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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.
- Standards and Feebates
- Research subsidies
- Inappropriate subsidies
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