Transcript - Catalyst

How can capitalism save us?
Put a price on pollution!
The line from James Morrison
that summarizes today’s class is
1. To you everything
was just a game.
2. You don’t get to
taste the honey
without the sting of
the bee.
3. You hit me like a
steel freight train.
4. Oh, yeah yeah yeah.
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In the context of carbon pricing,
“taste the honey” refers to…
1. Technological
green innovation.
2. Green jobs.
3. Sugarcane
ethanol.
4. Stevia powder.
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In the context of carbon pricing,
“the sting of the bee” refers to
1. Lawsuits against
polluters.
2. Higher energy
costs.
3. Bureaucracy.
4. Climate impacts.
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Which of the videos focuses on
“the sting of the bee”?
1. Going green with
C&T (Remy)
2. The facts of C&T
(Nat Keohane)
3. The story of C&T
(Annie Leonard)
4. It begins with
energy (Obama)
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It begins with energy… We will soon lay down thousands of miles of
power lines that can carry new energy to cities and towns across this
country. And we will put Americans to work making our homes and
buildings more efficient so that we can save billions of dollars on our
energy bills.
But to truly transform our economy, to protect our security and save our
planet from the ravages of climate change, we need to ultimately make
clean, renewable energy the profitable kind of energy.
So I ask this Congress to send me legislation that places a marketbased cap on carbon pollution and drives the production of more
renewable energy in America. That's what we need.
And to support -- to support that innovation, we will invest $15 billion a
year to develop technologies like wind power and solar power,
advanced biofuels, clean coal, and more efficient cars and trucks built
right here in America.
Three possible solutions
• Voluntary approaches: “Give a hoot, don’t
pollute.”
• Mandatory “command-and-control”
approaches: Fuel economy standards,
government-funded R&D (research and
development), etc.
• Mandatory “market-based” approaches:
Make polluting expensive.
Three possible solutions
• Voluntary approaches: “Give a hoot, don’t
pollute.”
• Problem: Voluntary approaches often don’t
work very well because of the Tragedy of
the Commons.
Clean
Clean
Dirty
(Good, Good)
(Best, Worst)
Dirty
(Worst, Best)
(Bad, Bad)
Three possible solutions
• Voluntary approaches: “Give a hoot, don’t
pollute.”
• Problem: Voluntary approaches often don’t
work very well because of the Tragedy of
the Commons.
• Note: Sara Curran may disagree; she
appears to have more faith in communitybased solutions than I do.
• I hope she’s right!
Three possible solutions
• Mandatory “command-and-control”
approaches: Fuel economy standards,
government-funded R&D (research and
development), etc.
• Problem: These can work, but often they
are unnecessarily costly (i.e., inefficient).
• And do you really want the government
picking winners? (Consider corn ethanol.)
Three possible solutions
• Voluntary: “Give a hoot, don’t pollute.”
• Mandatory “command-and-control.”
• Mandatory “market-based” approaches:
Make polluting expensive.
Three possible solutions
• Mandatory “market-based” approaches:
Make polluting expensive.
Which idea was not discussed in
the Sightline carbon primer reading?
1. Carbon taxes
2. Carbon offsets
3. Cap-and-trade
permits
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Three possible solutions
• Mandatory “market-based” approaches:
Make polluting expensive.
• This is the best idea since sliced bread.
• Market approaches use the power of the
free market to protect the environment.
• Two varieties of sliced bread:
– Taxes
– Cap-and-trade permits
Both act as a surrogate for missing
market prices/incentives
• Pollution creates negative externalities.
• The resulting “external costs” are not
included in market prices.
• The invisible hand breaks down, leading
to the tragedy of the commons.
• We can use taxes or cap-and-trade to
“internalize” those external costs.
• These policies “heal” the invisible hand!
Story #1: Paper
• Before 1998, it was free for students to
print at the computer labs on campus.
• More correctly, it was “free”: the money
came from student tech fees rather than
individual students.
• The result: 35,000 pages printed per day,
1000s of those pages unclaimed, $25,000
per month for paper and toner…
Price of
printing
Demand curve: At different prices, how
many pages do students want to print?
Which point (A, B, or C) shows
how many pages were printed
when printing was “free”? When
printing was $0.10 per page?
$0.20
$0.10
A
B
C
Quantity
of printing
Which point shows how many pages
were printed when printing was “free”?
1. Point A
2. Point B
3. Point C
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Which point shows how many pages
were printed when printing was $0.10?
1. Point A
2. Point B
3. Point C
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Price of
printing
Demand curve: At different prices, how
many pages do students want to print?
$0.20
Supply and demand:
X marks the spot!
$0.10
A
B
C
Quantity
of printing
Charging for printing is most similar to
which idea from the reading?
1. Carbon tax
2. Auctioned capand-trade
3. Grandfathered
cap-and-trade
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Story #2: Sulfur dioxide (SO2)
• Under Title IV of the 1990 Clean Air Act
Amendments, a “cap and trade” program
was created for SO2 from power plants.
• Any firm wanting to emit SO2 needed to
turn in 1 permit for each ton of emissions.
• In 1980, emissions were 20m tons, but by
2000 the government only gave out 10m
tons’ worth of permits. (Cut pollution in ½!)
• Allocations based on historic emissions.
Which of the videos talks about
the SO2 success story?
1. Going green with
C&T (Remy)
2. The facts of C&T
(Nat Keohane)
3. The story of C&T
(Annie Leonard)
4. It begins with
energy (Obama)
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This example is most similar to
which idea from the reading?
1. Carbon tax
2. Auctioned capand-trade
3. Grandfathered
cap-and-trade
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Source: Pew Center on Global Climate Change
Price of
sulfur
Demand curve: At different prices, how
much sulfur do utilities want to emit?
Which point (A, B, or C) shows
the “price” of emissions before
the cap-and-trade? What about
with a cap of 10m ton?
A
B
C
10m
20m
Quantity
of sulfur
Which point (A, B, or C) shows the “price”
of emissions before the cap-and-trade?
1. Point A
2. Point B
3. Point C
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Which point (A, B, or C) shows the “price”
of emissions with a cap of 10m tons?
1. Point A
2. Point B
3. Point C
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Price of
sulfur
Demand curve: At different prices, how
much sulfur do utilities want to emit?
A
Supply and demand:
X marks the spot!
B
C
5m
10m
20m
Quantity
of sulfur
Lesson #1: Taxes and cap-andtrade systems are very similar
• A tax is a “price” instrument and cap-andtrade is a “quantity” instrument, but the
demand curve tells us that price and
quantity are related to each other!
Price of
sulfur
$200
$100
5m
10m
15m
Quantity
of sulfur
Lesson #1: Taxes and cap-andtrade systems are very similar
• A tax is a “price” instrument and cap-andtrade is a “quantity” instrument, but the
demand curve tells us that price and
quantity are related to each other!
• If we know what the demand curve looks
like, I can tell you the quantity of emissions
from a given tax, or I can tell you the
“price” of emissions from a given cap.
Price of
sulfur
$200
$100
5m
10m
15m
Quantity
of sulfur
Price of
sulfur
$200
$100
5m
10m
15m
Quantity
of sulfur
Complication #1: We don’t know what
the demand curve looks like exactly.
• So we can’t say exactly how much carbon
reductions will come from a $100/ton tax
on CO2.
• And we can’t say exactly what the “price”
of carbon will be with a cap-and-trade that
reduces emissions to (say) 1990 levels by
2020 and 50% below 1990 by 2050.
• Still, don’t forget Lesson #1.
What is Lesson #1?
1. Taxes and capand-trade are very
similar.
2. Taxes and capand-trade are
totally different.
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Lesson #2: It’s all about the money.
• The best way to think about cap-and-trade
is to think about its price equivalent, even
if we don’t know exactly what that price
equivalent will be.
• Example: the Waxman-Markey climate bill.
Lesson #2: It’s all about the money.
Source: EPA preliminary analysis of Waxman-Markey, 4/20/09
Lesson #2: It’s all about the money.
• The best way to think about cap-and-trade
is to think about its price equivalent, even
if we don’t know exactly what that price
equivalent will be.
• Example: the Waxman-Markey climate bill.
• A price of ≈$30/tonne CO2 is about $0.30
per gallon of gasoline, $0.03 per kWh coal.
• Personal opinion: I don’t think this is
enough for 2030. (Others disagree.)
Which of the videos focuses on
the risks of offsets?
1. Going green with
C&T (Remy)
2. The facts of C&T
(Nat Keohane)
3. The story of C&T
(Annie Leonard)
4. It begins with
energy (Obama)
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Lesson #2: It’s all about the money.
• The best way to think about cap-and-trade
is to think about its price equivalent, even
if we don’t know exactly what that price
equivalent will be.
• Example: Any auctioned cap-and-trade
system is equivalent to some tax.
• What about grandfathered cap-and-trade?
Lesson #2: It’s all about the money.
• Grandfathering permits to existing firms is
equivalent to giving them money.
• Exactly equivalent.
• Give them permits, and they can sell them
for money.
• Give them money, and they can buy
permits.
Is it a good idea to give companies
a bunch of money?
1. Yes
2. No
3. I’m not sure
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What else could we do with money from a
carbon tax or auctioned cap-and-trade?
•
•
•
•
Fund R&D into clean energy.
Rebates for energy efficient appliances.
Reduce existing taxes.
BC is implementing a revenue-neutral tax
shift that will generate $600 million per
year from a carbon tax and “spend” the
revenue on tax cuts and rebate checks.
• I’m working on a similar idea in WA.
Who wants a tax shift?
Charles Krauthammer [Fox News]: “For 25
years… I have been advocating… a U.S.
energy tax as a way to curtail consumption
and keep the money at home [by recycling it
back into tax reductions].”
George Will [Washington Post]:
“A carbon tax would be a clear and candid
incentive to adopt energy-saving and
carbon-minimizing technologies… [and
produce] a commensurate reduction of other
taxes.”
Who wants a tax shift?
Al Gore: “It's important to change the light
bulbs, but it's much more important to
change the laws… Tax what we burn, not
what we earn.”
William Nordhaus [Yale economist]: “To a
first approximation, raising the price of
carbon is a necessary and sufficient step
for tackling global warming.”
What’s so great about a tax shift?
• Right now we tax “goods” (things we want
more of: employment, saving, investment)
and don’t tax “bads” (things we want less
of: carbon, pollution, traffic congestion).
• This is like pouring your beer out on the
carpet and drinking out of the toilet bowl.
• Taxing “bads” instead of “goods” is smart
economically and smart environmentally.
• That’s how capitalism can save us!
What did you think about the
multimedia “readings”?
1. They were great.
2. They were good.
3. They were okay
and/or there were
too many.
4. Readings would
have been better.
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