ECON 255 for next Thursday

http://www.rff.org/files/sharepoint/WorkImages/Download/RFF-DP-08-26.pdf

Comments

[Ty Mitchell]

To start off, I’d like to first appreciate the fact that this paper clearly states that both of these systems, cap and trade as well as tax, are both equally market-based. In today’s politics, everyone seems to immediately turn their head when the word “tax” is used as it is usually thought of as being non-market. I believe that this illustrates the biggest obstacle in getting some sort of carbon tax legislation passed: perception. While the author makes a very substantial argument for a tax versus cap and trade, I’m not sure it is something that is very realistic to pass. Perhaps if it were dubbed with a more dressed-up name, devoid of the words “tax” or “penalty”, then it might get some traction with the public. It would appear that a carbon tax is the most economically sensible option, but this raises another question. How will this new tax money be spent? It is hard for people to justify supporting a tax when the government is already so incredible fiscally irresponsible. Personally, if it were to come to fruition, I would like to see this extra tax money used for investment in the private sector and clean energy technology. I believe that this is the best long-term option for a full transition towards more cost-effective renewable energy.

[Morgan Trimas]

The first aspect of this reading that stood out to me was the authors’ use and, definition of, cost-effectiveness. It seems that merely using the costs associated with loss of market efficiency is a step backwards from the progress that needs to be made to include negative externalities associated with environmental and human damages in the policy-making equation. In order to best address the issues we face, we must include all the social and private costs in our valuation of market failures and strategies for mitigation/adaptation to these problems. One effective way to do this would be a carbon/pollution tax. However, I agree with my peers who have stated that we should attempt to move away from the names “taxes and penalties” in order to gain public support and confidence. Though the benefits of a tax could be explained over and over to policy makers and the public, the fact holds that any politician nowadays who argues for anything but decreased taxes is unlikely to be elected. Therefore, this important strategy may indeed need to be masked by some sort of pseudonym. As with the paper on sustainability wedges that we read, I think an important takeaway from this piece is that certain policies may work better or worse for certain times, geographies, and incomes. It is important to remember that there will unlikely be a “one size fits all” policy solution to our climate problems, but options such as economic tax incentives are viable and hold great promise for addressing our issues. However, it does seem that a carbon tax is the most promising global policy initiative, while a cap-and-trade system may be effective domestically. This also demonstrates the importance of global cooperation and discipline.

[Patrick McCarron]

A key component to this paper's findings is that, although the authors make the case that a tax (rather than an emission cap-and-trade policy) would be most efficient, policy for other emissions could offset the benefits of a CO2 tax. This is troubling, because it points at something all too evident in the current political race--polarization. Even if the "green" side set a tax for CO2 emissions, which would be revolutionary in its own right, it wouldn't do much good if it were offset by relaxation of other green policies. It seems that the authors are almost admitting that we are still far from reaching the social equilibrium in terms of harm to the environment. Progress in one area is almost sure to be offset by setbacks in other areas.

[Ashby Gatens]

After reading another thoughtfully and logically laid out argument for carbon taxes, I decided to look into which states employed these “revenue-neutral” CO2 taxes since the publication of the article, versus cap and trade policies. I came across an article from the Washington Post from November 2015 that excitedly detailed the prospect of a tax taking effect in Washington, which would make it the first state. While I knew carbon taxation was not widespread, some of the language in the Washington post article took me by surprise because it treated the carbon taxes as if they were a novel idea. For example, one economist said of the idea: ““I think it’s a relatively new idea for a lot of people,” but that it was starting to catch on. This is an unfortunate, since economists like such as Aldy, Lay, and Parry have laid out extensive, even seemingly exhaustive and logical arguments for their implementation since 2008. While it is no secret that the current political climate is counterproductive to the goals of environmentalists, the fact that this article and those like it have not brought about more change is simply further support for that fact.

https://www.washingtonpost.com/news/energy-environment/wp/2015/11/10/these-could-be-the-first-u-s-states-to-tax-carbon-and-give-their-residents-a-nice-paycheck/

[Shlomo Honig]

This RFF paper did a fairly good job of juxtaposing the pros and cons of different solutions to carbon dioxide emissions – namely a CO2 tax and a cap-and-trade system – in both the present and future. What stood out to me was the idea of taxing the upstream production stages more heavily. This struck me as a very logical idea that should, if I understand it correctly, be put to better use if we wish to try to avoid the incredibly high projections of a $100+/ton CO2 tax by 2100, as expressed in the paper. A potential problem with this approach, however, is that consumers would be removed from the tax and would therefore not respond as directly to the price change from the implementation of the upstream tax. As a result, if people are not mindful of what they are paying for (i.e. the slowing and mitigation of carbon dioxide emissions) then it is less likely they will factor environmental impacts into their consumer choices. Instead, they might burden the higher price without questioning the rationale for why they are paying that higher price. These higher prices resulting from the tax would still lead to incentives for more R+D and a transition to cheaper, less carbon-intensive fuels. This makes upstream carbon dioxide taxing seem promising, especially since it simplifies a lot of the complexity attributed to a downstream tax. As most policies, though, it is not a panacea but could still help to mitigate GHG emissions in the near future. I would be interested to learn more about the implementation of this kind of policy.

[Spencer Payne]

Aldy, Ley, and Parry say that “the cost-effectiveness condition can be met if all countries impose the same tax rate on CO2 — and the same tax on other GHG’s and credits for sequestration — and that tax rate rises at the rate of interest over time.” However, they acknowledge that while it would be ideal for all agents to face the same absolute emissions price, exchange rates would make that impossible. Thus, they advocate instead for a rate to be defined in U.S. dollars and converted into other currencies, so countries around the world incur the “same” cost to emit CO2. This idea is sound in theory, but I think it is a bit too simplistic. The authors fail to account for something that, in my opinion, must be controlled for: fossil fuel expenditure as a percentage of GDP.

Relative to the United States, a smaller, less wealthy country like Ecuador likely cannot pay the same amount for fuel. Currently, the average gas price in Ecuador is $1.85, according to World Bank indicators, while prices average $2.81 in the United States. Dramatically increasing gas prices in Ecuador would greatly reduce its fossil fuel consumption, a goal of this Pigouvian tax. But I would argue that, given the fact that less wealthy countries have significantly less access to energy alternatives, dramatically increasing the price of filling up in Ecuador could grind its economy to a halt. Companies might see transportation costs skyrocket, employees might not be able to get to work, and socioeconomic gaps would probably increase.

For these reasons, I think Aldy, Ley, and Parry should nuance their policy suggestion. I do not believe that perfect tax-equality is fair, in this case. Countries have different economic structures and varying levels of fossil fuel dependence. Therefore, these characteristics — for which fossil fuel expenditure as a percentage of GDP could serve as a proxy — must be considered during policy discussions.

[Alison Peacock]

In part C of Choice on Control Instrument-A Domestic Perspectives, Aldy, Ley, and Parry discuss the cost-effectiveness of the specific fiscal interactions. They talk about how adding a CO2 tax will cause higher energy prices, which in turn will drive up product prices in general. This increase in price will lead to consumers having less purchasing power. The authors believe this could depress labor and capital supply. The final result would be an increase in the costs associated with climate policy. We have discussed this issue in class before. If the government decides to impose a carbon tax, the best way to offset the potential drawbacks associated with this would be to lower income taxes. This way, people have larger disposable income and have the power to decide if they want to spend their additional income on gas or reallocate it to more cost-effective options. Aldy, Ley, and Parry seem to also accept this idea when discussing revenue-recycling effect in comparison to the tax-interaction effect. Dropping income tax creates a higher revenue-recycling effect over the tax-interaction effect, which is why the authors back the idea of a carbon tax.

I think for these reasons, a carbon tax is the most efficient way to lower emissions. With a carbon tax and lower income taxes, the economy will not be affected by the higher cost of energy. The only issue with these ideas is the negative connotation of taxes. The public often rejects the idea of increasing taxes. If there was a way to remove the word tax from carbon pricing, it would be easier to gain support for this project, especially if income taxes are also being lowered.

[Walker Abbott]

This paper was ] very helpful in thoroughly explaining the pros and cons of the carbon tax and the carbon cap and trade methods of regulations.
I found II.D. particularly relevant to our conversation in class Tuesday about distribution and efficiency. In economics we focus on efficiency but it is important to remember there are many parts of the equation beyond "efficiency". Aldy et. al discusses sacrificing economic efficiency in order to help the uneven distribution of negative effects of a CO2 tax. Lower-income households spend a greater proportion of their income on fuel/ heating/ gas than higher income households, so a CO2 tax would disproportionately impact these households.

In section III.D. Aldy et. al discusses determining the "efficient" tax level, an issue we have been discussing all term (efficient level of emissions/ pollution/ etc.). The authors consider that determining an ideal CO2 tax should "reflect world consequences from the estimated future climate change impact," which includes the "comprehensive" approach we discussed Tuesday in class- human health, agriculture damages, sea levels, and more. Determining even the present damages associated with climate change on these nonmarket goods is a complicated and controversial process, and I cannot see how nations can come to a consensus on both present and future predictions. I think it is easy to say that a carbon tax is the solution to reducing CO2 emissions but it will require almost impossible cooperation between hundreds of nations around the world. I agree with Alison in that it is already difficult to gain domestic approval on raising taxes, much less gain public approval globally, especially in developing countries.

Aldy et. al brings up carbon sequestration as an alternative possibility to reducing CO2 emission in our atmosphere, which would supplement a CO2 tax well to mitigate CO2 emissions. Their idea of a tax incentive based structure I think would work well, with the production possibilities example using land for forest or agriculture. Farmers already respond to tax incentives, whether it be to fence out a waterway or implement a change in grazing methods. It will be important to educate and rely on local infrastructure already in place through Extension services and the USDA to implement these changes within the farming community.

[Jonah M Mackay]

Previous respondents have summed up the pro's and con's of Aldy, Ley, and Parry's article fairly well. A carbon tax would probably be a more effective way of reducing carbon emissions than a cap and trade system - hopefully forcing communities, countries and industry's across the globe to reduce their use of fossil fuels - specifically coal - and invest technology and infrastructure budgets into sustainable, renewable energies. An interesting point that the authors bring up is the difficulty in getting governments to agree on standards across national boundaries, giving up national sovereignty for environmental protection. A major benefit to a tax system is that taxes can be easily adjusted to national incomes and economic conditions - allowing them to be tailored to countries, regions, and levels of industrialization. This would allow debate and agreement on policy's to go much more smoothly.

Also, for anyone with interest in alternative fuel sources, check out "algal biofuels" This source of energy hasn't been discussed in class yet, largely due to the fact that research still needs to be done in order to scale up production to industrial levels, but it is an interesting concept and a reminder that many sources of energy may be just on the horizon, we just need to create incentives to explore them.

[Yishu Liu]

I really like ideas behind cap and trade or carbon tax, I think one or both are necessary and will be implemented in the future. However, the question is, how would it be implemented and regulated? For example, how do companies calculate how much carbon they are releasing into the atmosphere? Who is responsible for enforcing and regulating firms’ actions? Are individual companies responsible for reporting how carbon they emit? If so, what are the consequences if firms misreport?

In addition, I think the article briefly touched on the impact of a carbon tax on low income families. How would low income families afford the increase in price of energy related good that are absolutely necessary for daily life? I would say this is a very important issue for United States to consider. Especially with U.S. economy and policies today, such as the high income inequity, and partial social society available. The article mentioned Norway as one of the countries with a successful use of a carbon, but Norway also have more policies in place to help people with low income. I don't think implementing carbon tax and removing income tax will be enough to supplement and make up for the higher expenses for low income family. I think a portion of the money needs to go to improve our current social security to make sure that a carbon tax is not crippling a whole family.

[Cara Hayes]

I thought this paper did a great job of laying out the benefits of a carbon tax policy vs. a cap and trade policy. One issue they briefly mentioned that I wish they went into more detail about is the need for an international climate change regime. Climate change and is a serious, time-sensitive issue that won't be solved by the actions of only a few countries. While, for the most part, there is a global agreement that something needs to be done about the emission of greenhouse gases, there is disagreement over which economic policy to utilize and how fast to start cutting back on emissions. Aldy, Ley and Perry call for "policy coordination and verification among countries" and I am curious as to how possible it would be to attain this.

While the European Union's Emissions Trading System, launched in 2005, seems to have implemented an effective cap-and-trade policy across Europe, would this same type of system work if grew to include the rest of the world? Furthermore, could an international body with the sole purpose of regulating global emissions have an effective presence? Thinking back to the failure of the Kyoto Protocol, the answer is seemingly no. However, the US did not participate in this effort, something that could have made a huge difference. In 1920, the League of Nations failed largely due to the United States' refusal to participate. The US clearly has a huge influence on the world stage and, if it aimed to be, could become the global leader on climate change efforts. Unfortunately, the partisan politics of the US causes many climate change policy changes to stay pending in Congress forever and, if this is reflective of how they would act on an international front, the outcome does not seem effective. Even if the world did agree on the best method of emission regulation presented by Aldy, Ley, and Perry, it is unlikely that it could successfully be implemented unless an intergovernmental body with significant authority was created and the US was in favor of this effort.

[Benjamin Bayles]

I found this to be a rather persuasive article . The carbon tax promoted seemed to mirror the double dividend tax we discussed early in the semester. They referred to it as the ““revenue recycling effect” but the general idea was the same, “tax revenues to reduce existing factor taxes.” This is an idea I agree with. I do worry though how difficult it would be to set the tax to the right amount. If you set it to high for example you could cripple businesses as they would be unable to keep up demand at higher prices. If you set it to low however you many not have any serious impact on carbon emissions. While you could adjust the tax after its implementation, I feel that risks placing too many incentives for firms to manipulate their books or behaviors in hopes of manipulating future changes to the tax.

[Matthew Inglis]

Designing a domestic CO2 tax is likely a necessary step in combatting the growing negative effects of emissions. Although the article discusses the need for an international policy shift, the domestic tax portion struck me most. I understand both mindsets of proponents for a tax from the economic point of view: moderate taxation increasing over time and steep taxation to begin with. However, I believe the more economists that push for the latter, the less likely positive policy changes are to be adopted. It seems dangerous to suggest that such sharp taxes should be implemented at one time, as it may alienate those that do not agree with or comprehend the consequences of emissions; the extreme nature of this suggestion could result in push back that does not allow for any tax to be implemented. If economists got together and attempted to unify in the mindset of gradual taxation on emissions, the pushback at the policy level will likely not be as large. In turn, this may result in actual change occurring. Although, one could argue that this may also see pushback, as those against a gradually increasing tax could say that a small tax would not make enough of a difference. This is evidently an invalid argument, but that seems to be the case with many politicians' viewpoints. Regardless, a tax would benefit the reduction of emissions and consequently climate change, so hopefully we can get past rhetoric and move towards meaningful change.

[Jacob Strauss]

What I found most interesting about this paper is the debate over whether a double dividend exists for a carbon tax. The passage of a carbon tax in British Columbia provides some evidence of how a carbon tax may affect the US, especially states on the west coast.
https://nicholasinstitute.duke.edu/sites/default/files/publications/ni_wp_15-04_full.pdf
The above paper dives into more nuanced issues with the British Columbia carbon tax. Emissions have gone down, but one concern is whether there have been "leakages"- have emissions increased elsewhere in Canada due to the tax? Obviously a countrywide carbon tax solves this issue at the domestic level, but a large corporation would have the means to simple move factories out of the country to a place where emissions are not taxed. With regards to climate change, it doesn't matter where the emissions are coming from.

http://www.economist.com/node/21610340/comments#comments

This article from the economists covers the issues more succinctly, and interestingly they point out that public opinion has changed to support the tax since implementation, and that there is no concrete evidence of a negative impact on jobs.

[Hugh Gooding]

In the debate over the most effective policy for controlling emissions, carbon dioxide in particular, I found this paper especially informative when discussing the issue from a global perspective. Toman's paper that we read for Tuesday touched on it briefly, but I see the biggest obstacle for ultimately lowering our carbon dioxide emissions arising from a global acknowledgement that we are on an unsustainable path and the willingness to take effective action. In this paper, Aldy, Ley, and Parry explore this issue to conclude that a successful international climate agreement will include criteria addressing cost-effectiveness, equity, broad participation, ease of reaching agreement on taxes or emissions targets, verification of member compliance with the agreement, and domestic institutional capability to implement the policy. They remark, as we touched on in class on Tuesday, that reaching a universal solution will be more difficult for emerging and developing countries to accept. Simply put, these emerging and developing countries would bear greater costs as they are more reliant on emissions and energy for continuing GDP growth. Aldy, Ley, and Parry compare and contrast the effectiveness of a revenue-neutral carbon dioxide tax versus a cap-and-trade system. As one would expect, there are mitigating factors and complications that arise from both solutions. The story continues where there is no one size fits all solution to the global management of emissions control. The findings suggest that a revenue-neutral carbon dioxide tax appears to be the closest and most effective and realistic solution for developing and emerging countries. In my opinion, both solutions have obstacles that seem very unlikely for many countries with developing and emerging economies. The goal is to involve the most countries possible and punish those that deviate from the plan. This in mind and hopeful that the United States and Western Europe will assume the driver's seat in this endeavor, the revenue-neutral carbon dioxide tax is the starting point for the most effective multilateral, top-down, climate policy agreement approach for controlling and reducing emissions.

[Maddi Boireau]

I am not an economist, I'm not even an econ major but I don't think that taxing CO2 can possibly turn out the way economists and environmentalists hope. Taxing CO2 is going to make the price of energy reflect the true cost but there is no way every country's economy can sustain this. I think that it could very easily make the poor people/countries poorer and the rich people/countries richer, which is not what this world needs. In addition, like the paper said, by taxing CO2 in general, we would be taxing almost all forms of energy. I looked up Jonah's suggestion of Algal Biofuels, which is cool but we would still have to tax that. Those plants have carbon to emit as well. The only energies that would not be taxed would probably be solar energy, hydroenergy,and wind energy. But then again, I'm sure the solar panels themselves would be taxed because they had to be made using energy, that probably came from some coal based source. The wind turbines would have to be brought to locations using fuel. Many would just not be able to afford it. There are too many aspects and no way to execute it smoothly.

[Ali Norton]

As the paper presented an in depth discussion of tax policy, and the existence of carbon taxes in some countries, I was curious to look further into the policy that countries enacted in the early 1990s and see if/when additional countries adopted carbon tax policy. Not surprisingly, Scandinavia appears to be so far ahead of other developed (and developing) countries. Finland, Sweden/Norway, and Denmark implemented carbon tax policies in 1990, 1991 and 1992 respectively.

The cultural or psychological aspect of tax systems interests me. As the paper discusses the wide implications a carbon tax could have on a country, depending on how revenues are allocated, I question if governments can effectively communicate the mechanisms of a tax policy for carbon, and portray where the revenues are allocated with transparency, then would citizens be more willing to back a carbon tax? I’m guessing the answer is yes. Considering the first four countries to write carbon tax into law all hail from the same region, I’m wondering to what extent culturally dominant views of energy and climate policy enabled Scandinavia to emerge at the forefront of carbon tax policy.

The paper calls attention to whether taxes really do (or have) given firms to innovate. I was slightly surprised that the effects of carbon pricing have maybe only made a moderate impact on innovation, due to existing incentives for firms to devote resources to R&D efforts. When considering innovation across different companies and different regions, Denmark’s emphasis on clean energy and electric vehicle usage came to mind.

While spending two spring term’s in Copenhagen, I saw many citizens and professionals riding bikes or using public transportation during their daily commutes and routines. When people drove cars, they were smaller, often electric vehicles. My host family explained to me that car ownership was minimized in the city because of the extraordinarily high tax rate on car purchase and vehicle registration. As I looked into Denmark’s car-related tax policies after reading this paper, I came across a Bloomberg article detailing the newly elected Danish government’s plan to lift the tax break on EVs and begin taxing the vehicles at 180%. The article points to the new tax’s intention to help businesses. As quoted in the article, Denmark’s current finance minister suggests that while the former government promised to keep EVs tax exempt, this is not economically feasible. I was fascinated (and discouraged) to discover this policy. Even in a country that has been on the cutting edge of sustainable practices over the last 2+ decades, government policies and political agendas can still impact progress moving forward.

http://www.bloomberg.com/news/articles/2015-09-29/teslas-hit-by-180-tax-in-denmark-as-green-goals-get-left-behind

[Rachel Stone]

We've been talking about ways to implement change all semester long. After reading yet another article about a way to decrease our emissions, I wanted to look into and see if anyone has acted on these proposals. As evidenced by the extensive reading on the matter we've done in this class, there is no shortage of information and statistics arguing in favor of measures to protect the environment. However, such a carbon tax as discussed in this paper has still yet to be implemented. Washington State proposed Initiative 732.

http://sos.wa.gov/_assets/elections/initiatives/FinalText_779.pdf

It was difficult to sift through the information and determine exactly what is happening, but I believe it has been filed and will go into effect in July 2017. This act will add a tax to carbon emissions of $15 per metric ton, increasing to $25 in July 2018 and 3.5% plus inflation thereafter. While this is great, it seems to be the sole tax of its kind. Possibly, like many of my peers have said, such a tax needs to be presented with a more positive spin on it. Maybe calling it a policy, or like Washington, an initiative. In today's polarized political world, it seems like most people only agree that they don't want to be taxed more, even if it's for a good cause. Hopefully, other states will follow what has been attempted in Washington.

[Amanda Wahlers]

This article was such an interesting read, but I’m genuinely upset that I did not happen across it when I was writing my ENV 110 final paper on climate change and the pros and the possibility of mitigation through a CO2 tax versus a quota system.

One of the most fascinating difference to me of discussing the relative merits of the two options in an environmental studies class and then in an economics class is that they each seem to favor a different one of the strategies. In discussions in my environmental studies class, I recall that the students seemed to be overwhelmingly in favor of a quota system because their primary concern was the overall quantity of greenhouse emissions produced; the idea that a CO2 tax would leave the quantity free to fluctuate seemed like an ultimate fatal flaw. I did not have the right terminology at the time to very accurately express my own preference for a CO2 tax, but this article clearly articulated that the value of a CO2 tax relative to a quota system is its ability to impose a well-defined and standardized marginal abatement cost on every firm, leading to an efficient outcome.

The section of this paper discussing fiscal cushioning was actually the part that I found most interesting because it is not an issue I’d ever heard of or considered, and yet, it seems like the leeway existing fiscal policies would give countries and municipalities to effectively differentiate their carbon tax rate would have profound power to undermine the efficiency of a CO2 tax as we’ve proposed. This seems to me like another example of economic theory being able to propose a solution to an issue and even to provide suggestions for working around significantly complex real-world problems- except that we, as the human race, collectively lack the political ability to implement it globally (or even domestically).

[Benie Bolohan]

I found this paper to present some interesting ideas about policies regarding CO2 emissions. On one hand, there are taxes, which set a fixed price in hopes that the market will determine a new quantity lower than the current one. On the other hand, there is cap-and-trade, which predetermines the quantity, but leaves the price flexible. Theoretically, if we know where the market equilibrium is (once we include all the social costs and benefits in the MDF and the MAC curves), then the two policies should reach the same end result. Unfortunately, this is highly unlikely.

For one, it is nearly impossible to determine where the market equilibrium is exactly. This is because markets in general are difficult to pinpoint precisely. Furthermore, this market includes non-market values (the social costs and benefits), which are oftentimes hard to quantify in dollars.

Another consideration I believe plays an important factor in differentiating the two systems is how they set incentives. To me, the taxes encourage each business to attempt to cut emissions to the best of their abilities. A permit system would force companies to reach a certain level of pollution. It does not, however, encourage further action to be taken if the companies are emitting CO2 at levels below their allotted amount. Additionally, it seems that the permit system is less likely to be lenient. If a company cannot perform without reducing emissions, then it will no longer be able to survive.

Overall, I believe that the tax system would work best. It allows more freedom to individual companies to determine what amount of pollution is acceptable and encourages companies from all regions to reduce how much they pollute. Furthermore, it continuously works to prioritize pollution reduction for each company at the pace that best suits them. To me, it seems to require less control--a cost for the government--and is less costly to firms as well.

[Mackenzie Dalton]

This article addressed many politician's and people's main concerns with implementing a carbon tax. People complain that a carbon tax would not be cost effective but as we have discussed in class and the article points out, we are not being cost effective now. We aren't paying the actual cost now and are causing more damage than if the actual cost was internalized. Our markets are not efficient and are causing a market failure. A carbon tax could help fix this cost effectiveness problem.

People also believe that a carbon tax would hurt the poor people and poor countries disproportionally. However, poor countries are going to have most of the harm done to them if global climate change continues. A carbon tax could be a regressive tax based on income in the United States. Also profits made from a tax on a national and international scale could be given to help mitigate the effects of global climate change on the poorer countries. This carbon tax wouldn't hurt the poor instead it could help them.

Although, developing a tax on the national or global scale is very important to start addressing climate change, it is going to be very difficult to convince the United States that it is necessary. However, this article does a good job at analyzing the benefits associated with a carbon tax.

[Lilly Grella]

Beyond the big businesses and ideologies against the carbon tax, it seems only right that one would be in place. As the RFF article goes into detail about the pros and cons of the carbon tax and cap and trade policies, it expresses just how necessary and manageable an adoption of a carbon tax is. It just makes sense. It proves to me the question is not whether or not there should be a carbon tax, the real question is when one will be put in place. Worsening climate change and issues arising due to that, has brought with it very clear instructions: we must reduce carbon based energy. A carbon tax seems so straightforward. Unlike cap and trade, a carbon tax would create no new markets; it just creates a price signal that would ultimately spur more innovation and increased clean energy usage. I am very hopeful in regards to the carbon tax; however, I am still skeptical as to its ultimate impact on global warming.

[Sierra Tamm]

In this article, the authors bring up the ability to bank carbon allowances during their discussion on cap and trade system. The “intertemporal trading” appears to be a way for companies to bet on how they think the market will move in the future, for example buying more now if they predict the allowances will become more expensive in the future. This concept reminded me of the idea of climate change as a generational issue. In the same way that companies are betting that they are buying at a good time in the market, I saw a parallel in that as a society we are betting on the climate. Currently, I believe policy makers in the United States are betting without listening to how the market for climate change is progressing. As we wait longer to institute things like carbon taxes or other incentives for individuals and companies to decrease their emissions we are choosing to not buying into dealing with the effects of climate change even though climate scientists suggest that if we do not buy into mitigating climate change now we will pass thresholds after which we will not only surpass the costs of immediate action, but also the possibility of decreasing the consequences of unabated climate change. It seems that unless politicians are able to choose to see the economic benefits of stabilizing climate change, it will continue to become more costly for adaptation.

[William Bannister]

Reading through the comments, I have to say that Spencer makes a very good point regarding the simplicity of Aldy et al's argument regarding having the same costs for emitting CO2 worldwide. The idea that the economy of a country e.g. Ecuador would stall given an increase in the price of CO2 is a very real issue, and one that Spencer has done well to pick up on.
My own issue with reading an article like this comes from reading about various "emission targets" such as what you find with the Kyoto treaty. It is all well and good to set these kinds of targets, but as I far as I have read/know, there doesn't seem to be too much in the way of penalties for countries that fail to meet their targets. Therefore, there is little incentive for countries to really strive to meet their goals, because hey if they don't meet their 2020 goals, then there's always 2030 to look towards, then 2040 etc etc. The point I'm trying to make with this is that I strongly doubt the overall effectiveness of various country-country agreements to lower CO2 emissions within an adequate time frame. If there were genuinely strong incentives to meet emission targets, then global emissions of CO2 would get cut at more or less the rate that would be required to make a genuine difference to climate change. What those incentives would be is the tricky question to answer, as it would be hard to agree on any punishment without one major power being upset about it. The first thought that came to my mind was imposing trade penalties on a country that doesn't meet its target, but I am unaware of how this would really work, and something I'd like to find out about.

[Hines Liles]

It seems as if this paper did a good job of both the pros and cons of either a tax or a cap and trade system. It touches on so many different aspects that could be used as arguments against a GHG tax. For example, the paper points out that lower income households will be hurt most by a tax because the proportion of income that those households spend on energy is higher a wealthier household. But, of course solutions are offered by “recycling” the tax and using it to lower income tax. Other arguments against include the fact that it is difficult to predict and measure abatement costs from a tax or the idea of the tax being undermined by “fiscal cushioning.” But, of course it offers solutions.
I liked that it took data from studies to show us real numbers, or costs. Through this I was able to do rough calculations of costs for certain plants at certain tax levels. For example Marshall Steam Station, a coal energy plant on Lake Norman in North Carolina, emits around 11 million tons of CO2 per year. At a $10 per ton tax rate we would see $1,100,000 + costs per year for that plant alone. Marshall is a large plant that could support that, it has a capacity of 2,090. Megawatts. In the past decade Duke Energy has retired several smaller and outdated plants that only had the capacity of 200-400 Mw. It makes me wonder how a tax would effect the smaller plants that might be less efficient. Especially if the tax were to be focused “upstream”. It seems as if they’d be forced to look for alternative sources.