Carbon dioxide and other greenhouse gases (GHGs) are responsible for global warming, the long-term worldwide average warming experienced since the industrial revolution. GHGs arise from human use of fossil fuels for energy. Major emitters of GHGs include both industrialized countries and, in recent decades, developing countries as well. Higher global temperatures cause the extremes of hot and cold, and wet and dry, weather of recent years. This blog examines global warming and its effects.
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This blog is expressly directed to readers who do not have strong training or backgrounds in science, with the intent of helping them grasp the underpinnings of this important issue. I'm going to present an ongoing series of posts that will develop various aspects of the science of global warming, its causes and possible methods for minimizing its advance and overcoming at least partially its detrimental effects.
Each post will begin with a capsule summary. It will then proceed with captioned sections to amplify and justify the statements and conclusions of the summary. I'll present images and tables where helpful to develop a point, since "a picture is worth a thousand words".
Wednesday, August 21, 2013
Enact a Carbon Tax, Not a Cap-and-Trade System
worldwide need to abate emissions of greenhouse gases is becoming more
important with every passing year.Nevertheless,
has never enacted federal legislation that would limit its emissions.
This post describes
a proposal for a cap-and-trade market mechanism to lower greenhouse gas
emissions in the U. S., presented in a recent op-ed article.Then cap-and-trade is compared with a direct
tax or fee on carbon fuels.
It is concluded
that a carbon tax or fee is far more advantageous than a cap-and-trade
mechanism, for its effectiveness, efficiency and freedom from the need to
create a new bureaucracy to oversee its operation.The revenues generated can be applied in a
variety of ways that would be politically acceptable.Adoption of a carbon tax or fee in the U. S. is strongly recommended.
nations of the world are currently on a path of emitting greenhouse gases
(GHGs) that risks putting humanity in great climatic peril by the end of this
century. A principal GHG is carbon
dioxide (CO2) emitted when we burn fossil fuels for energy. Annual rates of emission while doing “business
as usual” (which assumes no meaningful reductions) or only modest rate
reductions lead to unacceptably high levels of total accumulated
atmospheric GHGs.It is this accumulated
total (not the annual emissions rate) that determines the extent of
global warming that we experience.Thus,
although it may sound virtuous to reduce annual emission rates, the new GHGs
that are still emitted continue to accumulate to ever higher levels.Only global emission rates approaching
zero suffice to stabilize the global atmospheric GHG burden, leading to
stabilization of global average temperature at some value higher than we have
The threat that
GHGs posed to the world’s climate was already recognized in the 1990’s, and led
to the United Nations-sponsored Kyoto Protocol that limits emissions among
developed countries of the world. (Please find a Summary of Historical
Developments in an earlier post.)The U. S. never ratified the Kyoto Protocol, and has failed
to pass federal legislation to limit GHG emissions on at least two more recent occasions
(see the Summary).
Federal policy to
lower GHG emissions can rely on market-driven mechanisms, among others.One such mechanism, a direct fee imposed on
fossil fuels based on the amount of CO2 emitted per unit of energy
obtained, has been supported by many prominent commentators and experts.Among these, most recently, are four
Administrators of the U. S. Environmental Protection Agency (EPA) appointed by
Republican (i.e. the more conservative of the two American political parties)
presidents (see the previous post).
A second market
approach is the cap-and-trade system.Here
we discuss a recent op-ed article calling for creation of a federal
enact a federal cap-and-trade regime.The New York Times published an op-ed article
by Dirk Forrister
(President and CEO of the International Emissions Trading Association) and Paul Bledsoe
(Senior Fellow, Climate & Energy Program at the German Marshall Fund of the
United States) promoting a national cap-and-trade program for the U. S.“Cap-and-trade” refers to imposing an upper limit
(the “cap”) to the amount of GHGs, especially CO2, that a physical
facility can emit in a year, and trading of emission allowances between
efficient facilities left with excess allowances and inefficient facilities
needing extra allowances.Caps are to be
lowered year by year to enforce increased efficiency and lower overall
emissions.The authors extol this market
mechanism as being “widely recognized as a cheaper way to lower emissions. [Because
President Obama has had to use a regulatory mechanism instead, c]onsumers will
pay a higher price for electricity as a consequence.”
The authors cite China’s pilot cap-and-trade market being set up
in the city of Shenzhen as an example.It will cover over 800 individual emission
sources, both industrial facilities and municipal buildings, that are
responsible for 40% of Shenzhen’s emissions.The authors state that six more pilot projects are planned in China in the coming year.They state that currently 20% of GHG
emissions around the world occur in carbon pricing systems (they do not
indicate whether only cap-and-trade mechanisms are used).
The op-ed dismisses enactment of a
direct carbon tax by surmising, without supporting evidence, that “the tax would
probably be small and would not guarantee the reduction in emissions
needed.”The example presented further
below rebuts this contention.Nevertheless, Forrister and Bledsoe correctly state that revenues
obtained either from a tax or from a market mechanism could be rebated to
taxpayers or used to offset other taxes; still other uses for this new revenue
have been proposed by other analysts.They provide a useful summary of the rancorous political environment in
the U. S. Congress that has prevented past attempts to enact cap-and-trade
legislation from succeeding.
We need to lower
GHG emissions.The need to abate GHG emissions becomes more
apparent with each passing day.Man-made
increases in GHG concentrations in our planet’s atmosphere are directly
responsible for increased long-term global average temperature.Higher temperature contributes to the
severity and frequency of extreme climate and weather events that are harmful
to human society, inflicting major costs that, in most countries, are borne by
the taxpaying public.Forrister and Bledsoe
state “[a]s the costs of adaptation rise… inaction will become an untenable
A carbon fee or
tax.The previous post
presents the case offered by four Republican former EPA administrators for a
fee imposed directly on fossil fuels.(A
carbon fee or tax can be considered primarily a way of reducing demand for
fossil fuels.)Here the alternative, a
cap-and-trade market which operates by limiting the amount of emissions, and
therefore of the fuel use that generates them, is proposed.(Cap-and-trade may be considered to operate
primarily by limiting the supply of fuel.)A direct fee or tax on fossil fuels is far more efficient and effective
in limiting GHG emissions than is cap-and-trade.
A carbon tax is
legislated at the outset and remains in effect indefinitely. (Only politically motivated tinkering in later
years would lead to changes in the size of the tax.) Importantly, a carbon tax can be imposed on
all fossil fuels at the point of extraction from the earth.For this reason a carbon tax easily covers
the entire fossil fuel-based energy economy, including fuel for transportation.Typically it would start at a low, relatively
painless level, and grow in size year by year until it reaches a significant
amount.The added cost of fuel serves as
an economic deterrent to its use.The
fee motivates consumers to adopt energy-efficiency and to use renewable energy.
A carbon tax is
simple to administer.It has led, for
example, to striking increases in efficiency and decreases in fuel use when it
is applied as a tax on gasoline fuel for motor vehicles. The graphic below
shows that per
capita use of fuel for driving decreases as the size of the gas tax
increases.The U. S. has the lowest gas tax correlated with the
highest amount of fuel used per capita. In Great Britain, on the other hand, the gas tax is about
US$3.95 per U. S. gallon and very low fuel use per capita (but
it is seen from the graphic that a similar increase in efficiency can be
obtained for as low as about US$2.20 per U. S. gallon).
market, on the other hand,
requires establishment of cumbersome new bureaucracies to operate.It further needs to create a new trading market,
usually including an auction facility, to buy and sell emission
allowances.Another bureaucracy is
needed to work with “offsets”, the buying or selling of emission allowances
based on emission credits beyond the actual jurisdiction of the region or
nation involved. Like any commodity
market, this one is susceptible to abuse and manipulation by third party
traders seeking profits but who are not directly connected with the energy
example of Shenzhen, cited in the op-ed of Forrister and Bledsoe.For each of the more than 800 facilities
covered, officials must evaluate, and then verify, the GHGs emitted annually in
order to be able to issue the correct number of emission allowances.(Note that there is an incentive for a
facility to overstate emissions in order to earn more allowances.)Officials must account for allowances
returned at the end of the year, and must verify that the current emission
level for each facility agrees with the number of returned allowances.Then in each succeeding year the allowances
for each facility are reduced, and the cycle of measuring and verifying
emissions, and matching those results with allowances, must be repeated.Third party speculators, who are neither energy
officials nor facility representatives, can enter the market for allowances and
trade them in search of profit (or garnering losses) without regard for the
underlying energy policy, potentially leading to windfalls or market crashes.
In addition, it may
be difficult to work out a way to issue allowances for transportation fuel,
since vehicles are not fixed emission sources, and are far more numerous than
Union’s cap-and-trade market.An example of a cap-and-trade regime which
failed is found with the Emissions Trading System (ETS) of the European Union
(EU).The ETS was set up as the EU entered under
the Kyoto Protocol in 2005.It covers at
least 11,000 individual emission sources across the EU.At the outset, allowances were determined by
each EU nation independently.Allowances
were granted, in certain cases, in excess of need or previous national
experience.The auction market in the
initial years established early prices as high as almost €30 per tonne of CO2
equivalents (tonne, a metric ton) in the middle of 2006, which then fell, for a
variety of reasons including the onset of the recession, to about €0/tonne one
year later.As the allocation mechanism
improved prices recovered, but by 2012 they were again low, less than €4/tonne,
because recessionary conditions across the EU led to a surplus of available
allowances.The EU Parliament voted in April 2013
not to lower the number of allowances, thus essentially generating a “potential death blow”
to the ETS.The Parliament relented a
few months later.This example shows how
cap-and-trade is susceptible to political interference, preventing attainment
of its objectives.
22, 2013) California’s cap-and-trade program also exemplifies the bureaucratic and
operational difficulties identified above.In its fourth quarterly auction of allowances, the price for the largest emitters was US$12.22 per metric ton of CO2-equivalent,
about 12.7% lower than the previous sale.An impression of the complex bureaucracy that administers the program
may be seen in the state’s Quarterly Auction 4 Summary Results Report.
It refers to setting auction
pricing and verifying eligibility of participants in the auction.
staff and the Market Monitor carefully evaluated the bids, and determined that
the auction process and procedures complied with the requirements of the
Market Monitor found that the auction was cleared consistent with the auction
clearing rules…[and] confirmed the clearing price and clearing quantities….’”
provides further details of the auction that reflect the intensive
administrative effort needed to conduct it.
California’s Cap-and-Trade system covers 359
individual entities whose emissions are higher than the cutoff of 25,000 metric
tons per year.(Link hereand then click on the link “Updated List of Covered Entities”.)Emissions and allowances for each must be
monitored and verified.
It is highly
recommended that the U. S. enact a national tax on the carbon in
fossil fuels, beginning at a low level and increasing annually.Its operation is highly effective and very
efficient.It is easily extended to
include the entire fossil fuel economy in its operation.It readily constrains the use fossil fuels by
reducing demand on the part of consumers.
shown here to be cumbersome, requiring an extensive bureaucracy operating
throughout the lifetime of such a program. The ETS of the EU has been ineffective. Cap-and-trade is susceptible of abuse and likely
would not cover the transportation segment of the energy economy.
mechanism, the revenues obtained can be rebated to taxpayers, or can be used to
offset other taxes.Other possible uses
include reducing the national debt or supporting research, development and
deployment of innovative renewable energy technologies.Allocating the funds in ways such as these
should ease the political barriers to enactment in the U. S.