Saturday, December 12, 2009

Would You Buy a Used Car from James Hansen?

James Hansen recently had an editorial, "Cap and Fade," in the NYT.

In it, he argues against a cap and trade system in favor of a carbon fee (aka "tax").

I might actually agree with him on some matters of economics, but that is not the point.

This editorial is as full of errors in logic as almost anything I have seen. Even worse, it reveals the philosophical beliefs and political biases behind much of the climate change agenda.

As for some of the errors in logic: How about this one, early in the editorial:

Because cap and trade is enforced through the selling and trading of permits, it actually perpetuates the pollution it is supposed to eliminate. If every polluter’s emissions fell below the incrementally lowered cap, then the price of pollution credits would collapse and the economic rationale to keep reducing pollution would disappear.

To say that cap and trade "actually perpetuates the pollution it is supposed to eliminate" is either a naive attempt to influence complete idiots or a completely ignorant statement, take your pick. How putting a high price on something -- just as a carbon tax would, by the way -- helps perpetuate pollution rather than create incentives for its elimination is beyond me. (And also, with a cap and trade system, the beauty is that you will get in total whatever amount of pollution the political process decides upon. Contrast that with a tax based system, where the quantity of pollution reduction will be uncertain.) Hansen is correct that if for some other reason every polluters' emissions fell below the cap (well, almost correct -- it is the total of everyone's emissions that would have to fall below the total cap) then the price of credits would go to zero. But that should be celebrated, as the amount of pollution would now be under the level determined to be the socially optimal amount!! Hansen is showing his clear disdain for any kind of cost/benefit determined optimal pollution level and instead thinking that the socially optimal policy is to keep pushing to zero emissions -- while of course decreasing the demand for fossil fuels, lumber, minerals etc. The road to serfdom, in other words.

Here is another statement that just comes out of the blue and makes little sense:

Cap and trade (for sulfur dioxide emissions of power plants in the US) also did little to improve public health. Coal emissions are still significant contributing factors in four of the five leading causes of mortality in the United States — and mercury, arsenic and various coal pollutants also cause birth defects, asthma and other ailments.

Cap and trade did little to improve health...because coal emissions are still contributing factors?? This is the way we do science in the climate change community? Come on, now. What, the only improvement would have been if coal emissions were no longer a contributing factor to anything bad? Ah, right...the only test is if we get emissions down to zero...there we go again down the road to serfdom.

Here is an even better quote from Hansen, showing both a lack of economics understanding and his political biases:

The market for trading permits to emit carbon appears likely to be loosely regulated, to be open to speculators and to include derivatives. All the profits of this pollution trading system would be extracted from the public via increased energy prices.

Oh my god!! The market will be open to speculators and ....will include DERIVATIVES!!!! And of course the cost of all this high tech finance will be EXTRACTED from the public. Scary stuff. But if Hansen would think for a minute, he might not want the price of carbon credits to be $25 in one year and $250 the next...but eliminating those kind of price differences -- AND THEREBY CREATING SAVINGS -- will require trading and, most efficiently, derivatives contracts.

But the funniest quote from Hansen is this:

The fee would be uniform, a certain number of dollars per ton of carbon dioxide in the fuel. The public would not directly pay any fee, but the price of goods would rise in proportion to how much carbon-emitting fuel is used in their production.

All of the collected fees would then be distributed to the public. Prudent people would use their dividend wisely, adjusting their lifestyle, choice of vehicle and so on.

"All of the collected fees would then be distributed to the public. Prudent people..." Wow. Does anyone believe that if the US government collected hundreds of billions in new taxes, that these funds would then be distributed back to the public? And how would that redistribution occur, exactly? And prudent people would then use those dividends wisely? You have got to be kidding. It would be nice, if we got a carbon tax, that all such collected funds be used to reduce the deficit. But money, as we always say in economics, is fungible...our legislators and president could just say that the money they are spending is coming from somewhere else. Spending overall would increase, and the deficit would stay the same. The share of US GDP controlled by the government would increase.

Two conclusions are possible on the basis of Hansen's editorial. One, that he is incredibly ignorant and unwilling to learn when it comes to economics. Two, that he is willing to say almost anything in the pursuit of climate change goals. On the basis of other things he has written and said, and on the basis of many other writings of carbon control proponents, including the emails of ClimateGate, I put my weight on the second: Scarily, the ends justify the means.

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