Tim Worstall has a new book out, Chasing Rainbows, which sets out what he regards as the economic fallacies of much of the Green movement. Such fallacies, he argues, actually get in the way of solving or at least trying to handle the genuine problems that may exist.
What is good about Tim’s book is that he is not some sort of cliched “denier”; he does not base his argument on the idea that AGW is some sort of evil collectivist con-trick or piece of doomsterish nonsense (although I am sure some commenters will want to raise that point). Rather, he says if there are problems caused by a buildup of CO2 in the atmosphere, and there are costs of such problems, then let’s use the tools of economics. For instance, he talks about carbon taxes. I am not a fan of taxes, but I can see a certain logic. They are far better than carbon credits and carbon trading, in my view.
Like Nigel Lawson, I see the idea of a market in carbon credits not as a solution to AGW but as something with great potential for fraud. The question I have about carbon tax, however, is what happens to the revenues. If they are levied by nation states, then clearly there will be demands for such taxes to be “harmonised” and levied by some sort of single organisation. And then the question arises as to what happens to such revenues?
Much of the book bears many of the trademarks of Tim Worstall’s own excellent blog: lots of data flecked with his caustic wit, often at the expense of such buffoons like George Monbiot and Jonathan Porritt, and on tax, the appalling Richard Murphy, who gets a solid going over at least once a day. There is a touch of PJ O’Rourke in how Tim likes to use a quip to make a serious point. I particularly like the way he gets hold of important concepts, such as the Law of Comparative Advantage, or the idea of opportunity costs, using examples of how forcing households to recycle waste imposes unpaid labour costs, which if added up, can be shown to represent a large cost. Being a good student of the great French classical liberal Frederick Bastiat, Tim understands the point about “what is seen and what is unseen” – understanding that the visible costs of environmental degradation need to be balanced against the unseen costs of trying to deal with it. Bastiat is one of those writers who ought, in a sane world, to be on the compulsory reading list of every school pupil.
The central message of this book is that there are problems, but there are also rational approaches to them, and that the Green movement, or at least its most collectivist parts, are blocking rational reforms. It is a similar point to that made by Matt Ridley in his book, the Rational Optimist, to which I have referred before. By their one-eyed focus on AGW alarmism, and by adopting a reactionary, command and control approach to the issue, they are blocking sensible alternatives, and also crowding out other issues, such as alleviation of poverty, which can be made worse by such foolish ventures as subsidies to biofuels, for example.
Chasing Rainbows makes for a good stocking filler this Christmas. Go on, do it for the children and for Tim’s bank balance.
Carbon taxes? Makes no sense.
If there is a CO2 problem; and let us presume there is for the sake of argument, there is only one problem, and that is addition of carbon atoms to the biosphere (i.e. the carbon cycle). Once they are in there, they will go around and around and you can’t stop that.
So, firstly it makes no sense to focus on carbon “emissions” since they are just one phase of the cycle. Carbon can be emitted by burning wood, or baking bread. Neither of those exacerbate the CO2 problem since they are using atoms already in the cycle.
So should we tax the burners of virgin carbon? That virgin carbon is what we’re interested in. Well the big problem here is that you must monitor everone, and decide where their carbon came from. That makes for mass bureaucracy and fiddling.
But luckily, virgin carbon- that is, atoms which were not part of the carbon cycle and are added to it- come from a small number of producers- oil extraction, coal mining, etc. These are easily monitored by the State, compared to 6 billion individual “emitters”. So it obviously makes sense to stop the virgin carbon at source.
There’s an easy way to do this. You set extraction limits, and reduce them year on year, as fast as possible. You don’t worry about emissions, or permissions (via carbon trading indulgences). You just set a licence limit. Carbon prices will rise due to shortage, and force users to switch to other energy sources. It’s really very simple. You don’t need to tax anybody.
Taxing is still artificial.
Could not the cost that emitted carbon (and any other pollution) places on everybody else (environment) be factored into the situation in a very simple and straightforward manner?
Systems have to be simple in concept and easy in operation to make them acceptable and workable.
The best systems always seem to be those that are self-regulating and not imposed by a somewhat arbitrary, external, authority.
Ian B. is correct – the carbon tax makes no sense.
It is something that leftists such as the Economist and the Financial Times (and they are leftists – especially the Financial Times – that long had Communist Party members on its staff, and even today goes on about how an income tax rate of 35% “can not be afforded” in the United States, because it is too LOW, and is a bad way to “stimulate” the economy anyway) trot out when they want to seem to be “using market methods”.
“Using” is the key word – a real market is not some game that the state “uses” (as Ludwig Von Mises said in the 1920s – the games of the “market socialists” were like “playing games with toy trains in the attic – and thinking you are running a railway company”) and the “carbon market” is no exception to such farcial games.
The Chicago Climate Exchange (that Comrade Barack Obama helped set up – with money from charitable trusts that he and his Comrades took control of) is an alliance of far left activists and corrupt big business enterprises (as so many things are).
The far left activists want higher prices to crush American “capitalism” and to “redistribute” money to the third world (in this they break with the older tradition of American leftism – the early Progressives were only interested in “redistibution” within the United States, perhaps there last great representative was John Rawls).
And the corrupt business enterprises (Goldman Sachs, General Electric, and the rest of the usual suspects) just care about more subsidies for themselves – the United States (and the West as a whole) can go hang as far as they are concerned.
Of course, in the end, the far left activists have rather nasty plans for their corrupt corporate allies. However, these allies do not tend to think in terms of the long term.
By the way – the only way to reduce C02 emissions is to invent (and market) CHEAPER forms of power.
All talk of taxes and regulations is drivil (even if China and India were really going to go along – which they are not).
So if people are really concerned – go out and develop and then BRING TO MARKET new technology for producing cheaper energy than hydrocarbons.
But you will not – you are just obsessed with your silly political games.
A new problem?
Solution? A new tax.
Welcome to the simplified 21st Century 🙁
There is one major difference between Matt Ridley’s book and Tim’s …
One is on Kindle and the other isn’t.
(goes to Amazon and clicks again on the vote for Kindle button).
What if there isn’t a cheaper technology?
Carbon engines benefit economically from a great advantage; that their energy source was concentrated in a fuel over hundreds of millions of years by natural (“free”) forces. There may not be anything cheaper, at least at our current level of development. You can’t just wish technologies into existence. I’d like an electricity source that would give me all my power for a pound a year. But demanding that economic outcome won’t wish it into existence.
So if carbon dumping into the atmosphere is catastrophically bad for the planet, we might have to think of something else that developing new technologies.
No, if it is a technological problem, it will have a technological solution. Most likely however it ain’t actually a problem at all.
“Carbon prices will rise due to shortage, and force users to switch to other energy sources. It’s really very simple. You don’t need to tax anybody.”
You conceded in the second comment that there ain’t no other energy sources. It’s not only that there are no other cheap sources. It’s absolute – there are no other sources known at present.
So, limiting coal and oil extraction will result in a reduction in available energy i.e. higher energy prices, and less energy use, which causes poverty. So, it’s a straight route to poverty without a tax detour.
Taxing the use of carbon-based fuel is an easy thing to do, and if offset by a tax reduction elsewhere (eg. income tax) – won’t be economically harmful or unjust. It will also achieve null reduction in carbon use or emissions, since, as said, there is no other energy source. (I’ll ignore nuclear energy for the moment).
I didn’t say there are no other energy sources. I said there may not be any cheaper ones. There is nuclear, for example.
There is no sense whatsoever in taxing users. There is a great deal of sense in controlling at source. Carbon emitters are diffuse, carbon extractors are concentrated.
I must admit I can’t fathom why you’re advocating a carbon tax which you insist won’t reduce carbon use. What is the intended purpose then?
Economic fallacies are things which most greens can afford to indulge.
They are mainly on the public payroll. They have no need to understand anything about real economics.
I didn’t say there are no other energy sources. I said there may not be any cheaper ones. There is nuclear, for example.
I am sure there will be cheaper ones, at some point. Something solar or nuclear, although which form of solar or nuclear is not entirely clear. A carbon tax may well help them come along sooner. Whether that is necessary is something to be debated.
Carbon emitters are diffuse
Wrong. Carbon is emitted in direct proportion to fuel used. You can tax the fuel, it’s easy.
Since there are no viable alternative energy sources (there might be in the future, but there aren’t now), limiting production (as you propose) means energy deprivation or strangulation. A carbon tax is preferable to that.
I’m not in favor of a carbon tax, but neither of energy deprivation. If it’s the one or the other – I prefer the tax. What we get, actually, for now – is deprivation, with bans on drilling, on mining, on utility building, etc. We have an undeclared, but effective war against energy which is going to result in blackouts in a couple of years all over the West. If the tax could help lift this de-facto ban on energy – I’m for it.
Besides – a carbon tax isn’t worse than income tax. I’m prepared to swap them.
I am sure there will be cheaper ones, at some point.
Maybe.
When there are, the debate is moot – no one will continue to use expensive carbon just for fun.
There aren’t other energy sources now, neither cheaper nor more expensive. (ok, nuclear, no space for this debate).
a solution in search of a problem
Keep in mind that “cheaper” is entirely relative. If the cost of energy from carbon-emitting sources goes up (due to a carbon tax, extraction limitations, or for any other reason) the price of alternative energy may indeed become “cheaper”. That’s why price signals are so important to a functioning economy.
Ian B makes a good point that to the extent there really is any problem here (which I doubt) it is only with “virgin” carbon, not that already at large in the system. But I agree with Jacob that if we’re going to somehow “charge” for carbon emissions (insert here the usual caveats about how I think it’s a foolish idea) I would definitely prefer a tax on fuel over limiting extraction. Somehow allocating licenses for coal, oil and natural gas extraction would be a huge political boondoggle, a massive fraud waiting to happen. It would be no better than the fraud known as “carbon credits”. If you simply tax the fuel the price to the users will go up, eventually resulting in reduced consumption and more economical use. No room for the politicians to game the system.
The problem with any tax scheme, well one problem anyway, is that the tax will be set at that level that maximises revenues, not at that level which will save the planet or whatever. Taxes invariably go into the wrong pockets. Like, any pocket at all. Better to just limit production.
I think if we’re hoping for a system that can’t be used to benefit someone, we’re in for a long wait. If you just set a level for each country at “N% less than last year”, if they want to be corrupt in administering it, that’s up to them. Just so long as the levels are kept to, that doesn’t matter so much. Getting China to agree a level would be hard, but so is getting China to agree to any other scheme so, six of one and half a dozen of the other on that score.
The other problem anyway about pigovian taxes is that nobody knows the elasticity curve for a product. You’ve no idea what tax level will produce what reduction in consumption.
I think my scheme’s simplest.
Thinking of alternative energy sources.
A problem with solar photvoltaic, that might have to be faced in the future if it became a commonly used system such as the internal combustion engine is today, is that the energy that would be absorbed into the earth energy system by photovoltaics would no doubt have an effect in some direction.
Global warming?
Not again!
But for now, I’m not sure if there is an alternative to simply becoming more genuinely (as opposed to current political posturing) energy efficient.
I do discuss the various points raised above in the book.
For example, restrictions upon use (the cap part of cap and trade). The thing is, we’re not really trying to stop climate change.
We’re trying to have the right amount of climate change. What is the amount of climate change which maximises human utility over time?
What is the right mixture of mitigation and adaptation? The right mixture of lower living standards now to prevent damage which lowers them even further in the future?
Thus it isn’t a matter of setting a limit on emissions: it’s a matter of balancing the future costs of damages against the current costs of activity foregone to avoid such damages. Thus we want to use the price system (which is how we can balance costs and benefits) rather than limits upon volumes of emissions which doesn’t balance such.
Finally, re new methods of energy generation: this is partly my day job and I do discuss how these are coming along. So do (buy!) read the book for exactly the points that you make are discussed.
“You’ve no idea what tax level will produce what reduction in consumption.”
You do.
You already have a fuel tax, don’t you ?
Europe has high fuel taxes (at least gas taxes). Gas and energy consumption seems to be about 25% less in Europe than the US, but it’s not clear if because of the taxes or because of general poverty (i.e. lower GDP).
In general, as I said, a fuel tax will do little toward reducing emissions (which probably don’t matter).
The tax is more of a bone thrown to the barking greens, to keep them from shutting down our energy supply.
That’s also the reason production limits are a bad idea – I don’t want to let them start on this path.
If carbon emissions are a problem (I don’t think so) we’ll have to live with it. There is no way to reduce emissions by a significant amount in the next 50 years.
As I said, it’s impossible to know the shape of the elasticity curve. You thus can never predict what change in price will produce a particular change in demand.
For instance, if you sell foobars for £5 each, a reduction in price to £4 may greatly increase sales because most foobar purchasers thought £5 was too much; but a further decrease to £3 may not further increase sales much, because most foobar purchasers thought £4 was reasonable. You just don’t know what will happen. People talk about elasticity as if it’s a fixed constant for every product. It isn’t.
This is quite cute.
Petition circulated at Cancun conference for banning acid rain component:
http://pajamasmedia.com/blog/too-delicious-to-check-global-warming-scaremongers-sign-petition-banning-dihydrogen-monoxide/
The dihydrogen-monoxide ting is so 1990s – you’d think they’d have learned by now, wouldn’t you?
Europe has high fuel taxes (at least gas taxes). Gas and energy consumption seems to be about 25% less in Europe than the US, but it’s not clear if because of the taxes or because of general poverty (i.e. lower GDP).
You miss several other potential factors, not least, population density and climate differences. I also suspect that there is still some ongoing effect from WWII in play.
IanB:
To me that seems like a really bad idea. In the first place, I’m not sure it’s as simple an administrative problem as you portray it. You talk about licensing it, but that would only work if all the countries involved agreed to follow the same scheme, otherwise countries that license would just shoot themselves in the foot without accomplishing anything. And such an international agreement would be a major diplomatic undertaking. Then you’d need a transnational or multilateral organization to monitor (if not administer) it. And, as any licensing scheme has various forms of corruption as a moral hazard, and considering the amount of money involved, corruption would likely be a major problem.
Why not just tax carbon-based fuels at the point of sale to end-use customers? Tax gasoline/petrol at the pump; tax natural gas at the meter into the home. After all, fossil fuel carbon isn’t really “in the system” until it’s burned. Taxing at the point of consumtion would achieve essentially the same things that you argued for, is almost certainly easier to administer, and can be easily accomplished by any one country whether or not other countries choose to go along. The only drawback I can see is that it’s a harder political “sell” because a lot of end-use consumers will believe that you can restrict fossil fuel consumption some other way without the cost coming out of their pocket. But I assume everyone here at Samizdata is too sophisticated to fall for that ruse.
To be clear, I’m not arguing in favour of such a tax. I’m only arguing that, given the presumption of some enforced constraint on the consumption of fossil fuels, it’s probably the best.
The same is true of any such scheme. It’s no use us taxing fuel if the Chinese or USA don’t, etc. So any proposal presumes compliance can be achieved. If it can’t, there’s no game in town.
Taxation is far more corruptible; it encourages states to focus on revenue expropriation. If the government takes money, that money has to be spent on something, which will probably be something bad.
In a licensing scheme, the price rises go to the fossil extractors. Resentment by people paying high prices to enrich Big Carbon would no doubt also encourage them to find alternative fuels. Energy suppliers would be able to undercut one another by using lower priced energy sources than fossils.
It’s inherently better than any tax system. The biggest problem in our economy is the twentieth century madness that tax is a social instrument for achieving outcomes. We need to get away from that.
Sorry, Ian, but that’s completely wrong. Assuming that international agreement can even be reached on the total acceptable amounts and their allocation among countries (which, of course, is pure fantasy), your extraction licensing scheme will instantaneously degenerate into gross political corruption, as companies jockey for the licenses. It will become even worse than the disaster the US’s FCC has become (licensing “scarce” EMF frequencies), without even the convenient fiction that such frequencies are a common property.
You complain that with taxation, states will focus on revenue generation. Of course they will; that’s what they do. So what? If the fundamental intent is to reduce the aggregate amount of “virgin” carbon released into the system, driving up the price to the consumer will accomplish that objective by the most simple and direct means possible. Limiting extraction is indirect and far less effecient. Furthermore, direct taxes are more transparent and more susceptible to public scrutiny. Extraction licenses are a “stealth” tax, which is always the worst kind.
I’m far less concerned with giving the state a little more money (bad as that would be) than I am with giving it a whole new method for increasing its chokehold on economic life. If you want to increase the power of the state even more than it already is, your approach would fit the bill quite nicely. No thanks.
Limiting extraction is “indirect”?! It is extraction of carbon which is the sole problem which (supposedly) requires addressing! INDIRECT?
Who said anything about a licensing scheme? Not me. I said countries agree to reduce by n%, then decide internally how to administrate that. No “FCC” required.
Your faith in the incorruptibility of mass taxation is touching and, for a Libertarian, strangely naive.
Only virgin carbon matters. Reduce its extraction directly. Problem solved. No tax required.
Carbon tax, no.
Please do not compare Worstall to P J O’Rourke in any way. Thank you.
Ian, if you had read more carefully the context of that clause of mine which you quoted, you would see that I was saying that a licensing scheme is an “indirect” means of driving up the price. Not an indirect means of limiting production, or whatever else you invented in your haste to disagree with me.
And the “licensing scheme” was your idea, not mine; you can’t distance yourself from it now. This from your very first post in this thread: “You set extraction limits, and reduce them year on year, as fast as possible. . . . You just set a licence limit.“ (My emphasis.) If you prefer some word other than “scheme”, that’s fine, but the concept is the same either way.
I have no faith in “the incorruptibility of mass taxation”. Where did I say otherwise? I merely said that any extraction licensing scheme would inevitably be more corrupt. I stand by that. Taxation is clean and obvious (if odious); hidden licensing schemes are the antithesis.
Laird, the “licence limit” wasn’t meant to imply a licence “scheme”. It was a bad word to use, I hadn’t remembered I’d used it. I meant simply that producer States simply all downscale production simultaneously, e.g. by 5% per year. How they administrate that is up to them.
The purpose is not to raise the price; that is a felicitous side effect. I am not interested in price-driven strategies. I am interested in strategies to reduce input of virgin carbon, and that is what my suggestion is intended to achieve.
A tax scheme extracts money from the system to teh State for no defined purpose other than to extract money, as with Proggie tax schemas in general. In my system, the market money flow is as normal, from consumers to producers. The market will deal with shortage as it normally does, as a consequence, with the price level adjusting to the market situation rather than being artificially manipulated by the State.
IanB:
We’re talking about two different things. Yes, if only one country implements an end-use carbon tax the effect on global fossil fuel consumption would be small — negligible, for many countries. But my point was that there’s nothing preventing them from doing it and, in so far as their own “carbon footprint” is concerned, it would be effective. Whereas your proposal has no effect whatsoever except in the unlikely event that all the key players agree to go along with it and are able to implement it justly.
I agree, and a also agree that one can make a case for calling that “corruption.” But I suspect you know that I was referring to corruption in the more traditional sense: overt bribes, kickbacks, payoffs, and so on. Those are moral hazards that are present in virtually all licensing schemes.
Hang on, that’s an argument in favour of my proposal, not yours. Your proposal puts the burden (ostensibly) on the extractors, which starts to make them look like the good guys, from a consumers point of view. It’s true that if the end-use tax were visible some consumers would see the government as the bad guy. But many, if not most, would only perceive the higher price and conclude that they were getting soaked by “big oil.”
I agree, and that’s why I qualified my remarks by saying that while I think an end-use tax is better than licensing I’m not proposing either. But I see licensing as a social instrument as an equally bad idea.
“I am not interested in price-driven strategies. I am interested in strategies to reduce input of virgin carbon.”
Which you would implement by expanding direct control by government, rather than by relatively neutral taxing.
And you once called me a fascist. I suggest that you look in a mirror.
Interesting debate. What all agree to is: in case carbon emissions pose a problem – we need government imposed solutions (taxes or production limits).
So – is this an example of a problem that does not have a natural, invisible hand solution ?
I stated my view that both proposed solutions won’t work, i.e. won’t reduce emissions. The production limits will be thwarted by bribery, cheating, and ignoring. The notion that a government can achieve anything it wishes (because it has unlimited force) is a delusion of the leftist control freaks.
Are we saying that we need a government with global enforcement on either consumption taxation or extraction taxation, a world government?
Hmmm.
Freedom anyone?
“So – is this an example of a problem that does not have a natural, invisible hand solution ?”
Yes.
They’re not uncommon either. Markets really won’t deal well with things which aren’t included in markets: like externalities.
By definition really.
We’re discussing statist solutions. Any approach is going to expand direct control by government. The difference is, in my approach the expansion is only an increase of control of a small number of extraction companies, whereas yours affects every citizen. So mine is less than thine.
As I said originally, the positive thing about carbon miners is that they are relatively few in number, large businesses. Oil and coal mining are naturally large business concerns. So the number of (artificial) “persons” who must interact with the government under this legislation is relatively small.
And monitoring is much easier too. The world has very few oil refineries. It’s hard to hide that kind of business. Taxing at levels needed to reduce consumption by the vast amounts required, on the other hand, would naturally lead to a huge black market; so to stamp that out you’d have to start monitoring producers anyway.
My system is simpler and easier to implement.
Why, are you standing behind me?
:-=) [That’s me with a moustache!]
made me jump!
I’ll make no apologies for pointing out a couple of things.
‘Virgin Carbon’ – wtf is that? Carbon that was sequestered when there were no poindexters around to count the molecules as they were re-arranged to a particular state? Tagging along with that is the ludicrous concept of ‘adding’ carbon – from where? Titan? Ganymede? For all intents and purposes, the carbon that homo sapiens encounter down here at the bottom of the gravity well has pretty much been here since the planetary disc condensed several billion years ago, with the only additions being the late bombardment additions via comets, asteroids, and such. It’s a zero sum game folks – we’re just moving it from one place to another, or better yet, putting our own spin on naturally occurring processes (namely, oxidation and or binding with hydrogen) that’s already well in progress.
Placing artificial and/or politically motivated externalities on the human exploitation of the carbon cycle are, well, stupid and pointless. Self inflicted wounds, if you will.
Worstall is correct in pointing out that the Greenies are ultimately a counterproductive lot, insofar as the ‘true believers’ are usually wedded to absurdly unworkable and economically infeasible without tremendous free market intervention ‘solutions’, while very often being the core constituency in opposition to the efficient and possible. They are the perfect handmaidens to the money and power grubbing among us who likely realize that the entire thing is inconsequential, ultimately to the survival or extinction of humans, or, more broadly, life on the planet, and thus feel comfortable whipping their fellow humans into various states of frenzy r submission to satisfy their own ends.
A pox upon all of the bastards.
A group of scientists and experts have published a powerful rebuttal of the AGW scam in a new book entitled “Slaying the Sky Dragon”
http://www.amazon.co.uk/gp/product/images/B004DNWJN6/ref=dp_image_0?ie=UTF8&n=341677031&s=digital-text
Er, I think the meanings are pretty obvious. We’re talking about carbon that’s been excluded from the biosphere since the Carboniferous, so in practical terms it’s external to the carbon cycle until introduced by man via burning fossil fuels. IOW, we’re interested in additions to the carbon level in the carbon cycle. That isn’t a zero sum game. You’re looking at the wrong system boundary.