Ecology and Economics

Dingell Drafts Carbon Tax Legislation

The Carbon Tax Center endorses Congressman John Dingell's Carbon Tax Legislation, set to be introduced later this year. Dingell is chairman of the US House of Representatives Committee on Energy and Commerce. The Carbon Tax Center says of the proposal, "we think the bill is terrific." Here's more from CTC:

… The current version would phase in, each year for five years, a charge of $10 per ton of carbon content of coal, oil and natural gas; plus an additional 10 cents/gallon for gasoline and jet fuel (kerosene). By the end of the five-year period the charges would reach $50/ton of carbon plus 50 cents/gallon of gasoline and jet fuel. These equate to 63 cents a gallon of gas and 90 cents for one hundred kilowatt-hours assuming the nationwide average fuel mix. …

We examined a 20-year ramp-up — starting Dingell's "10/10" tax in 2008 and continuing through 2027 to a level of $200 per ton of carbon plus $2/gallon on gasoline and jet fuel. Here's where the U.S. would be in the representative year 2025:

• Carbon dioxide emissions would be down by 1.55 billion metric tons from projected levels, a 20% drop — a decrease equivalent to current emissions from England, France and Italy combined.
• Petroleum consumption would be 4.5 million barrels a day less than otherwise, an 18% decrease from projected usage, and more than 10% greater than Iran's current production.

Moreover, these reductions could be supplemented by savings from other targeted policies and programs to reduce use of petroleum, natural gas and coal-fired electricity. (Indeed, a companion section of Dingell's bill will call for phasing out the federal tax deduction on mortgage interest on very large homes, thus ending a subsidy through which middle and working class families subsidize gargantuan sprawl homes for the wealthy.) No other single policy measure — not broader CAFÉ standards, not a national Renewable Energy Standard, not a massive biofuels push, and certainly not a new generation of subsidized nuclear power plants — can produce nearly the carbon and petroleum savings promised by the Dingell hybrid carbon tax, provided it extends beyond the initial five-year period.

The brilliant touch in the Dingell bill is the supplemental tax on gasoline and aviation fuel. …

Maybe this will take some heat off Dingell, who some environmentalists have criticized as not "on board" on environmental issues. Or maybe not.

I'll echo The Carbon Tax Center's concluding comment: Let Dingell and others know how you feel on this issue.

… We urge you to read Dingell's Web statement and post a comment on his site and at other sites that cover climate, energy, oil, national security, and politics. Having a legislator of Dingell's stature even float a carbon-tax trial balloon is a very important and positive development — possibly a breakthrough. There's a lot riding on it. Be heard.

See Also:

Newsweek, Web-Exclusive Interview, 'This is Going to Hurt', Sept. 27: A defender of the auto industry proposes a carbon tax that will cause everyone pain. Is the country ready for shared sacrifice to combat global warming? …

Daily Kos, Dingell: A dingbat proposal re Global Warming?, A. Siegel, Sept. 26

Econospeak, Economists v. Politicians, Michael Perelman, Sept. 26: … [T]he Wall Street Journal has chimed in reporting that economists as a whole agree that carbon taxes are the way to limit global warming, yet politicians are just as adamant in supporting the cap and trade. Nobody wants to get blamed for raising taxes. Rep. John Dingell (Dem, GM; i.e. General Motors) is still supposed to introduce a carbon just to prove how unpopular such a tax might be. …

NY Times, What is John Dingell Really Up to?, David Leonhardt, Sept. 5

Economic Fundamentalists v. Realists

Sometimes I amaze myself over how little I really know about economics. Too bad my economics education didn't include any real 'history of economic thought'. That, I've had to pick up on my own later. To illustrate my ignorance, yesterday Dani Rodrick focused my attention on what some call Renaissance (or 'Reality') Economics. You can find a history of the movement that spans several centuries here: The Other Cannon: The History of Renaissance Economics [DOC], Eric S. Reinert and Arno M. Daastøl .

After posting up what The Other Cannon Foundation labels contrasts between the 'standard cannon' of economic thought and 'the other cannon'(reproduced below), Rodrik says that he "cannot agree with their characterization of the conventional approach." Then he asks, "Is mainstream economics really stuck in the perfect information/perfect foresight mold? Ignores man's wit and will? It doesn't handle novelty endogenously? Cannot handle dynamics? And this is just the beginning." Rodrik concludes, "Sorry, but this is not the economics I recognize or think that I practice."

I'll take exception, and align myself — no surprise — with the "Other Canon". Rodrik and some other more mainstream economists are very much aware of broader framing for economic theory and practice, and they show it in their works. But far too many who have been schooled only via mainstream methods, texts, etc. fall too easily into the economics fundamentalists trap. So until more heterodox types, including those who might call themselves 'Renaissance', institutionalist, evolutionary economics, behavioral economics, ecological economics or 'whatever' are allowed into mainstream fora, I'll continue to align myself with those who choose to maintain the somewhat fictional divides between economists.

Following Rodrik's One Economics or Two?, readers chimed in, pro and con. Here is a sampler:

Prestopundit: Is it so hard to understand that situational learning in the context of changing relative prices is the linch-pin causal element in the explanation of economic order across time -- and that this causal element cannot be captured in mathematics or statistics?

Is it so hard to understand that people get blinded to real phenomena by their formalisms and statistics -- and they begin to mistake their "models" and socially constructed statistics for real world phenomena which their "models" could in no way represent?

You are a fool if you don't recognize that this happens in economics all of the time. …

And I won't even get started with econometrics.

Barkley Rosser: [I]n a book I wrote with David Colander and Richard Holt entitled The Changing Face of Economics: Conversations with Cutting Edge Economists(2004, University of Michigan Press), we identified "orthodoxy" as an intellectual category, "mainstream" as a sociological category (those in charge), and "heterodox" as being both, anti-orthodox intellectually and alienated from the ruling mainstream. This allows for a "non-orthodox mainstream," which I suspect Dani Rodrik may find himself having some sympathy with.

I see the term "neoclassical" as referring to an intellectual orthodoxy, one that is ossified and pretty well described by that list on the left, which does indeed look like a straw man if one thinks about research practices by many leading mainstream economists, but which is also very much present in the textbooks, and which does get enforced at many second-tier and third rate places (think Notre Dame, with its assault on the definitely heterodox economics department there).

Between those two lists, I definitely side with the right side, mostly. I do however note that not all heterodox economics is anti-mathematical (see my edited volume with Edward Elgar, Complexity in Economics, 2004). Also, some biological thinking is very neoclassical mainstream, think the Alchian-Friedman theory of why firms really do maximize profits and why speculative bubbles are impossible (duh), versus the sort of thing one finds current econophysicists and Santa Fe hanger-outers doing, which definitely draws from physics. Much of this is a matter of "what kind of physics" and "what kind of math"

No matter how one positions oneself as an economist, for 'progressive' types it is heartening to know that others outside narrow economic circles are focusing on the idea of "renaissance" or "paradigm shifts" in economics. Just the other day I got an email from the Institute for Alternative Futures highlighting a July 07 Trend Brief: Paradigm Shift Emerging in Economics [PDF]. This is one to watch. Alternative Futures note that:

Such a shift will have a substantial impact on many areas including regulatory framing, business strategy and development assistance. … However, there are still a number of forms that the emergence of new models could take. Within this context, the Institue for Alternative Futures is now developing comparative scenarios for this process as an initial step toward adapting organizations to the emerging realities of a next-generation economy.

More on 'The Other Cannon':

Auctioning Off Carbon Permits: Better than Carbon Tax?

Over at the promising new blog Econospeak, Peter Dorman argues that auctioning off permits for rationing carbon is a better strategy than either a carbon tax or the much-maligned 'cap and trade' system. I'm not yet convinced, still leaning toward a tax. But at least Dorman has it out there for discussion. Here is Dorman:

Tax Carbon?: The New York Times has a story today about John Dingell's change of heart on climate policy. … [A] carbon tax "is the climate solution that economists and environmentalists have long dreamed of" [says NY Times David Leonhardt] and that the only alternative is cap-and-trade, giving away emission permits to longstanding polluters. The third approach, and by far the best, is setting up a permit system and auctioning off each one of them.

There are two reasons why permits rule. (1) There is great uncertainty about the future relationship between carbon prices and pollution levels (long run elasticity of demand for fossil fuels). Taxes place the burden of this uncertainty on the environment (the amount of pollution); saleable permits place it on costs faced by energy users (fossil fuel prices). (2) Politically, if we go the tax route, we end up in a discussion about taxes. … If we center the policy on permits the debate is over how much greenhouse gas emissions we are willing to tolerate. That's the discourse we need.

Folks, this is a very important issue at a very important time. In the next year the contours of the national debate over climate change policy will be set. Huge ecological consequences — and gobs of cash — are on the line. It is essential to start off in the right direction. I'd like to see enough clarity and truculence in the activist community that journalists are forced to take notice

Background, from Leonhardt's article:

… Devised correctly, a cap-and-trade system could certainly work. But there are enormous complexities. As Gregory Mankiw, the Republican economist, has pointed out, companies that use the most energy today are likely to be given the largest number of permits, essentially rewarding them for their prior pollution. Some companies may even deliberately use more energy in the next few years, to assure themselves additional permits. Given all the issues, a cap-and-trade system could end up being "ineffective or even counterproductive," Lawrence Summers, who was a Treasury secretary under Bill Clinton, has warned.

A solution that relies at least partly on a carbon tax would be simpler, and the revenue it generates would go to the government, rather than to companies. The government could then turn around and cut, say, payroll taxes to cushion the blow of more expensive gasoline and home heating. …