Robert Reich wants to know: How much cash would you accept for some dirtier air?
Robert Reich, Labor Secretary under President Clinton currently teaching at the University of California Berkeley, thinks the 2008 presidential candidates should be in favor of a carbon auction as a way to clean up the atmosphere and win votes, as he recently said on Marketplace. Taxes are politically dangerous, Reich said, and a cap-and-trade system simply allows companies to keep ruining the environment by just buying the right to do so from other companies. A carbon auction, on the other hand, would force companies to bid for the right to pollute with the money going to citizens as a yearly dividend check (think Alaska and oil revenues). So as there's no overwhelming amount of carbon and other pollutants dumped by the richest companies, there would be overall limits on how much could be sent into the ground/airl/water. As Reich says, "I mean, it's our atmosphere, right? Think of a national park or a national forest. No company is simply allowed to take what they want from it, free of charge. Why should the atmosphere be any different?"
So, the people get a check for the dirty air and companies will have serious monetary incentives to reduce pollution. The less they make, the less they'll have to bid.
You can read the full transcript of Reich's commentary and listen to it here.
[Source: Marketplace, h/t to Eric]
Reader Comments (Page 1 of 1)
Mike Hammock 9:28AM (7/09/2007)
Robert Reich is confused. A carbon auction is a cap-and-trade system. The auction is a way to determine the initial distribution of permits (as opposed to giving them away). It can also be shown that, under certain circumstances, a cap-and-trade system with an auction is identical to a carbon tax.
Why do people who know so little economics feel so free to speak with authority on the subject? And why do people listen to them?
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EDH 12:21PM (7/09/2007)
True, it ends up at an auction, but the difference is how it started and thats why its a better way. It's widely accepted that the problem with the European carbon market is that there was too many credits handed out at the beginning. The emphasis there is "handed out", polluters didn't need to pay at the beginning to get their credits, they got credits by virtue of being polluters. Assuming the auction would start with a proper supply of credits and not too many, the auction would be a one time boon to the American taxpayer (and make this whole idea alot more palatable to the voting public) and the credits would go to the highest bidder. Therefore there is even an incentive to lower your output before the system went into place (so you wouldn't have to buy as many at the onset).
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frank78 12:22PM (7/09/2007)
True. And further more, while there may be a dividend system in place and people will think, "hey free money," it isn't free. The cost will be passed along on to the consumer with higher prices across the board. You have a system wide cause for inflation. OK in the longer term as hopefully incomes rise to the level of inflation, but short term (several years) you have people's real purchasing power going down. And for what really??
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Chris 4:33PM (7/09/2007)
Screw it, they should just regulate across the board, much as they do with other pollutants.
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Joseph 12:36PM (7/10/2007)
An auction for the right to pollute will have the biggest company win since they have the most money. A smaller company may not have the resources to reduce their pollution and not have the money to win the right to pollute. I know nothing about economics but this sounds like it would lead to having many monopolies since the others cannot burn cash for the right to pollute.
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mikeinBuilding7 8:10PM (7/09/2007)
I don't want Any Pollution.
The Solar Age is NOW.
Scientific American has a report of solar and the Stirling Engine Solar Plant is now economically competitive. Secondly, oil is expensive is you add in the cost of 2 fleets of the coast of Iraq.
Solar panel prices would come down if we actually built some large plants to produce them.
We don't need oil or coal.
We don't need war.
We don't need to fund Osama's family.
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UtilityMaximizer 10:33AM (7/10/2007)
EDH, that's not a "difference" with a cap-and-trade system. That's just one way to start a cap-and-trade system. An auction to determine the initial distribution of permits is probably a better way to start than with distribution of free permits, but both are still cap-and-trade. The advantage of the auction is that the revenue can be used to displace distortionary taxes (Al Gore proposed displacing payroll taxes). Both an auction and free distribution can achieve the same level of pollution reduction.
frank78, yes, real income is likely to be reduced both in the long and short run. I find it hard to believe, however, that you can't figure out what the benefit is. The benefit is reduced CO2 emissions. Similarly, the benefit of the very successful SO2 cap-and-trade system has been reduced SO2 emissions.
Chris, cap-and-trade IS a form of regulation. It is a far superior form of regulation compared to traditional command-and-control methods in that it achieves its target level of emissions at the lowest cost because of the tradeable nature of permits.
mikeinBuilding7, if it's true that some form of solar power is competitive with other energy sources then we don't need to do anything but sit back and watch solar plants pop up. The fact that there are only a few solar thermal plants appearing in the U.S., and that at least some require government funding (and I have heard that the cost is more like that of wind power than fossil fuels) suggests that maybe that time is soon, but not yet. If we were to price the negative externality from fossil fuels correctly (which can be done with a cap-and-trade system or a tax) then solar and other methods would become appropriately competitive.
More generally, I have to wonder why everyone here and in general feels free to so confidently venture opinions on economics. It's clear that most of you don't understand how a cap-and-trade system works, or what its advantages are. Yet you don't let your ignorance stop you from confidently voicing opinions on the subject. There are lots of topics about which I am ignorant, and I am careful to avoid having opinions on them. Wouldn't it be wise for you to do the same?
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