Filed under: Development, Environment, International Treaties and Organizations
Somehow Matthew Yglesias and Kevin Drum and Jeffrey Sachs and Andrew Sullivan and lots of other smart people have spent several days arguing about the relative merits of cap-and-trade limits on greenhouse gases versus a carbon tax without ever even mention the issue of tradable carbon emissions credits created by greenhouse gas reduction projects. Without cap and trade, projects that create tradable carbon emissions credits (CECs) certified emissions reductions (CERs) by fixing carbon or otherwise reducing greenhouse gas levels — things like preserving forests and planting new ones, trapping gases from organic waste and livestock excrement, or getting third-world villagers to use low-CO2-emitting gas stoves rather than free firewood from local forests (which also emits lots of greenhouse-causing soot) — wouldn’t exist. The carbon tax reduces carbon emissions by making it more expensive to burn fossil fuels. But it does nothing about all these other sources of greenhouse-causing emissions. Only cap and trade does.
Cap and trade systems do this by creating tradable carbon credits. Under the Kyoto Protocols’ Clean Development Mechanism (CDM), greenhouse-emissions-reducing projects like forest preservation can submit their projects for stringent review by UNFCCC-licensed assessors. If their projects pass review, they are granted certified carbon credits measured in an equivalent reduction of CO2. Ongoing projects are granted permanent credits, subject to periodic review; projects which reduce a fixed amount of CO2 are granted credits which expire after a period of time. The tradable credits are worth money on the European carbon emissions credit exchange and other trading floors, where they are purchased by coal-fired electric plants and other carbon emitters. There are currently 1431 certified CDM projects, which reduce greenhouse gas emissions by the equivalent of 220 million tons of CO2 per year — about 5% of the total annual emissions of the European Union. These projects owe their existence to the European CEC carbon emissions permit exchange; a US cap-and-trade system would create many more of them. Thus cap-and-trade encourages reduction of greenhouse emissions in all sorts of ways that wouldn’t happen with only a carbon tax.
Take cookstoves, and soot. Scientists now estimate that “black carbon”, basically soot, is responsible for 18% of global warming, while CO2 is responsible for 40%, according to this NY Times article by Elisabeth Rosenthal in April. Many of these emissions come from wood- and charcoal-fired cookstoves in India and elsewhere in Asia. There is soot from Indian cookstoves in Tibet. Soot from Indian cookstoves is melting the snow on Everest; Himalayan glaciers may lose 75% of their ice by 2020. A simple carbon tax will do nothing to reduce such soot. Sooty cookstoves used by poor Asians are generally fueled by free or informally harvested local firewood or by charcoal made and sold on the informal local market. Such transactions in third-world countries happen far below the radar of government tax authorities and would escape any attempt at sales taxes, let alone a carbon tax.
The only way to reduce soot from cookstoves, or for that matter reduce CO2 emissions by encouraging villagers to switch to solar or propane or methane from pig manure, is through active development programs. For example, writes Rosenthal:
in March, a bill was introduced in Congress that would require the Environmental Protection Agency to specifically regulate black carbon and direct aid to black carbon reduction projects abroad, including introducing cookstoves in 20 million homes. The new stoves cost about $20 and use solar power or are more efficient. Soot is reduced by more than 90 percent.The solar stoves do not use wood or dung. Other new stoves simply burn fuel more cleanly, generally by pulverizing the fuel first and adding a small fan that improves combustion.
That’s great. But development programs of this sort are vastly more powerful when they include market incentives. Biogas projects, which turn agricultural waste into methane for fuel, become much more profitable when they can also earn CECs CERs for the fossil fuel consumption they’re saving. (There are problems incorporating CDMs into household-level projects like biogas, but mainly because the CDM mechanism under Kyoto is expiring soon and nobody is sure how it will be renewed — a permanent cap-and-trade system is needed.) Basically, if you’ve got an aid program, you’re sending out lots of people to convince third-world villagers to change the way they do things. If you’ve got a market-based system, you have an automatic incentive for programs to change the way third-world villagers do things and earn money by doing it. Markets are scalable. They’re much less dependent on “monitoring and evaluation” — the monitoring takes care of itself through the profit motive.
Finally, let’s think about the internationalism issue — another point Drum, Yglesias, Sachs et al have inexplicably missed. Say the US implements a carbon tax in 2011. How soon will concern over climate change and international peer pressure induce, say, Vietnam to adopt a similar carbon tax? An optimistic guess would be 2025; a pessimistic guess would be after the Mekong Delta is underwater. Now, let’s say the US implements a cap-and-trade system in 2011. How soon will that start reducing carbon emissions in Vietnam? In 2011. As soon as the US implements cap-and-trade, carbon emissions credits CERs will start trading on US trading floors. By reducing their carbon emissions, Vietnamese power plants will be eligible to earn such credits. By implementing cap-and-trade, the US immediately creates incentives for businesses in other countries to reduce emissions even if those other countries’ governments do nothing.
This isn’t to say there are no arguments in favor of a carbon tax. Probably the best idea would be to implement both. But one certainly ought to consider the fact that cap-and-trade’s emissions credits can do at least three things a carbon tax can’t: 1. incentivize people to reduce greenhouse emissions from activities besides burning fuel; 2. incentivize greenhouse emissions reductions where tax systems don’t apply, especially the informal economies in the third world; and 3. immediately incentivize greenhouse emissions reductions projects in other countries.
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