employment base in America. [T]hat the natural gas industry would want to drive Dow Chemical, one of the great American industries, out of the United States simply to fatten their bottom line. That is not acceptable. Dow Chemical, in fact, is increasing, in my own district, its production, its employment and rebuilding a plant that's been there for years and years. They were going to go offshore, but with the price of natural gas they're coming back and my people are working. My people are working.
Let me be clear: I generally don't care for the energy industry. And the roughshod manner in which hydraulic fracturing is spreading across the land like a wildfire ought to give everyone pause. But if we can do a better and cleaner job of extracting natural gas, then it is crazy to deny that the world trades, and to forbid exports. When John Garamendi sees fracking, he does not see energy independence, he does not see relief from fiscal problems at the federal and state level (you would think a Californian didn't need to be reminded of this, but in Garamendi-World, this is apparently irrelevant), and Garamendi also does not see the manifold environmental problems currently associated with fracking (I am careful not to say they are proven, but let's be serious, they are almost certainly responsible for contaminated groundwater). Garamendi sees a Dow Chemical plant enjoying Soviet-style and Chinese style taxpayer-funded subsidies so that people in his district can work. Only against such heroically anachronistic thinking could Texas Republicans and energy lobbyists sound and look reasonable. Here is Dominion's Bruce McKay, from that same debate:

[R]ight now gas is about two and half dollars and that may be enjoyable for good consumers at the moment, but I think most sophisticated industry observers and consumers know that that's not sustainable. We have seen, just in recent weeks, a number of big producers pulling back, laying down their rigs and saying they can't justify it. So, there will be some rationality brought to supply and demand, but $2.50 seems below what is sustainable.
If the Garamendi knaves have their way, we will have low energy prices in the US, and for a while a competitive advantage for energy-hogging industries like Dow. It could take that kind of industry 10 or 15 years to hollow out, for Garamendi's district to start looking like Youngstown, Ohio, but it will happen. Trying to protect your home district from foreign competition in an increasingly global world is a recipe for disaster. Garamendi wants to be governor of California some day. You all need to remember this when he runs.

Saturday, 24 March 2012

Doping Pigs and the Tragedy of the Commons

A lawsuit brought by some environmental groups (not my favorite ones) has seemed to force the U.S. Food and Drug Administration to finish up what it started doing 35 years ago, but cowering from a bullying livestock industry, never did. What FDA started to do 35 years ago Was study whether it should ban the use of penicillin and tetracycline to promote growth in agricultural animals. What scientists commonly believe is that reckless use of antibiotics by the agricultural industry has helped breed new generations of super, antibiotic-resistant bugs. The World Health Organization reports that about 440,000 new cases emerge each year of anti-microbial resistance to treatment; 150,000 eventually die. The evidence once might have been considered sketchy; not any more. The ag lobby is delusional when it claims there is no link. 80 percent of all antibiotic use in the U.S. is for agricultural use. A causal link between agricultural use and anti-microbial resistance is now widely-accepted by scientists.

What is tragic about this spiral of abuse and death? Surely the death of 150,000 people every year from a characteristically reckless livestock industry is tragic. But what is also comically tragic is that the livestock industry doesn't really benefit in the long run from being on this accelerating antibiotic treadmill. Because of increased resistance to antibiotics, livestock farmers find themselves having to race to keep pace with the superbugs. They have to administer more antibiotics and more sophisticated antibiotics in the vain hope that their pharmaceutical patrons can stay ahead of the superbugs. In fact, the increased cost of antibiotic use, in some cases, outweigh the growth-enhancing benefits.

So why do livestock farmers do it? They have to just to keep competitive. Like doping professional bicycle racers, like doping baseball players, livestock farmers are stuck. They are stuck because if they refrain, their individual forbearance will do no good, and they will lose money. Because everyone is doing it, no one benefits by stopping, even though everyone would benefit if everyone stopped. That is what is truly a tragedy of the commons: where those stuck in the rat race are all collectively working tomtheir collective detriment. In this case, there is also the matter of 150,000 people dying each year.

Thursday, 15 March 2012

Alberta's Water Markets: No Foreign-backed Eco-radicals Need Apply

By Tim Syer and Shi-Ling Hsu

Alberta is home to Canada’s only market for water licenses. Canada is generally abundant in fresh water, so perhaps it stands to reason that a lack of scarcity would obviate the need for water markets to serve an allocation role. In parts of Canada, however, water is scarce, as in the heavily populated (for Canada) and heavily agricultural South Saskatchewan River Basin (SSRB) of Alberta.

In 2006 the government of Alberta ceased issuing new water licenses and in accordance with the Approved Water Management Plan for the SSRB, it capped the amount of water allocated from SSRB rivers and allowed the trading of water licenses. Like other water markets, the government retains a number of controls over water trades, reserving the right to reject water transfers on environmental grounds, for example.

The puzzling part of the SSRB water market is, however, a limitation that water licenses purchased for "instream flow" purposes are limited to a cumulative maximum of 2% of all water allocated, provided that the minimum amount of "protected water" – the amount of flow that is deemed to be the minimally acceptable environmental amount -- has already been set aside. Why should there be such a limit? Is Alberta afraid of foreign-backed eco-radicals muscling in and buying up water rights?

The argument is that water is a resource that should be used to support economic growth. We see this bias towards consumptive uses in other resource laws – the use-it-or-lose-it nature of mineral licences, for example, reflect the assumption that resources are put to their highest and best use in consumptive uses, rather than passive environmental or ecological ones. But how do we know this without a truly free market to test that assumption? So what if Ted Turner bought up a huge block of water rights to thwart Alberta agriculture (Turner owns many ranches himself)? Is Alberta so afraid that its use of water is so unvaluable that it could not compete with the likes of Ted Turner's eco-radicalism? If so, that should tell us something. But even if we don't want to hear it, by retaining ultimate approval for all water allocations and transfers, the government can surely keep foreign interest at bay for the foreseeable future.