Common Tragedies

Thoughts on Environmental Economics

Write a letter to the editor, and nobody cares. Call someone an idiot on the internet and……

Posted by Rich Sweeney on March 13, 2009

Well:

Who Pays for Cap and Trade? — II

We don’t mind an intellectual fight, and in a nearby letter, two economists at Resources for the Future take aim at our Monday editorial on how the costs of cap and trade will be distributed across regions and income groups. Dallas Burtraw and Richard Sweeney call it “a bait-and-switch argument.” Mr. Sweeney added on his blog that “The Wall Street Journal is an idiot.”

That’s how the global-warming clerisy debates these days, but we’ll try to take their argument seriously. They claim that by citing state-level CO2 production data, rather than CO2 consumption data, we exaggerated regional differences. This is distortion disguised as verisimilitude.

It’s true that discrepancies in per capita emissions — 73 tons in West Virginia versus 12 tons in Rhode Island, for instance — reflect the fact that carbon-heavy power plants and industries are based in some states and not others. It’s also true that electricity crosses state lines, and that — as cap and trade raises prices — a consumer in California who buys a car built in Michigan, say, will bear some of its carbon costs.

However, one reason we didn’t mention per capita consumption figures is that, strictly speaking, they don’t exist. The economic literature on the incidence of cap and trade extrapolates carbon consumption by region from the government’s Consumer Expenditure Survey. But nearly every human activity has some carbon cost associated with it. Consider the emissions of “consuming” french fries at a fast food restaurant:

There’s CO2 in fertilizing and harvesting the potatoes; processing, freezing, then transporting them; and still more when they’re cooked. Now multiply that by the entire economy. One danger of a carbon tax — especially if it is poorly designed — is it that its costs will ripple throughout complex energy chains in ways that economic modeling can’t quantify.

Still, in the spirit of comity, we’ll mention the work of Messrs. Burtraw and Sweeney, who wrote a 2008 paper finding that cap and trade disproportionately hits the poorest households and that those effects are exacerbated in some regions over others. That was our argument too.

Of course, ultimately the incidence of a carbon tax depends on how the revenues it takes from the public are redistributed back to the public. Yet Congress, being Congress, is incapable of designing even a marginally efficient system — and given environmental politics and state carbon realities, the losers will be concentrated in noncoastal regions that rely most on coal and manufacturing.

And therein lies the value of emissions production data. Not only does cap and trade tax at the point of production (even if some of those costs are ultimately borne by consumers elsewhere), but it also shifts economic activity away from those industries. The states that produce the most emissions are going to see the strongest ancillary declines in income and increases in unemployment. The top carbon states — in absolute, not per capita, emissions — include Ohio (No. 3), Pennsylvania (No. 4), Indiana (No. 7) and Michigan (No. 9).

What really drives cap-and-trade idolaters like Messrs. Burtraw and Sweeney to schoolboy taunts is their fear that the American people might figure this out. Then their dreams of having government command a huge new chunk of the economy might collapse.

What’s ironic is that if the WSJ had simply read our paper in the first place, they’d probably have run their initial post anyways, as we find that there are regional differences in the the initial incidence of pricing carbon (just not not the 154 to 12 spread the editors implied). However, as Dallas testified yesterday, the real name of the game is what you do with the money. A lot of these regional and income level effects could be countered with careful revenue reallocation. Now the question is whether the WSJ really cares about the true net effect of carbon policy on households in states like Michigan and Pennsylvannia, or if they’re simply clinging to any story that will allow them to politically undermine cap and trade.

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9 Responses to “Write a letter to the editor, and nobody cares. Call someone an idiot on the internet and……”

  1. Evan Herrnstadt said

    Then their dreams of having government command a huge new chunk of the economy might collapse.

    I think as RFF employees we would probably be entitled to stock options once American industry is reappropriated. What are you going to do with your share of US Steel?

  2. [...] RFF guys responded this morning: “Now the question is whether the WSJ really cares about the true net effect of carbon policy on [...]

  3. brad said

    I love it.

    “bait & switch” + “idiot” = school boy taunts

    but “global warming clerisy” + “idolaters” does not?

    Maybe you should have said “Messr. Journal is an idiot.”

  4. Evan Herrnstadt said

    Let’s also discuss the irony of using the word clerisy to denigrate people for being pedantic and pretentious.

  5. dWj said

    One danger of a carbon tax — especially if it is poorly designed — is it that its costs will ripple throughout complex energy chains in ways that economic modeling can’t quantify.

    Well, yes, that’s the point; it’s hard to work out exactly what consumption-based CO2 usage is, so we let the magic of the market do it for us. We can’t quantify where it will incide — just that it will incide exactly where it should to do the most good.

  6. [...] This morning at CT, Sweeney is back with, “Write a letter to the editor, and nobody cares. Call someone an idiot on the internet and…….” [...]

  7. Tim said

    I’m jealous. I called all politicians idiots and didn’t get near this type of coverage. Maybe my claim was self-evident. Anyway, congrats.

  8. The WSJ used about 5 words that I had to look up … Who’s an idiot now, mofu?

  9. There is a new, free website, PublishALetter.com that allows one to submit letters to the editors of all the key newspapers in the US and the world. Just in case the letter is not printed,one can also publish the letter on the site itself. So whether it is Cap & Trade or other complicated issues discussed in WSJ, NY Times or other Newspaper editorials, the site can provide an important neutral avenue for average citizens to have their independent voices heard and shared.

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