Friday, November 2, 2007

The CAT* is out of the Bag

*That’s Carbon Adjustment Tariff to you. It’s coming, probably, and here are some ideas for what form it should take.



The basic idea is simple: any country that gets serious about controlling carbon emissions will raise the price of the stuff, directly or indirectly. Because carbon inputs are important in many other goods and services, they will raise those prices too. If some countries take action on climate change and others don’t this will lead to distortions in global markets. Otherwise well-meaning governments might refrain from action, fearing the competitive effects. If the elasticities are particularly unfavorable, it is even possible that stringent regulation in one country could lead to an exodus of industry to places where carbon burns freely, resulting in an overall increase in global emissions.

So put a tariff on goods to offset price differences attributable to different carbon regimes. There isn’t an accepted name for the idea yet, so let’s call it a carbon adjustment tariff. The idea can be found in Warner-Lieberman and has been broached by heads of state in Paris and Berlin. It is difficult to see how individual countries can take the lead without it.

Good ideas can have bad consequences unless they are thought through, however. Here are three principles that ought to govern a CAT you could love.

1. A tariff schedule should be insulated as far as possible from self-interested manipulation. In a better world it would be the product of a representative and accountable global agency. In the shabby one we live in it should at least be the joint product of a subset of countries, rich and developing, that are willing to take some initiative.

2. All the money collected under such a tariff—repeat, all the money—should be returned in some fashion to the countries of origin, to finance green investment. Yes, I know a lot of this cash will be misspent, but it would be misspent in the collecting country too. The CAT must not become another means to suck scarce resources from South to North.

3. Some or all of the revenues should be held in escrow, pending the agreement of the trading partner to enter a “contract and converge” system under which it will approach a common per capita carbon emissions target. This money can sweeten a deal that should be made on its own merits.

It bears repeating: policies to forestall global warming are not only environmental policies. If they take their job seriously, they will have profound effects on national and global economies. They should be designed to be economically progressive and sustainable.

10 comments:

knzn said...

Doesn't #2 undermine the whole idea: choose a low-carbon regime and price high, and we'll buy X amount from you; choose a high-carbon regime and price low, and we'll still buy X amount from you, but we'll rename part of the payment a CAT rebate. The difference might be that, in the latter case, the money goes to the government of the supplying country rather than the export businesses. But that just gives the government all the more incentive to encourage high-carbon production in the first place.

This post really brings out the jingoist-fascist-imperialist in me. The obvious example of an exporting country that would be affected by a CAT is China. Do I want to suck resources out of China? Hell, yes! if China is going to become the biggest contributor to global warming. The Chinese need to be punished, not coddled. (At the moment, of course, the US needs to be punished even more, but fortunately in a democracy, bad policies are easier to change from within.)

knzn said...

I should also note, it's not clear to me what net effect a tariff would have on the amount of resources that the US sucks out of China. At the moment, the Chinese are effectively selling below cost (by accepting payment in the form of depreciating IOUs). They're deliberately giving up resources over the protests of the sucking nation. Assuming no change in exchange rate policy, a tariff, by reducing Chinese exports to the US, would reduce the amount of the subsidy that China gives the US. The US (if it gets the tariff revenues) would capture more of the profits on the remainder, but it's not immediately obvious to me that this effect would predominate. (In particular, if the tariff were large enough to stop all trade between China and the US, then the suck rate would go from some positive number down to zero.)

knzn said...

I guess my real problem with your suggestions is that they make the problem of global warming more difficult to solve and therefore less likely to be solved. International agreements are hard to do, and more so the more countries are involved. Getting the American people to accept policies that are "fair" to developing countries may be even harder. On the other hand, a plain old tariff, that can be justified to the world as a response to global warming and justified to the American people as a way to stick it to them damn foreign whiners, is a reasonably feasible policy to help deal with global warming.

rosserjb@jmu.edu said...

This may well be coming, but if it is not done within some kind of agreed upon international framework, it could get really out of hand.

BTW, in the end, the only sanction anybody has against any country violating an international agreement on global warming is trade sanctions. But, given that almost nobody is meeting the Kyoto Protocol standards, it looks pretty hard for anybody to legally challenge the others. The observant UK would only cut off its nose to spite its face if it put in place such tariffs against all the other countries that are currently in violation.

Myrtle Blackwood said...

Indonesia would be hit very hard by such a tariff.

"Because of logging, land clearing and forest degradation, Indonesia is the world's third-largest contributor to greenhouse gas emissions...

Perhaps some program to tackle international corruption may be more effective as a climate change initiative?

"..Corruption within the judiciary, police and the forestry ministry is widely acknowledged to contribute to massive illegal logging in Indonesia...

Same problems in Australia amongst the multinational forest-rape corporations and the respective govt 'regulators'.

Timber baron acquitted over illegal logging
http://www.theage.com.au/news/world/timber-baron-acquitted-over-illegal-logging/2007/11/06/1194329223202.html
Mark Forbes, Jakarta. November 7, 2007

Peter Dorman said...

Brenda,

A CAT should apply only to fossil fuels. It would be a terrible mistake to use tariffs as a means of passing judgment on forest management, land use, etc. The tool should be calibrated to the purpose. A tariff on, say, tomatoes should be based on the carbon content of tomatoes, not on the virtue of a country's government in protecting its mangrove forests.

Myrtle Blackwood said...

Peter, thanks for clarifying. I'm still confused, however.

How would a CAT differentiate between
the carbon emissions that arise from the production of a good or service versus the fossil fuel use in the same process?

The soil from old-growth forest is extremely rich in carbon. Many of the soils are peat in nature.

How would you treat the carbon footprint of the paper products that arise from such clearfells and burns?

Peter Dorman said...

The simplest solution would be to adjust only for fossil fuel inputs, not renewable carbon inputs. It would not be a complete response, but it would be pretty good. In any event, our understanding of the long term consequences of various afforestation and harvesting policies on atmospheric carbon is murky at best. The contribution of a forest is measured by the cumulative carbon fixation over a long time interval. If you cut a tree and grow one back, ending up with X biomass in 2050, is this worse (for the climate) than letting the tree do its thing, and still perhaps ending up with X biomass in 2050? If you fill in a wetland, could this slow down the process of carbon exchange?

Do we really want to go there?

The one thing we know with near certainty is that moving carbon in large quantities out of the lithosphere and into the atmosphere is reversing eons of planetary history, much to our detriment.

Myrtle Blackwood said...

Peter D: "If you cut a tree and grow one back, ending up with X biomass in 2050, is this worse (for the climate) than letting the tree do its thing, and still perhaps ending up with X biomass in 2050?

This is a copy of one of my former posts on the topic of tree plantations (purportedly grown for carbon credits, and used for woodchip):

"It's easy to follow the CO2 trail:

Travel to and cut down and burn native forests and/or farmhouses and farming infrastructure.
(Anyone done the calculations of CO2 used to erect the original farms?)

Burn the napalm that is used to start the fire.

Roast the soil and the (often) hundreds of years of humus stored on the forest floor.
["Globally, soils contain four times as much carbon as the atmosphere, and half of the soil carbon is in the form of humus"]
http://www.eurekalert.org/features/doe/2004-08/dnnl-san080904.php

Release more CO2 in the soil by tilling in preparation for planting.

Plant mega-scale single-species plantations. (How much CO2 is produced in the production, transportation and sale of these trees?)

Twelve years later chop plantation trees down. Burn half of the biomass (and the soil) again.

Transport by truck to a woodchip mill.

Use lots of CO2-producing energy to chip the trunks.

Transport the woodchips overseas or over to the other side of the state and pulp them using more CO2-producing fuel.

Transport the paper pulp overseas to make paper and cardboard.

Transport the paper across the globe for sale to industry and consumers.

What does industry and the consumer do to the paper products once they are used? (Paper nappies, kitchen towels, tissues, newspapers, packaging, magazines, books...)

** Most paper pulp is actually used in packaging by industry.

And after all that, cross your fingers and hope that global warming doesn't result in these industrial 'forests'emitting CO2 as they grow!
www.wrm.org.uy/plantations/material/carbon.html

As Leunig said: "Gee it's good to read about the end of the world in a nicely designed newspaper."

Anonymous said...

To link the CAT and the C&C proposals to the objective of the UNFCCC and put them in the context of the global carbon cycle, the animation at the link below may be helpful to readers of this debate.

The work was done for the Ministry of Environment UK and presented there last week.

It was described as 'brilliant but terrifying' by one of the top risk analysts for Lloyds of London [Bill McGuire of Benfield Hazard] but hell, what would he know? -

http://www.gci.org.uk/Animations/BENN_C&C_Animation_[Tower_&_Ravens].exe

A Meyer