Comments on: A Canadian Election Primer on the Climate Policy Expert Consensus on Policy Design http://greenpolicyprof.org/wordpress/?p=603 George Hoberg -- Seeking insights into governance for sustainability Sat, 20 Aug 2016 14:35:43 +0000 hourly 1 http://wordpress.org/?v=3.0.1 By: Alex W http://greenpolicyprof.org/wordpress/?p=603&cpage=1#comment-1939 Alex W Fri, 29 Apr 2011 21:08:53 +0000 http://greenpolicyprof.org/wordpress/?p=603#comment-1939 I’m very much with you on the point that it is somewhat heartening to see – very belatedly – some attention being paid to climate change/energy policy issues in the election campaign. More than that, I think we are starting to see (or maybe it’s that echo chamber effect that Twitter really amplifies) some acknowledgement that there are, in fact, some significant differences between how the various parties would do things. Our friend Andrew Leach deserves a lot of credit for carrying the analytical load on this. My only regrets are that this attention comes so late as to make a truly fulsome debate unlikely; and that the tendency is still there to see this as a limited debate about climate or environmental policies, without a clear appreciation or linkage to larger economic and prosperity issues facing the country. Turning to your entry, now. 1. Completely agree with your assessment of the real challenge on “selling” climate policy. I actually have some sympathy for politicians on this issue, insofar as they understand better than anyone the ingrained hypocrisy of Canadians wanting action on climate change, just as long as it doesn’t involve higher costs. In this respect, there is something that needs to be said about ENGOs’ insistence that the real barriers to action are corporate lobbying. First, most corporates are now either in favour or neutral on carbon pricing; and second, if the public support was there to actually accept higher costs, corporate lobbying wouldn’t matter. But that supposed causality, and most ENGOs insistence on making that the issue, let’s us all off the hook. 2. On the C&T vs. carbon tax issue, a couple of points. a. First, it is important to point out that there is a third option (not the regulatory one), which is a hybrid C&T and tax. BC, of course, will be a real-life model of what that actually looks like, but will be able to draw on European experience with that combination. More to the point, though, a hybrid ensures that the issues with coverage and the differing elasticities of various sectors get addressed (for example: a cap-and-trade as most effective to cover large emitters, and a tax to cover transportation). b. Second, as one of your online commentators points out, the need for price certainty is for me a bit of a red herring inasmuch as carbon is a commodity or input whose costs can be hedged and managed. Siimilarly, the argument that carbon markets are too volatile has always stuck in my craw. If volatility was a disqualifying feature for a market in anything, none would exist. But somehow, carbon markets are supposed to be rock-steady. c. Third (and this is the biggie for me), the inherent weakness of carbon pricing policy is that it is pretty much impossible for governments to really know what the real cost of carbon is, and just how much variation there is across the economy in marginal abatement cost curves. The strength of the C&T and the quantity-based approach is that the trading market provides the price discovery mechanism that allows for that price to be known. The tax, by contrast, has to be set by government will less-than-perfect information. Setting it too low translates into inadequate reductions; and setting it too high means the economy bears a higher cost than it should. C&T allows for that Goldilock-esque “just right”... I’m very much with you on the point that it is somewhat heartening to see – very belatedly – some attention being paid to climate change/energy policy issues in the election campaign. More than that, I think we are starting to see (or maybe it’s that echo chamber effect that Twitter really amplifies) some acknowledgement that there are, in fact, some significant differences between how the various parties would do things. Our friend Andrew Leach deserves a lot of credit for carrying the analytical load on this. My only regrets are that this attention comes so late as to make a truly fulsome debate unlikely; and that the tendency is still there to see this as a limited debate about climate or environmental policies, without a clear appreciation or linkage to larger economic and prosperity issues facing the country.

Turning to your entry, now.

1. Completely agree with your assessment of the real challenge on “selling” climate policy. I actually have some sympathy for politicians on this issue, insofar as they understand better than anyone the ingrained hypocrisy of Canadians wanting action on climate change, just as long as it doesn’t involve higher costs. In this respect, there is something that needs to be said about ENGOs’ insistence that the real barriers to action are corporate lobbying. First, most corporates are now either in favour or neutral on carbon pricing; and second, if the public support was there to actually accept higher costs, corporate lobbying wouldn’t matter. But that supposed causality, and most ENGOs insistence on making that the issue, let’s us all off the hook.
2. On the C&T vs. carbon tax issue, a couple of points.
a. First, it is important to point out that there is a third option (not the regulatory one), which is a hybrid C&T and tax. BC, of course, will be a real-life model of what that actually looks like, but will be able to draw on European experience with that combination. More to the point, though, a hybrid ensures that the issues with coverage and the differing elasticities of various sectors get addressed (for example: a cap-and-trade as most effective to cover large emitters, and a tax to cover transportation).
b. Second, as one of your online commentators points out, the need for price certainty is for me a bit of a red herring inasmuch as carbon is a commodity or input whose costs can be hedged and managed. Siimilarly, the argument that carbon markets are too volatile has always stuck in my craw. If volatility was a disqualifying feature for a market in anything, none would exist. But somehow, carbon markets are supposed to be rock-steady.
c. Third (and this is the biggie for me), the inherent weakness of carbon pricing policy is that it is pretty much impossible for governments to really know what the real cost of carbon is, and just how much variation there is across the economy in marginal abatement cost curves. The strength of the C&T and the quantity-based approach is that the trading market provides the price discovery mechanism that allows for that price to be known. The tax, by contrast, has to be set by government will less-than-perfect information. Setting it too low translates into inadequate reductions; and setting it too high means the economy bears a higher cost than it should. C&T allows for that Goldilock-esque “just right”…

]]> By: Neil http://greenpolicyprof.org/wordpress/?p=603&cpage=1#comment-1937 Neil Fri, 29 Apr 2011 16:46:57 +0000 http://greenpolicyprof.org/wordpress/?p=603#comment-1937 Two points. a. You contradict yourself in point 3 where you imply there is little difference between a fixed or fluctuating carbon price: "There are a variety of ways to achieve necessary emission reductions ... carbon taxes ... fix the price but allow the quantity to vary." Carbon taxes may not, therefore, achieve the necessary quantity of emission reductions, if they allow the quantity to vary. b. It is not a given that "the price certainty of a carbon tax is far preferable to large emitting industries". For example, these industries cope with other variable input costs (the oil price for example) by forecasting and hedging. They may assume, for example, $50 a barrel oil and fix that with a swap contract. Carbon is just another commodity that can easily be hedged in the same fashion. The industries that want a fixed price can pay it; those that can take the risk can take it; and you get the lowest-abatement-cost-discovery advantage of the market, as opposed to constant readjustment of a carbon tax by bureaucrats. Nevertheless I agree with the thrust of your post that the political simplicity of a tax is very attractive, and the sooner everyone in Canada gets used to counting and avoiding ghg emissions the better. Two points.

a. You contradict yourself in point 3 where you imply there is little difference between a fixed or fluctuating carbon price: “There are a variety of ways to achieve necessary emission reductions … carbon taxes … fix the price but allow the quantity to vary.” Carbon taxes may not, therefore, achieve the necessary quantity of emission reductions, if they allow the quantity to vary.

b. It is not a given that “the price certainty of a carbon tax is far preferable to large emitting industries”. For example, these industries cope with other variable input costs (the oil price for example) by forecasting and hedging. They may assume, for example, $50 a barrel oil and fix that with a swap contract. Carbon is just another commodity that can easily be hedged in the same fashion. The industries that want a fixed price can pay it; those that can take the risk can take it; and you get the lowest-abatement-cost-discovery advantage of the market, as opposed to constant readjustment of a carbon tax by bureaucrats.

Nevertheless I agree with the thrust of your post that the political simplicity of a tax is very attractive, and the sooner everyone in Canada gets used to counting and avoiding ghg emissions the better.

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