Thursday, January 14, 2010

Hansen Tries to Explain Why He Appeared to Be Confused, But Just Adds to it

When Jim Hansen, a genuine hero in the world of climate science, published an op-ed in the New York Times last December, he was excoriated by many writers, including yours truly. The piece was deeply confused, almost incoherent, in its attack on carbon caps and defense of carbon taxes.

Now Hansen has published a new account of “what I really meant”. It is just as muddled as the original. Hansen tells us, for instance, that he knew all along that caps and taxes are reflections of one another:

I do not dispute the economic theory that a cap and a fee are, in principle, equivalent. But cap and trade's complexity allows special interests to take over, killing its effectiveness.

(Actually, caps and taxes are not equivalent in a world of uncertainty, but we will let that pass.) So now the claim is that taxes are simple and pure, while caps are murky and lead only to corruption. This is no doubt true if you compare a perfect, hypothetical tax to an actual, highly compromised cap. If Hansen thinks that a tax system passed by Congress will be the pristine, comprehensive, loophole-free policy of his dreams, he hasn’t had much contact with the IRS recently.

What he can’t seem to get clear on is that he has two entirely legitimate complaints, but they have nothing to do with caps vs taxes. Hansen is against giving away carbon permits and against offsets. I (and many others) agree with him completely. This should be a reason to weigh into the public debate against giveaways and offsets. But no, he says the solution is to switch to a tax—as if there can’t be giveaways (rebates) and offsets (credits) in a system of carbon taxes.

Finally, he dumps on the Cantwell Bill, which proposes a carbon cap without giveaways and offsets—a bill that is as short, sweet and uncomplicated as anything you could hope for. Why? Well, it’s a cap, and, you know, complicated and sure to be stuffed with giveaways and offsets and....

20 comments: said...

I agree with Peter on this matter. It is not just Hansen, but people who should know better, such as Joe Stiglitz who also play this game of comparing actually existing (and thus flawed) cap and trade systems (such as the carbon emissions market in Europe) with theoretical textbook taxes. It is not just the IRS that is the problem, it is Congress and the Special Interests. The same ones that get breaks with cap and trade bills will get their breaks on taxes (no taxes on ag or... ).

JW Mason said...

The other point that is often overlooked is that permits do not have to be tradable. Time-limited emission permits could be auctioned off by the government annually (or quarterly or monthly) with no secondary market. This would avoid many of the problems Hansen points to.

The advantage of permits over taxes is the uncertainty you touch on -- we are much more confident in our assessment of how much we want to reduce carbon emissions than of the dollar cost of a given reduction. So it makes more sense for policy to target the quantity than the price.

See useful discussion by Jim Boyce here:

TheTrucker said...

I seems to me that the problem with cap and trade is that a new frontier of economic rent is created. The people who own and trade these FIXED resources will seek to increase their value by preventing something like nuclear energy or any other clean energy that would reduce the value of these "taxi medallions".

A tax and rebate system does not have that failing but I always look at transportation fuel as opposed to coal. I'm not real sure how end users can do anything about monopolistic coal fired utilities, but I suppose that HVDC distribution (or some other low loss distribution) might make such monopolies less of a problem. I keep wishing for true progress. And I think that nuclear and HVDC are big pieces of the puzzle. If nothing else you put the nuclear plant _INSIDE_ Yucca mountain and feed the cities with HVDC.

End of coal.

Anonymous said...

I thought that cap & trade was:

(1) already used for other types of emissions (CFCs and SO2), so it's not a totally new system; and

(2) a compromise measure (similar to the public option versus single-payer) to get the libtards and economics purists (who don't seem to be purists on externalities issues) on board with reducing pollution.

Barkley Rosser said...


A major reason that the US pushed cap and trade on the rest of the world at Rio and Kyoto was precisely because it had been (and still is) used in the US for dealing with SO2 (I don't think it is for CFCs, but it is for some other pollutants). Most observers believed then and still think that the SO2 program in the US has worked pretty well, gradually reducing emissions without major economic disruptions.

r l love said...


I read some of the conversation you were part of on Economist's View, and when combined with: "people who should know better, such as Joe Stiglitz who also play this game of comparing actually existing (and thus flawed) cap and trade systems (such as the carbon emissions market in Europe) with theoretical textbook taxes.", I feel that you are not being fair with Stiglitz. His position is unlike your example of Europe's carbon emissions market because he is advocating retribution. Not charity but repayment for the existing imbalance of global wealth flows, which he has of course given dubious distinction to. So the undeveloped nations will receive a windfall of sorts, something very different than what exists in your example.

~ray l love said...


In principle everybody pays the tax, including the developing countries. No redistribution involved at all. Of course that can be built into it by this or that mechanism, but so can redistribution be built into cap and trade.

r l love said...


This from the piece by Stiglitz:

"Clearly, the idea that those who emitted more in the past should get more emission rights for the future is unacceptable. The “minimally” fair allocation to the developing countries requires equal emission rights per capita. Most ethical principles would suggest that, if one is distributing what amounts to “money” around the world, one should give more (per capita) to the poor."

This seems to suggest redistribution.

~ray l said...


The point is that this has nothing to do with the taxes versus cap and trade debate, nothing. One can redistribute with either scheme, and if one is redistributing via taxes, then it spoils the allegedly simplicity that is supposedly one of the virtues of taxes over the supposedly overly complicated cap and trade systems. I did not question that Stiglitz supports such redistribution, just pointed out that it messes up his argument when he does so.

The problem is an economic ignoramus like Hanson somehow getting taken in by the argument that "taxes=redistribution=simplicity=good guys" while cap and trade is the opposite. This is just pure baloney.

r l love said...


I am trying not to be a pest, but I really do want to understand. From the article in question, Stiglitz writes:

"Perhaps it is time to try another approach: a commitment by each country to raise the price of emissions (whether through a carbon tax or emissions caps) to an agreed level, say, $80 per ton. Countries could use the revenues as an alternative to other taxes – it makes much more sense to tax bad things than good things. ..."

"We have seen that goodwill alone can get us only so far. We must now conjoin self-interest with good intentions... A system of border taxes – imposed on imports from countries where firms do not have to pay appropriately for carbon emissions – would level the playing field and provide economic and political incentives for countries to adopt a carbon tax or emission caps. ..."

As you can see, Stiglitz makes no distinction, twice, between the "virtues of taxes over the supposedly overly complicated cap and trade systems". His argument at no point says anything about inherent complications in any way. He is saying that border taxes should circumvent what is clearly a failing attempt to establish an agreement. He is telling the world that they must take matters into their own hands. And, by implication he is saying that the US and others must be punished into compliance.

ray l love

Sandwichman said...

Barkley: "an economic ignoramus like Hanson"

Given what I know and can document about the general level of intellectual integrity and accountability among economists, I would tend to see ignorance of economics as a feature, not a bug. I would agree, though, that taxation isn't a panacea.

As far as I'm concerned, in the absence of profound cultural and institutional change, carbon taxes and cap and trade are tweedle-dee and tweedle-dum. They're both intended to produce some sort of behavioral improvement in the face of intractable institutional and cultural decay and torpor. "Oh please, Lord, grant me incentives for celibacy... "

My suggestion is we just hand out fucking gold star stickers to the well behaved and get on with the unrestrained business-as-usual rape and pillage of the earth. That's economics! said...


Yeah, yeah, we all know that I am badly behaved. Shame on me, slap my hand.

Hansen is an eminent climate scientist, but he just looks foolish weighing in on an economics issue.


Well, this is going to run in circles, and I have commented on numerous occasions on this matter before, so really do not want to retread worn ground. But border taxes are not a simplification. The Scandinavian countries said they were going to do it among themselves and have failed to come to an agreement. If they cannot do it, nobody else will. Stiglitz knows about this, but just keeps repeating himself. This stuff is just a la la land distraction of the hard problem of coming to an agreement. Given that the Europeans will utterly object to a taxes scheme (they once supported, we pushed them against it, and now that they have cap and trade, no fucking way will they go back to taxes), it is a waste of time to push it. Bringing up taxes simply makes the matter of coming to a global agreement even more difficult (quite aside from the problem that the US Congress will never pass a tax increase on this, even if it should).

I do not think this is the case with Stiglitz, but I suspect it of Mankiw, who is also pushing a tax scheme. Bringing it up is a sure way to guarantee that the US Congress will simply pass nothing about climate change, nothing. It is just a sure killer. I am not going to repeat my not-very-nice characterization of Hansen, but I would think that even a climate scientist ought to be able to figure that one out.

Anonymous said...


When Stiglitz says: " A system of border taxes – imposed on imports from countries where firms do not have to pay appropriately for carbon emissions – would level the playing field and provide economic and political incentives for countries to adopt a carbon tax or emission caps. ..." By "imposed on imports", I take this to mean he believes that an agreement is not possible. But your contention has been all along that if the Scandinavian countries "failed to come to an agreement" that it can not be done. You and he have essentially come to the same conclusion except that you assign to him the assumption that his position is based on "simplification". But of course he mentions twice that: "(whether through a carbon tax or emissions caps)",
"We have seen that goodwill alone can get us only so far". Now I know that you are familiar with his positions beyond the scope of our conversation, but then so am I. The last book I finished was in fact MGW, and you have probably read it too. Many believe Dr. Stiglitz to be the most important economist of our time, so it struck me odd that you would lump him with Hanson and then slur and slur some more with few if any distinctions.
My position remains that Stiglitz is advocating a no-agreement approach, and that undermines your Scandinavian example and most everything else you said in regards to Dr. Stiglitz. From my reading of his last book, and most of his articles of late, my interpretation of what he has said since Copenhagen leads me to suppose that his tacit position is that the US must be ganged up on for there to be any progress on AGW. Or, maybe that is what I want to believe about him.
As for the need to gang up, I believe that either way.

Thanks for your time. ray l love said...


The go-it-each-on-our-own to punish the bad firms in other countries is a recipe for an all-out global trade war. Stiglitz is a brilliant economist, but even brilliant economists make mistakes. He is also a public economics textbook author, and I think he is too taken with the stuff he wrote in his textbook.

Peter Dorman said...

Here I will disagree with Barkley: I think border taxes are essential. (1) There will be no uniform global agreement on carbon mitigation. Countries will continue to pursue different policies, and this is reasonable. (2) Given this, folks in the countries contemplating taking stiffer action are rightfully worried about trade leakage -- production moving from countries that make carbon expensive to those where it's cheaper. (3) Different prices for carbon is a trade distortion; the world economy will operate more efficiently (in textbook terms) if there are tariff offsets. (4) In order to prevent opportunistic exploitation of a carbon tariff regime, it is important to vest an international body (WTO panel?) with the authority to calculate what the adjustments should be. That's where an international agreement comes in, although an enlightened country (don't we wish) could delegate this on its own.

Two more caveats. First, the use of border taxes is unrelated to whether a country or its trading partners uses taxes or caps, only that there is a carbon price difference. Since either caps or taxes will alter carbon prices, both fit the framework. Second, a border adjustment deals only with imports, and high-carbon-price countries also stand to lose exports. This is stickier; subsidies are a lot more difficult to engineer "cleanly" than tariffs. It may be that no solution is better than a bad one in this case.

r l love said...


I suppose I might of saved each of us some time, had I begun by saying that I thought that Stiglitz is proposing an all-out trade war. But that is what came to mind for me when I first read the piece. I am trying to learn to be more polite, but I evidently need more practice with the sensibility part of "polite sensibilities". There are some tricky usage complexities.
Anyway, I still agree with Stiglitz although he is bluffing. It is not a trade war that is needed, but the threat of one. The stakes may be very high and he more than anyone -- has the global clout to play that hand. History sometimes puts people in trying circumstances and those are history's crucial moments. I think he fully understands his opportunity and has so far played his cards well. But the game has only just started.
I also think you owe him an apology for the slights on this page, but that is of course up to you.

Sandwichman said...

JBR: "Hansen is an eminent climate scientist, but he just looks foolish weighing in on an economics issue."

As do economists weighing in on policy issues when their expertise is in abstract mathematical model building.

r l love said...

Sunance is ray l love. r l love is computer-challenged and his kids have moved away to college. This is impressive but new for me. said...

Peter and I have our disagreements on all this.

I have said my views to Stiglitz's face. We debated this once in a serious policy forum. He knows my views. For what it is worth, which may not be much, pretty much everybody else in the room agreed with me on that occasion. He was speaking civilly to me when I saw him in Atlanta, and he has bigger reasons to be annoyed with me than this matter, which I shall not go on about at all.

r l love said...


Fair enough.

ray l love