Bishop Hill The limits of carbon taxes
Aug 5, 2012 Climate: WG3 Economics Richard Tol's latest discussion paper looks at carbon taxes and wonders just how much you get by way of emissions reduction if you stipulate that you are not going to increase the overall tax take. In some countries the answer is not very much - if your current tax take is low then you can only impose a small carbon tax. If you try to impose a higher tax in these countries, they will (theoretically at least) drop out and their emissions will remain "out of reach".
Different levels of carbon tax are discussed -
a stabilization target of 650 ppm CO2 equivalent would require a carbon tax of $6/tCO2e, in all countries, on all emissions, of all gases. A target of 550 ppm CO2e would require a tax of $29/tCO2e, and a 450 ppm target would need a $143/tCO2e tax. These are the three price levels shown in Figure 3
When you plug these tax levels into the equation carbon tax take = current tax take, you get the following answer for the 450ppm target, which Tol tells us is equivalent to the EU's 2°C target:
For $143/tCO2e, the carbon tax revenue is greater than 100% of tax revenue for more than 10% of emissions; and greater than 10% for all countries. Such a carbon tax would not be fiscally prudent in many economies. $143/tCO2e is the tax needed to meet the 450 ppm CO2e target, which roughly corresponds with the 2°C target of the EU and UN (den Elzen et al. 2007).
As Pielke Jr notes, this appears to mean any proposed carbon taxes must be low.
Reader Comments (58)
Even if one accepted 'carbon taxation', the numbers of xxx ppm CO2 have no meaning outside of the fantasies of climate scientists and activists and such exercises are meaningless as well.
Carbon taxes, as and when, and if implemented, would weigh on the consciences of facilitators such as Roger Pielke Jr, Richard Tol and Tim Worstall. That is, those smart enough to know that they are meaningless, but not courageous enough to speak against them.
And what would all this tax be spent on?
@ Adam
... To raise the necessary funds to operate government... A very big government.
Stop complaining, you lot. How do you think the super-rich, plus pols, are going to maintain their necessary life-styles?
Adam
The theory of Pigou taxes says you just treat the income from the tax as ordinary government revenue.
Fascinating paper but rather ignores the point of a carbon tax. And yes, I do realise that I am pitting my not specialist knowledge against one of the specialists.
Or perhaps I should say pitting my limited and possibly incorrect understanding of a carbon tax.
Which is that: there are damages possibly from carbon emissions. There are also damages from not carbon emissions. Standard theory says that there is therefore some optimal level of such emissions. (Please do note, this is true of any situation, from emissions having no costs at all all the way through to their having great costs).
That optimal level is wherever the benefits from emissions equal the costs of emissions.
From Stern we have this at $80 per tonne CO2-e. From Tol rather lower....much in fact. From Nordhaus we have it much lower now and rising significantly in the future.
But the point that I get (and I do hope that Richard Tol will be by to put me straight) is that this already incorporates the 2 oC or whatever targets. For these are embedded in the $80 costs.
Thus I'm not quite sure why anyone would calculate the carbon tax required to meet a 2oC limit, or 450 ppm or whatever. We've already done all of that in our calculation of what the cost of carbon emissions is.
Richard, where have I gone wrong then?
Wouldn't it be better to dedicate all carbon tax revenues to the purchase of new clothes for the climatological intelligentsia? (...made of a wonderful new material, of course)
@ZT - I kind of get the feeling I've already paid for that.
How else are we going to pay the bankers, the elite rent seekers and the Mafia renewables' owners their pound of flesh?
Also how will they be able to afford to bribe the politicians to create the taxes?
Carbon emitions are only very loosely linked to taxes. Raising taxes will make a very small impact on carbon emtions, but a very big impact on a competative nation on the world stage. (self-snip).
The irony is, these taxes force developed countries having relatively energy-efficient production processes to export production to some countries having lower-taxed, less-efficient, 'dirtier' energy. More CO2 is therefore created in manufacture and distribution back to the the markets which want those goods.
@Adam
In this paper, the carbon tax revenue would be used to reduce all other taxes to zero.
@Tim
The paper is not about optimal taxes. It estimates the maximum carbon tax under budget neutrality. It then compares this to the tax needed to meet 2K (under standard IPCC assumptions), and finds that the maximum tax is lower than the required tax.
Its a smart methane taxometer up your vent pipe next. The Vegetarian Society is rumoured to be lobbying fiercely against, but the Royal Society is thought to be considering a substantial reward for the inventor of a commercially viable explosion proof domestic ventpipe trap, and the DECC is said to be entertaining a VAT holiday and a small subsidy to the initial volunteers subscribing to the field trials.
[snip - o/t]
Winston Churchill:
In terms of reducing emissions to the required level, the correct level of carbon tax is that which causes 80% of our industry to be destroyed.
Actually that is probably an underestimate.
Good thinking Dung but for one small issue. The 80% destruction has already happened. It's the new 80% that the 97% (aka the magnificent 76) are setting their pensions on destroying!
A pound to a penny they'll manage it too.
Bastitions one and all!
The Australian government a month ago introduced a tax of $23 per tonne of CO2-e on certain industries. Our PM calls it a "carbon polooshun tax".
It has already had a dramatic effect
The very notion of a carbon tax is patheitc! We are carbon, we emit carbon by our very existance, rich or poor, mostly poor as the Japanese have found! The taxation is for the Global Benefits culture & Big Guvment that we in the UK have encountered with an entire generation founded upon benefits! The end is nigh me thinks for humanity & all its glory! The Intellectual Onanists have won!
I wonder if clever accountants in Australia are already finding ways round it. Given that the Murdoch empire which operates in the UK seems to pay little UK corporation tax, could not RTZ 's operations in Australia find a way of getting out of carbon taxes. As some politician ruefully remarked, 'tax is more or less voluntary these days' except of course for the little people. BHP, Exxon, RTZ - hardly little people. What a kick in the butt for global governance, and for national politicians desperate to shore up their broken finances, if it turns out that the whizzy new tax raises hardly anything, in practice.
I'm having trouble parsing this - should the bold bit refer to "10% of countries"?
Anyroads, Why not introduce a "CAT" that works like VAT? Then the original carbon users (i.e. industry) can reclaim tax from the product buyer, all the way up the chain.
We can that do away with ALL other forms of taxation, all products become price-sensitive to carbon, and people like me who have a relatively low carbon footprint will no longer subsidise the carbon profligate who fly all round the world to conferences to argue about how to make everyone else reduce their carbon footprints.
There is no right level of carbon tax as long as we have enough CO2 in the atmosphere. We KNOW too little is a disaster. We do not know too much is bad but we do know there is a top limit to what can be done by burning fossil fuels. Really we do not have to commit economic suicide to please a bunch of sandal-wearers.
My plan, stated elsewhere but not here so far, is for the UK to remove all energy taxes. The economic stimulus of that would be incalculable (although we have some fine economists here who might like to give it a go).
Any carbon tax is daylight robbery - just the same as the window tax. As for CO2 - we can't get enough of it, because it makes plants grow faster and closer to the optimum conditions that they evolved in. And if we stopped turning plants into petrol we could even feed the Earth's teeming billions.
If I understand Richard's point aright, he's saying that irrespective of the rights or wrongs of a Carbon tax, if it's taken as a solution to the '2C' problem, then it just will not work, because the tax needed will be larger than all the current tax take, and then some. In short it will be economically crippling.
Tim W's point is different - that we currently already have carbon taxes that cover the cost of adaption and mitigation.
If these two gentlemen are correct, then we should restrict the carbon hypertaxers to a nice comfortable, secure compound, and get on with life, addressing the real problems of the world and not chasing rainbows.
.
Taxing carbon (dioxide) will make no difference to climate change but a lot of difference to the poor who can barely afford power now let alone with future tax rises.
And then Rhoda wonder why we have a couple of economists on here, and many others out in the world, discussing how best to keep the world in recession/depression when what we actually need them to do is tell us how to get out of it. I really don't care why the discussion or what the unrealistic premises, this is just economists playing intellectual games. It makes no sense to even begin with 'if we must have a climate tax, this is how I would run it'. I reject that premise and all conclusions which flow from it.
Aug 6, 2012 at 8:46 AM | Unregistered Commenter Rhoda Klapp
...remove all energy taxes...
Hear hear!
Reduce state spending by a similar amount.
@steveta
The correct expression is "countries responsible for more than 10% of emissions". I dropped the countries bit because I had used the long and awkward form just above.
@cumbrian lad
Indeed.
Furthermore, carbon taxes are the cheapest way to reduce greenhouse gas emissions. Other forms of climate policy would be more crippling still.
Why is "carbon" always demonised for the problems believed to flow from CO2? Isn't Oxygen more to blame? CO2 is 1/3 C and 2/3 O.
As a carbon based life form I say "Down with Oxygen! Leave carbon alone!"
Richard Tol-
"Furthermore, carbon taxes are the cheapest way to reduce greenhouse gas emissions."
On the contrary, protracted economic recession in high carbon 'polluting' countries is a zero-cost way to reduce greenhouse gases. The carbon hand-wringers should be embracing policies that encourage multi-decadal economic recession, or even better, global depression. Simultaneously increasing government expenditures will help immensely in achieving this utopian future.
Its for the children.
If you look at the real radiation processes of a body in contact with GHGs, above the IR self-absorption limit [CO2 ~200 ppmV] the emissivity of that body in the IR band(s) progressively falls as GHG concentration and body temperature rise. The net effect is that there can probably be no CO2-AGW and a fixed GHE set by the first few 100 ppmV of water vapour.
As reduction of CO2 is probably unnecessary: there is probably no purpose in taxing it.
The last 1.5 C. degrees of temperature rise brought vast benefit to the earth, sustaining a greater abundance of life, as will the next 1.5 C. degrees of temperature rise. Here's hoping we get that benefit rather than the dismal prospect of cooling, which is more likely. We are looking down the barrel of danger precisely backwards.
=============
1) No-one has shown we need to cut emissions (although many have tried).
2) Refer to point 1.
@Barbara and others
It is all good and well to argue that there should be no climate policy, but many countries (incl. EU, US, China) have a climate policy and are planning to make it more stringent.
Aug 6, 2012 at 11:50 AM | Richard Tol
"Furthermore, carbon taxes are the cheapest way to reduce greenhouse gas emissions"
I simply cannot understand why you persist in promoting this nonsense. CAGW has been shown to be the greatest scientific fraud in history - fiddled data, dodgy physics and useless models. The money men have stolen hundreds of billions from us, based upon the "evidence" of useful idiots and with the support of ignorant politicians. Meanwhile, the poor become colder and hungrier.
The morality of this STINKS!
Aug 6, 2012 at 2:07 PM | Unregistered Commenter Barbara
I think you are right but I think Richard is way past Step 1
Can it happen
Does it happen
Is it bad
Can we do anything
Should we do anything
What shall we do
I think Richard is at:
How shall we do it
Introducing this as a discussion paper is an attempt to normalise carbon dioxide taxation in the public mind.
The two degree mantra started originally with economist Bill Nordhaus, in a discussion paper for the Cowles Foundation, in 1977.
See what discussion papers can lead to?
Nordhaus stated: “If there were global temperatures more than 2 or 3° above the current average temperature, this would take the climate outside of the range of observations which have been made over the last several hundred thousand years.”
No scientific basis. Economists are now climate scientists.
In 1990, the United Nations Advisory Group on Greenhouse Gases were pushing for 1 degree C: "Beyond 1 degree C may elicit rapid, unpredictable and non-linear responses that could lead to extensive ecosystem damage.”
The objective was a maximum rate of increase of 0.1ºC per decade, but it could only be achieved “with significant reductions in fossil fuel use” – World Climate Programme, 1988, p. 24. It seems that since then, no-one has yet managed to prove that CO2 is the magical climate thermostat, turn it up, turn it down. "Mother Nature" clearly doesn't really understand the climate models.
I always thought it was a joke when people said "Politicians will tax the air we breathe next". Now here we have seemingly rational people, proposing that they do just that.
As Richard Tol says - other countries are shooting themselves in the foot, so we should also.
Richard
Are you aware of the number of serious alternative explanations for the warming in the last 50 - 100 years?
Watts et al this week (as yet unpublished) seemingly shows that in fact recorded temperatures are incorrect. It didnt warm much at all really.
Svensmark et al showed that Galactic Cosmic Rays and the solar wind combine to create low cloud and thus cool the planet or in the reverse; warm the planet.
Papers questioning whether water vapour does actually magnify the effect of CO2 and in fact suggesting that it has a cooling effect.
Remember also the inconvenient fact that the world is now officially cooling. Levels of atmospheric CO2 are still rising so why is it not getting warmer?
Could you please stop supporting the use of billions of pounds of our money to prevent something that is not even happening?
If China has a carbon policy that will mean crippling herself economically in order to meet compliance with a measure she does not officially believe in, I will eat my non-existent hat. China may well pretend to comply and may well produce figures to show compliance. I will not believe them. This whole thing is just economists playing number games. It has no relation to reality. (And of course if they are so damn clever why can't they fix the economy, but that would be a trite point, cheap and tasteless to make it).
I think Roger L and others are misinterpreting Richard's followup "Furthermore, carbon taxes are the cheapest way to reduce greenhouse gas emissions. Other forms of climate policy would be more crippling still."
He's agreeing with me that the level of Carbon Dioxide tax required to (theoretically) keep temperatures within 2C is ruinous, and then says that any other method is even worse.
Richard: I'm an iconoclast; climate science is the best fun I've had in ages. We have, you excepted, pompous economists*, social scientists, pseudo-scientists and psychologists who claim 'the science is settled'. It’s not. The 'consensus' makes two assumptions.
1. IR emission from the Earth's surface is the same as an isolated black body in a vacuum.
2. This energy is absorbed by GHGs then directly thermalised.
Both are impossible as any professional knows. The net result is IR heating of the atmosphere is exaggerated x5, in turn leading to imaginary positive feedback via the water cycle; recent experimental data show this is not happening, indeed the reverse is occurring.
Any competent scientist knows emissivity can vary: for two bodies in radiative equilibrium at the same temperature; the emissivity of both in any wavelength interval is ZERO hence no net energy transfer.
In extending the IPCC IR theory to correct the heat transfer, I added physics from spectroscopy: GHGs in IR self-absorption turn off IR band emission. I believe, subject to further work, that this is the real GHE, fixed by a few 100 ppmV of water vapour. There can be no CO2-AGW; to tax CO2 is unjustified.
*Stern assumed the wrong discount rate presumably to convince his clients of the time, Lehman Brothers to bet the farm on carbon trading. It has been argued this, not MBSs, caused the financial crash: http://www.ipa.org.au/publications/1438/did-global-warming-send-lehman-brothers-broke
The cheapest way to reduce emissions is to go for shale gas and build combined cycle gas turbine plants, end of story.
Thanks for a very interesting paper Richard.
It appears to be confirming that the calls for high carbon taxes even an 'arbitrarily high carbon tax' that
"seems to be in line with Article 2 of the United Nations Framework Convention on Climate Change, which calls for emission reduction so as to avoid "dangerous anthropogenic intereference with the climate system"
are simply not in line with
"Article 2..that "economic development [should] proceed in a sustainable manner" "
Yet another of the UN's contraditions.
From your calculations it seems that the 2C target of the EU and UN (which requires a CO2e target of 450ppm) would require a carbon tax of $143/tCO2e which would not be fiscally prudent and so would be unsustainable.
And interesting to note too this is in stark contrast to the figure cited from Hersch and Viscusi 2006 that the average European would be prepared to accept a carbon tax of $37/tC. Even this must be considered somewhat out of date since we have had Climategates 1&2, our host's HSI, Donna Laframboise's expose of the IPCC as well as numerous scientific papers that appear to question the CAGW meme since then.
Not to mention being currently in the grip of a major economic recession!!
As you say "in a democracy, one could say that a carbon tax is unlikely to exceed the level that would lead to a government defeat at the next elections"
Quite, we need to take care -
our chatterati have already been questioning "Are we doomed by democracy"
http://www.bbc.co.uk/programmes/b00sfwtc
Most of us recognise that the drive on a CAGW meme has been political and not scientific so perhaps it's time that the people regained their sovereignty from a political system that no longer seems to represent them.
http://www.eureferendum.com/blogview.aspx?blogno=83014
DennisA wrote upthread:
Thank you Dennis! [Dennis, your quote of Nordhaus seems indeed also to appear in a paper by "Nordhaus 1977, p.39-40; see also Nordhaus 1975, pp. 22-23, where the same words are to be found, excluding a suggestive diagram" (see [Part 1] Exposé | The 2º Death Dance – The 1º Cover-up).]Richard Tol wrote upthread:
Surprise, surprise??!! Incidentally, William D. Nordhaus belongs - as mentioned elsewhere - to Yale's "super elite" secret order of Skull & Bones as well as Alfred Cowles belonged to them.
Nordhaus wrote for instance also a Discussion Paper in 1976, called "Economic Growth and Climate: The Carbon Dioxide Problem", where he stated on page 9:
On the following page Nordhaus elaborated on "carbon taxes":Nordhaus' 1976 paper he referred to above is titled "Strategies for the Control of Carbon Dioxide".Richard Tol
Thanks for the reply. I'm not sure I quite follow the argument that we must act because others are poised to make their emissions policy 'more stringent'. You mention the EU, China and USA. I thought Germany were burning lignite ('dirty' coal) like there's no tomorrow (due to their disastrous 'dash for Green'), that China were throwing up a couple of coal-fired stations a week, and that the USA had cut emissions drastically through using shale gas. This would suggest others are ignoring their emissions targets (Germany and China), or have decided they are already irrelevant (USA), would it not?
Richard Tol
Thanks for the reply. I'm not sure I quite follow the argument that we must act because others are poised to make their emissions policy 'more stringent'. You mention the EU, China and USA. I thought Germany were burning lignite ('dirty' coal) like there's no tomorrow (due to their disastrous 'dash for Green'), that China were throwing up a couple of coal-fired stations a week, and that the USA had cut emissions drastically through using shale gas. This would suggest others are ignoring their emissions targets (Germany and China), or have decided they are already irrelevant (USA), would it not?
Aug 7, 2012 at 12:42 PM | Barbara>>>>
Economics has proved to be a pathetic soft science which not only got us into a Global recession, but has so far failed to come up with ANY remedies to get us out of it.
And now one of it's shamen wants to impoverish us and our industries further with a CO2 tax.
Rather than debate the method, can we ask why we have to commit suicide at all? I really can't take that as a given.
Richard
You say that other countries are poised to make their emissions policies more stringent, but is it not correct that China, the USA, India and others are refusing to pay the Emission taxes which the EU is attempting to impose on visiting foreign airliners?
Here is independent proof there can be no CO2-AGW [except in the driest of deserts]. The Gold Standard of atmospheric IR physics, the USAF's MODTRAN programme, which effectively computes emissivity as a function of composition, shows there is no change with change of [CO2] at >=10% RH: http://notrickszone.com/2012/08/07/epic-warmist-fail-modtran-doubling-co2-will-do-nothing-to-increase-long-wave-radiation-from-sky/
[Gosselin believes in the IPCC 'consensus' physics, based on incorrect physics taught in meteorology so the 'back-radiation explanation is wrong, In reality, the Prevost Exchange Energy in the IR bands switches off that IR emission from the Earth's surface, causing it to warm, the real GHE.]