Friday, June 06, 2014

Paul Krugman Adopts Eli Rabett's Simple Plan to Save the World

Eli tires (not really) of reminding everyone how prescient the Bunny is.  Today in his op ed column (TED not TEDX) at the NY Times, Krugman discusses the new EPA emission regulations
America can’t expect other countries to take strong action against emissions while refusing to do anything itself, so the new rules are needed to get the game going. And it’s fairly certain that action in the U.S. would lead to corresponding action in Europe and Japan.

That leaves China, and there have been many cynical declarations over the past few days to the effect that China will just go ahead and burn any coal that we don’t. And we certainly don’t want to count on Chinese altruism.

But we don’t have to. China is enormously dependent on access to advanced-country markets — a lot of the coal it burns can be attributed, directly or indirectly, to its export business — and it knows that it would put this access at risk if it refused to play any role in protecting the planet.

More specifically, if and when wealthy countries take serious action to limit greenhouse gas emissions, they’re very likely to start imposing “carbon tariffs” on goods imported from countries that aren’t taking similar action. Such tariffs should be legal under existing trade rules — the World Trade Organization would probably declare that carbon limits are effectively a tax on consumers, which can be levied on imports as well as domestic production. Furthermore, trade rules give special consideration to environmental protection. So China would find itself with strong incentives to start limiting emissions.
Now where has Eli seen this before.  Ah yes back in 2007
 Nations wishing to make major progress on decreasing greenhouse gas emissions should introduce emission taxes on all products. These taxes should be levied on imports as well as domestic goods at the point of sale, and should displace other taxes, such as VAT, sales taxes, and payroll (e.g. social security, health care) in such a way that tax revenues are constant, and distributed equitably.

These should be introduced as an Emissions Added Levy (avoiding the bad jokes). EAL would be imposed on sale for emissions added in the preceding step and inherent to the consumption of the product, as would be the case for heating oil and gasoline. Manufacturers would pay the EAL on electricity they bought, and incorporate this and the levy on emissions they created into the price of the product they sell.

Imports from countries that do not have an EAL would have the full EAL imposed at the time of import. The base rate would be generic EALs based on worst previous practices in the countries that do have EALs, which would be reduced on presenting proof that the actual emissions were lower.

All countries with EAL systems would reserve a portion (say 5%) for assisting developing countries with adaptations (why not use acclimations?) and mitigating programs.

By basing the levy on emissions rather than carbon all greenhouse gases stand on a common level, sequestration is strongly encouraged as well as such simple things as capturing methane from oil wells and garbage dumps (that gets built into the cost of disposal). The multipliers would come from CO2 equivalents on a 10 year basis.

The process can be effective without across the board agreement which means the ability of countries such as the US to bargain the process down is decreased. Further, early adopters will control the process and establish the base rates in concert. Imagine a world wide EAL system controlled by the early adapters. The effect will advantage them in the same was as the oil market being denominated in $ has benefitted the dollar.

If large enough chunks of the world economy, for example, the EU and Japan adopt this, manufacturers world wide have to follow across the board no matter where they are. There are not going to be separate lines to produce whatever for North America and Europe in China. And yes, as in all things there would be some gaming of the system. It’s the price you pay for lawyers and economists.

See, told you it was simple.
and more here including such points as why China and India would do well to adopt Eli Rabett's simple plan
India and China and many other developing countries should reduce their emissions of black carbon by 90% or more in the next decade as part of their work. This will not only significantly reduce warming of the climate, it will make a major contribution to the health of their people. Simple and economical methods of doing this are available. 
Now go read Brian on the emissions regulations.  Good sense, good thoughts.


  1. climatehawk16/6/14 2:44 PM

    Dang, I thought EAL stood for Eli Added Levy.

  2. Have you and Krugman confided your delusions of grandeur with your qualified counselor?

    I'll ask around, but I don't think the world wants to be saved by you.

    Puutty-puut ( Vlad )

  3. Eli needs to have a heart to heart with the world bout that.

  4. Despite what the abstract implies, page 23 of the paper you linked says tariffs to compensate for a domestic carbon-tax or emissions permits probably will not be acceptable:

    In sum, even though in economic terms not internalizing the full cost of carbon could be seen as „dumping‟ or a „subsidy‟, in legal-WTO terms, the failure of a government to impose a carbon tax or to otherwise force producers to internalise the full price of carbon, does not normally give other WTO members the right to impose offsetting duties on imports.

    The simplest way to impose a carbon tax is on carbon fuels. p27 appears to say the cost of such a tax can not be added to imported goods through a tariff.

    "Where the carbon tax or charge is imposed not directly on the product as such but on its producer, based, for example, on the carbon emissions measured at a production installation (for practical purposes it is easier to check carbon emissions at the production site), the situation is more complicated. On the one hand, following the definitions of „direct‟ versus „indirect‟ taxes in the SCM Agreement, a carbon tax (even one imposed on producers) would seem to be classified as an „indirect tax‟ and thus, in principle, be adjustable. On the other hand, it remains unclear whether a tax on inputs (such as energy) which are not physically incorporated into the final product (such as a tax on carbon emitted in, say, China but not, of course, physically present in the steel imported into the United States) can be adjusted at the border. These so-called „hidden taxes‟ (or taxes occultes) target not the physical features of the imported product itself, but rather the process or production method of the product abroad, that is, the fact that when producing, say, steel in China, carbon was emitted in China."

    As I read this, the higher cost of products arising from higher electricity and transportation costs engendered by a significant carbon tax could not be off-set by a tariff on imported goods made without such costs. The higher costs associated with the EPA's new rules on CO2 emissions during electricity generation could not be adjusted.

    If you don't universally tax on carbon-based FUELS, it is not a real carbon tax. If you can't protect domestic producers from competitors who don't apply a significant carbon tax (or the equivalent through emissions permits), governments are never going to impose a carbon tax large enough to reduce emission.


  5. Eric Steig6/6/14 11:12 PM

    The Montreal Protocol is good evidence that doing something to get things going is worth it, even if the initial thing doesn't have much bite. From my favorite graph about this:

    Turns out that Montreal protocol was pretty useless -- but it paved the way for London 1990 and Copenhagen, 1992.

  6. Eyeballing, it looks like Montreal would have brought the increase in Stratospheric Chlorine down from about 13 ppb to about 5 ppb.

    That seems pretty good for something that was "pretty useless"

  7. Oops! left out a 'by 2050' from my previous post.

  8. But everybody knows the Imperial Planetologist is a rabbit.

  9. The problem I see with Krugman's proposal is the inability to track the carbon emissions through the supply chain in a country such as China.

    However a carbon tax seems fine to me if the regime drops income tax rates to keep government income at a similar level. Unfortunately this is somewhat regressive.

    On the other hand, do these Nobel prize winners remember methane, soot and the other baddies? Should we have a tax on beef and rice?


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