[Sust-mar] Cap & Trade vs Carbon Tax

Tue Oct 14 12:14:30 EDT 2008

Hi folks,

I'd like to refer those interested in this subject to the excellent  
recent discussion on this matter on Quirks and Quarks available at:

http://www.cbc.ca/quirks/archives/08-09/qq-2008-09-27.html

It's an interview with Dr. Robert Page, TransAlta professor of  
Environmental Management and Sustainability at the University of  
Calgary's Institute for Sustainable Energy, Environment and Economy  
and Dr. Mark Jaccard, Professor at the School of Resource and  
Environmental Management at Simon Fraser University. Both were members  
of the National Round Table on the Environment and the Economy which  
advised the Canadian government on the policies that could lead to  
significant reductions in Canada's greenhouse gas emissions. Their  
discussion of the issue helped clarify it in my mind.

If I can attempt a quick summary, the salient point that they made is  
that despite the difference between the carbon tax and cap and trade  
approaches, what is important is for us as a society to get started on  
a program (any program) that will bring about significant reductions  
in carbon emissions. Quibbling about the details of how we do this is  
less important than action. They both thought that in the future,  
carbon emissions programs would incorporate elements of both approaches.

In terms of the differences in approaches:

a) Carbon Tax: favored by economists since it sets definite (and  
increasing) prices on carbon that everyone (consumers & business) pay  
across the board. It's a clear economic mechanism that puts a price on  
pollution. As governments ratchet up the tax, the incentives become  
ever stronger to cut down on carbon emissions. [The Liberal and Green  
Party proposals.]

The difficulties are two-fold: i) it's tough to sell this politically  
(consumers have visceral reactions to the idea of "taxes" even if they  
get them back with a decrease of income tax); and ii) there is no  
definite quantity by which carbon emissions will actually fall, and  
how quickly this will happen, since carbon taxes are economic  
incentives.

b) Cap and Trade: favored by environmentalists since it sets a  
definite (and decreasing) cap on carbon emissions. It doesn't impact  
consumers directly but instead targets industrial and other large  
carbon emitters. A cap is set and excess emissions beyond the cap must  
be compensated for by purchasing carbon credits from enterprises that  
have made savings in their carbon emissions (or are doing better than  
the norm). This punishes the "slackers" (they have to spend extra  
money to purchase credits) and rewards pro-active and efficient  
companies and enterprises who have done well (they make extra profits  
by selling carbon credits). [The NDP proposal.]

The advantages are that it is easier to sell to consumers (and hence  
the electorate) since they don't have to pay up front. Also, as the  
cap ratchets down from year to year, the incentive to become more  
efficient increases.

The difficulty (from the standpoint of economists) is that prices  
under cap and trade are not set. Enterprises auction or trade carbon  
credits via a market mechanism and they can sell/trade for as much or  
as little as the market will bear.

It can be argued that there will be trickle-down costs to consumers as  
"slacker" corporations simply pass along higher costs (for purchasing  
carbon credits) to their customers. However, the same reasoning  
indicates that costs for commodities from the pro-active businesses  
should be less since their costs are correspondingly decreased from  
having an extra income stream from selling carbon credits. Some also  
criticize cap and trade saying that it could be complicated to set up.

The Kyoto Protocol has a cap and trade mechanism built into it. The  
European Union Emission Trading Scheme (EU ETS) is now largest multi- 
national, greenhouse gas emissions trading scheme in the world and was  
created in conjunction with the Kyoto Protocol.

http://en.wikipedia.org/wiki/European_Union_Emission_Trading_Scheme

Also, in the United States, 26 states, tired of the US Federal  
Government's inaction, have themselves formed three networks to work  
collaboratively to reduce the impacts of climate change.

a) The Northeast Regional Greenhouse Gas Initiative (RGGI:  
Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire,  
New Jersey, New York, Rhode Island, and Vermont) [ http://www.rggi.org/home 
  ] have already started a cap and trade system (the first auctions  
were two weeks ago in which all available allowances were auctioned of  
at a cost of $3.07/ton).

They are being closely watched by;

b) Midwest Greenhouse Gas Reduction Accord (MGGRA: Iowa, Illinois,  
Kansas, Michigan, Minnesota, Wisconsin and (in Canada) Manitoba); [ http://www.midwesternaccord.org 
  ] and

c) The Western Climate Initiative (WCI: Arizona, California, Montana,  
New Mexico, Oregon, Utah, Washington, and (in Canada) British  
Columbia, Manitoba, Quebec, and Ontario. [ http://www.westernclimateinitiative.org 
  ]

Who are interested in in setting up regional cap and trade networks.  
Hence, in a Canadian, North American, and global context, the cap and  
trade approach has a head start.

Some may favour one approach or the other, however, it is simply  
playing non-productive partisan politics to demonize either, when it  
is clear that both would be effective.

To underscore: both Page and Jaccard emphasize that both approaches  
are effective, they are vastly to be preferred over the Conservatives  
"aspirational" intensity-based targets which are a complete sham and  
are next to useless, and in the future carbon emissions programs will  
likely incorporate elements of both approaches.

The message: lets stop divisive partisan quibbling, defeat the  
Conservatives, and get on with it! :->

Cheers!

Chris

On 13-Oct-08, at 3:51 AM, Chris Bighead Milburn wrote:

> I am DEEPLY disappointed to see only the "three major parties"  
> represented
> in this analysis.
>
> The Green Party has been way ahead of the curve in this realm for  
> many, many
> years.  In fact, the present Liberal policies look a lot like GPC  
> policies
> from the 1990's.  And one could argue that the libs were introduced  
> to these
> policies by the Greens.  And one could further argue that it is  
> pressure
> from the increasing Green vote which has made the libs come around  
> to the
> idea of a carbon tax (despite it being obviously unpopular with many
> voters).  Not at all to say that the current Liberal policies are  
> perfect -
> they are missing some important points.
>
> As a former NDP supporter, I am very disappointed with the NDP's  
> singly
> focused, Robin-Hood-philosophy-driven green platform which fails to
> recognize that it is our individual habits of energy consumption,  
> not JUST
> corporations, that have caused the problems that exist today.  Jack  
> Layton
> continues to state over and over "Canadians are getting ripped off  
> at the
> pumps" as if cheap gas were a Canadian right, and a long-term  
> reality.  This
> line of politicking is destructive to real progress in energy  
> consumption
> reduction.  An honest party would say "gas is expensive and will  
> continue to
> increase in price, and we need to develop policies to deal with this  
> as a
> society".
>
> I think I would be preaching to the choir if I started to even  
> mention the
> "small flaws" in the Conservative approach to energy consumption  
> reduction!
>
> I'm very disappointed that Dr. Hughes did not include analysis of  
> the Green
> Party policies on energy, which have long lead the field in Canadian
> politics.  We can vote for parties with incomplete policies, or vote  
> for the
> party with the best policy.  They may not get into power, but if  
> lots of
> votes go their way, maybe we'll again see a mainstream party  
> stealing their
> policies.
>
> Sincerely,
> Chris
>
> Chris Milburn
> 43 Rigby Road
> Sydney, N.S. B1P 4T4
> 902-539-6852
> email: chris.milburn at ns.sympatico.ca
>
>
>
>
> -----Original Message-----
> From: sust-mar-bounces at list.web.net [mailto:sust-mar-bounces at list.web.net 
> ]
> On Behalf Of Larry Hughes
> Sent: October 9, 2008 9:22 AM
> To: Sustainable Maritimes
> Subject: [Sust-mar] Pricing greenhouse gas emissions
>
> SUSTAINABLE MARITIMES (sust-mar)
> Send your message to sust-mar at list.web.net
> Text only, no attachments please.
>
> www.sustainablemaritimes.ca
> ---------------------------------------
>
>
>
> A presentation to the Halifax Chamber of Commerce Energy Security
> Committee, describing the three approaches to encouraging greenhouse  
> gas
> emission reduction proposed by each of Canada's major political  
> parties. A
> summary of "Contraction and Convergence" is also discussed.
>
> http://lh.ece.dal.ca/enen/2008/ERG200805.pdf
>
> Larry Hughes, PhD
> Professor
> Energy Research Group
> Department of Electrical and Computer Engineering
> Dalhousie University
> Halifax, Nova Scotia, B3J 2X4
> Canada
>
> v: 902.494.3950
> f: 902.422.7535
> e: larry.hughes at dal.ca
> u: http://lh.ece.dal.ca
>

Christopher Majka
Halifax, Nova Scotia, Canada
c.majka at ns.sympatico.ca