Remember, the goal is to cap emissions, not to raise money. When you start with a cap and work backwards towards the clearing price, you are guaranteed to be meet that cap. But when you start by setting a price, there is zero guarantee that you're going to meet your emissions target.

Also, the point of cap and trade is that it lets societies meet their emissions target in the least expensive way possible. Whereas a tax imposes the same fees on everyone, regardless of how much it would cost them to lower their emissions. This makes zero sense.

Imagine that you had five major producers putting out 30% of airborne carbon, and 50,000 minor producers putting out 70%. The cost of administering a cap and trade system to the minor producers would be incredibly expensive - the legislation would instead focus on gouging the five major producers. Also imagine that the 50,000 minor producers could very easily cut their production of carbon in half.

The price should be set to the amount of damage the externality causes. Current estimates of the social cost of carbon is ~$220 per ton. http://www.nature.com/nclimate/journal/vaop/ncurrent/full/nc...

Cap and trade punishes large players - taxes are fair because they impose the same fees on everyone.

Cap and Trade being the least expensive way possible is also a terrible loss for good tax reform. If we implement a responsible carbon tax, the offset income can be used to reduce associated corporation taxes, sales taxes, or even income taxes.

An optimal tax system taxes things and behaviors we don't want, and subsidises things and behaviors we do want. Let's get rid of an income tax, and replace it with a environmental tax. More money in your pocket, and cleaner air.

Tax repeals are very rare, once they're worked into the budget they are there to stay and usually will expand to pay for other things besides the reason they were originally created.

Since ultimately a carbon limitation is going to mean more expensive products, it is important to limit it as much as possible.

Also I don't see how a cap-and-trade system is going to be more difficult to enforce than a tax, you are still going to have to check if all the companies have paid their taxes.

Of course, you omitted that the same must be true for cap and trade. The person who can save CO2 at a cost of $2 would have no preference between enacting the change or not if they were only to be paid $2. You'd need to pay them more. Like, $2.01 or $3 if we're only using integers. Exactly like the tax.

Except for that the goal isn't to punish polluters, it's to get carbon to a level that won't result in the end of human civilization. By moralizing the issue you're just making it more likely that we won't get there.

That's not the goal. What matters is the total amount of pollution, not how much any individual pollutes.

There are perverse cases. Veblen and Giffen goods (higher prices increase consumption). But generally, the relationship holds.

A cap-and-trade or carbon tax system, to work, has to establish how much carbon can be emitted (I'm ignoring for the moment the argument that the answer may well be "none").

A tax or trade mechanism both invoke market mechanisms to allow individual carbon emitters or absorbers to determine how much activity they'll undertake, including seeking alternatives.

If a tax or C&T at a given level isn't sufficient, then the solution is to change the basis level. The result is still (in theory) achieved in the market.

You and ThrustVectoring are arguing two components of the same mechanism.

See also the Jevons Paradox: increasing efficiency (without also increasing prices) increases the amount of a good or resource consumed.

If you want less of something, raise its price. E.g., tax it.

Cars are not the problem, there is no one thing that is the problem. Simply being alive and doing things uses energy, there is no way around that.

And BTW if you do the math a bicyclist (in the US, eating a typical US diet) emits more CO2 per mile than a small car. Assumptions: The bicyclist is riding in addition to any exercise, the riding is not exercise, and the bicyclist eats normal food. A bicyclist who prefers organic, or local, would definitely emit more (both of those emit more CO2 in the growing than regular food).

It's a surprising result, I know. But it's because humans are not very efficient in turning food energy into miles, and cars are reasonably efficient. It doesn't help that growing food takes a lot of energy, especially if you force yourself to only eat local, if you do that energy really goes up.

Just a claim that you need to do math. Parroting climate-denying, anti-intellectual nonsense is worth calling out.

They have a chart showing CO2 per calories for different foods which goes from 11 to 1431.

But when they do the final result for a bicycle using some kind of global average food consumption they use the number .144!

Unless I've really messed up my math, the number for a bicycle should be around 200 to 1000 times higher than what they show.

Next they take car emissions, do some "magic math" and change them from 42 g/km to 229g/km.

Using their own numbers, but fixing their math shows a bicycle emitting more than a car.

You have.

The chart is in (g per 100 kcal)

>"magic math" and change them from 42 g/km to 229g/km.

42 is for production of the car 229 is for ‘well to wheel' emissions (i.e. exhaust-pipe plus those emitted to produce the petrol).

No "magic" required.

The real issue with emitted CO2 is not the quantity at the exhaust-pipe versus the quantity exhaled by a cyclist. The CO2 emitted by the cyclist was absorbed by plants in the preceding months. The CO2 emitted by the car was absorbed by plants in a previous era of the earth. The cyclist allows you to leave the oil in the ground keeping the contained carbon out of the atmosphere.

That's why produce is so expensive - it takes a LOT of energy to grow it.

At the extreme end, roses are not actually much plant matter, they are expensive in large part because you can't treat them like bricks. On that continuum Produce is closer to flower than grains.

This result is useless since it makes impression that those miles are interchangeable while they are not. No bicyclist will make same amount of miles per unit of time as car driver. Bicyclist will make other choices: living closer to the job, working remotely, etc.

Have you never seen urban traffic?

Why is that different from the tax approach? Wouldn't taxing the 50,000 minor producers appropriate to their levels of pollution be equally as expensive?

Wikipedia has "from less than $1/tC to over $1,500/tC." It's an inexact science.

tax everyone to change behavior is the best route plus it does tend to stop the mini games that go on with trying to transfer funds to contributors and the like

Then, for every case where the economic benefit is small relative to such a cost, people will stop doing it. And even if they don't, the government now has collected an amount of money equal to the environmental costs and can work on mitigating them with it! [1]

(That goal is, incidentally, the point of Pigovian taxes -- or at least, it should be, rather than "to give me cover for restricting something I disliked for other reasons", which is how they often get used.)

[1] If you want to go the route of saying that the costs are unqiantifiable ... don't. That way lies insanity (and arbitrary policy).

Is it? I would say the the goal is to reduce carbon usage to situations where the benefits outweight all (social and economic) costs. So, our goal shouldn't be to reduce emissions to some arbitrary level, but to reduce usage to the level where benefits=costs.

How is that complex vs. creating a new commodity in the form of carbon credits, and checking that the emission is backed up by credits?

At best, cap-and-trade is equivalent to a carbon tax plus some corporate welfare to return the tax to the polluters.

In the most likely scenario, it's an opportunity for rent-seeking politicians to dole out the credits to those who either currently pollute most or just have their ear, for worst current polluters to cash in on opportunity to reduce pollution, for financiers to make big bucks trading credits.

At worst, it's a fraud where people will buy credits from people who don't reduce pollution or would have done so anyway.

That's not how the credits work.

the whole point of cap-and-trade is to avoid the word 'tax', and to create a vast rent-seeking system and potential for gaming the system, and make it politically palatable by paying off the people who might object.

http://www.telegraph.co.uk/finance/newsbysector/energy/69126...

http://www.france24.com/en/20160503-france-trial-multi-billi...

I just think taxing coal/oil/natural gas as it's produced and sold, based on how much carbon it contains, is easy and effective, enforcing a carbon credit system is hard and prone to shenanigans, fraud, corruption.

Economically they're essentially the same and the shenanigans are a massive bug. But politically, shenanigans are a feature.

Also a tax has to be high enough to offset the average cost of lowering Co2 emissions (since you force everybody to lower their emissions), whereas in a cap-and-trade system the price will the the lowest cost to lower the emissions, since anybody who would pay a higher price will be better of buying the emission permissions and anybody who can save co2 cheaper will be better of selling them.

Thus a cap-and-trade system is always going to be more efficient.

Presumably the tax attaches to fossil fuel importers and vendors, rather than trying to tax each individual consumer.

If you can't generate a good estimate of how much tax is needed to hit your target, hitting the target no matter what is actually a bit of a problem.

If the necessary tax would have been less than you expected then your emissions target is likely too conservative and you could reasonably have picked a more aggressive one.

And if the necessary tax is much higher than you expected then you could end up wrecking the economy, because the cost of credits will then be outrageously high and get passed on as high energy costs.

With cap and trade, you may have a politically motivated allocation of emission rights initially, but it's a one-off transfer and soon enough they end up the hands of the people with the most productive use of emissions.

With a carbon tax, people will continuously expand resources in the form of lobbying to try and receive the proceeds of the tax. The government has to stay in the loop forever.

The initial credits can be allocated either through an auction, by giving them away to existing polluters, or through some combination. But after the initial allocation, credits are traded on the market. That's the 'trade' part in cap and trade.

It matters quite a lot financially however, because the credits are worth money, so anybody who gets them for less than the market price is in for a windfall.

The Coase Theorem doesn't guarantee the absence of transaction costs in practice (and they are likely to be huge here, since the dude who likes incandescent light is going to be very far removed from the high-volume market), and it does guarantee that initial allocation will affect the wealth distribution.

They're right to be concerned: A tax goes to the government and the price is set wrong. What's the correct amount? $5 per barrel[1]? $25? $250? $3000? $3000 would be insane, right? The People would rise up against those who decide that price. Plus, if it's a government tax, it goes to the pocket of the government. If it's traded on the stock exchange, at least it's not the government who's to blame if the pricing is too high, and it's not the government who gets the money - it's redistribution at its most noble name[2].

There are two axes: How high it should be to reduce demand of petrol to a sustainable level, and how high to account for the cost of the global warming. CO2 emissions were stable in 1990, meaning they were consumed by plants which would emit the equivalent O2. All those policies do is attempt to come back to the levels of 1990. So we just have to let companies purchase their emission rights and see where the price goes. If we don't succeed, it will cost trillions, so again we need to factor those trillions into the cost of barrels. If we just get the cost high enough, we'll either use alternative sources or avoid spending[3]. So, yes, basically, the right cost of a barrel of petrol is the cost of switching to an alternate source, plus the cost of the damage of the global warming: It could very well be $3000.

And fact is, a government isn't going to raise a $3000 tax per barrel. So, when replacing a stock-exchange-traded price with a tax, I wonder why "most economists we read seem to agree".

[1] Meaning: 5% of the price of a publicly-traded barrel of petrol that have the same effect on global warming.

[2] The only thing against trading emissions on the stock exchange is that a lot of people don't trust stock trading anymore. They point out speculation, HFT, subprimes. Sometimes it's a misunderstanding of the usefulness of capitalism, sometimes the public is correct (The financial industry reaps the benefits instead of the end user does). Whether or not it's right, it's extremely sad for the Earth if we replace a $3000 emission cost with a $5 carbon tax.

[3] "Avoid spending" is not a light term here. It basically means a group is going to be really, really poor because we can't build enough goods for them given the CO2 limit.

How so? They produced fraudulent RINs and sold them, knowing they were not attached to actual biofuels. It's only a couple of steps removed from printing fake currency.

Did I miss something in how Green Diesel justified their actions?

If you make it so that a number is assigned to something liquid that is as fungible as can be then you really can't claim surprise if someone then decides to short-circuit the whole thing and bypass the manufacturing step.

Think of it as an optimization. After all it seems the numbers where the valuable bit, the fuel was worthless in comparison.

> Federal agents were watching, as was Houston attorney David Fettner. He’d been appointed by a court to find and seize Rivkin’s property on behalf of commodities trader VicNRG, which had sued Green Diesel and other Rivkin companies for selling it $3.8 million in bogus RINs. “Rivkin left a trail of unhappy people behind him,” he says.

Doesn't seem like everyone else was happy

> Well, given that the buyers bought just the numbers and not did not go to the authorities immediately it would seem that everybody in the deal was happy except for the EPA.

You'd be happy buying $1000 from someone for only $100, until you discovered the money was essentially worthless (counterfeit)

These companies needed the RINs, not the fuel. If they had bought the fuel with the RINs they could have been assured the RINs were legitimate, sure. But that has all kinds of associated costs (quality control, finding buyers, the cost of the fuel itself, etc.). A legitimate biodiesel producer is probably better positioned to deal with those costs, so it makes sense for him to keep the fuel and sell the RINs to companies that need them.

Which is why I'm not a fan of these constructs. Even a legitimate biofuel producer will see better margins on the RINs than on the fuel...

> The only reason these scams are allowed to happen is the EPA doesn't have enough manpower to constantly watch over every facility to make sure fuel is actually being produced.

So, if you don't have that manpower don't set up a scheme like that.

Trust but verify, remember?

They did verify that the RINs were being produced properly, which is what led to the guy being caught.

So I'm not sure what your argument is here. If you understand cap and trade systems, then you know that they aren't inherently gameable (which you just admitted). So are you saying that you think the EPA needs more funding?

They should have at least enough funding that they can catch scammers like this before they cause 10's of millions of $ of damage.

Abstraction is just how finance works. Yes, there is a risk of fraud, particularly in newer abstractions, but that's why we need auditing and enforcement.

Note how in the article the people working there were saying they were 'expecting an audit any day now', but as long as their paycheck depended on not being audited they were all fine with it.

It's rather strange how the CEO is the only person indicted.

Auditing and enforcement are critical. Shipping around physical gallons does not get rid of that need. Physical gallons could just as easily be water if nobody checks. I don't see why you blame the abstraction.

Or they could never even bother to ship the gallons. That's not a 'scheme' of any sort at the oil company, it's just the business focusing on the part where it makes a profit and dealing with the regulation of buying biodiesel in the most minimal way possible.

It's similar to how we don't see stores abandoning credit cards despite the impressive amount of fraud we see reported on Krebs. Instead the holes get fixed (eventually, with lots of foot-dragging).

The article reports an interesting story but it doesn't seem big enough to have that kind of impact.

>Even a legitimate biofuel producer will see better margins on the RINs than on the fuel...

It certainly seems to create an incentive to cut costs at the expense of quality. I don't understand why Green Diesel didn't just continue to produce poor quality fuel and thereby sell legitimate RINs.

Let's imagine a slightly different scenario. Oil companies are forced to directly buy biodiesel, and biodiesel is so bad that they don't even bother adding it to their fuel. Someone could sell them empty tanks and then they wouldn't have to figure out how to dispose of unwanted biodiesel. Think of it as an optimization.

So in that scenario, there are no credits, there is no broken 1-1 link between numbers and gallons. There's just fake-production fraud. The problem there is fake-production fraud, and the problem in real life is fake-production fraud. Not the RIDs.

It's not an optimization. It's just plain fraud.

And having people buy actual fuel doesn't solve anything. The fuel could be standard diesel bought at the pump that people are claiming is biodiesel.

The verification process has to be completed and has equivalent cost either way.

I wouldn't go that far. Each RIN needs to correspond to some physical bio-fuel. They were generating RINS but not manufacturing the corresponding fuel. Seems like straight forward fraud. Now had they been actually making the fuel but then dumping it in the trash and just selling the RIN I agree it would be harder to see what it was they were doing wrong but they weren't doing that.

It's a liquid, not a box of stuff.

Nothing was made, nothing was sold, but he fraudulently tracked a creation and sale by creating the RIN.

I "sell" you 10,000 barrels of fuel. Then I give you back 99% of your money. Rinse and repeat, you've generated lots of RINs with little capacity for anyone to catch you downstream. Contrast this with a carbon tax, where in order to legally generate revenue one must pay the tax.

Daniel Yergin covers this in detail in chapter 13 of his truly epic history of oil, The Prize (1992).

https://www.worldcat.org/title/prize-the-epic-quest-for-oil-...

Also:

https://tshaonline.org/handbook/online/articles/mlc03

https://www.law.cornell.edu/uscode/text/15/715f

And a good, concise overview of the history here: http://www.reuters.com/article/2015/01/29/us-usa-crude-stock...

(I'm not sure that there are not some provisions to close these loopholes. https://xkcd.com/1494/ )

The revenue certainly goes to the government in California, unless I am completely misunderstading the program: http://www.lao.ca.gov/reports/2014/budget/cap-and-trade/auct...

> The interesting bit here is that is actually quite hard to figure out why what they did was illegal

This was outright fraud (creating and registering identifiers for fuel that never existed).

It might equally be that the system is open to widespread fraud, but with a bit of effort it can be made watertight.

Or that there is a tiny amount of fraud which the authorities are mostly on top of, as the case of the two imprisoned felons from the article shows.