Neil King, Jr. who wrote an WSJ article stating that after an energy conference , several leading oil experts claiming that oil may go past the $100 mark per barrel due to shrinking supply and higher global demand. These oil experts state that new pockets of oil are harder to reach and more expensive to tap. Yet, two members of OPEC tend to disagree. They assert that the falling dollar is contributing factor in rising oil prices while many of the theories presented at the this year's Oil & Money conference stated that there could be many reasons as to why oil prices are so high. It's hard to pinpoint a single cause.
One concern and possible theory that oil prices are so high is that fact that a lot of production in the Middle East is done fron mature oil reserves. These oil reserves are about 41% depleted and may cause a 15 year production plateau. There are more reserves in the wait but to get to them in time would be very costly and may not be possible due to technology and lack of funding.
OPEC officials have aggressively struck down the notion that they are to blame for the high prices by insisting that the market has more control over oil than OPEC.
With 2/3 of the world's oil coming from OPEC, consumers can hardly discern whether oil prices are set by OPEC or by other factors, such as geopolitics, currencies and/or financial investments within the industry. With the Gulf of Mexico and the North Sea reserves helping to ease the control that OPEC may have thought they exuded over oil prices, these prices, like everything else, have more than just one factor to determine how the price is set. With the dollar falling, that may be a bigger factor to oil prices than OPEC.
Wednesday, October 31, 2007
Man slain by government lawn watering restrictions
OK, well maybe not just like that but factual errors and sensationalism are instep with the news. Anyways, according to CNN a 66-year-old man was killed while watering his lawn after a physical confrontation with a 36-year-old man. The two were arguing about SYDNEY, Australia's watering restrictions. Two things are striking, how someone watering their lawn can lead to murder and that a third of the article on CNN is about if the old man was right in watering his lawn at that time.
“I killed the last man who watered his lawn before 5.” Might be the new motto of our next generation of prison birds. Attacking someone on their own property is usually indicative of a strong motive, maybe its to steal their chain, maybe you are a contract killer, maybe you want to enforce water regulations. Who knows? Arguing about water regulation shows a deep commitment to upholding the regulation itself.
“The victim was complying with Sydney's water restrictions when he was killed.” well, that was a close call, for a second I thought this might just be a case of self-defense on apart of the young man. I mean, if water use isn't planned than we would run out of water and humans cant live without water.
The underlying message of this article is that without government intervention in resources we would be utterly lost. It ignores that prices communicate knowledge of scarcity. If water is more scarce prices increase and the opportunity cost of using water goes up. This is just one of many examples illustrating how most people are completely retarded.
A Greener California
Automobile enthusiasts around the country have dubbed California legislators as the “Emissions Nazis.” California legislators earned this nickname because in 2002 they passed laws that greatly restrict the emissions of automobiles. They also require that, by 2016, car manufacturers must reach a 30% reduction in emissions in their vehicles to sell them in California. The opponents (car manufacturers) claim that this is unfair because federal law says that it is up to the National Highway Traffic Safety Administration to set gas mileage standards. California legislators reacted to this by saying that they are not regulating fuel economy; rather they are controlling air pollution for the good of their people.
I think that California is well within their right to limit air pollution in their state. However, I do think that what legislators are doing is ridiculous. I grew up in New York City, and was both there, and in California, this past summer. I did not feel any healthier in California than in NYC. In fact, I did not notice any difference, whatsoever, in air quality. If the legislators actually had a way to measure air pollution, and determined that pollution from automobiles was harming their population then their emissions rules would be justified. However, I have never heard to people living healthier in California than in other states. However, I have heard that people will pay more for cars in California. And this is not just hear-say, this is a fact. In order to comply with emissions standards by the year 2016, consumers will most likely have to purchase vehicles such as hybrids. These vehicles are much more expensive than comparable, non-hybrid, cars. In a nutshell, what will happen is people will spend several thousand dollars more for a low emissions car, and never really see any benefits. In this case, California’s use of command and control policy, is providing no benefits to its population and will eventually cause them to have to spend more hard-earned money on cars.
IHS Essay Contest
The Institute for Humane Studies has an essay contest you might be interested in. You can find the information on the contest here. The topic is: What factors lead to prosperity, progress, and human flourishing?
$1 Trillion for 0.13 degrees
The link to the article: http://www.cei.org/gencon/019,06212.cfm
This article is a great commentary about the Low Carbon Economy Act of 2007 introduced by Senators Jeff Bingaman, D-N.M. and Arlen Specter R-Pa and the big mistake it would be to enact it. To sum up the article; Steven J. Milloy (Author) said the bill would use a “cap and trade” method of reducing carbon emissions. So a limit would be set, arbitrarily set by the government of course, then sell permits to that amount of carbon emission and allow the permits to be traded. Milloy goes on to address what the EPA’s estimates of future carbon emission would be in 2095 with the LCEA implemented. There would be a 23 parts per million reduction from the non LECA world from 718 ppm to 695 ppm. For reference the current level of carbon is 380ppm. Milloy goes on to say that would be at best a reduction of 0.13 degrees from the non action scenario of a change in average temperature of 1.2 degrees. Milloy contends that the $1 trillion dollars required by this bill in the first 10 years and the possible many more trillions required in the future are not worth the reduction in average global temperature increase from 1.2 degrees to 1.07 degrees. I completely agree with this, $1 trillion dollars in more taxes to the American people is way too big of a speculative preventative measure.
Although I agree with his argument, I believe he left out another very important part to his argument. Liberty, what Milloy argues here is a good argument if Liberty is not considered. What I mean is this argument works good if the government owns the world and air. Global warming is a global issue not just an American issue. Where does the government get off in forcing me and others to pay for a global issue when the other people in the world are doing the same exact “damage” and are not paying? When the government sets an arbitrary level of carbon emissions, it is forcing me to consume at some level that I might not find acceptable for my situation when it doesn’t have the property right over the object that I am allegedly damaging in the first place. Having tradable carbon emission permits may be an efficient way of lowering the carbon emissions if that is the main intent, because people could choose the most effective profit maximization for the amount of carbon that is regulated. But, the path to efficiency may destroy liberty in the process. I say spend those trillion dollars to find better ways of enforcing or crating property rights then let the markets truly work. This way we will have an efficient level of carbon emissions and liberty will not be destroyed. That’s my opinion because I value liberty more than efficiency and believe we could achieve both at the same time, which would also be efficient.
This article is a great commentary about the Low Carbon Economy Act of 2007 introduced by Senators Jeff Bingaman, D-N.M. and Arlen Specter R-Pa and the big mistake it would be to enact it. To sum up the article; Steven J. Milloy (Author) said the bill would use a “cap and trade” method of reducing carbon emissions. So a limit would be set, arbitrarily set by the government of course, then sell permits to that amount of carbon emission and allow the permits to be traded. Milloy goes on to address what the EPA’s estimates of future carbon emission would be in 2095 with the LCEA implemented. There would be a 23 parts per million reduction from the non LECA world from 718 ppm to 695 ppm. For reference the current level of carbon is 380ppm. Milloy goes on to say that would be at best a reduction of 0.13 degrees from the non action scenario of a change in average temperature of 1.2 degrees. Milloy contends that the $1 trillion dollars required by this bill in the first 10 years and the possible many more trillions required in the future are not worth the reduction in average global temperature increase from 1.2 degrees to 1.07 degrees. I completely agree with this, $1 trillion dollars in more taxes to the American people is way too big of a speculative preventative measure.
Although I agree with his argument, I believe he left out another very important part to his argument. Liberty, what Milloy argues here is a good argument if Liberty is not considered. What I mean is this argument works good if the government owns the world and air. Global warming is a global issue not just an American issue. Where does the government get off in forcing me and others to pay for a global issue when the other people in the world are doing the same exact “damage” and are not paying? When the government sets an arbitrary level of carbon emissions, it is forcing me to consume at some level that I might not find acceptable for my situation when it doesn’t have the property right over the object that I am allegedly damaging in the first place. Having tradable carbon emission permits may be an efficient way of lowering the carbon emissions if that is the main intent, because people could choose the most effective profit maximization for the amount of carbon that is regulated. But, the path to efficiency may destroy liberty in the process. I say spend those trillion dollars to find better ways of enforcing or crating property rights then let the markets truly work. This way we will have an efficient level of carbon emissions and liberty will not be destroyed. That’s my opinion because I value liberty more than efficiency and believe we could achieve both at the same time, which would also be efficient.
Cheney Vs. The Environment
I recently read the above article/blog which discusses the Cheney Vice Presidency with respect to the environment. It is evident that on many occasions Cheney has sided with economic growth rather than environmental concerns. Most specifically, this article discusses an instance where Cheney chose to promote irrigation flow to farming and ranching communities in Oregon rather than protect endangered salmon on the Klamath river; the river that the irrigation canals channel off of. His reasons obviously stem from political motives in many cases but that's not the ethical implication that I want to address. Rather, I want to discuss the certain market failure implications on both sides of this matter.
First, let's look at the negative externalities associated with accomodating ranchers and farmers. If you accomodate the ranchers, that means largely draining the river and most certainly killing large numbers of Salmon. It is necessity that we discuss the fact the negative externality does not land on the fish! That is to say we should not consider the interests of the fish in deciding whether or not there is an externality. The externality, on the other hand, is going to affect the people that have decided that fish have some level of value to society, be it intrinsic, monetary, etc. Therefore those PEOPLE will be harmed because they will no longer have the pretty little salmon to look at or do whatever they want to with. By choosing to give farmers water rather than protect water levels on the Klamath, a negative externality will almost certainly be imposed on those who value the fish over farms.
Next we look at the negative externalities from the farmers' and ranchers' perpective were they to have not recieved water in the name of protecting Salmon. If, in the name of protecting the environment, water was granted to the people who value the lives of the salmon, then farmers and ranchers of that region would have most certainly lost large amounts of revenue as their already hurting growing season would have nearly come to a halt. Additionally, consumers of the goods produced from farming and ranching in that region will now be stuck with greater shortages and higher prices. So there is a negative externality or externalities on this side of the coin as well.
I think it's important to point out two things in discussing the rights and wrongs of this issue. First, we have to continually keep in mind that when evaluating externalities, we have to evaluate HUMAN harm or HUMAN gain because humans are the active members of society... not fish. Everthing non-human is merely a resource to society. So to say that there was a negative externality imposed on the fish would have been entirely false.
Additionally, I think there needs to be some level of discernment when judging whether or not to promote economic interests over environmental concerns. I would recommend that some sort of hierarchy be developed in order to evaluate this. For example, if this choice was whether or not to protect salmon over building a brand new Hilton, then I would probably have a problem with choosing luxury over the future of environmental well being. However, this was farmers and ranchers producing and selling food and basic necessities to society. I don't understand what environmentalists would have us do on this issue. Eventually, population growth requires larger amounts of food to accomodate a society. And in growing food distribution, it may have to come at the cost of some environmental characteristics.
So we've established that either way you look at it, a negative externality WILL be imposed on someone. So much for pareto optimality. Personally, I think the right decision was made to protect the water resources ranchers and farmers use for their well being. This whole issue goes back to the valuing of human interests versus animal interests. By protecting the livelihood of the salmon in the Klamath both producers and consumers would have been harmed due to the lack of water.
First, let's look at the negative externalities associated with accomodating ranchers and farmers. If you accomodate the ranchers, that means largely draining the river and most certainly killing large numbers of Salmon. It is necessity that we discuss the fact the negative externality does not land on the fish! That is to say we should not consider the interests of the fish in deciding whether or not there is an externality. The externality, on the other hand, is going to affect the people that have decided that fish have some level of value to society, be it intrinsic, monetary, etc. Therefore those PEOPLE will be harmed because they will no longer have the pretty little salmon to look at or do whatever they want to with. By choosing to give farmers water rather than protect water levels on the Klamath, a negative externality will almost certainly be imposed on those who value the fish over farms.
Next we look at the negative externalities from the farmers' and ranchers' perpective were they to have not recieved water in the name of protecting Salmon. If, in the name of protecting the environment, water was granted to the people who value the lives of the salmon, then farmers and ranchers of that region would have most certainly lost large amounts of revenue as their already hurting growing season would have nearly come to a halt. Additionally, consumers of the goods produced from farming and ranching in that region will now be stuck with greater shortages and higher prices. So there is a negative externality or externalities on this side of the coin as well.
I think it's important to point out two things in discussing the rights and wrongs of this issue. First, we have to continually keep in mind that when evaluating externalities, we have to evaluate HUMAN harm or HUMAN gain because humans are the active members of society... not fish. Everthing non-human is merely a resource to society. So to say that there was a negative externality imposed on the fish would have been entirely false.
Additionally, I think there needs to be some level of discernment when judging whether or not to promote economic interests over environmental concerns. I would recommend that some sort of hierarchy be developed in order to evaluate this. For example, if this choice was whether or not to protect salmon over building a brand new Hilton, then I would probably have a problem with choosing luxury over the future of environmental well being. However, this was farmers and ranchers producing and selling food and basic necessities to society. I don't understand what environmentalists would have us do on this issue. Eventually, population growth requires larger amounts of food to accomodate a society. And in growing food distribution, it may have to come at the cost of some environmental characteristics.
So we've established that either way you look at it, a negative externality WILL be imposed on someone. So much for pareto optimality. Personally, I think the right decision was made to protect the water resources ranchers and farmers use for their well being. This whole issue goes back to the valuing of human interests versus animal interests. By protecting the livelihood of the salmon in the Klamath both producers and consumers would have been harmed due to the lack of water.
Sunday, October 28, 2007
Take the Rocks over Oil Prices
http://www.nytimes.com/2007/09/12/business/worldbusiness/12opec.html
The last time OPEC met, Sept 11th, they sought to regain there authority over there market, so they agreed to increase production by 500,000 barrels a day starting November 1st. However, even with the announcement that there was to be an increase in production, prices still rose on the day of the announcement. Since, this meeting oil prices have continued to climb, and there are two very good reasons for this, a weakening dollar, and because OPEC is a cartel. This essay will thus, discuss the reasons behind for the recent surge in oil prices, starting first with the reasons behind the weakening of the U.S. dollar.
The U.S. status in the world economy is being shaken as the value of the dollar continues to fall in the wake of enormous trade deficits and a nationwide housing recession. Recently, the International Monetary Fund Managing Director Rodrigo Rato predicted that there still is room for the dollar to weaken further. "As the IMF looks to a medium-term stability of currencies, we still see that the dollar is overvalued," he said. Other experts have also stated that the dollar could revive if U.S. domestic demand picks up again. However, they are pessimistic, predicting that it will be difficult for the dollar to regain its old glory.
It is clear to see know that the dollar is not likely to rebound anytime soon. But, why should a falling dollar contribute to rising prices? The reason is because world oil prices are quoted in dollars, and with a dollar that continues to weaken compared to a resource that continues to have an ever increasing demand, oil prices will continue to climb.
The second reason oil will continue to climb is because OPEC is a cartel. This oil cartel, which is earning extraordinary profits, will continue to do so because the willingness to pay remains constant and greatly exceeds the cost of production of the oil exporting countries and because they operate as a cartel they are able to charge monopolistic prices.
OPEC plans to meet again in November, but with prices currently at 88 dollars a barrel, it is not a stretch to think that oil prices soon reach 90 to 100 dollars a barrel. OPEC leadership has said that it is worried about the economic conditions in the world market, but they do nothing, and just keep getting richer. Prices could decrease however, if the boost in world production helps balance world supply or at the very least prices could level off, if the dollar was able to stabilize. But, with what the experts have said concerning the dollar and oil futures continuing to rise, it would be wiser to take the Rockies in seven, than to bet on oil prices stabilizing anytime soon.
The last time OPEC met, Sept 11th, they sought to regain there authority over there market, so they agreed to increase production by 500,000 barrels a day starting November 1st. However, even with the announcement that there was to be an increase in production, prices still rose on the day of the announcement. Since, this meeting oil prices have continued to climb, and there are two very good reasons for this, a weakening dollar, and because OPEC is a cartel. This essay will thus, discuss the reasons behind for the recent surge in oil prices, starting first with the reasons behind the weakening of the U.S. dollar.
The U.S. status in the world economy is being shaken as the value of the dollar continues to fall in the wake of enormous trade deficits and a nationwide housing recession. Recently, the International Monetary Fund Managing Director Rodrigo Rato predicted that there still is room for the dollar to weaken further. "As the IMF looks to a medium-term stability of currencies, we still see that the dollar is overvalued," he said. Other experts have also stated that the dollar could revive if U.S. domestic demand picks up again. However, they are pessimistic, predicting that it will be difficult for the dollar to regain its old glory.
It is clear to see know that the dollar is not likely to rebound anytime soon. But, why should a falling dollar contribute to rising prices? The reason is because world oil prices are quoted in dollars, and with a dollar that continues to weaken compared to a resource that continues to have an ever increasing demand, oil prices will continue to climb.
The second reason oil will continue to climb is because OPEC is a cartel. This oil cartel, which is earning extraordinary profits, will continue to do so because the willingness to pay remains constant and greatly exceeds the cost of production of the oil exporting countries and because they operate as a cartel they are able to charge monopolistic prices.
OPEC plans to meet again in November, but with prices currently at 88 dollars a barrel, it is not a stretch to think that oil prices soon reach 90 to 100 dollars a barrel. OPEC leadership has said that it is worried about the economic conditions in the world market, but they do nothing, and just keep getting richer. Prices could decrease however, if the boost in world production helps balance world supply or at the very least prices could level off, if the dollar was able to stabilize. But, with what the experts have said concerning the dollar and oil futures continuing to rise, it would be wiser to take the Rockies in seven, than to bet on oil prices stabilizing anytime soon.
"Save the Poudre"
I cant say that I'm exactly sure what criteria must be met to be designated Colorado's only "wild and scenic river" but it seems that the Cache la Poudre river is just that. The sad truth is that it loses its splendor and majesty as soon as it leaves the Poudre canyon with 90 percent of its water being diverted near Fort Collins for farming and local residents. With population forecast to expand and the looming possibility of drought there is a water district that wants to divert the remaining 10 percent of the river into two reservoirs.
The 40,000 acre-foot Galeton reservoir, located near Greeley, will be filled by waters from the South Platte River whilst the Glade Reservoir, located near Fort Collins, will have a 170,000 acre-foot capacity and will be filled by the Cache la Poudre. Water conservation authorities claim that these reservoirs are mandatory in order to preserve Colorado's existing agriculture. Water would be provided to 15 water districts on northern Colorado with the 40,000 acre feet contribution of the project. Twenty five thousand acres of farmland will also be preserved by the excess water.
Gary Wokner is an ecologist and a member of a group that opposes the use of Cache la Poudre water, cleverly named, "Save the Poudre." He contends that Colorado can meet its current and future water needs through "conservation and education, coupled with modest improvements in agricultural irrigation efficiency." The municipal planners disagree and state that conservation is not enough to combat Colorado's long term water shortage. It seems that these municipal planners are not taking into account all the economic effects of this kind of action. The local farmers would be well supplied by the entire flow of the Poudre but what of the local wildlife living in and around the river? Is the price of being prepared for supposed coming growth worth the environmental costs necessary? Should a river boasting credentials such as "Colorado's only wild and scenic river" be dammed up for the anticipated population boom of agriculture based communities such as Greeley? I think not but I'm sure the Poudre won't stand in the way of "progress."
The 40,000 acre-foot Galeton reservoir, located near Greeley, will be filled by waters from the South Platte River whilst the Glade Reservoir, located near Fort Collins, will have a 170,000 acre-foot capacity and will be filled by the Cache la Poudre. Water conservation authorities claim that these reservoirs are mandatory in order to preserve Colorado's existing agriculture. Water would be provided to 15 water districts on northern Colorado with the 40,000 acre feet contribution of the project. Twenty five thousand acres of farmland will also be preserved by the excess water.
Gary Wokner is an ecologist and a member of a group that opposes the use of Cache la Poudre water, cleverly named, "Save the Poudre." He contends that Colorado can meet its current and future water needs through "conservation and education, coupled with modest improvements in agricultural irrigation efficiency." The municipal planners disagree and state that conservation is not enough to combat Colorado's long term water shortage. It seems that these municipal planners are not taking into account all the economic effects of this kind of action. The local farmers would be well supplied by the entire flow of the Poudre but what of the local wildlife living in and around the river? Is the price of being prepared for supposed coming growth worth the environmental costs necessary? Should a river boasting credentials such as "Colorado's only wild and scenic river" be dammed up for the anticipated population boom of agriculture based communities such as Greeley? I think not but I'm sure the Poudre won't stand in the way of "progress."
Tuesday, October 23, 2007
Polluter Taxes
The Polluter Must Pay
The article by Meg Bortin of the International Herald Tribune discusses a poll that was conducted by the Tribune. According to the poll that was conducted in five European countries and the
Industry Reactions
A spokesperson at Corus, the European steel maker said they are committed to “minimizing the environmental impact of [their] operations through the adoption of sustainable practices and continuous improvement in environmental performance.” At Total, the French oil company, a spokesperson stated that they didn’t believe the industry was responsible for all emissions of greenhouse gases. Analysts believe that the poll results showed that the public wanted the responsibility for global warming to bear financial responsibility, even if the costs would be passed on to consumers.
Who is Responsible?
According to the article, “Asked who is responsible for global warming, respondents blamed themselves along with industrialists and politicians. Between 54 and 61 percent in the six countries said that industry, governments and people in general were all responsible.”
An Alternative to Taxes
Bortin notes that instead of taxing polluters, the European Union forces the industry to restrict carbon-dioxide emissions that contribute to global warming. “Companies may produce a certain amount of pollution and bear costs if they exceed that level: They must either pay to implement pollution-reduction measures or buy new allowances.”
Tax Everyone?
In keeping with the “polluter must pay” idea, should the participants also be taxed because they presumably drive cars? Automobiles are also responsible for emitting carbon-dioxide into the air. It is true that the participants took some responsibility for their part in pollution, however, the article did not mention that any of them volunteered to be taxed in the same manner they believe the industry’s who also create carbon-dioxide fumes are taxed.
Economic Efficiency/Cost-Benefit Analysis
Can it be said that it is efficient for the industry’s to be taxed, but not the participants of the poll who also pollute? If people were to be taxed for every type of pollution, than even infants who fill dirty diapers with noxious fumes should be taxed! This is not efficiency. One of the costs of taxing polluters is that the cost of goods and services would increase because installing, maintaining, and operating pollution control equipment would be passed on to the consumers in the form of higher prices (Titus 27). In addition, there would be higher costs associated with monitoring compliance with pollution taxes that result from regulations (Titus 27). The only benefit would be that their would not be as much contribution to carbon-dioxide emissions as their would be before the tax. In this case, the costs far exceed the benefit, therefore not allowing for economic efficiency.
Command-and-Control (CAC)
There is already a command-and-control in place in the
http://www.globalpolicy.org/socecon/glotax/carbon/2007/0223poll.htm
US Subsidy
Historically, US farmers have received subsidies to keep small farmers from going out of business by reimbursing them for losses incurred while the price of their particular crop is low. Does it make economic sense for the government to give money to farmers to compensate? Shouldn’t the market dictate the profits of these farmers?
It may make sense, in a time of crisis like the Dust Bowl, for the government to bail out a vital part of the economy. Yet when it becomes a regular occurrence, there is a major market failure. Even when the price of a particular crop is high, the farmers often receive government subsidies. Also, the farmers have fewer incentives to compete for consumers: it is economically rewarding for them when the market prices are LOW.
Environmental consequences
Subsidizing farmers also has a negative effect on the environment. The government allows farmers to drill for groundwater with no upfront cost to them. The farmers use this groundwater, with all of their straws in the same cup, competing to use the most out of the resource before it is used up by a competitor. If someone were given property rights to the valuable groundwater, the depletion may not be an issue. Many of the largest aquifers in the US are being exhausted at an alarming rate. However, the farmers in some of the driest states must use copious amounts of this water to grow “cash crops”, which are unsuitable for particular geographic areas.
Economic consequences
Recently, the crackdown on illegal workers has left many small and large farms unable to afford the costs of doing business in this economy, even with the subsidies. Many are buying land in Mexico to use similar workers legally, thereby bypassing this inconvenience. As a result, the US is growing more reliant on foreign food, and becoming much less self-sufficient. At the same time, farmers are still being subsidized at a greater rate. The system cannot hold itself up for long. Many foreign countries, such as Canada and the UK, are starting to look at the US’s subsidy program as being unfriendly and unfair.
The recent trend has been for the government to fund research into alternative fuel technologies. If we can find a crop, ethanol made from corn or sugar that replaces gasoline as a major fuel source, possibly our energy woes and our farming woes will be rectified. It is yet to be seen whether the free market will reimburse this ingenuity, or the farmers and technology will continued to be subsidized.
http://www.nytimes.com/2007/10/18/business/18sugar.html
http://www.nytimes.com/2007/10/15/opinion/15kleckner.html?_r=2&th&emc=th&oref=slogin&oref=slogin
It may make sense, in a time of crisis like the Dust Bowl, for the government to bail out a vital part of the economy. Yet when it becomes a regular occurrence, there is a major market failure. Even when the price of a particular crop is high, the farmers often receive government subsidies. Also, the farmers have fewer incentives to compete for consumers: it is economically rewarding for them when the market prices are LOW.
Environmental consequences
Subsidizing farmers also has a negative effect on the environment. The government allows farmers to drill for groundwater with no upfront cost to them. The farmers use this groundwater, with all of their straws in the same cup, competing to use the most out of the resource before it is used up by a competitor. If someone were given property rights to the valuable groundwater, the depletion may not be an issue. Many of the largest aquifers in the US are being exhausted at an alarming rate. However, the farmers in some of the driest states must use copious amounts of this water to grow “cash crops”, which are unsuitable for particular geographic areas.
Economic consequences
Recently, the crackdown on illegal workers has left many small and large farms unable to afford the costs of doing business in this economy, even with the subsidies. Many are buying land in Mexico to use similar workers legally, thereby bypassing this inconvenience. As a result, the US is growing more reliant on foreign food, and becoming much less self-sufficient. At the same time, farmers are still being subsidized at a greater rate. The system cannot hold itself up for long. Many foreign countries, such as Canada and the UK, are starting to look at the US’s subsidy program as being unfriendly and unfair.
The recent trend has been for the government to fund research into alternative fuel technologies. If we can find a crop, ethanol made from corn or sugar that replaces gasoline as a major fuel source, possibly our energy woes and our farming woes will be rectified. It is yet to be seen whether the free market will reimburse this ingenuity, or the farmers and technology will continued to be subsidized.
http://www.nytimes.com/2007/10/18/business/18sugar.html
http://www.nytimes.com/2007/10/15/opinion/15kleckner.html?_r=2&th&emc=th&oref=slogin&oref=slogin
A city that is doing something with their trash
For many years now Seattle has had mandatory recycling , today 44% of their trash is recycled. Which is way above the national average of 30% of trash that is recycled. Their goal is to reach 60% by 2012 and 72% by 2025. Those numbers seem some what unrealistic to me if the national average does not also rise. How then can Seattle reach such large numbers? The answer to this question is quite simple. It's the law. On trash day they have three different containers outside their house waiting to be picked up; there are new laws are in place that might even add more containers. Seattle like many west coast cities are profiting from recycled goods. A big part of that is because of their location and ports; there has become a market for recycled paper predominantly in the Chinese market. Waste paper now sells for $90 a ton. I don't think that's too bad considering it used to be trash and now people are making money off it.
However, is Seattle an example for the rest of the country? My suspicion is that it is not. If it was than the numbers would be the same all over the country. Seattle succeeds because of the laws that are in place that force people to recycle. If those laws were not in place would people still recycle. Guess that someday Seattle will understand why the rest of the country does not recycle. Because we are not forced to.
However, is Seattle an example for the rest of the country? My suspicion is that it is not. If it was than the numbers would be the same all over the country. Seattle succeeds because of the laws that are in place that force people to recycle. If those laws were not in place would people still recycle. Guess that someday Seattle will understand why the rest of the country does not recycle. Because we are not forced to.
Monday, October 08, 2007
Global Warming Politics
You might be interested in this story about Congressman Dingell's position on global warming policy.
Sunday, September 30, 2007
Chicago: between a rock and a stinky place
In Chicago, the projected greenhouse gas threat in the future is through the roof.
Governor Rod Blagojevich has various policies at hand to consider but all seem to come with high cost. Chicago's chief source for power is there huge coal reserves. Un fortunately, coal is one of the most polluting forms of electricity production. One considered policy for fixing this was to have the factories conain the emissions, rather than send them into the atmosphere. While this is possible, it would raise the cost of power to prohibitively high levels.
What he seems to be wanting to do is build newer coal factories that can constrain emissions more efficiently and cheaply. Going hand in hand with this, of course would be the mandate to reduce output on, or completely shutdown older, dirtier, less efficient factories.
If we have learned anything from the great Depression, it is that paying productive capital not to produce does not work.
What should happen is that we are looking for clean air which can either be classified as public good or a positive externality, either way the policy is the same. The cost of controlling the waste should be subsidized. That way producing more cleanly won't raise the prices. Since newer factories can clean more efficiently, they can "pocket" more of the subsidy. The innefficent older factories will naturally produce less then, for this reason as opposed to producing less for command and control reasons.
The subsidy would be paid by tax payers as a "fee" for enjoying the public good or the positive externality of a cleaner Chicago.
Governor Rod Blagojevich has various policies at hand to consider but all seem to come with high cost. Chicago's chief source for power is there huge coal reserves. Un fortunately, coal is one of the most polluting forms of electricity production. One considered policy for fixing this was to have the factories conain the emissions, rather than send them into the atmosphere. While this is possible, it would raise the cost of power to prohibitively high levels.
What he seems to be wanting to do is build newer coal factories that can constrain emissions more efficiently and cheaply. Going hand in hand with this, of course would be the mandate to reduce output on, or completely shutdown older, dirtier, less efficient factories.
If we have learned anything from the great Depression, it is that paying productive capital not to produce does not work.
What should happen is that we are looking for clean air which can either be classified as public good or a positive externality, either way the policy is the same. The cost of controlling the waste should be subsidized. That way producing more cleanly won't raise the prices. Since newer factories can clean more efficiently, they can "pocket" more of the subsidy. The innefficent older factories will naturally produce less then, for this reason as opposed to producing less for command and control reasons.
The subsidy would be paid by tax payers as a "fee" for enjoying the public good or the positive externality of a cleaner Chicago.
Leaders Weigh Emissions Fund
In a recent article published in the WSJ, leaders of developing and developed countries, met to discuss ways to lower emissions and reduce global warming. The Bush Administration believes that technology improvements would be the fastest way to lower carbon emissions yet at the same time it would expand U.S. equipment sales. The most important agenda is a plan to help fund developing nations with investments for upgrades in energy facilities. China is very interesting in gainingmosr funding as it will become the largest carbon emittor because of its coal power plants. Some at the conference believe that cap and trade emissions reduction program are the key to promoting more investments.
Cap-and-Trade Systems: How It Works
As stated by ucsusa.org, "cap and trade systems draw on the power of the marketplace to reduce emissions in a cost-effective and flexible manner. In practice, cap-and-trade systems create a financial incentive for emission reductions by assigning a cost to polluting. First, an environmental regulator establishes a “cap” that limits emissions from a designated group of polluters, such as power plants, to a level lower than their current emissions. The emissions allowed under the new cap are then divided up into individual permits—usually equal to one ton of pollution—that represent the right to emit that amount."
"Because the emissions cap restricts the amount of pollution allowed, permits that give a company the right to pollute take on financial value. Companies are free to buy and sell permits in order to continue operating in the most profitable manner available to them. So, those that are able to reduce emissions at a low cost can sell their extra permits to companies facing high costs (which will generally prefer to buy permits rather than make costly reductions themselves)."
"A key advantage of a cap-and-trade system compared with other emission reduction strategies is that it gives companies flexibility in the manner in which they may achieve their emission targets. Another advantage is that it sets a clear limit on emissions. Traditional approaches often focus on emission rates or require the best available technology, but do not always require that specific environmental goals be met."
http://www.ucsusa.org/publications/catalyst/page.jsp?itemID=27226959
Incentives
Apparently, intergrating incentives into policies can be an effective way to encourage a correct practice. Instead of trying combat or correct an established or encouraged and damaging practice, policies like the cap-and-trade system can encourage and reward for the correct or "right" behavior by an organization. At the same time, the organization may be able to establish lower operating costs by adopting new policies that align themselves with these rewarding environmental policies.
Cap-and-Trade Systems: How It Works
As stated by ucsusa.org, "cap and trade systems draw on the power of the marketplace to reduce emissions in a cost-effective and flexible manner. In practice, cap-and-trade systems create a financial incentive for emission reductions by assigning a cost to polluting. First, an environmental regulator establishes a “cap” that limits emissions from a designated group of polluters, such as power plants, to a level lower than their current emissions. The emissions allowed under the new cap are then divided up into individual permits—usually equal to one ton of pollution—that represent the right to emit that amount."
"Because the emissions cap restricts the amount of pollution allowed, permits that give a company the right to pollute take on financial value. Companies are free to buy and sell permits in order to continue operating in the most profitable manner available to them. So, those that are able to reduce emissions at a low cost can sell their extra permits to companies facing high costs (which will generally prefer to buy permits rather than make costly reductions themselves)."
"A key advantage of a cap-and-trade system compared with other emission reduction strategies is that it gives companies flexibility in the manner in which they may achieve their emission targets. Another advantage is that it sets a clear limit on emissions. Traditional approaches often focus on emission rates or require the best available technology, but do not always require that specific environmental goals be met."
http://www.ucsusa.org/publications/catalyst/page.jsp?itemID=27226959
Incentives
Apparently, intergrating incentives into policies can be an effective way to encourage a correct practice. Instead of trying combat or correct an established or encouraged and damaging practice, policies like the cap-and-trade system can encourage and reward for the correct or "right" behavior by an organization. At the same time, the organization may be able to establish lower operating costs by adopting new policies that align themselves with these rewarding environmental policies.
The Gas Guzzler Tax
The gas guzzler tax is something that has always fascinated me. If you go to the page that my article is linked too, you can view a table that shows how the gas guzzler tax changes with reduced fuel economy. Basically, if your vehicle gets 22.5 mpg or more you are not taxed, and the tax increases (at an increasing rate) until the sub-12.5 mpg category, where the tax is $7700. This is a feeble attempt to discourage people from buying fuel inefficient cars.
The problem with the gas guzzler tax lies in the design of the system itself. According to fueleconomy.gov "The purpose of the Gas Guzzler Tax is to discourage the production and purchase of fuel inefficient vehicles." A corrective tax, such as this one, may actually discourage the purchase fuel inefficient vehicles, but only if it is applied in an appropriate manner. If you read the beginning of the description of the tax, it says that it only applies to cars, not trucks. This means that the average SUV and pick-up truck owners pay no gas guzzler tax. This is absurd because, realistically, these make up most of the fuel inefficient vehicles in the country. Most cars that guzzle gas are niche cars, such as sports cars, and ultra luxury cars. People that can afford these kinds of cars aren't really going to care about a gas guzzler tax. After all, if you are buying that $90,000 dodge viper (with a massive V-10), odds are you can afford to fill your gas tank, and pay the guzzler tax.
All in all the gas guzzler tax is a feeble attempt at the government trying to protect the environment. In order for this corrective tax to be effective it would have to apply to the majority of vehicles that actually guzzle gas!
The problem with the gas guzzler tax lies in the design of the system itself. According to fueleconomy.gov "The purpose of the Gas Guzzler Tax is to discourage the production and purchase of fuel inefficient vehicles." A corrective tax, such as this one, may actually discourage the purchase fuel inefficient vehicles, but only if it is applied in an appropriate manner. If you read the beginning of the description of the tax, it says that it only applies to cars, not trucks. This means that the average SUV and pick-up truck owners pay no gas guzzler tax. This is absurd because, realistically, these make up most of the fuel inefficient vehicles in the country. Most cars that guzzle gas are niche cars, such as sports cars, and ultra luxury cars. People that can afford these kinds of cars aren't really going to care about a gas guzzler tax. After all, if you are buying that $90,000 dodge viper (with a massive V-10), odds are you can afford to fill your gas tank, and pay the guzzler tax.
All in all the gas guzzler tax is a feeble attempt at the government trying to protect the environment. In order for this corrective tax to be effective it would have to apply to the majority of vehicles that actually guzzle gas!
Interalizing the Cost of Seconhand Smoke.
In a recent article posted on fox news, democrats have chosen to implement a 156 percent increase in the federal cigarette tax, raising the tax from 39 cents a pack to $1 dollar a pack. Some argue that such a tax increase only affects low-income people, because low-income people are more likely to smoke. But I think otherwise. This tax increase is another way of dealing with the everyday frustration that is air pollution. Air pollution caused by the millions of people in America and in this case the thousands in Colorado that pollute the air with their cigarette smoke.
The 156% tax increase is nothing more than an excise tax. For many, many years nonsmokers have been forced to sit, stand, eat dinner or in Colorado walk the streets dealing with secondhand smoke. Second hand smoke is nothing more than a negative externality (A consequence of an economic activity that is experienced by unrelated third parties) produced by smokers.
So what does a 156% tax increase have to do with secondhand smoke and nonsmokers? The tax allows smokers, low-income and smokers of a higher income, to internalize the cost of their air pollution, otherwise known as secondhand smoke. The $1 per pack tax is a shift towards efficiency. Because of the tax, the social cost of second hand smoke is moving steps closer to equaling the private cost of smoking. Efficiency!
The 156% tax increase is nothing more than an excise tax. For many, many years nonsmokers have been forced to sit, stand, eat dinner or in Colorado walk the streets dealing with secondhand smoke. Second hand smoke is nothing more than a negative externality (A consequence of an economic activity that is experienced by unrelated third parties) produced by smokers.
So what does a 156% tax increase have to do with secondhand smoke and nonsmokers? The tax allows smokers, low-income and smokers of a higher income, to internalize the cost of their air pollution, otherwise known as secondhand smoke. The $1 per pack tax is a shift towards efficiency. Because of the tax, the social cost of second hand smoke is moving steps closer to equaling the private cost of smoking. Efficiency!
The Tax Shift
The Tax Shift
An emerging methodology in the effort to encourage environmentally friendly business practices is the attempt to implement incentives in the tax code. Environmentalists want to modify the tax code in a way that would provide incentives by allowing participants to avoid taxation. The idea is that the current tax code is flawed as it allows for business to pass their pollution expenses on to the taxpayer. One example of this occurrence is the Exxon Valdez oil spill of 1989 in which millions of gallons were spilled in the Prince William Sound. Exxon paid a $1 billion settlement for the damages but the tax code allowed them to deduct the loss as a business expense, passing $250 million of the cleanup costs to the taxpayers. Other examples include the mining and timber industries ability to secure sizeable tax breaks for their specific practices and shift costs in the same manner as Exxon. The tax shift proposal seeks not to abolish these tax code practices but to reform it in a way that allows companies to enjoy tax benefits for their environmental awareness. Furthermore, tax shift ideals include a number of corrective taxes and emphasize the need for the government to act as a corrective state and heavily regulate pollution. This excerpt from the article reveals how much emphasis is placed on corrective taxation in the tax shift proposal.
“New and progressively-graduated taxes could shift 10 percent of the federal tax burden in the next 10 to 20 years. As defined by Alan Thein Durning and Yoram Bauman in their book Tax Shift, and by Redefining Progress in Tax Waste, Not Work, the levies could include: Carbon taxes to decrease the generation of greenhouse gases threatening worldwide climatic change. Governments could impose a tax--say, $50 per ton of carbon emissions--or combine a smaller tax with user fees or revenues from the sale of pollution permits;
Pollution taxes to reduce the contaminants flowing into our rivers and streams, filling our landfills and eroding the quality of our soil. There are an estimated 250 human-made chemicals harbored in the living tissue of the average American;
Point source taxes to reduce pollutants pouring forth from the outflow pipes and smokestacks of sewage treatment plants, factories and incinerators;
Traffic taxes in the form of tolls imposed strictly during rush-hour congestion periods, could promote the use of carpools and mass-transit, as well as flextime work hours;
Higher use fees for resources owned by the public, such as grazing or mining that occurs on public lands.
Tax incentives would be offered to invest in energy efficiency and technological improvements. For example, a system of new taxes and permits may dramatically reduce global warming gases and non-point source pollution, which is toxic runoff into rivers and streams. Taxes could be levied on development resulting in loss of biodiversity in wilderness areas. Other new taxes, some of which have already been proposed on the state level (see sidebar), are levies on carbon dioxide emissions and gasoline, taxes on pollutants, taxes on virgin materials and increased fees for using public resources.”
Jordan Ford
Sharing the Wealth
If We Shift the Tax Burden From Work to Waste, Everyone Benefits
by Brian Dunkiel, M. Jeff Hamond, and Jim Motavalli
http://www.emagazine.com/view/?456
Water is a dying resource
Water is an increasingly scare resource all over the world, thereby an excellent example of supply and demand, and conservation for future generations. Because water is scare, demand for the resource is increasing, driving up the price. Residents in
-http://www.globalpolicy.org/socecon/gpg/2007/0307waterprices.htm
Saturday, September 29, 2007
Solar Energy for a few!
The link http://www.miamiherald.com/business/v-print/story/251785.html
Last Wednesday former President Clinton and Florida Gov. Charlie Crist, announced plans for a solar power plant aimed at reducing Florida’s carbon emissions. This solar plant is expected to reduce the carbon emissions by 2 million tons over five years and is a part of a 2.4 billion dollar clean energy program. The first thing that caught my eye was the question of, who is going to front the bill for this? Well, if it’s a state run program then the citizens of Florida are going to pay. The citizens are also paying right into the pockets of the utility company owned by the FPL Group. The FPL Group has a three step plan for this carbon emission reduction escapade. First they are planning to spend 500 million dollars to develop 4.3 million Smart Meters so there customers can track their electricity usage each day online to help control their energy usage. To me this sounds absolutely ridiculous. Every month customers get a bill and are charged according to how much they use, how would knowing daily what your usage is differ from knowing monthly? If people were really interested in how much they used they could walk outside to the meter on the side of the house and take a look. But, these are my value judgments and I guess convenience isn’t worth 500 million dollars to me.
The second part of the plan is to start with a 10 megawatt solar plant and then increase it to 300 megawatts in Florida and another 200 megawatts somewhere else. To let everyone know solar energy is more expensive to produce per kilowatt than other energy producing sources already in place and requires of course, sunlight. ''As we all know, Florida is one of the sunniest places in America, but this is the sort of thing, if they can prove it works, it can be done in sunny places all over the world,'' Clinton said. ``If you mix it in to your overall power mix, the extra cost is not particularly great.'' On a side note, Clinton said “if they can prove it works”. What? They don’t know if it’s going to work? Looks like a huge gamble to me. Back to the issue, yes it will cost more and there are going to be in the end 500 megawatts available. This leads into the third phase of FPL Group’s master plan. Next year FPL is planning on selling Renewable-energy credits nationwide. Renewable-energy credits are credits that prove that energy bought was offset by renewable energy sources. People can now chose to buy electricity at a higher price and get the satisfaction of knowing that it was offset by renewable electricity and they are saving the world from impending doom at the same time! What a fantastic idea, until one comes back to reality. Why would anyone buy more expensive electricity? I had a hard time understanding this from the article so I looked up Renewable-energy credits and found out that in other states they have mandated some companies to have purchased so many of these Renewable-energy credits or they are fined. This is the transferable pollution credits in action just as a different flavor.
My main point of this whole thing is; I see a government subsidized monopoly rising to power. Here is my logic. First, the utility company is owned by the company FPL Group which is already a kind of monopoly second of which is being subsidized by part of the 2.4 billion dollar clean energy program. In perfect competition a company wouldn’t willingly spend $500 million to create convenient ways to help people reduce their consumption of the company’s product. A company in perfect competition that is going to sell a completely homogeneous product like electricity is not going to employ higher priced capital such as a solar plant. To put it plainly, I think this company is using its somewhat existing monopoly power as the utility company and a little natural monopoly (the sunny state of Florida) to gain more profit. They are having the tax payers pay for their solar power plant. Then the company is going to sell electricity at a higher price and get away with it because it is a government mandated product that other companies have to purchase. I think that there is a clear market failure being created by the government and it’s going to hurt the tax payers and the companies that are required to by the credits, but it will reduce carbon emissions and that’s what the legislation is trying to do.
Robbe Uhrhammer
Last Wednesday former President Clinton and Florida Gov. Charlie Crist, announced plans for a solar power plant aimed at reducing Florida’s carbon emissions. This solar plant is expected to reduce the carbon emissions by 2 million tons over five years and is a part of a 2.4 billion dollar clean energy program. The first thing that caught my eye was the question of, who is going to front the bill for this? Well, if it’s a state run program then the citizens of Florida are going to pay. The citizens are also paying right into the pockets of the utility company owned by the FPL Group. The FPL Group has a three step plan for this carbon emission reduction escapade. First they are planning to spend 500 million dollars to develop 4.3 million Smart Meters so there customers can track their electricity usage each day online to help control their energy usage. To me this sounds absolutely ridiculous. Every month customers get a bill and are charged according to how much they use, how would knowing daily what your usage is differ from knowing monthly? If people were really interested in how much they used they could walk outside to the meter on the side of the house and take a look. But, these are my value judgments and I guess convenience isn’t worth 500 million dollars to me.
The second part of the plan is to start with a 10 megawatt solar plant and then increase it to 300 megawatts in Florida and another 200 megawatts somewhere else. To let everyone know solar energy is more expensive to produce per kilowatt than other energy producing sources already in place and requires of course, sunlight. ''As we all know, Florida is one of the sunniest places in America, but this is the sort of thing, if they can prove it works, it can be done in sunny places all over the world,'' Clinton said. ``If you mix it in to your overall power mix, the extra cost is not particularly great.'' On a side note, Clinton said “if they can prove it works”. What? They don’t know if it’s going to work? Looks like a huge gamble to me. Back to the issue, yes it will cost more and there are going to be in the end 500 megawatts available. This leads into the third phase of FPL Group’s master plan. Next year FPL is planning on selling Renewable-energy credits nationwide. Renewable-energy credits are credits that prove that energy bought was offset by renewable energy sources. People can now chose to buy electricity at a higher price and get the satisfaction of knowing that it was offset by renewable electricity and they are saving the world from impending doom at the same time! What a fantastic idea, until one comes back to reality. Why would anyone buy more expensive electricity? I had a hard time understanding this from the article so I looked up Renewable-energy credits and found out that in other states they have mandated some companies to have purchased so many of these Renewable-energy credits or they are fined. This is the transferable pollution credits in action just as a different flavor.
My main point of this whole thing is; I see a government subsidized monopoly rising to power. Here is my logic. First, the utility company is owned by the company FPL Group which is already a kind of monopoly second of which is being subsidized by part of the 2.4 billion dollar clean energy program. In perfect competition a company wouldn’t willingly spend $500 million to create convenient ways to help people reduce their consumption of the company’s product. A company in perfect competition that is going to sell a completely homogeneous product like electricity is not going to employ higher priced capital such as a solar plant. To put it plainly, I think this company is using its somewhat existing monopoly power as the utility company and a little natural monopoly (the sunny state of Florida) to gain more profit. They are having the tax payers pay for their solar power plant. Then the company is going to sell electricity at a higher price and get away with it because it is a government mandated product that other companies have to purchase. I think that there is a clear market failure being created by the government and it’s going to hurt the tax payers and the companies that are required to by the credits, but it will reduce carbon emissions and that’s what the legislation is trying to do.
Robbe Uhrhammer
Marekt for Carbon Emission Permits
From the New York Times Online
http://www.nytimes.com/2007/09/26/business/26bank.html
This week a group representing the world’s leading banks urged the United States and other industrial nations to move rapidly to introduce a lightly regulated system for trading carbon emissions permits. Yet, the banks, failed to make a strong argument as to the reason why the U.S. and other industrialized nations should adopt this Kyoto style of idea. This essay will try to make the point, from an economic standpoint, that the U.S. should adopt a system for trading carbon emissions permits. However, to understand why industrialized nations should start trading these permits, it is first necessary to know the basics about this new system.
Under this newly proposed plan, all polluters are required to have permits in order to discharge pollution. Each permit will state the exact amount of pollution a business may emit. The key idea here though is that the permits can be freely transferred between firms. The control authority will allot the number of permits needed to reduce emissions to the preferred level. Any company that pollutes in excess of the allowed permit requirements would then be fined.
Now if the controlling body issued the permits very precisely and every company received the right amount of permits, there would be no reason for a market in emissions permits. However, it is not a perfect world, were there is perfect knowledge, so permits would need to be traded to make up for the over or under allocation of permits to certain companies. With this system, the world now would have a cost-effective allocation without having even the slightest knowledge about control costs. When using this system the affected governments can now meet there policy objectives while still allowing for greater flexibility in reducing pollution. However, with any new market, especially one on such a large scale, there are bound to be a few drawbacks.
The good news with this venture is that there is only one main negative aspect, which is foreseeable. The one problem that could arise would be if the industrialized nations over allocated their permits; this would lead to volatility and then a collapse in the price of permits. However, the problem is fixed when the controlling authority auctions its permits, thus ensuring that the permits are scarcer and costlier, than if the controlling authority just gave out a certain number to each company.
With only one drawback, which is easily rectified, the new market for pollution is possibly one of the best moves the U.S. and other developed nations could make in reducing pollution. The new market guarantees that businesses have flexibility to achieve the specified reduction in pollution at the lowest possible cost. Next, this new market would probably grow to the point were it would be the world’s largest commodity market, creating new wealth throughout the developed nations. Finally, pollution would be reduced, and in the grand scheme of things isn’t that what we wanted to achieve in the first place.
http://www.nytimes.com/2007/09/26/business/26bank.html
This week a group representing the world’s leading banks urged the United States and other industrial nations to move rapidly to introduce a lightly regulated system for trading carbon emissions permits. Yet, the banks, failed to make a strong argument as to the reason why the U.S. and other industrialized nations should adopt this Kyoto style of idea. This essay will try to make the point, from an economic standpoint, that the U.S. should adopt a system for trading carbon emissions permits. However, to understand why industrialized nations should start trading these permits, it is first necessary to know the basics about this new system.
Under this newly proposed plan, all polluters are required to have permits in order to discharge pollution. Each permit will state the exact amount of pollution a business may emit. The key idea here though is that the permits can be freely transferred between firms. The control authority will allot the number of permits needed to reduce emissions to the preferred level. Any company that pollutes in excess of the allowed permit requirements would then be fined.
Now if the controlling body issued the permits very precisely and every company received the right amount of permits, there would be no reason for a market in emissions permits. However, it is not a perfect world, were there is perfect knowledge, so permits would need to be traded to make up for the over or under allocation of permits to certain companies. With this system, the world now would have a cost-effective allocation without having even the slightest knowledge about control costs. When using this system the affected governments can now meet there policy objectives while still allowing for greater flexibility in reducing pollution. However, with any new market, especially one on such a large scale, there are bound to be a few drawbacks.
The good news with this venture is that there is only one main negative aspect, which is foreseeable. The one problem that could arise would be if the industrialized nations over allocated their permits; this would lead to volatility and then a collapse in the price of permits. However, the problem is fixed when the controlling authority auctions its permits, thus ensuring that the permits are scarcer and costlier, than if the controlling authority just gave out a certain number to each company.
With only one drawback, which is easily rectified, the new market for pollution is possibly one of the best moves the U.S. and other developed nations could make in reducing pollution. The new market guarantees that businesses have flexibility to achieve the specified reduction in pollution at the lowest possible cost. Next, this new market would probably grow to the point were it would be the world’s largest commodity market, creating new wealth throughout the developed nations. Finally, pollution would be reduced, and in the grand scheme of things isn’t that what we wanted to achieve in the first place.
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