Saturday, February 25, 2017

Carbon Tax

                                                        Comments due by March 5, 2017

Carbon-tax haters can relax. The proposal for a national carbon tax released on February 8 by high-level Republicans, including ├╝ber-GOP consigliere James Baker, isn’t going anywhere. Financially and ideologically, the American right is wedded to carbon fuels. Trumpism runs on and reeks of them. Predictably, not a single Republican in Congress, and no one in the White House, has uttered a single positive word about the new carbon-tax plan.
Nevertheless, the proposal’s intended audience may not be Beltway Republicans but rather those ordinary Americans, majorities in both parties, who say they want action on climate, and who therefore might yet figure in the political equation over climate policy. That group includes progressives. We should pay attention: Carbon taxes matter. ...
But progressives can’t just walk away from carbon taxes. Carbon taxes are the only policy tool that, by slashing demand in a rapid, predictable way, divests our economy from fossil fuels and enables governments, business, and consumers to make investments in the transition to clean energy. Carbon taxes also have the best chance of catching fire globally.
The carbon tax James Baker brought to the Trump White House on February 8 on behalf of the new Climate Leadership Council has a lot in common with I-732: The Council’s proposal is also avowedly revenue neutral. But rather than lowering an existing tax, it relies on a so-called tax-and-dividend model: As the state of Alaska does with oil revenues, revenues from the Council’s national carbon tax would be returned equally to all American households in quarterly “dividends” digitally deposited in Social Security accounts. The tax would start at $40 per ton of carbon dioxide.
Earmarking all of the revenue to these dividends creates the political will to raise the tax every year, since the dividends rise in tandem with the tax rate. Ramping up the tax by $5 a year would shrink the use of carbon fuels so drastically that, by my calculations, US carbon emissions in 2030 would be 40 percent less than they were in 2005 (a standard baseline year).

I agree that "progressives" need to get on board the carbon tax train. One hang up might be labeling this as a "conservative" approach. I'm not sure why this is being labeled a "conservative" carbon tax. If there is anything conservatives don't like these days, it is higher taxes. The "conservative" proposal for a carbon tax used to include revenue-neutral tax recycling -- lowering income taxes with an equal amount of carbon taxes raised. Now "conservatives" want to give the money back to the public as dividends. I guess both of these options differ from the "progressive" approach to the government keeping the revenue. Whatever, I don't think the ideological labels are helpful. 
One big quibble (er, a big quibble is probably not a quibble, it is more like a beef): "Carbon taxes are [not] the only policy tool that, by slashing demand in a rapid, predictable way, divests our economy from fossil fuels and enables governments, business, and consumers to make investments in the transition to clean energy." I added the bracketed term because cap-and-trade could do the exact same thing.
The Carbon Tax Center has six objections to cap-and-trade. The style is to compared an idealized textbook carbon tax with the sort of cap-and-trade that might actually be put in place by Congress (e.g., Waxman-Markey):  
  1. Whereas carbon taxes lend predictability to energy prices, cap-and-trade systems aggravate the price volatility that historically has discouraged investments in less carbon-intensive electricity generation, carbon-reducing energy efficiency and carbon-replacing renewable energy.
  2. Carbon taxes can be implemented much sooner than complex cap-and-trade systems. Because of the urgency of the climate crisis, we don’t have the luxury of waiting while the myriad details of a cap-and-trade system are resolved through lengthy negotiations.
  3. Carbon taxes are transparent and easily understandable, making them more likely to elicit the necessary public support than an opaque and difficult to understand cap-and-trade system.
  4. Carbon taxes aren’t easily subject to manipulation by special interests, while a cap-and-trade system’s complexity opens it to exploitation by special interests and perverse incentives that can undermine public confidence and undercut its effectiveness.
  5. Carbon taxes address emissions of carbon from every sector, whereas some cap-and-trade systems discussed to date have only targeted the electricity industry, which accounts for less than 40% of emissions.
  6. Carbon tax revenues would most likely be returned to the public through dividends or progressive tax-shifting, while the costs of cap-and-trade systems are likely to become a hidden tax as dollars flow to market participants, lawyers and consultants.
I think the first five of these are easily debunked:
  1. A price collar can limit the carbon permit price volatility. 
  2. This is an assertion that assumes a carbon tax would not have lengthy negotiations. 
  3. Markets are not all that difficult to understand and I need to see some empirical evidence that transparent and easily understandable leads to increased public support. 
  4. I would predict that special interests would make try to make sure that there are loopholes so that they don't pay the flat tax rate. It is a bit naive to think otherwise. 
  5. Why can't cap-and-trade cover every sector too? Answer: it can. 
Number 6 takes a little more discussion. Carbon permits in a cap-and-trade system can be auctioned off to collect just as much revenue as a carbon tax. I'm not sure why you would choose cap-and-trade over a carbon tax with full permit auctions since there would be no trading as firms would bid up to their marginal abatement cost. Cap-and-trade with freely distributed permits would provide polluters with an asset. Relatively clean firms will make money as they sell their permits. I'm not sure why the always-evil "lawyers and consultants" will make more money off a real-world cap-and-trade plan than a real world carbon tax. 
To summarize, two points:
  1. The carbon tax with dividends is a great proposal. 
  2. The cap-and-trade option should not be dismissed as easily as some would like to dismiss it.

Saturday, February 18, 2017

Trump's Choice on Climate Change

                                       Comments due by Feb. 25, 2017

 Planning. It is the key to successful military action – and, in many ways, to success in general – and United States Marines like me pride ourselves on it. But if you’ve spent 30 years in the military, as I have, you know that an effective plan cannot be static; operating environments change, often in surprising or unexpected ways. Donald Trump’s victory in the US presidential election earlier this month constitutes just such a change.
It may be a long time before we fully understand the new operating environment. But we must begin adjusting – and continue adjusting as new facts come to light. Otherwise, we risk becoming vulnerable to serious strategic threats – the gravest of which is likely to be climate change.
The Year Ahead 2017 Cover Image
The increase in the Earth’s surface temperature represents a fundamental shift in the global operating environment, both economically and militarily. It is not just that some so-called “elites” think that the weather is going to warm up a bit. Climate change is not trivial; nor are its security implications.
Climate change is what we in the military call a “threat multiplier.” Its connection to conflict is not linear. Rather, it intensifies and complicates existing security risks, increasing the frequency, scale, and complexity of future missions.
The urgency of the climate threat is growing quickly. Climate change is already expanding the scope of military operations, with the US Navy and Coast Guard assessing new missions in the Arctic. More intense hurricanes, typhoons, and droughts are increasing the demand for military-assisted humanitarian responses, most notably in the Pacific.
As increasingly extreme weather reshapes migration patterns, the number of displaced people (already at record highs worldwide) will rise, and competition for essential resources (such as water, food, and energy) will increase. These effects will be particularly destabilizing in already-volatile situations, exacerbating challenges like weak governance, economic inequality, and social tensions – and producing truly toxic conflicts. That is why we call climate change “an accelerant of instability.”
Don’t take my word for it. America’s entire national security establishment is clear on this. In fact, the US military has recognized climate change as a major security risk for more than a decade, making it a world leader on this front. Last year’s National Security Strategy reiterated this view, identifying climate change as a top-level strategic risk to US interests, alongside factors like terrorism, economic crisis, and the proliferation of weapons of mass destruction.
These are not empty words. The US military has long been integrating climate change into our planning. After all, the worst security failures – for example, the Japanese attack on Pearl Harbor, which dragged the US into World War II, and the September 11, 2001, terrorist attacks – tend to arise from inadequate preparation.
Reflecting this lesson, during President George W. Bush’s administration, legislation was enacted to require all US defense agencies to consider the effects of climate change in future strategic policy development. In the last four years, the Department of Defense has released a series of directives that put climate-change preparedness at the center of how we do business.
It is too early to say what the Trump administration will do when it comes to climate change. On the campaign trail, he promised to undo some key climate policies, even threatening to back out of the Paris climate agreement. It is critically important that he and his cabinet recognize that to follow through on his promise would be extremely shortsighted.
The truth is that it is in America’s best interest, in terms of both security and the economy, to remain on the path toward a cleaner future. Already, the clean-energy revolution has brought jobs, money, and industry to rural America. It is a source of untold opportunities. And isn’t identifying opportunity one of America’s great strengths?
The shifting economic operating environment bolsters these opportunities. China, India, and other emerging economies are racing to be the global clean-energy superpower; it would not be in America’s interest to be left behind. If America is to be great, as Trump has promised, it needs to build more future-oriented industries that can compete globally – and that can provide jobs to American workers.
Moreover, Trump’s administration will need to continue the US military’s work and create a more resilient national security strategy. The American Security Project, of which I am CEO, looks forward to providing the Trump administration with relevant advice and solutions. We will also call the administration to account if it fails to protect US interests adequately.

Serious strategic risks cannot be a political plaything. The threat of climate change does not sit neatly on either side of the left-right divide; it is – and must remain – part of US strategic planning. Anyone who has been involved in such planning knows that we cannot prepare only for the wars we want to fight; we must prepare for the wars that will come, whether we like it or not.   (Stephen Cheney, Project Syndicate)Ignoring threats might work in politics, but it does not work in security. Denying the reality of climate change will not make it go away; rather, it will erode the economy and expose the US to serious risks. That would amount to a failure by Trump to fulfill one of his most important responsibilities as president: ensuring the security of the American people.

Sunday, February 12, 2017

Are TV Screens Rigged to Cheat?

                       Comments due by Feb. 18, 2017
A regulation that does not have enough inspectors to make sure is not violated will always encourage shirking)
VOLKSWAGEN, a German carmaker, has been disgraced for designing clever software that allowed it to cheat on emissions tests for diesel cars. A different scandal, with shades of the VW affair, has been building up in America’s television market. South Korea’s Samsung and LG, along with Vizio, a Californian firm, stand accused of misrepresenting the energy efficiency of large-screen sets. Together, they sell over half of all TVs in America.
In September 2016 the Natural Resources Defence Council (NRDC), an environmental group, published research on the energy consumption of TVs, showing that those made by Samsung, LG and Vizio performed far better during short government tests than they did the rest of the time. Some TVs consumed double the amount of energy suggested by manufacturers’ marketing bumpf. America’s Department of Energy (DoE) has also conducted tests of its own that have turned up big inconsistencies.

Not all TV-makers are at fault: the NRDC found no difference in energy-consumption levels for TVs made by Sony and Philips. But class-action lawsuits have already been filed against the three companies highlighted by the tests—the latest was lodged against Samsung in New York on January 30th. The industry is now waiting to see whether 

There seem to be two main reasons for the sharp contrast between what TVs do during the government’s tests and during normal viewing. Televisions made by Samsung and LG (but not Vizio) appear to recognise the test clip that the American government uses to rate energy consumption and to advise consumers on how much it will cost to operate the set over a whole year. The DoE’s ten-minute test clip has a lot of motion and scene changes in short succession, with each clip lasting only 2.3 seconds before flashing to a new one (most TV content is made up of scenes that last more than double that length). During these tests the TVs’ backlight dims, resulting in substantial energy savings. For the rest of the time, during typical viewing conditions, the backlight stays bright.
A kind explanation is that the manufacturers have been “teaching to the test” and simply did not understand the inconsistency in energy consumption during the test compared with normal use, says Noah Horowitz of the NRDC. Another explanation is that the TV manufacturers may have been trying to outwit regulators to make their products’ energy consumption appear low to consumers.
A second reason for the discrepancy is that Samsung, LG and Vizio TVs all disabled energy-saving features without warning whenever a user changed the picture setting. On certain TVs made by LG, for example, the only setting in which energy-saving features functioned was in “Auto Power Save” mode. Selecting another setting, including “standard”, disabled the energy-saving feature without notification.
LG has updated its software so that changing display settings will not disable energy-saving features without warning. The firm disputes any suggestion that it and others were “bending the rules”, says John Taylor, a spokesman for LG. Vizio also denied wrongdoing. Samsung has not commented on the NRDC’s findings.
America’s Federal Trade Commission (FTC), which protects consumers, has the power to require repayment of profits from the sale of any TVs that misled customers. At least one former FTC official reckons the case deserves action. The DoE says it is considering whether it needs to modernise its test so that it becomes harder to game. The European Commission, which uses the same test as the DoE, is looking into the three manufacturers’ products as well.
How much regulatory attention the case gets may depend on how the political mood evolves. A Republican-controlled Congress could even try to unwind the energy requirements for all consumer appliances. One bill, introduced in January by Michael Burgess, a congressman from Texas, would prohibit the DoE from enforcing existing energy-efficiency standards or setting new ones. For consumers that would be an unwelcome channel change.

Saturday, February 04, 2017

The 4-5 Largest Market Failures in History

                                            Comments due by Feb 11, 2017

I’m a capitalist for one reason: to raise living standards in my community. A familiar mantra of capitalism guides me: Markets are powerful and efficient.
I’m also a realist, so I temper that mantra: Markets are powerful and efficient. And markets fail.
Market failure is an established, well-understood field of study in mainstream economics. Generations of economists accept the basics of market failure.
However, American economists turn their heads away at the mention of it, because it sounds like heresy.
Consider the four biggest market failures in human history:
  • Climate change: $40 trillion, so far
  • Health care in America: trillions per year, ongoing
  • The housing-financial asset bubble: at least $8 trillion
  • Free trade: $8 trillion, so far
According to the chief economist for the World Bank, Nicholas Stern, climate changeis the greatest market failure in human history. Greenhouse gas emissions are a classic externality, where everyone on earth subsidizes oil companies and consumers of fossil fuels. Fossil fuels are under-priced by $40 trillion — a rough estimate of the cost that future generations will pay for damage we’re doing to the Earth.
Health care in America wastes roughly $1 trillion per year, compared to other wealthy countries, and the problem is steadily worsening.
First, health care is not a market. A market involves buyers and sellers. In American health care, we’re not really sure who is a buyer and a seller.
Figure 1. Find the buyer and the seller in American health care.
As a result, market incentives are badly misaligned.
Very few patients shop around for deals. After the doctor says the word “cancer,” most people lose their shopping instincts.
The housing and financial asset bubble is a classic market failure. Mortgage brokers misled home buyers into bad mortgages. Banks bundled unaffordable mortgages into bogus securities and sold them to investors. Rating agencies provided false security to investors. Herd mentality and massive group-think inflated the asset bubble. Losses in housing values alone exceeded $8 trillion.
We should add costs for the recession, millions of foreclosed homes, personal bankruptcies, lost opportunities, millions of workers unemployed and careers damaged permanently.
Markets rewarded bad behavior and punished millions who behaved responsibly.
Free trade is a market failure, but it is also an intellectual failure for the economics profession, and a policy failure on the part of elected officials. Our cumulative trade debt since NAFTA is well over $8 trillion. Our economy is de-industrializing, with thousands of factories closed, millions of jobs lost, and no improvement in sight.
Free trade has enjoyed inexplicably unassailable reverence since David Ricardo introduced it in 1817. It was unrealistic in 1817, and it is unrealistic today.
It starts with hopelessly idealized assumptions, applied blindly in the complex global economy, where trading partners and multinational companies exploit those assumptions for their own purposes. We were promised mutual gain, but we suffer huge deficits, concentration of wealth and power among trade’s “winners” and loss of bargaining power, de-industrialization and stagnant wages for the rest of us.
If the study of free trade were moved from economics departments in universities to mathematics departments, it would be discredited on logical grounds by the end of the first day. Similarly, its half-life in a physics, astronomy, or chemistry department would be a week or two — the time it would take to send graduates students to the lab to collect data.
It is worth noting that conventional free trade theory is considered largely irrelevant in business schools, where students learn the realities of how to move capital and production around the world.
Worse by far, our so-called free trade agreements are really designed to protect and enrich global companies. These agreements toss aside democratic checks and balances, weaken civil society and erode the middle class.
Under the right conditions, markets will, in fact, produce broad-based well-being. In 1776, Adam Smith argued that beneficial market control occurred when merchants in the village were personally connected to the well-being of their neighbors, who lived and shopped in the village. Social and economic cohesion would prevent market failure.
But globalization, as we’ve managed it, de-couples modern corporate decision-makers from any obligation or connection to communities anywhere.

Figure 2. Globalization de-couples investor interests from public interests.
The test of a market economy is whether it raises living standards. We fail that test when we look at growing inequality and reduced career prospects for the next generations of Americans. As a society, we have stopped sharing the gains from productivity and trade. Almost all new income goes to the top 1 percent — more than $1 trillion per year.
Some economists object that inequality is beyond the narrow scope of economics, so it’s not “really” a market failure. Granted, our looming inequality has broad dimensions — social, political and moral, as well as economic.
However, when economists duck responsibility for inequality, they are really acknowledging that free markets and free trade will predictably create inequality, without strong intervention in the form of public policy and social values. That sounds like market failure to me.
Here’s the take-away message. The narrow orthodoxy of free markets and free trade says that markets will solve all our problems, and government intervention is bad. Look at politics in America, today.
Unfortunately, the real world is a very large system with many interacting forces and interests.
Markets fail. A legitimate purpose of public policy is to intervene in markets to prevent market failure. Public policy has a necessary role in protecting the environment, human rights, labor rights, education and public health, managing growth, regulating markets, and managing global trade.
That’s capitalism for realists.