THE COSTS OF CAP AND TRADE.
Sorry for the light posting today, I spent most of it hanging around outside Brian's hospital room. He, in turn, wanted internet access so he could catch up on blog reading. We got him his iPhone and everyone was happy.
But I did want to respond to this Dave Roberts post on cap and trade. Dave argues that cap and trade won't hurt the economy, and will certainly be better for growth than unchecked global warming and scarcity-driven volatility in energy prices. I agree with him. He thinks, however, that I don't. Which is peculiar. The point I made in my original post is very limited, and not, to my knowledge, controversial: A cap and trade carbon plan will raise the cost of carbon intensive products like gasoline. That's how it works to discourage carbon consumption. By capping emissions, and then lowering the cap, it makes carbon-intensive products relatively more expensive, which in turn increases the economic incentives to purchase, and develop, non-carbon intensive products.
This, in the short-term, makes gasoline more expensive. That's the point of it. There are a variety of ways to compensate people for making gasoline more expensive, but gasoline will still be more expensive. That's going to make cap and trade a tough sell. But that doesn't mean it will be bad for the economy, or bad for people in general. Money not spent on gasoline is money spent on other things. As carbon-intensive products become pricier, other products will become cheaper. Lots of good stuff will happen, and my sense is that a move away from oil will actually entail significant lifestyle benefits. That's why I talk about transit and food policy a lot. Transit is awesome. Not sitting in traffic makes people happier. Riding on subways is fun. Biking is a joy. Meat consumption is another major carbon issue, but here again, a diet where red meat was relatively more expensive and vegetables and grains relatively less would be healthier for us. It would mean fewer cardiovascular surgeries and less time watching loved ones breathe through a tube. It would free up health care money to spend on other things.
Cheap carbon has substantially shaped the evolution of our economy and national lifestyle. It's done an enormous amount of good. But some of the byproducts have been problematic. As we move away from a carbon-based economy, we'll have opportunity to rethink some of those issues, and possibly move forward in ways that make us happier, healthier, and freer. There's nothing to fear in that.
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COMMENTS (33)
Public transportation is hell. I would gladly take a $50k pay cut if it meant I could live in a place where I could drive to work. What is your evidence that a significant percentage of the population likes public transportation?
The vast majority of people who support public transportation either (i) use public transportation because it is cheaper but would prefer to drive if costs were equal or (ii) support public transportation for other people because it reduces traffic for themselves. You may be able to raise the price of driving to the point where more Americans use public transportation, but there is no way you're going to be able to make them like it.
Posted by: FXKLM | July 3, 2008 6:21 PM
When the gas crisis of the late 1970s occurred, we had huge lines at the pump and an imposition of "even/odd" days based on car license plate numbers for getting gas here in California. I found the experience so frustrating I stopped driving my car and began exclusively riding my bicycle, including for shopping and picking up parcels at the post office. I continued this for about 2 years, and actually found it very pleasant and convenient. (Of course I lived in a flat area at the time.)
I think people might be surprised at the changes they would find tolerable when conditions evolve.
Posted by: bemused | July 3, 2008 6:26 PM
The fundamental conversion I try to remember is that oil and human labor are substitutes. All the things we used oil to do (like haul your lazy ass up three stories, or farm millions of acres) can be done by hand, either by more people or slower.
So when I think of how society will re-shape itself after oil passes, I try to think along a spectrum of using labor instead. Some things are easy to switch back to labor (short distance transportation), some are hard. Some aren't worth doing by labor.
Posted by: Megan | July 3, 2008 6:48 PM
You may be able to raise the price of driving to the point where more Americans use public transportation, but there is no way you're going to be able to make them like it.
This simply isn't true. If you're used to public transit as the norm, it's perfectly fine. (And if you're used to public transit as the norm, you know how to get the most out of it; you can read on the subway, where you can't while driving.)
Posted by: mightygodking | July 3, 2008 6:49 PM
Dave is telling what you wish to hear. To believe that you can put more expense on production and that it will have no effect is a liberal pipe dream.
Posted by: El Viajero | July 3, 2008 6:51 PM
Well, ever since all the conservative caterwauling about how the Clinton tax increases were going to destroy the economy, I tend to take any additional whining about how bad a tax increase will be for the economy with a sizeable grain of salt.
Posted by: ResumeMan | July 3, 2008 7:49 PM
I was disappointed that this post wasn't about the cost of cap and trade. That would have been interesting. What are the administrative and enforcement costs associated with an effective cap and trade system? How much new bureaucracy will be required? Do those costs undercut a cap and trade system as opposed to a carbon tax?
And by the way, riding a subway is not fun. Ride the subway in New York or Hong Kong at rush hour and tell me you're having a good time. If you do, you have a very warped sense of fun.
Posted by: Steven Donegal | July 3, 2008 7:49 PM
I think public transportation is fun - anyway, compared to driving in traffic, it is. I get to read, watch people, listen to strange conversations -- I've heard great conversations about the comparative value of work vs. dealing drugs, for instance. My old bus driver would explain to me how to extract your own teeth (which he did whenever he got a toothache). Also, I've read many thousands of pages over the years that I wouldn't have been able to read if I'd been driving.
The *only* caveat I'll make is that I've had 3 employers (a university and two IT departments) which enabled me to usually skirt around the edges of rush hour. A packed rush hour bus sucks, but so does driving in traffic, which allows me neither to observe my fellow creatures or get any reading done.
You need to go in to it with the right attitude, that's all.
Oh, and I've saved tens of thousands of dollars using mass transit over the last ten years. Our house is almost paid off as a result. Win/win/win.
The next time we move, living within walking distance of our employers, or being close to workable transit, will be a major priority.
Posted by: Harvey Lobster | July 3, 2008 8:28 PM
Riding the metro in DC is a pleasure!
As for the cost of Cap and Trade, it depends how you do it. Most would raise money. For example, the ClimateMATTERS Act, just introduced by Rep. Lloyd Doggett, is a pure auction system that would raise $1.1 trillion over five years. Over half of that would go to low and middle income consumers, oh - and universal health care. The rest goes to helping industries and workers transition, grants to states for addressing climate change, assistance for developing countries' deployment of low carbon technology, research in renewable energy technology, infrastructure improvements and public transportation. ... and there's a significant trade component to the bill to decrease the tendency to offshore polluting industries (and jobs) rather than improving the technology.
So sure, cap and trade or carbon tax will raise the cost of fuel, as Ezra points out, but if that is balanced with tax reductions, infrastructure investments that create jobs and make domestic industries more efficient, R&D, and universal healthcare... most people probably wouldn't mind.
Posted by: mdale | July 3, 2008 8:53 PM
For what it's worth, I take public transportation to work every day and I've done so for several years. I'm very familiar with public transportation and I still find it miserable. I want to be able to move around on my own schedule. I don't want to have to interact with other people to the extent I can avoid it. Like it or not, most Americans feel the same way. I don't think anything is going to change that.
Posted by: FXKLM | July 3, 2008 8:53 PM
Great post Ezra. We've got to move to post-carbon and reduce our greenhouse gases.
I think its time for people concerned about climate change to stop being timid and running away from the 'I want to do whatever I like' lobby and really take it up to them. This is our planet to and I dont want to be part of this terrying science experiment (which has already started) called Climate change.
Posted by: Dave | July 3, 2008 9:08 PM
I don't want to have to interact with other people to the extent I can avoid it. Like it or not, most Americans feel the same way. I don't think anything is going to change that.
Other than actually having them interact, you mean? Like, on a daily basis? I wonder how that could be achieved . . .
Posted by: C.S. | July 3, 2008 9:23 PM
Since when is global warming being bad an accepted fact? Why do you hate starving Africans Ezra? Do you like watching little kids die of malnutrition?
Back when the dinosaurs roamed free, before they went extinct at the hands of conservative cave men, the earth was considerably more lush with vegetation and had much higher levels of carbon dioxide.
http://dinosaurs.about.com/od/dinosaurevolution/a/bigdinos.htm
“During the Mesozoic Era--which stretched from the beginning of the Triassic Era, 250 million years ago, to the extinction of the dinosaurs at the end of the Cretaceous Era, 65 million years ago--atmospheric levels of carbon dioxide were much higher than they are today. If you've been following the global warming debate, you'll know that increased carbon dioxide is directly correlated with temperature--meaning the global climate was much warmer millions of years ago than it is today.”
If you kid killing progressives would shut up and emit a little more carbon Africa could be a tropical buffet in our lifetime. Ironically the increased temp and carbon would also increase corn and sugar cane yields bringing down the cost of ethanol and making it an affordable replacement for oil.
But you racist bastards would never let a couple million deaths by starvation get in the way of your money and power grab.
Posted by: Nate | July 3, 2008 9:43 PM
Nate - I can't tell if this is satire or not...
If it is satire, apologies.
If it isn't, try googling global, warming, and Africa. The predicted news for Africa is _bad_, albeit maybe not as bad as it is for, say, Bangladesh. If you want to look for the upside of global warming, you can at least make a case for Canada and Siberia - for Africa, not so much.
Posted by: Harvey Lobster | July 3, 2008 10:16 PM
"outside brian's hospital room"
ezra....
please let brian know that we are holding him in our thoughts and prayers.
we hope that he is resting comfortably, getting best care, and gaining strength with each day.
Posted by: jacqueline | July 3, 2008 11:26 PM
I disagree that riding subways is fun, at least in New York City . . . here it's a big pain in the nads . . . NYC subways are horribly run and terribly nasty.
I would say, tho, that I found mass transit in Japan and in London to be awesome. I don't know that it was fun, but it was better than driving, at least there.
Posted by: Joshua James | July 3, 2008 11:48 PM
I'd like to hear people's thoughts on a statement in Ezra's post: "As carbon-intensive products become pricier, other products will become cheaper."
I don't see how this can be true. For example, today a small local retailer has to compete with the megachain in the next town and with internet retailers. When gas becomes expensive people won't want to drive so far to WalMart, and shipping packages won't be so cheap. The local retailer will have less competition and can raise their prices.
Cheap gas held prices down across the board. Taxing carbon specifically may rearrange the economy around the margins but removing the subsidy of cheap gas will raise all prices.
What do you think? Mr. Klein? A layman's description of the ripple effects, backed up with a few choice charts and stats would be great.
Posted by: Formyle | July 4, 2008 12:19 AM
The quick answer is that more investment will go into finding efficient modes of production for non-carbon intensive goods, and their manufacturing will be brought to scale in a way that's not true now. Take solar panels. They become cheaper as oil becomes pricier, because there's more money to be made in figuring out how to manufacture and market them.
Posted by: Ezra | July 4, 2008 2:36 AM
Riding a crowded subway car twice a day 45 minutes each way is not fun. Not even for a healthy young man. And it's a bitch for older people and for women of all ages. If like Ezra you don't commute to a job during rush hour, the subway is a treat - but the vast majority of riders do commute during rush hour, and for them it's just tolerable. I commuted by subway for a decade and have been driving for another decade, and there's no question which is more pleasant. I'm going to have to go back to the subway soon - there's new construction near my office that's going to increase congestion intolerably - and although it should make me feel virtuous, I'm dreading it.
Posted by: Bloix | July 4, 2008 3:36 AM
i hated subways and traffic that is why i live in the suburbs. it is very relaxing and the lifestyle is laidback.
Posted by: melatoninfaq | July 4, 2008 7:15 AM
I'd like to hear people's thoughts on a statement in Ezra's post: "As carbon-intensive products become pricier, other products will become cheaper."
The carbon-intensive products are more intensive because their cost includes the cost of carbon permits. This cost goes to the government, which (assuming spending stays the same) allows other taxes to be lowered, which makes non-carbon-intensive products cheaper to produce.
Also, what Ezra said.
Posted by: ajay | July 4, 2008 9:15 AM
Maybe Ezra lives in a mythical place that has amazing transit, that's well-maintained, and enough space for everyone involved.
However, I've got to deal with the MBTA. Constant crowding, old vehicles, the obvious sense that they only care about one of the four subway lines (of course, not the one I live near), and most of the vehicles have really lousy colling during the summer.
Even if all that wasn't an issue, you only need one person with hygene problems to ruin your trip. Look, I take public transportation because it's the smartest for my wallet and the environment. But let's not delude ourselves and call it fun.
Posted by: 32_Footsteps | July 4, 2008 9:30 AM
"But let's not delude ourselves and call it fun."
Well, to begin with 'let's' not delude ourselves that 'we' speak for everyone. So 'let's' just say that many, many folks (as evidenced by the comments here) do find riding public transport fun/interesting/productive, where a complete cost/benefit analysis easily comes down on the side of riding the train or bus. So 'let's' not delude ourselves that 'our' attempt to speak in the royal 'we' extends beyond 'our' own obvious narcissistic limitations.
Posted by: Steven Blaisdell | July 4, 2008 10:20 AM
The idea of making sweeping statements and pitting them against each other must be fun, since so many people do it.
OK, so some sweeping statements.
1. Not everyone will appreciate the benefit/cost trade-off of [transport_choice_a] compared to the benefit/cost trade-off of [transport_choice_b].
Swap public transport, cars, and bikes around into any position you want in that statement ... its six sweeping statements for the price of one ... and each and every one of them true.
2. More choices available allows more people to choose the option that best suits them.
3. The current system in most parts of the US, which subsidizes the road-motor transport system heavily, public transport less heavily, and cyclists next to nothing, gives us a heavy reliance on the road-motor system.
4. Driving can be hell, driving can be great.
5. Buses can be hell, buses can be OK.
6. Trains can be hell, trains can be great.
7. Reducing crude oil consumption and CO2 emission simultaneously will involve some mix of restricting what we are presently doing, or doing what we are presently doing in different ways that economize on crude oil and CO2 emissions.
So there's 7 sweeping statements to get started (well, 12 if you actually do the transport mode plug-ins above).
Oddly, as sweeping as each statement is, taken together, "100% cars" and "100% public transport" are not the only two transport systems that come into the mix when thinking through their implications.
Posted by: BruceMcF | July 4, 2008 10:26 AM
I intuitively agree with your logic, which is correct government policy can move the markets in any particular direction. The real matter is at what points will Americans see increased regulation as better than the status quo. For now, Americans seem quite willing, not content, but willing to pay $4/gallon. The American desire to have the most liberty possible (i.e. the government not telling the people what to do) is quite high; so economic circumstances must be quite severe before Americans embrace your ideas (even though they are good ideas).
Posted by: Black Political Analysis | July 4, 2008 12:03 PM
Posted by: Black Political Analysis | July 4, 2008 12:03 PM
The American desire to have the most liberty possible (i.e. the government not telling the people what to do) is quite high
Except when it comes to regulations preventing a lot near a suburban transport stop from being redeveloped to ground floor professional or retail space with townhouses stacked on top ... sacrificing liberty in that situation is done without a moment's thought.
Cars are liberating if you are the one with the car and not too many other people have them in any given area. Either take away your car, or establish a system of government subsidy and regulation that ensures that everyone must ride a car to get anywhere, and the liberty vanishes.
Indeed, a freedom that rests on the lack of freedom of others is not what I write down under the heading of "liberty".
Posted by: BruceMcF | July 4, 2008 12:40 PM
I think in emphasizing cap & trade you are understating the role large scale public investment can play in phasing out fossil fuel. You can find my view on this in my article in the latest issue of Z magazine.
Cooling a Fevered Planet
Economics, policy, and vision for fighting global warming . The link on my name goes to my website where I outline some of the technical substitutes for fossil fuel.
Posted by: Gar Lipow | July 4, 2008 2:01 PM
The author and all like minded people are not believable. Credibility can earned by adopting the life style changes they advocate. Until they start living in tepees, produce their electricity with solar and wind generators, become vegans and grow their own food, they will be treated as hypocrites. A pox on all of them.
Posted by: Paddy | July 4, 2008 2:53 PM
Sorry, but the analysis provided here on cap & trade defies the most basic principles of supply and demand. Firstly, raising petroleum based products in no way guarantees prices of other commodities will be lower - in fact, the opposite will occur. This also assumes there are viable atlernatives to petroleum products, which there are NOT, contrary to wishful thinking. What "cheaper" product is available to power the american car? Are Hybrids "cheaper" or more expensive than their non Hybrid cars? Does Ezra and the like realize that the ONLY reason wind and solar at this point in time (neither can be used to power factories that need consistent delivery of power)are even remotely considered is due to govt subsidies? His failed analysis ignores that when you substitute a highly efficient product (fossil fuel) with one that is less so and subsidies (alternatives), you hurt the economy. Secondly, anyone proposing cap & trade ignores the results of Europe over the past 3 years, which have achieved no reduction in carbon emissions, only creating "winners" and "losers" while driving up everyones energy bills. Lastly, creating a new huge govt agency, with the power to dole out large sums of money to lobbyists has never been a recipe for success. The only way I'd support a cap & trade is if it offset income or payroll taxes making the tax a zero sum game. Otherwise, we will just wind up with a new govt program, with zero results and accountability, and a transfer of more power to politicians who will use the new found power to win re election. This is not a solution, it is more of the same problem.
Posted by: pacificaharry | July 4, 2008 4:08 PM
As I recall, Germany had coal, no oil, democratic National Socialists, a preoccupation with "natural foods," a secular vegetarian non-smoking astrology prone Chancellor, and a cheap people's car; I grant you sociology is an extended ad hominem, but that was also called fascism too. Depending on who you were, I suppose Germany was a healthy nice place to live.
Posted by: don | July 4, 2008 4:15 PM
Personally, I favor public transportation for everybody else.
Posted by: Lord Cheeseball | July 4, 2008 7:49 PM
Speaking of pesky government regulations: if the Bush admnistration had not laid waste to CAFE standards, GM might not be on the brink of bankruptcy.
As it is, the automakers insisted on pursuing the fatter margins on ludicrously inefficient trucks and SUVs, while their Asian competitors invested in producing hybrids and other first-rate ``economy'' cars and are now eating GM and Ford's lunch.
Unintended consequences indeed.
As for cap and trade, it won't only affect gasoline. It's impact on steel is critical.
At the moment, U.S. steel exports are booming thanks to a weaker dollar.
China, by contrast, which accounts for about 40 percent of global steel production, is reining in exports and trying -- but failing -- to limit capacity.
Cap and trade will give a huge advantage to Chinese steelmakers as U.S. and Japaense mills are forced to transfer fuel-efficient technologies to them in order to obtain emissions credits.
This is a good thing, on the whole, as it cuts carbon emissions where they are worst -- China -- but the unintended consequence is a huge transfer of strategic industrial advantage to the biggest, baddest steelmaker on the global scene.
We need to see that coming and do something to head it off.
One reason GM and Ford can't compete with Japanese makers is that they don't have the same priviledged access to the thinner, stronger steel only Japanese and some European (ArcelorMittal, ThyssenKrupp) can make.
If we need a globally competitive auto industry, we need a globally competitive steel industry. Cap and trade could potentially prevent that if it isn't done with some mechanism for recompense.
Posted by: bunkerbuster | July 4, 2008 8:54 PM
Hmmmm.
Public transportation?
The less than credible view of an urbanite telling people in rural America how to live.
What public transportation is at all available outside major cities? Practically none.
Posted by: memomachine | July 6, 2008 8:40 AM