Tuesday, October 9, 2007

The Obama Carbon Plan

2008 will be the year America debates climate change policy, hopefully without descending completely into election-year inanity. 2009 will be the year we get a policy. For an issue of this magnitude, that’s a fairly short time frame, so every turn of events counts.

Today Barack Obama has gone on record with his own approach. By my reckoning he got almost everything right, but there’s one huge missing piece. He is right on:

• setting a serious target: an 80% reduction in emissions by 2050 is the minimum we should aim for, if we take the scientific evidence seriously. We can get there only by starting soon and staying on course.

• capping carbon emissions: a cap is necessary if we are going to try to live within ecological limits, and it is far preferable to a carbon tax, as I’ve argued earlier on this august site.

• auctioning the permits: as Obama said, letting the cows out of the Barnes, “Businesses don’t own the sky, the public does...”

• rejecting offsets: he doesn’t even mention them.

• investing in a non-carbon future: we need basic R&D, infrastructure and other initiatives to turn our economy around.

The only element that’s lacking is a commitment to rebating most of the auction revenues back to the people on a per capita basis. Economically, this is necessary to protect real incomes and avoid a dangerous contraction of consumer demand. (The higher energy prices we will be paying under any reasonable cap will be in the hundreds of billions of dollars.) Politically, it is necessary to win support for tough limits on carbon emissions. After all, if it is true that we own the sky, we should share in the income it generates. Finally, a per capita rebate would constitute the most progressive income redistribution program since the New Deal, a big consideration at a time of spiraling inequality.

So how do you finance those green investments if you give the money back? Answer: by ending pork barrel subsidies to the nuclear and fossil fuel mafias ($24B give or take a few) and rethinking national security, for starters. NB: if rebating the auction proceeds on an equal share basis is highly progressive, withholding a big chunk of it for other uses is highly regressive. Finance public investment out of taxes.


Robert D Feinman said...

All plans that use economic incentives to change behavior suffer from the same flaw. This is that there is an implicit belief that by providing economic incentives technological innovation will follow. This is a wish, not a law of nature.

Right now if the US imposed an immediate limit on emission (no matter how draconian) not one new technology would be discovered. Incentives don't provide a guarantee of innovation. By assuming that they do, the pols and economists are just shifting the responsibility for finding solutions to somebody else.

If we want to find new technological solutions then why not just fund R&D directly? I support controlled fusion. I think there may be new fusion phenomena which have yet to be discovered. Therefore I would like to see funding for an increase in basic research in this area. Why should I wait for some entrepreneur to find some venture capitalist who is willing to fund such research?

I'm afraid all these plans still suffer from an implicit belief that the market will solve all problems. This is ideology, not science.

Anonymous said...


i support controlled fusion too.

this is fantasy not science.


I can hardly wait to get my hundred billion.

oh, wait, if there is a hunded million of us, then we each only get... tappity tappity... hmmm... about as much as we'd save driving a smaller car.

now i don't want you to misunderstand, i'm just as good a socialist as the rest of you, but trying to turn climate change into an opportunity to "constitute the most progressive income redistribution program since the New Deal" is a pretty good way to scare off the industrialists. and guess who has the money and power.

could we, just this once, stop trying to make a buck out everything... even for the poor poor... and get on with paching the leak or manning the lifeboats...

as for protecting real income... does it occur to you that our insatiable demand for "real income" (i guess that means more Raiders' jackets and Air Jordans) is what has caused the problem in the first place?


necessity is the mother of invention.

Robert D Feinman said...

I have to use that next time I make my point:
necessity is not the mother of invention, first you have to become pregnant.

Funding is the mother of invention.

I participated in government sponsored research several times during my career and you need to have a pretty good plan to present to get funding, they don't just throw the money around. In the sciences this means that the proposals get vetted by subject specialists.

Nowadays funding get vetted by political hacks who evaluate it's ability to bring in votes. I offer the bogus science behind abstinence only education as one prime example.

Sorry, wishing won't make it so and aphorisms won't do it either. Just show me the viable electric car. People have been working on it for over 100 years.

Anonymous said...


you're making me feel like a conservative.

gummint spending isn't the only source of funding. and if it's as much of a boondoggle as you say it is... well, if the private sector wasn't worse... i'd say we're in bigg trouble.

as for the electric car, they are on the road today. in fact they are the immediate answer to carbon emissions and foreign oil. the only problem is that peole don't like to change, and they keep hoping for something better.

the electric car that would work today is slow, short range, cheap... perfect for city driving. not so good for the interstate. we could require the use of the electric in cities, people would have to buy a second car. they don't want to do that.

that's the problem.

Anonymous said...

Carbon taxes have two very large advantages over permit auctions. First, they provide certainty on the investment side. Say a firm is contemplating an investment that only makes sense if carbon emissions cost more than $50 a ton. A straightforward tax schedule makes it trivial for the firm to decide when and if the capital outlay should occur. The same is not true for permits sold at auction.

However, the revenue side is even more serious. Carbon taxes will provide highly predictable revenues because fuel consumption doesn’t vary that much in the short and medium term. The same can’t be said for permit revenues.

Past experience shows that they are highly variable. Take a look at 3G auction results in Europe. Valuations rose and fell by hundreds of percent over a few years.

How could this happen for carbon permits? Say the government of Iran (or Nigeria or Dubai) falls and petroleum production stops. As a consequence, world oil prices spike high enough to reduce energy demand worldwide by a few percentage points.

This could cause demand for permits to fall enough to reduce permit prices to zero in the short term. Obviously this would be a highly adverse consequence.

More broadly, permit prices could be expected to move inversely with global energy prices. Given that global energy prices are highly volatile, permit revenues would probably be highly volatile as well.

By constrast, carbon tax revenues would be only slightly affected by a small (say 5%) reduction in energy demand.

Of course, this topic is really mute China, India, and the rest of the developing world have no interest in reducing greenhouse gas emissions. Given that China is already the number 1 producer of CO2, US discussions of CO2 controls are essentially a sideshow.

Anonymous said...

i wouldn't say moot. US is still number 2 and that is not insignificant. we need to be a little careful about agreeing with Bush that if China doesn't do it, there is no point in our doing it. Someone has to lead, and we are still using 5 times the energy per capita as China. who knows, if we start cutting our usage, we may learn something we can sell to China.

Anonymous said...

Reducing US emissions 4/5th by 2050 while China doubles or triples its CO2 output and India ramps up its power sector isn’t going to save the planet. China will only curb its emissions when China decides that its own national interest is at stake… Or the rest of the world forces China to act (not very likely).

Voluntary action by the US won’t impress the Chinese in the least… Other than as an opportunity to ship energy intensive goods to the US. As for revenue opportunities, take a look at the trade statistics. The import:export ratio is 5:1. China doesn't by goods produced in the US. China either buys or steals the technology. China might agree to pay modest licensing fees for energy conservation technology in the future. However, that won’t pay our bills by a long shot.

Anonymous said...

who put the 'r' in trw
who emphasized the coming
social-industrial complex in america

systems theory large capital government
labor happy days are here again partnership to
supplement military-industrial

clean water clean lakes clean air build public transportation fast communications net
1960s early 1970s

40 years on
CO₂ refuels
the dream

Myrtle Blackwood said...

Obama: "businesses would be required to buy allowances to pollute, which would create financial incentives to limit energy use or reduce emissions..."

I may be simply reiterating sentiments above, but..

"incentives to.." = ideology and wishful thinking. We don't have time for that AND the ideology has been trialed and has been proved to have failed us miserably.

Dieter Birnbacher said (way back in the 1990s, I think: " the "ecological crisis" is not a product of a conflict between human needs and the needs of nature but of a flawed perception of what our needs in truth are. It is, I believe, a crisis of our humanity rather than one of nature or technology, and so requires not only technological but also humanistic answers.

In saying that, I do not in the least mean to question the crucial and urgent ecological importance of technology. It seems to me beyond question that we need urgently to address the question of the most effective use of raw materials, of the most effective means of conservation and recycling as well as of environmentally friendly ways of purifying and disposing of our waste...

Yet, here we are over a decade later with a gigantic deterioration of the earth's environment. Man-made and through the incredibly dumb use of technology. It is notable also that the Australian Government has provided billions of dollars of incentives to industry for reafforestation. Purportedly this was under the guise of addressing global warming. But it was only found to be profitable if most of the trees were turned into ashes after napalm fires and the rest woodchipped. Honesty in governance is a green thing.

The wind blows where it wills, and you hear the sound of it, but you do not know whence it comes or whither it goes; so it is with every one who is born of the Spirit.
John 3:8

Anonymous said...

greetings carbon based life forms:

your planet is dying.

anonymous who appears to be a friend of Bush says we can't do anything about it because the Chinese won't help. "You first!" "No. You!" "It's no Fair!" "Mom!"

Feinman is pretty sure that first we need to spend a lot of money to develop Fusion..

And Dorman says, no, first we need the Revolution.

Brenda knows.

But who listens to her?

rosserjb@jmu.edu said...


The point is not revenues. Who cares? The point is to cut emissions. There is a paper out that Tyler Cowen linked to over on marginal revolution that shows that under certain conditions a tax on emissions could actually lead to increased emissions, although I think that is unlikely in practice. But the point remains, so you have "guaranteed revenues," but there is no guarantee at all that you are going to do doodley-squat about emissions, which is the point.

Furthermore, it is very clear that neither India nor China is going to do doodley-squat as long as the US does zero. We must do SOMETHING in order to get them to do anything. They may not do as much as we would like, but they will do zero if we do zero.


Unfortunately, the big question is the next 10-20 years, especially here and in India and China. That means, we are basically dealing with currently on-the-shelf tech. Sure, let us do all the R&D, controlled fusion, whatever. But the ball game is dealing in the near term with what we already have, unfortunately (and in China and India that basically means, will they expand their electricity production potential using coal, nuclear, or to some extent natural gas or wind, with the first two the biggies).

BTW, regarding China and India, I hear scuttlebutt that China may be more willing to deal than India. This is because they are becoming more environmentally conscious in general with the massive increase in problems they are having. Also, they are a lot higher income now than India. India is much more likely to say, "to hell with you, we need to extend electricity to our rural poor," although they also may be more likely to do it with nukes than with coal, compared to China.


The SO2 tradable permits scheme in the US has worked pretty well since 1990. Emissions have been steadily declining. Cap and trade is not impossible and not just pissing in the wind. It can work if it is structured and implemented properly.

J.Goodwin said...

Rebates are ridiculous propaganda handouts to the masses by the ruling class to keep them in line.

The expense involved in rebating money to individuals far outweighs any sort of benefit other than a symbolic one that the process would have.

Maybe you can argue for a refundable federal tax credit, but there's no reason to embark on yet another rebate scheme.


So if I'm clear, the argument against cutting US emissions is that China is jumping off a cliff, so we should too?

Unless I was not paying attention correctly, my mother told me that that was the wrong approach. First you worry about your own ass, then you try to convince your idiot friends not to jump. I'm betting that your mama told you the same thing.

Anonymous said...


China and India will do nothing to curb their emissions irrespective of whatever we do or don’t do. Ask them. They are quite clear about their intentions.

You stated “The point is not revenues. Who cares? The point is to cut emissions.” That is your opinion and you are entitled to it. However, our host is apparently quite concerned about revenues. Peter Dorman argued against carbon taxes on the grounds that the revenues would be highly variable. Let me quote

“But relying on carbon taxes is also a terrible way to finance the government. We are talking about half a trillion dollars or so in revenue, so the percentage of financing would be quite large. Income fluctuates, and that is a problem, but the spending on a particular set of items, like fossil fuels, has the potential to fluctuate even more.”

His concern about volatile revenues is entirely valid. However, his conclusion is simply wrong. Auction permit revenues would be more volatile than carbon taxes by a large margin.

Anonymous said...

brenda, your skepticism is warranted --

rosserjb@jmu.edu said...


"Ask them." Well, I have. They are in on the negotiations for a post-Kyoto Protocol, which are not being widely reported publicly and do not involve the US officially so far anyway. I have actually talked about these matters with officials from both India and China. Their answer is that they will do something if the US does something, but not otherwise.

Again, they may not do as much as we would like, and India may be less willing than China, but perhaps more likely to do nukes, given that China is so well-endowed with coal. But, you are wrong that they are completely and unequivocally unwilling. They are only so if the US does nothing.


Do you want to argue that the US SO2 cap and trade system has not worked? One can criticize it on various grounds, including noting that it had some "lucky breaks." But emissions have gone down.

Anonymous said...

Ah ha!! Free trade has finally found its true purpose. China and India have made it to the big time as polluters nonpareil. Their economies hum along providing Europe and the USofA with cheap goods and services, and spewing out carbon residue like crazy. You can't see forever in either place because there are no clear days.

Forsaking the free trade mantra has then several real world advantages. One, manufacturing reverts back to places wherein the government might actually be willing to curb pollution. Two, worker exploitation is significantly reduced. Three, China, India and other such advanced manufacturing localities will require far less fossil fuel.
Sounds like a plan to me. I can live without WalMart, and I'd like to buy a pair of sneakers made somewhere other than China.

Myrtle Blackwood said...

Barkley said: "The SO2 tradable permits scheme in the US has worked pretty well since 1990. Emissions have been steadily declining. . ."

Yes. The bottom line for addressing the environmental crisis is that emissions decline. So, there are THREE essential aspects to a cap and trade scheme:

1. Big business can profit from an environmental crisis by being paid to do the right thing. (There are dangers here, apart from the obbious moral one, because corporations have an incentive to do the wrong thing until they are financially rewarded for not doing so. They are likely to delay the implementation of even easy and straightforward solutions for that reason. In addition, others are not paid for minimising carbon emissions under the current scheme of things);

2 We must ensure that there are actual reductions in emissions.

How is this possible? Like the derivative market today we rely on the performance of the underlying instrument. Government has shown they are incapable of ensuring such integrity. See: 'The Alarming Parallels Between 1929 and 2007'. Testimony of Robert Kuttner
Before the Committee on Financial Services
Rep. Barney Frank, Chairman U.S. House of Representatives. Washington, D.C. October 2, 2007

3. Someone must determine what an "acceptable" reduction in emissions is.

Why have successive US Governments ignored the advice of Barry Commoner, with his decades of experience in environmental regulation?? (IMHO this question gets to the essence of why we have such a severe crisis now).

See: http://www.czp.cuni.cz/values/citanka/dobris/barry_commoner.htm

Commoner's observations are that regulation failed except where pollution was prevented at its source. Pollution prevention required an appropriate change in the technology of the production process that generates the pollutant. Control devices represent non-productive capital costs. They are damaging in that they divert capital from productive investments. Thus it is incompatible with economic development (not to be confused with economic growth). BR: How can the public pay for carbon credits if the wealth they generate is being diverted into paying large corporations for credits in a trading scheme and on extensive control devices and manoevres?

Commoner says that in practice a control device never reduces emissions to zero and the cost of the device typically rises exponentially with its efficiency.
The control strategy also engenders ethical precepts that conflict with generally accepted principles of morality. Commoner refers to the “cost-benefit” approach to environmental regulation whereby there is a determination made of what an “acceptable” level of pollution is. It becomes necessary to put a monetary value on human life.

Commoner then reasonably concludes that economic development that conforms to the principles of ecology calls for social governance of the means of production.

The environment, he concludes, is a sovereign responsibility that takes precedence over the private interests in exploiting it.

One would have to conclude that we need to build a new economic model immediately.


Anonymous said...

Different pollutants have different "ranges", and it seems to that any cap-and-trade or similar scheme to reduce them must match the range of the pollutant.

If I'm dealing with a very local pollutant -- say heavy metals in soil -- a cap and trade scheme implemented on a much larger scale will just allow a particular polluter to continue to create dangerous conditions in one spot by purchasing allowances from another.

SO2 is well-matched to a cap-and-trade scheme, because the main environmental consequences of SO2 are due to the total pollution in a large region, within which we don't mind much if pollution moves around from one point source to another.

With CO2, we have the opposite problem as we had with very short-range pollutants: the negative environmental consequences of CO2 emission are due to the total global emission. A permit system which is only on a national or regional scale can reduce CO2 emission in that nation or region, but may not have that much effect on the global level of emission. This would especially be true if the cost of some production processes within the region is increased by the cost of emission controls or permits to the point that it becomes economically favorable to move the production process outside the controlled region.

If you *really* want to address CO2 production with a cap-and-trade system, (or a tax, for that matter) you need to implement it on a global scale. For a CO2 emission auction system, this would bring the interesting question of how to distribute the proceeds of the auction... Barring that, one at least needs to tax producers of imported goods for the CO2 required to produce them. Perhaps enough of the emissions are generated by activities not easily moved overseas -- heating, transportation, electric power generation -- that my concerns are overstated. But it still seems clear that the proper scale on which to implement an emissions cap-and-trade system or tax for a global pollutant is in fact the global scale.

Anonymous said...

and if you can't get the globe to cooperate in time...

you could, for example, impose restrictions in cities on driving gas powered cars so that small slow cheap electric cars were all but mandatory. this would reduce carbon emissions nationally about 10% overnight.

or you could write building codes that forced energy efficient design

or zoning codes that encouraged less sprawl

all without waiting for global agreement on a cap and trade or permits solution.

you could encourage the people to accept this by taxing gasoline so high it became a significant consideration in their decisions.

and then a place like china, say, might look at your clean cities, and realize that they had nothing to gain in the long run by poisoning the planet, and be willing to try it themselves... only incidentally saving on the (pre tax) cost of petroleum, including the cost of defending their access to foreign oil...

something like this could snowball.

but we will have to wait until the present players can see how to make money out of it, or avoid leaving their easy chairs and changing something about their life style... something like giving up dope... or the left gives up the idea of using the global climate crisis as the final key to the Revolution...or the economists stop worrying about possible problems with a gas tax... which are so much more important than global warming, you see, and about which nothing could be done by way of later adjustments, you see...it's so important we get it exactly right before we do anything.

Anonymous said...


No, wasn't referring to SO2 but (global) capital system's ability to actually repair the mess that it's made -- which will only happen if expected profit is sufficiently high; which i expect will have large unintended consequences and may not be so socially beneficial as has been advertised and believed.

Was also referring to the long-term links between large capital and green. When, during the 1960s, Simon Ramos (tRw) et al became interested in developing a 'social industrial complex', it may not have been goodness of heart.

Anonymous said...

----or the left(?) gives up the idea of of using the global cimate crisis as the final key to the Revolution----

'global climate crisis' (there are others) is a product of what other than that expected to 'fix' it,,,,might even be an aspect of a larger crisis, eh, a 'key' hoped to open the door for a new mode of accumulation or at least new constellation of bets.

sounds like extended neoliberalism to me

Anonymous said...


not sure i understand, as always. i am no neoliberal. quite the opposite. and i'd be glad to see the same revolution as you.

i just get a bit testy with people who walk into a room full of capitalists and propose plans for the most progressive income redistribution plan in history.

now, me, i'd rather get these people to help save the earth instead of scaring them out of the room.

the revolution can come later.

Anonymous said...

reformist, neolib, and 'left' seem to become blended when it comes to paying the wrecking company to rebuild what its wrecked -- well, given this company's history, i'm not so trusting it can do a good job, and given its many many failures, not thrilled with helping it perpetuate itself further itself beyond the current 5 to 12.

Anonymous said...


i share your pessimism about the local power structure to reform itself.

just don't see it as a bargaining strategy.