Financial Times Editorial in Favor of Carbon Taxes (via naked capitalism) : … A Financial Times investigation today reveals that carbon markets leave much room for unverifiable manipulation. Taxes are better, partly because they are less vulnerable to such improprieties. …And it gets better:So far, the preferred method has been tradeable permits. Creating markets for carbon has political advantages. They are easy to sign into law and even easier to execute. Instead of the optimal method of auctioning permits, governments have given them away. It is no wonder that energy producers are keen to participate in these schemes.
While short-term politics favour markets, taxes would be better in the long term, because industry needs certainty for investments years hence. A government committing to painful taxes signals the seriousness of its intentions. …
Both carbon taxes and markets put undue burden on the poor. Governments should counter such regressive carbon taxes by lowering taxes on labour. Yet most of the political appeal of markets is that they hide the true costs to consumers. That is why carbon markets exist in the first place. For this reason it is unlikely that governments would offset the invisible burden of markets by changing visible taxes.
Smart market design could overcome most problems with tradeable permits: price caps could prevent undue harm to the economy; and intelligent regulatory regimes could prevent other forms of gamesmanship. Yet markets are bound to be more complicated than taxes. When in doubt, keep it simple. Markets for carbon are potentially good. But taxes would be better
Financial Times uncovers "widespread Carbon Trading fraud" (via naked capitalism) …[W]hat the FT has found is even worse than what we had imagined, worse in the sense that the abuses are so widespread. We hope you will read the stories in their entirety ….
As an American who is concerned both about global warming and the health of the US economy, I would like to bring to your attention a policy proposal that can make a significant dent in US greenhouse gas emissions and oil consumption, while actually improving the efficiency of the economy and increasing overall consumer benefit. Believe it or not, this can be achieved without a carbon tax, CO2 cap and trade, raising CAFE standards, increasing taxes or the budget deficit, developing new fuels, or replacing gas-guzzlers with hybrids.
This can be done simply by reforming how auto insurance rates are determined.
Currently, car insurance is sold on an unlimited mileage, per-year basis. In their 2006 paper “The Accident Externality from Driving” Aaron S. Edlin (Professor of Economics and of Law at UC Berkeley, former senior economist for President Clinton's CEA) and Pinar Karaca-Mandic (RAND Corporation) show that drivers’ crash-related costs may be four or five times larger than what they are currently paying for liability and collision coverage. When accident costs are thus “externalized”, drivers receive an erroneously low price signal, creating a powerful incentive for all motorists to drive more than they would otherwise and resulting in subsidies from low-mileage drivers to high-mileage drivers.
William Vickrey, who was awarded the Nobel Prize for Economics in 1996, was the first to notice this phenomenon and proposed an alternative that
bases premiums on miles driven, in addition to existing rate factors. Within any rating class, the less you drive the more you save, so every driver enjoys an incentive to reduce those miles that provide the least
benefit, while preserving the option of driving when the perceived benefit is great. Todd Litman of the Victoria Transport Policy Institute estimates that the introduction of per-mile auto insurance could reduce
total vehicle miles traveled (VMT) by 15% of more, with corresponding reductions in gasoline consumption and CO2 emissions. And because a relatively small number of high-mileage drivers account for a large percentage of VMT, a majority of drivers could expect to pay less for
per-mile insurance than they do currently.
Insurance companies won’t voluntarily adopt the per-mile basis because any firm that did would bear all the costs (enforcement costs and reduced premiums) of doing so, but its competitors would reap most of
the benefits (reduced accident-related payouts). Therefore, public policy measures requiring all insurance companies to offer per-mile insurance (at least as a consumer option) are needed to eliminate this market distortion.
Per-mile auto insurance would start to reduce energy consumption and greenhouse gas emissions as soon as enacted, and would also reduce costs related to accidents, traffic congestion, local air pollution, and
transportation infrastructure. The true beauty of this proposal is that, rather than merely transferring resources from one group in the economy to another, it would result in a net increase in consumer welfare by
increasing the efficiency of the transportation sector.
Per-mile auto insurance is supported by many environmental organizations, including Environmental Defence, USPIRG, and Resouces for the Future.
See another paper by Edlin entitled "If Voters Won’t Go for Taxing Oil to Conserve Energy, How Do We Do It?"
Posted by: green marketeer | May 12, 2007 at 07:59 PM