National Policy

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GEPC Issue Brief 10-01, February 5, 2010.  Download  Abstract

  • The Copenhagen Accord
    • Does not mention caps for developing countries
    • China would not even allow developed countries commit to caps
  • Cap and Control
    • Environmentalist love caps but oppose carbon taxes
    • They see caps and a form of command and control
  • Free Emission Permits
    • Give a company 1 million free permits, and suppose it emits a million tons and must use all million.
    • It looks like it breaks even.
    • In fact it passes on the full cost of the permits it needs to consumers.
    • The subsidy is paid by consumers not by the government.
  • Cap and Tax Are Twins
    • If a cap cuts emissions by 1Gt and permits cost $20/ton, then
    • a tax of $20/ton will cut emissions by 1Gt.
    • Cap and trade is just a carbon tax with the tax rate set by the market.
  • Not Identical Twins
    • Complexity and price volatility cause political problems for caps
  • Both Caps and Taxes Are Cheap
    • Refund all tax or permit revenues and both reduce emissions just as well
    • This makes them look free
    • But abatement is costly. Abatement cost = (carbon price) x (emission reduction)/2
    • For a $20 price and a 1Gt (18%) reduction, that comes to $10B or 1/14 of 1% of GDP
  • The International Constraint
    • The Senate will not pass a strong cap unless China and India make strong commitments
    • The only possible equivalent commitment is to a carbon price.
    • This allows the US & EU to use caps and China and India to tax fossil fuel
    • But for a cap to come close to a price commitment it needs a collar.
    • This will also reduce the political backlash from a cap's volatile tax rate set by market speculators.

The Untax

  • The untax is a fully refunded carbon tax with an equal-per-person refund.
  • It is equivalent to giving people equal rights to the atmosphere and and letting them trade.
  • Hence it is fair.
  • Consider and untax and a carbon tax swap for tax X ( using carbon revenue to reduce tax X)
  • An accounting identity relates the two:
    • carbon tax swap for X  =  untax  +  a capitation tax swap for X
  • A capitation tax is an equal-dollar per person tax.
  • Most people consider such a tax grossly unfair
    • carbon tax swap for X  =  untax  +  something grossly unfair
  • Since an untax is fair, we need a good reason before we add something unfair to it
  • No one has provided such a reason, most likely because there is none.
  • This is explained in detail in here: Abstract and download.

Alternative Energy & Efficiency Policies

  • Standards and Feebates
  • Research subsidies
  • Inappropriate subsidies