Of cap and trade

Brad DeLong thinks about the real world differences between carbon taxes and cap and trade. He clearly has in mind the caps that are in some way subsidized: given away or sold at below market clearing prices.


While carbon taxes and cap and trade ARE theoretically identical if the caps are auctioned by government, they have vastly different equity (but not efficiency) properties when given way. Economists need to be very clear about this.

I would say that to first order cap-and-trade and carbon taxes are the same,
that there are five first-order[second-order?] differences:

Cap-and-trade involves less redistribution because the losses of the
losers are partially offset by their initial awards of tradeable permits.

Cap-and-trade runs the risk that the cap will be set at the wrong place and
so the price will go damagingly above its social optimum value.

Carbon taxes run the risk that the tax will be set too low and so the quantity
emitted will go damagingly above its social optimum value.

Carbon taxes have the advantage that the government gets money that it can use for
good--either to cut existing taxes that have large deadweight losses or to
expand underfunded programs that have large social benefits.

Carbon taxes have the disadvantage that the government gets money that it can use
for ill, and that the recipients and beneficiaries of that ill-used money will then dig in and defend their rent-seeking gains beyond death itself.

and that there are two third-order
differences:

It's easier to get not-too-bright Republicans to vote against something that is actually in their long-run interest if you can demagogue it by calling it a tax.
It's easier to get not-too-bright Democrats to vote for something that actually is not in their long-run interest if you can demagogue it by claiming that it's just a restriction on the behavior
of corporations and not something that directly impacts people.

I don't have a dog in this fight: I think second- and third-order pluses and minuses roughly
offset each other. But the substantive case for action seems very clear--and the
fact that oil has risen above $100 a barrel without killing the economy just
makes it more painful to think of what a hideous waste of opportunity our
failure to take Al Gore's advice back in 1993 and put on a carbon tax that
IIRC was going to max out at $10/barrel...

Chasing your tail

Today's NYT piece on water use in southern Spain points out the problem with many backstops: they are themselves reliant to some degree on the primary resource.

The hundreds of thousands of wells — most of them illegal — that have in
the past provided a temporary reprieve from thirst have depleted underground
water to the point of no return. Water from northern Spain that was once
transferred here has also slowed to a trickle, as wetter northern provinces are
drying up, too.

This suggests that whether modeling alternative energy resources, or water
backstops, a degree of endogeneity is called for. As an example, the cost of
photovoltaics might be given by:

where k, a, and b are constants, N is the installed capacity (learning by doing assumed), t is time (proxy for technical change) and p is the price of oil (because of embedded energy use in manufacturing and installation of PV systems).

Sustainable campus design

A pretty picture ... wonder how it might work in practice.