Tuesday, May 13, 2008

"The Pigou Club gives the edge to Obama."

Greg Mankiw comments on the two (presumptive... assumptive?) presidential nominees' recent statements on environmental policy.

Mankiw's concern about McCain's position is that the auction is merely for a fraction of emissions, and is not immediate. Obama's "edge" is from his suggestion of a "hundred percent auction," which is, from lack of other qualification, presumed to be immediate.

My additional concern for both proposals is firstly: how often will it be auctioned? If, for example, a polluting factory wins an auction for 2 tons of carbon emissions in a year by paying a hundred dollars into the federal treasury*, can they continue at that rate indefinitely? or will they have to be willing to pay that hundred each year? If we are sincere in our conviction that we should begin to treat the atmosphere as common property, the community should collect regular (as in regularly scheduled) rent for its pollution or destruction.

My second concern is: who would participate, and what is the threshold for polluting that would require an auctioned permit? Would I also need an auctioned permit to run an automobile a given amount a month? And, if not, how do we intend to suggest that this will curb carbon emissions comprehensively? I would think that a solution to this second concern would be to instate a tax across hydrocarbon fuels based on the social cost of their emissions rather than auction their use, and I might guess that Mankiw would agree.

Lastly, who gets the money from the auction? Does it offset income taxes, essentially returning it to the nations citizenry, thus allowing them to (rightfully) be seen as the stockholders of the atmosphere? Does it go to the treasury, going toward the general federal budget (the majority of which is spent on three categories: social security, health programs (Medicare and Medicaid), and defense (Iraq))?

If we were to advocate a Pigouvian solution to this final question, the revenue from the auction would go towards the counteraction of the auctioned activity. Specifically speaking, to curb pollution, tax it, and then use the revenue to pay for the repairing its detrimental effects. This way, as pollution occurs less, you will need to fund its repair less, and you will receive less funding for its repair. In this spirit, health care might be an appropriate category to fund (as the pollution may exacerbate asthma or increase cancer incidence), or perhaps the replacement of carbon based infrastructure (roads with electric train lines, coal power plants with alternative sources) which will need less funding as it becomes more predominant.

I think this last concern might be the least important, as long as it doesn't go to something wasteful (Halliburton, Blackwater, starting wars in oil-rich nations) or something geared toward prolonging the existing problem (ANWR drilling, starting wars in oil-rich nations).

* I have no data to suggest that this would be a reasonable amount for a factory owner to pay. Surely, it would be determined by the cap on total emissions that the federal government instates, with a lower cap drawing higher prices. This is another benefit of the auction system: it harnesses the profit motive for the benefit of the atmosphere, as long as we instate a body (such as the federal government) that is considered the manager of the atmosphere. Specifically, if the managing body wants to raise more revenue, the easiest way to do it is to reduce the total emissions cap. In a tax system, you'd have the same effect through a different mechanism. Want more revenue? Raise the tax (and thus reduce the demand for polluting).

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