The Cap and Trade Carbon-Emissions Bill--Posner

The energy bill just passed by the House of Representatives and awaiting action in the Senate is extremely long and complex, and cap and trade is only one part of it; but like Becker I will confine my remarks to that part, and thus treat the cap and trade component as if it were a separate bill. I will also assume that it will be enacted, and in much its present form. Becker's analysis of the political realities surrounding the bill are persuasive; and he probably is also right that revenues generated by a tax (in lieu of a quota) approach to carbon emissions would be dissipated on other government programs, such as health-care reform, rather than used to pay off some of the nation's mounting public debt. Moreover, imposing heavy new taxes in the midst of a depression would retard economic recovery. In principle, a stiff tax on carbon emissions (and other greenhouse gases, but for the moment I'll confine myself to carbon) is, it seems to me, superior to the quota (cap and trade) approach. (I develop this argument in my book Catastrophe: Risk and Response [2004].) Not because it would necessarily reduce carbon emissions more than a quota approach would do, but because it would stimulate research into ways of solving the global-warming problem technologically. The higher costs of energy to energy producers would create strong incentives to develop technologies that would solve the problem, including technologies for removing carbon dioxide and other greenhouse gases from the atmosphere, which may well be a more promising approach than trying to induce the substitution of "clean" energy sources for fossil fuels. (To create incentives for developing technologies for taking carbon dioxide out of the atmosphere, a carbon-emissions tax would have to be complemented by a negative tax--a bounty--for carbon dioxide removed from the atmosphere.) The incentive effect of the cap and trade bill is weaker. Each energy producer will receive a quota, and many of the producers will be within their quota or able to meet it at low cost. Those producers that cannot comply with their quota may be able to purchase the rights of other producers (that is the "trade" component of cap and trade) at modest cost; for the aggregate reduction in carbon emissions required by the bill--a 17 percent reduction over the 2005 level, phased in between 2012 and 2020--is modest. Moreover, they may be able to buy additional allowances from the federal government (which is holding some allowances in inventory, as it were) at a modest price (depending on what the government decides to charge), or--what looks like a potentially huge loophole--"offsets" to the emissions that they cause. This means undertaking or financing projects to reduce emissions from other sources, such as afforestation projects designed to increase the absorption of carbon dioxide (trees consume more carbon dioxide than they produce). The evaluation of such projects will be extremely difficult. Assuming the "cap" component of the bill will reduce the output of energy generated by burning fossil fuels, energy prices will rise and consumption therefore fall. The reduction in output may increase the profits of the energy companies, just as when competitors form a cartel to increase prices and profits by reducing output. True, a quota that reduced the output of an energy producer by the same amount as a tax would create an opportunity cost equal to the tax: that is, the same innovation that would reduce the tax to zero by eliminating the producer's carbon generation would increase the producer's output to its former level. But is a difference in the likely efficacy of the two methods, quite apart from the fact that the tax (to the extent not reduced to zero as a result of an innovation) but not the quota would generate government revenues. As a matter of practice though not of theory, firms often do not react to opportunity cost as quickly as they do to an out-of-pocket cost. The out-of-pocket cost shows up right away on the balance sheet (some of it at any rate--some part will be passed forward in the form of a higher price) and is likely to affect the price of the corporation's stock more quickly than a failure to take advantage of an opportunity to eliminate the cost by innovating. The effect of the cap and trade bill on the amount of carbon dioxide and other greenhouse gases in the atmosphere is thus likely to be slight, and the administrative costs of the program will be great. Emissions will continue to increase, probably at no lower rate than at present; for the modest effect of the bill will be offset by the growing emissions by China, India, and other rapidly developing countries. Conceivably the bill will provide some impetus to effective international cooperation to limit global warning, but one cannot be very optimistic. Hence the importance of a technological fix, which does not require international cooperation to be effective. If technology were developed for removing carbon dioxide from the atmosphere, Third World countries could emit carbon dioxide to their hearts' content. We may indeed already have the technological fix, though mysteriously it receives little attention. Sulphur dioxide, the cause of acid rain and the poster child for cap and trade--because the cap and trade program for sulphur dioxide has been a big success--is the opposite of a greenhouse gas: it cools the atmosphere by reducing the amount of sunlight that reaches the earth's surface. Injecting relatively small quantities of sulphur dioxide into the atmosphere would offset the effect of atmospheric carbon dioxide in heating the earth's surface. The opposition of environmentalists to using a pollutant to combat global warming and therefore seeming to approve of pollution, and concern with the bad effects of increasing the amount of sulphur dioxide in the atmosphere (effects that might not be limited to a modest increase in the amount of acid rain), have thus far kept this option from serious consideration in political circles. Becker raises the interesting question of the implications of option theory (though he does not use the term) for dealing with the global-warming problem. Since there is considerable uncertainty concerning the gravity of the problem, there is an argument for moving slowly (as in the cap and trade bill) while gathering additional information in an effort to dispel the uncertainty. But option theory can be run in reverse and be appealed to as a ground for taking early preventive measures. Suppose that at time t there is some nonquantifiable but nontrivial probability of a disaster of immense proportions at time t + 2. Suppose further that at time t + 1 we will learn the probability of the disaster at t + 2, but that by then the cost of effective preventive measures will be immensely higher. Although the tradeoffs are uncertain, it may make sense to incur the much lower cost of preventive measures at time t. This is the tendency of current thinking about a future financial crisis such as the one last September that has brought about the depression we find ourselves in. No one can estimate the probability of a future such crisis, but it is widely agreed that preventive measures should be taken against the possibility of one. The analogy to the global-warming problem lies in the fact that both economic depression and climate change are disequilibrium events involving adverse feedbacks. In the case of an economic depression, the adverse feedback is a deflationary spiral, in which falling demand results in falling employment and prices, producing hoarding, which in turn reduces demand further and therefore output and therefore employment, and so on down. In the case of global warming the possibility of dangerous adverse feedbacks is illustrated by the melting of the arctic tundra in Alaska and Siberia. Much methane, a potential greenhouse gas though one found in only small amounts in the atmosphere, is trapped in arctic tundra. As surface temperatures rise, tundra melts, releasing methane into the atmosphere, which in turn causes surface temperatures to rise more, releasing more methane, and so on. The possibility of serious adverse feedbacks makes both economic depressions and climate change extremely dangerous events, warranting emphasis on preventive measures taken well in advance. That is an argument for more aggressive measures than contemplated by the cap and trade bill. But the power of special interests and our soaring national debt make the argument academic. But may we at least have a decade before the danger of acute global warming becomes acute? Probably, though no one can say for sure. Still, a wait and see approach for a decade is certainly a defensible option.

Comments

[Anonymous]

You say that trees absorb carbon dioxide from the atmosphere. It is my understanding that when they die and rot, they release all of it back into the atmosphere, with the result that when we plant a tree we make our life better at the expense of future generations.

Not having bred, I'm much in favor of improving my life at the expense of the progeny of the breeders. Even more so, if the trees can be used for timber first, then burnt to heat houses or make steel instead of being left to rot, which will heat the atmosphere and release all that carbon dioxide without benefiting anybody.

[Anonymous]

"You say that trees absorb carbon dioxide from the atmosphere. It is my understanding that when they die and rot, they release all of it back into the atmosphere, with the result that when we plant a tree we make our life better at the expense of future generations."

Interesting. I suppose when animals die they release all of the oxygen that they have breathed through out their lifetime. No wonder I feel gassy and bloated.

[Anonymous]

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[Anonymous]

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[Anonymous]

Why do we assume that global warming is necessarily always a bad thing?

I have not heard a single scenario in the press regarding a potential benefit from warmer, albeit slightly warmer, temperatures globally.

Is it not equally likely that that warming temperatures will have:
- Bad effect
- No effect
- Good effect

Given our inability to see into the future for other matters, how is it we are so prescient in this matter?

TJ

[Anonymous]

Global Warming? If the Warming problem is global, then why are we using a regional ad-hoc solution to the problem? The major portion of the problem resides within the developing Third World; which are using cheap, archaic combustion technologies which produce prodigious quantities of greenhouse gas emissions (specifically China, India and the rest of Asia). This has given these countries a significant competitive advantages in the World Market Place. And yet, it is these very countires that are allowed a "BYE" in controlling those very emissions.

Regionlized, Ad-Hoc "Cap and Trade" Policies to control Greenhouse Gas Emissions? Not going to work. The problem is Global and the solution must also be Global. I won't even raise the issue of International Fair Trade practices and it's impacts on regional populations. What's our unemployment rate at now?

[Anonymous]

The earth's temperature is currently declining. Let's wait to see where this latest trend goes before we tax carbon. There is not consensus on the problem right now, so legislating anything is premature to say the least.

Science does not fully understand the relationship between CO2 and Temp. It is very possible this relationship is the exact opposite of what Al Gore thinks. It is possible CO2 levels follow Temp. and Solar Activity drives Temp. We could be doing absolutely NOTHING other than penalizing our economy by going after CO2.

[Anonymous]

I think they should aim at reducing CO2 by a huge margin, its only going to come out later in the future when the problem gets worse. Should just clean our air like a thc detox!

[Anonymous]

The question that is begged in this discussion is whether humanity is the primary mover in global warming—or whether it is even credibly an issue. I have heard that well over 90 percent of global warming is caused by sun spots and solar flares. Historically, we are in a climatologically cool period. Life has thrived on this planet during much warmer periods. So, even if we are entering period of global warming, and even if it is caused by man, it’s not a question of whether life will survive so much what shape that survival will take. The real question is: how will we adapt?

Whether or not man is the cause, or can even do something about it, some people feel threatened by the effects of a theoretically impending greenhouse effect. Rather than focusing on the probable cause, or on an overarching solution, we should--if global warming is truly a threat--be focusing on the mitigation of its anticipated effects. By focusing on the effects, we can better adapt to what some would call “the inevitable” “run-away” greenhouse effects of global warming. Now if global warming is really a problem, and not just another crusade, (albeit a modern “scientific” one), then policies based on an adaptive attitude is what we should seek.

But as with all ideas born of religious fanaticism, we will probably tilt at windmills as we seek to force our fellows to enter into this great crusade against “the evils” of global warming. And indeed, a crusade is what it is. As Europe failed to deal with its actual on-the-ground problems related to mass starvation and general ignorance, and spent its meager resources on great crusades in far off lands in order to fight God’s battles, (as if God was too impotent to deal with matters himself), so we too will probably dream up a variety of taxes and schemes that will serve to enrich a few enlightened “scientists” and policy wonks in the name of “saving the planet.”

So, while we are dreaming up new bandwagons, taxes and other forms of bondage, what actual practical and low-tech solutions are we ignoring? We are not dealing with traffic congestion by requiring that roadwork be performed within a reasonable period when traffic barriers are put up. (I have seen such barriers in place for an entire spring and summer, before roadwork was rushed through in late October to meet either contract, budgetary or weather deadlines.) What about trucks which belch out thick black tars that have, unlike CO2, been proven to be detrimental to the public health? Indeed, why do we allow trucks to clog the highways of our major cities during daylight hours? (Even the Romans knew better than that, and they were only concerned about traffic itself and animal “emissions.”)

I don’t trust the crusaders who want to go off and rape and pillage in the name of God—be it a theological god or a god of “Science.” Aristotle cautioned a measured and practical approach to the issues of our daily living. In other words, deal with the problems you can see as they arise—not with the seeking and killing of bogey men. Humanity forgets far too easily what these crusaders are actually after, (ill gotten fame, glory and riches). Humanity all too readily forsakes the sober courage necessary to tell the emperor that he is naked in his misplaced ambitions.

Look out when policy makers forsake practical solutions for grand designs.

Posted by Pudn’head

[Anonymous]

The question that is begged in this discussion is whether humanity is the primary mover in global warming—or whether it is even credibly an issue. I have heard that well over 90 percent of global warming is caused by sun spots and solar flares. Historically, we are in a climatologically cool period. Life has thrived on this planet during much warmer periods. So, even if we are entering period of global warming, and even if it is caused by man, it’s not a question of whether life will survive so much what shape that survival will take. The real question is: how will we adapt?

Whether or not man is the cause, or can even do something about it, some people feel threatened by the effects of a theoretically impending greenhouse effect. Rather than focusing on the probable cause, or on an overarching solution, we should--if global warming is truly a threat--be focusing on the mitigation of its anticipated effects. By focusing on the effects, we can better adapt to what some would call “the inevitable” “run-away” greenhouse effects of global warming. Now if global warming is really a problem, and not just another crusade, (albeit a modern “scientific” one), then policies based on an adaptive attitude is what we should seek.

But as with all ideas born of religious fanaticism, we will probably tilt at windmills as we seek to force our fellows to enter into this great crusade against “the evils” of global warming. And indeed, a crusade is what it is. As Europe failed to deal with its actual on-the-ground problems related to mass starvation and general ignorance, and spent its meager resources on great crusades in far off lands in order to fight God’s battles, (as if God was too impotent to deal with matters himself), so we too will probably dream up a variety of taxes and schemes that will serve to enrich a few enlightened “scientists” and policy wonks in the name of “saving the planet.”

So, while we are dreaming up new bandwagons, taxes and other forms of bondage, what actual practical and low-tech solutions are we ignoring? We are not dealing with traffic congestion by requiring that roadwork be performed within a reasonable period when traffic barriers are put up. (I have seen such barriers in place for an entire spring and summer, before roadwork was rushed through in late October to meet either contract, budgetary or weather deadlines.) What about trucks which belch out thick black tars that have, unlike CO2, been proven to be detrimental to the public health? Indeed, why do we allow trucks to clog the highways of our major cities during daylight hours? (Even the Romans knew better than that, and they were only concerned about traffic itself and animal “emissions.”)

I don’t trust the crusaders who want to go off and rape and pillage in the name of God—be it a theological god or a god of “Science.” Aristotle cautioned a measured and practical approach to the issues of our daily living. In other words, deal with the problems you can see as they arise—not with the seeking and killing of bogey men. Humanity forgets far too easily what these crusaders are actually after, (ill gotten fame, glory and riches). Humanity all too readily forsakes the sober courage necessary to tell the emperor that he is naked in his misplaced ambitions.

Look out when policy makers forsake practical solutions for grand designs.

Posted by Pudn’head

[Anonymous]

This comment is for Judge Posner.

My name is Kristin Key, and I am writing on behalf of Gale, a division of Cengage Learning. We are currently working on a new edition of the Gale Encyclopedia of American Law, an e-book and print product, formerly West’s Encyclopedia of American Law. The Encyclopedia discusses significant events and persons in American law, both historic and current. The book includes an article on you, and we would like to offer you the opportunity to update the article for the new edition. We are interested in learning about work you’ve done since the previous edition was published in 2003.

If you are willing to update the article or would like to learn more, please e-mail me at kristin.key@cengage.com, and I will send you more information.

Thank you.

[Anonymous]

How "settled" is the global warming debate...?

Forget about the economic disaster that awaits us with Cap and Trade for just a minute... why on earth are we not considering viewpoints from everyone?

Check out this "denier".

http://www.ac.wwu.edu/~dbunny/index.htm

http://www.ac.wwu.edu/~dbunny/research/global/glocool_summary.pdf

[Anonymous]

I have nothing useful to say in this comment, but I would like to say that this and Becker's entry have been two of the best pieces on global warming I've ever read, I think. I am not extensively in touch with the literature, but these were refreshingly better than any other argument I've heard.

[Anonymous]

You seriously think that injecting sulfur dioxide into the atmosphere is a possible technological fix that should be evaluated? Wow. For some allegedly bright people, that's quite the moronic suggestion.

Despite the comment thread which suggests a large number of deniers who think that global warming isn't real, or that the world is actually cooling, read this page, anthropogenic greenhouse gas emissions are indeed causing global warming. The way to stop global warming is to reduce those emissions, not throw another pollutant into the atmosphere.

The folly of those who place implicit faith in seemingly simple technological fixes to cure all environmental ills -- rather than common sense -- never ceases to amaze me. The unintended, dramatic consequences of such folly are legion and evident to anyone with even a remote connection to the beauty and logic of this very special place called Earth.

-Erik S.G.

[Anonymous]

The hysteria over so-called "man-made global warming" proves true Marx's dictum that "religion is the opiate of the masses."

[Anonymous]

Yes Anonymous,

It is quit true that trees release all the carbon dioxide they have absorbed during their lifetimes either while living or while decaying.

Of humans it can be said that they release all the oxygen they have breathed in during their lifetimes either while living or while decaying.

Basic conservation of matter.

[Anonymous]

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[Anonymous]

Seriously, let's wait and see who is right and who is wrong on the issue of man-made global warming. We have Al Gore on one side and we have "deniers" like Don Easterbrook and 32,000 other qualified experts on the other. Gore says Temp. follows CO2. Easterbrook says CO2 follows Temp. Time will prove who is right and who is wrong, so let's see who prevails before we destroy our economy with a ponzi scheme like Cap and Tax - just another democrat tax and spend policy designed to grow the size of government in our lives.

Can you believe this DENIER...? How dare he question people like Al Gore...!!!

http://www.ac.wwu.edu/~dbunny/research/global/geoev.pdf

[Anonymous]

Interesting, everyone seems willing to comment on the subject, especially politicians and diplomats, without an understanding of the basic principles of the problem.

For those, here is a "Crash Course", in Combustion Chemistry and Organic Decay. The basic byproducts are as follows:

CO2, H20, CO, NOx, SOx, PM (particulate matter), HC (unburned hydrocarbons), depending on fuel composition - toxic Heavy Metals, and energy.

As for Combustion Engineering, the objective is is the maximazation of energy output and minimization of pollutants.

One question, "How is a Cap & Trade policy going to advance the art and science of Combustion Engineering and Technologies"? The solution to the problem of "Global Warming" lies in maximising combustion efficiency and elimintation or minimizing of combustion by-product releases. And this procedure must be applied uniformly around the Globe. Not just here and there, in various isolated Regions, as a Cap and Trade policy does now.

[Anonymous]

A sulphur dioxide "quick fix"? Please stop pretending you understand science. Gee, why *not* just pump billions of tons of a known toxic substance into the air to "combat" global warming. What on earth could possibly go wrong?! You are a smart man, Posner, but you look pretty foolish in this article!

[Anonymous]

The Security Council of the UN should take steps to set aside a reserve for the manmade global warming fanatics. The inhabitants of this newly formed UN protectorate could practice what they preach, build a low-carbon-emissions economy, and demonstrate the results to the world. Perhaps Quaddafi would sell the UN a sizable chunk of the Libyan desert for this experiment. That would give the eco-conscious inhabitants plenty of silicates to subsist on, since their fanciful economic model would produce nothing of greater nutrition. Even better, Al Gore could be the potentate of this new realm. Maybe the satisfaction of wearing a big hat would distract Gore from bothering rational people.

[Anonymous]

I have been banished for my First Amendment global warming debates in the past by the deniers -- mostly for discussing the undiscussable before their time.

However, I am here to note that the autism spectrum people are doing THEIR part in cutting carbon emissions and curbing spectrumites use of unnecessary vehicle trips !

It is hard to say with all the voluminosity and so many papers pages in the cap and trade bill where the neuroskeptics have addressed our personified autism horses as a solution to rein-in global warming, but Equuis Savant HAS at least addressed "Why We With Autism Personify our Autism Horses," here:
http://equiisautististicsavant.blogspot.com/

We have not been convinced we should take a global warming wait and see strategy ... our concern is, what happens if we can't make enough hay while the sun is shining ? So to speak.

[Anonymous]

It is truly unfortunate that a blog with such intelligent authors has commenters that use the same informal fallacies and rhetorical slam tactics found on YouTube comments, albeit perhaps slightly more eloquently.

[Anonymous]

"We have not been convinced we should take a global warming wait and see strategy ... our concern is, what happens if we can't make enough hay while the sun is shining ? So to speak."

We just had the coldest winter since 1979 and this summer is shaping 2009 to be another year in a recent cooling trend. The earth has been cooling lately, not warming.

We don't even know for certain the relationship between CO2 and Temp. A wait and see approach is needed because we don't even know what the problem is. Why tax our middle class in a recession when we have no idea what the problem is?

http://www.ac.wwu.edu/~dbunny/index.htm

[Anonymous]

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