It sounds like the possibility of a “carbon tax” is back on the table. We have written on the topic before – but it does not appear that we have laid out what I see as the primary costs and benefits of the different options. As a result, I will do that now. In the comments, feel free to add some costs and benefits:
A recent opinion article by Graeme Edwards on the NBR site clearly articulated a critique of the emissions trading scheme that I have heard in various forms over the past year. Not only have I heard this critique from politicians and the media, but people commenting on the blog and other economists have used this critique. As a result, it is important to point out why this critique is simply wrong.
The critique is simply that the emissions trading scheme is a “scam” because global warming is not the result of carbon emissions, to learn more about smart and green trading, read here the blog post about how to trade fx with high margins.
Even if we agreed with this view the critique is still wrong. The reason this critique is wrongheaded is simple – the ETS is not supposed to prevent global warming, it is supposed to raise funds to pay for/reduce a liability we owe thanks to the Kyoto protocal. Now that we are in the Kyoto protocal, we want to look at two simple choices – what is the cost if we stay in, and what is the cost if we leave? The ETS was determined to be the least cost way of paying for the liability if we stayed in the scheme, and it was also determined to be of a lower cost than leaving the scheme (relative to losing international prestige and possible new trade barriers if we leave).
As a result, even if it was true that man wasn’t warming the planet with carbon introducing an ETS is still the best policy – as long as we believe that it is of a lower cost than these other potential options. The debate should lie with the cost of different options – whether global warming actually exists is irrelevant.
Federated Farmers’ press release:
…if government increase[s] infrastructure expenditure it should spend money on building dams rather than cycle lanes. …Water storage is critical to New Zealand’s future. It is well known that farming is the backbone of the economy. Current run of river water allocation systems see farmers too vulnerable to drought and floods.
The government’s State of the Environment report 2007:
The increase in total water allocation in New Zealand between 1999 and 2006 can largely be explained by the increase in demand for irrigation. The amount of consented irrigated land in New Zealand increased by 52 per cent over this period…
Water is getting scarcer and scarcer worldwide and it’s only a matter of time before NZ feels the pinch, too. Farmers say they should get the water becasue they’re our ‘backbone’; environmentalists throw up their arms in dismay; the government implements ad hoc water restrictions and gets lobbied by everyone.
Luckily, economics provides a solution to the problem: Read more
Looks like we narrowly missed by crunched by space debris the other night. Although, in true “tragedy of the commons” style “[a]stronauts routinely trash equipment in space.” So, as the world starts to think about trying to fix the mess we made of the ozone layer, we’re already on our way to trashing another part of the environment that’s common property.
I wonder if it’s actually cheaper to fill it with junk now and fix the problem later. Presumably the marginal cost of the cleanup will be lower when technology improves, and it’s discounted from the current perspective. However, since the problem is not the junk itself but the lack of property rights giving nobody an incentive to do anything, I doubt that calculation is being made by anyone.
Greenpeace’s environmental plan has just been released and it says pretty much what you’d expect: be more sustainable. The thing about it that intrigues me is the presence of an emissions trading system, efficiency standards for all energy consuming appliances and legally binding targets for renewable energy usage.
The point of trading systems is to internalise the costs of emissions in the most efficient way by allocating the costs through a market mechanism. Why would you then try to second guess the market by forcing emissions standards and renewable energy targets on people? Read more
Just quickly, I have to correct this statement by FrogBlog:
In other words if we continue to grow at 3 percent per year every year, as economists would have us do, in 100 years time we will be using and consuming 19 times more than we currently do
No, no we wouldn’t. Remember a little while ago I wrote about technology.
As a result, even if we assume the worst case scenario that we cannot substitute and that there is no new technology we can discover that will get us access to more resources, technology can help by allowing us to make more with the same level of inputs. Economists target a level of “growth” (when economists have to talk about growth – rather than societies welfare) that they feel relates to growth in resources (such as population) and technology – this does not seem like an unsustainable goal to me.