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Brent Eubanks

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Cap & Dividend [May. 12th, 2008|07:09 pm]
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Cap and dividend is one of the more interesting approaches that I have seen to climate change policy. The basic idea is really simple: impose a tax per ton of carbon on primary energy producers, put the money in a trust fund, and periodically (monthly or quarterly) distribute these funds to every American on an equal-share basis.

The idea is brilliant for its simplicity. The goal is simple: put a price on carbon in a non-regressive fashion. And it strongly incentivizes conservation: if you use less carbon than average, you wind up with a net positive cash flow. If you use lots of carbon-based fuels, then you wind up subsidizing the payments to the folks who are using less.

It is not ideally progressive in that it will hit the lower-middle class entrepreneur who needs a vehicle -- taxi drivers, landscapers, trasdepeople of all sorts -- very hard. On the other hand, it would pretty quickly generate a demand for fuel-efficient trucks. Also, as the website points out, those folks can at least take their fuel cost as a business tax deduction. And in the final analysis, we're going to have to figure out how to do what we want to do with alot less fuel input. Period, end of story. Some folks are going to get hurt by that transition, and there's no way were going to protect them all -- though we could destroy the simplicity of a system like this by trying.

That really points to what is probably the most significant weakness of this idea: it's beauty is in its simplicity, and it's far too simple and fair to survive from concept into law. Were it enacted, it would be subjected to the full range of political sausagemaking, as everyone tries to maneuver to benefit themselves or their constituency. It's hard to see how it could survive with its primary virtues intact. At which point, maybe we're just better off taxing carbon and spending the money on renewable energy research.
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Comments:
[User Picture]From: alan7388
2008-05-13 02:38 am (UTC)

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Trouble is it doesn't make rich people richer, so it won't go anywhere.
[User Picture]From: a_steep_hill
2008-05-13 02:49 am (UTC)

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Well, that depends on the degree to which the citizenry can bother to give a damn, doesn't it?

I know, from personal experience, that it is actually possible to influence policies at least on a state level, based on enough people getting pissed off. (Context is solar PV legislation in California.) One hopes that the same thing is still possible at a federal level.
[User Picture]From: ouraboros
2008-05-13 05:20 pm (UTC)

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I dunno, if it replaced the byzantine taxes currently on my energy bill, I think that transparency would entice a lot of consumer support...but then again, this kind of appeal isn't exactly working for the tax code...yet. Maybe people just haven't hit bottom hard enough yet, addicted to complexity if they think it's too their advantage. I notice there is definitely a certain personality type that isn't happy unless they think they're winning against the house (ie they are special).
From: (Anonymous)
2008-05-15 08:49 am (UTC)

Relatively Unrelated

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You probably know about Paul Stamets already, but I did not, and this TED video of his is pretty good:
www.ted.com/index.php/talks/view/id/258

{Michael, ex-coworker}
[User Picture]From: xthread
2008-05-20 07:52 pm (UTC)

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I have two comments, one fairly concrete, and one much less so. I'll put the less concrete one in a separate post, to separate the comment threads.

Concrete observation: Ignoring the political questions for the moment, let's look at the economic mechanism. One of the very cool properties of a cap & trade system is that it creates its own funding for efficiency improvements - a producer who figures out more efficient ways to produce can then sell their output credits, and use the revenue from that to pay for making upgrades to improve efficiency, and so on, so it's (financially) easy to spread the improvements through the system as soon as they exist. On its face, cap & dividend appears not to do that - C&D provides a financial incentive for users to lower demand, but it doesn't directly provide a mechanism to finance efficiency improvement. However, let's look a little more closely at it - a producer who can produce their product with a smaller per-unit footprint will generally be able to charge at least the prevailing rate for their product. Which means that a producer with a smaller footprint will be more profitable. Furthermore, a producer with a smaller per-unit footprint will be able to increase sales by lowering price while maintaining profitability, which creates competitive pressure between producers to decrease their per-unit footprint. You might see more measurement shenanigans than with Cap&Trade (since C&T gives producers incentive to keep each other honest in a way that C&D doesn't necessarily provide), but there's still a mechanism to create a virtuous cycle of producers becoming more carbon-efficient because they have to do so to effectively compete with each other. Neat.
[User Picture]From: xthread
2008-05-20 07:54 pm (UTC)

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Less concrete observation: So, let's turn the question around. Positing that we are primary producers, operating within a C&D regime, what can we do to game the system? As a related question, positing that we are some other player, how might we game the system and then use those proceeds to underwrite the C&D costs of a primary producer?
[User Picture]From: a_steep_hill
2008-05-21 03:14 am (UTC)

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I'm afraid that I don't understand your second question. Can you give a more concrete example?

To your first question, my sense is that C&D is one of the simpler systems in the offing, and as such is one of the harder ones to game. The name is somewhat misleading: As I understand it, it isn't a cap, where you have a certain allocation and pay for exceeding it, so much tax, where you simply pay for each ton of carbon emitted. This eliminates one of the big gaming/politicking opportunities, where industries or companies who have more pull can get disproportionate credit allocations and/or tie up the implementation process of years arguing about who should get how many credits. Instead, you just pay for what you use. If you're an energy or fuel intensive business, you pay more (but so do your competitors, until or unless they get clever about reducing their carbon outputs, as noted in your previous comment).

Also, the only entities who need to be tracked (and audited) are utilities, fuel distributors, and major consumers like cement plants (who may buy their fuel directly rather than through a utility). So the number of targets is relatively small, which means that they can be fairly closely watched at a relatively low cost.

If the system is kept as simple as described in the original proposal, I can't think of any way to game the system other than outright cheating, booking less carbon than you actually produced. That, of course, is possible with any scheme, but seems likely to be less of a problem, or at least no more of a problem, with C&D than with any other scheme I've heard of.

Can you think of any other way to bollix the system?