Thursday, December 03, 2009

The problems with cap and trade

I mentioned back here that I'm not convinced that a cap and trade system will actually be effective in reducing atmospheric CO2e levels (which has to the point, doesn't it?). Here is a brief video giving some of the reasons to be hesistant about this proposal, which is at the heart of the upcoming negotiations in Copenhagen.

Indeed, James Hansen (the first climatologist to testify to US congressional committees and raise the profile of global warming back in 1988) is also opposed to cap and trade and thinks that it would actually be best for the upcoming negotiations in Copenhagen to collapse, since that would leave open the possibility of a more ambitious solution.

Many others who are critical of cap and trade nonetheless suggest that it is the best that it will be possible to do (politically) and so support the negotiations.

It is hard to know what to think about this. Politics is indeed the art of the possible and there is no point destroying an actually obtainable partial solution for the sake of a virtually impossible better solution. However, the questions are: (a) is cap and trade even a partial solution? (b) Will this partial solution still lead to catastrophe and so turn out to be no solution at all? (c) Are other suggestions really superior? (d) And are they truly impossible, or does their impossibility arise from a limited horizon of imagination sustained by powerful status quo interests?

To these questions, I do not currently have answers. But I am still yet to be persuaded that a revenue-neutral carbon tax (or rather, GHG tax) has flaws as serious as those associated with cap and trade.

UPDATE: An interesting opinion piece from James Hansen today critiquing cap and trade and proposing an alternative. And another leading climate scientist says the targets being offered by many of the major players are "token gestures".

UPDATE #2: Now I have finally seen a coherent argument against a carbon tax. It can be found here, although the focus of the piece is a critique of one particular proposal that is aimed at delay. In short, Hamilton argues that cap and trade (for all its faults) is the horse that has already run half the race and we don't have time to go back to the start again.


Anthony Douglas said...

Hey Byron, you're in good company, and timely too...

byron smith said...

The Australian ETS is a bit of a sad joke. 5% reductions? Who are we kidding? Even if the mechanisms worked as they are meant to and managed to reduce by 5%, this would be an ineffective distraction from what is needed. It is simply not the case that a target that is only half as ambitious as it ought to be will give us mitigation of half the severity, since the goal is avoiding triggering various feedback loops. And we don't know exactly where they may occur.

Does that make sense? I'm happy to give a longer explanation if that was too brief.

Chris M said...

Cap and Trade schemes are ineffective, counterproductive, and environmentally damaging, while carbon offsets are an out and out fraud.

It we *have* to do it though, it needs some changes.

byron smith said...

Canada Guy - that is a very useful post summarising a lot of the issues with cap and trade and, if it is to be used, how to make the best of a bad scheme.

Chris M said...

Thank Byron!

byron smith said...

You might like to also check out this excellent spoof site. H/T Daniel.

Juggernaut1981 said...

Cap & Trade can work fine, but it's set up so that everyone has an incentive to exactly meet the cap. There aren't huge incentives for people to get significantly below the cap. So as long as the cap shifts down, you're probably going to do okay with it.

ETS in Australia is an example of Rudd's "If I anger everybody, it must be right" methods. But it's probably not too bad. It bumps up to 25% if everyone else gets on board with a C&T-Style system. But if they don't, then the total difference between Australia's 5% of not much and 25% of not much is... not much.

Ironically, carbon intensive business was never likely to bear the burden of C&T-systems. They are nearly always designed to filter down to consumers, so then we change what we buy/consume which then flows back up and changes emissions. I know a reasonable amount about how they work from my relatively recent previous job at a Big 4 accounting firm.

Jem Cooper said...

Cap and Trade will reduce emissions if it's stripped of its nonsense, like give-away emission permits and corruptible offsets. But there is too much loot on the table to share out between the nations of the world, so they will never be able to reach a sustainable agreement. And unless they all join in the exercise is just a distraction. For a workable solution see

If I've got it wrong please tell me where.

byron smith said...

Jem, thanks for your thoughts here. I've replied over on your blog, but you seem to put a lot more faith in carbon capture and storage than most of what I've read and heard. Perhaps I am behind on some significant developments, but I thought CCS was still largely untested and massively expensive compared with other options.

Juggernaut - Do you think that the current model (including offsets and concessions to big polluters) is a good option?

From my reading, it sounds like the conditions for bumping the 5% up to 25% are so tight that they are very unlikely to be met.

But if they don't, then the total difference between Australia's 5% of not much and 25% of not much is... not much.
Why not much? Is it because our total emissions are only a small fraction of global emissions? For a country with one of the highest per capita emissions in the world and a very generous deal at Kyoto meaning that our "reductions" are really us just being rewarded for stopping our land-clearing, isn't it our responsibility to take the lead in tough action, rather than waiting for others to move first?

byron smith said...

PS I also thought that the Oz ETS is to cut 5% from 2000 levels, rather than 1990 levels, which is what is usually used as the benchmark. Shifting the goalposts like this is pure spin. To be accurate, all proposed reductions ought to be in comparison to 1990 levels.

stan said...

I would like to continue to challenge first premises and catastrophe talk. The economic costs of global climate change are still projected to be minimal perhaps 3% of GDP in 2100. Cap and trade and other more radical proposed limits will cost us by design something on the order of 1% GDP per year through the end of the century. Compounded over the century this means the global population will be half as wealthy as we might have been. That is a fate worse then any climate downsides.

All this because we fear unproven feedback loops and doubt future technological abilities to adapt or correct the imbalances. I think incremental steps are best at this point, and I view C&T as too radical.

Jem Cooper said...

CCS is expensive. The Carbon Capture Storage Association say that, “Recent studies conclude that the first CCS projects in the power sector are likely to cost between €60 – 90 per tonne of CO2 abated although these costs are expected to decline signifi-cantly reaching €35 – 50 in the early 2020s primarily as a result of cost reductions for CO2 capture. Deploying CCS on coal fired power plants is already cost-competitive (per tonne of CO2 emission abated) with other forms of low-carbon energy.” And the CCSA should know because their membership list includes many of the major companies who design, build and operate generation equipment. Refer

€50/tonne of carbon dioxide captured is still only $32/barrel of oil burnt which looks rather modest compared to price movements we have put up with over the last few years.

I have never been involved with the design of a carbon dioxide capture system for coal combustion or for a power plant and indeed if I had I would probably not be allowed to talk about it on the internet. But the costs above are not inconsistent with using pure oxygen for combustion based on what we paid for large scale over the fence supplies.

Using oxygen instead of air is the simplest, though probably not the cheapest, way to capture carbon dioxide from a power plant, but as far as I know nobody has applied this technology at full scale. The flue gas after condensing the water out (and in the case of coal removing sulphur and other minor impurities) will be virtually pure carbon dioxide ready for compression, liquefaction and underground storage. It may be necessary to partially recycle flue gas to the combustion zone or to do the combustion in stages in order to limit combustion temperature.

Hydrogen manufacture from coal, oil or gas with carbon dioxide capture is very well established technology at large scale in the chemical industry and the hydrogen could be fired with air in a conventional power station, so this is a proven technology, but again probably not the cheapest option. Oxygen consumption would be less than for the simplest option (or zero if steam reforming of natural gas were the source of hydrogen).

My understanding is that the cheapest option currently available is conventional combustion of fuel with air and downstream carbon dioxide capture from flue gas by scrubbing with an absorbent (apparently probably an amine). While the latter step is conventional in many large-scale chemical processes it is normally performed at much higher pressure which makes it easier. I am guessing that the lower pressure also accounts for the poor recovery quoted, only up to 90% carbon dioxide capture.

Carbon dioxide injection into oil wells to enhance recovery is common practice. The IPCC have estimated that retention is likely to be over 99% after 1000 years.

To say that carbon capture and storage is untested or unproven is misleading. Although process selection, cost estimation and efficiency will no doubt improve with experience, people do not invest billions of dollars in demonstration plants without being confident they will work. This technology is no less likely to fly than the prototype of a new commercial airliner.

I remember when the world was trying to reduce or eliminate lead in gasoline. The oil majors and motor manufacturers kept telling us how very difficult and expensive it would be. And, like a mug, I believed them; they should know I thought. When it happened with a bit of legislation and some tax incentive the consumer hardly noticed. Carbon capture is the same, it is not the know-how that is missing but the legislative or economic incentive to apply it, and I have the solution at:-

Jem Cooper said...

You make a good point. I guess whether global warming is a good or a bad thing depends whether you live in Greenland or Bangladesh and whether you see change as a problem or an opportunity. I bet a few degrees of global cooling would worry people a lot more. But for sure by the time we experience a big problem it will be too late to solve it; carbon dioxide cannot be quickly or cheaply removed from the atmosphere. At least if we store carbon dioxide underground we should know where to find it again if the ice sheet starts spreading back over Europe and North America.

stan said...

Jem, thanks for your tempered response, rare in these discussions.

I think indeed that the Bangledeshis, Greenlanders, and Polar bears are going to be disproportionally affected and effectively taxed for our inaction. But what they are offered in return is a world where their children are no longer peasants in the Bangledeshi lowlands. The Greenlanders will have a different Greenland so everyone everywhere else may eat three square meals and prosper. The polar bears get the zoo unfortunately. I hardly think the opposite outcome would be just to the rest of the eventual 8-9 billion of us.

As for what we do when it is too late, I'm not as pessimistic as you. Carbon recapture is costly but would be a small price if our hand was forced and with the help of future technologies. But as I say the worst predictions of the official climate report was for a few percentage points of GDP in 2100. Until the potential negative outcomes look more likely or more dire than a massive meteor impact then I think our approach should be similar to that risk: study it just in case but do next to nothing.

For now the effects appear at least for now to be a net positive which is why the public is unmoved. Those who dwell on the catastrophe scenarios seem (a little like Y2K worrywarts in retrospect) to be either looking to over-insure or are working from ideological perspective pre-disposed to predict the worst outcome (anti-consumerism, religious or secular anti-capitalism, etc.).

My less risky article of faith is that this decade's worries about climate will be an odd footnote in the century's larger and more interesting history. The temperance movement of the mid 19th-early 20th century could be a good analogue.

byron smith said...

Stan - You claim The economic costs of global climate change are still projected to be minimal perhaps 3% of GDP in 2100.
Can you please provide references for this claim? It is a totally different ball park to the best known study of this kind conducted by Lord Stern, which estimated the costs not at 3% but at 20-25% of global GDP, which he has since revised upwards to around 50%. Your optimism about the effects of a significant shift in global climate is not shared by almost any climatologist publishing peer-reviewed work. The dangers can be overstated, but even a conservative estimate puts them in the disastrous category. It is not only those with an ideological axe to grind against consumerism who consider this to be a catastrophic threat to global human well-being.

Jem - thanks for that update. I was basing my comment about CCS being one of the most expensive options from a graph I saw recently that compared the economic costs of the various mitigation strategies and found that about half of them would save us money in the short and medium term (not just the long term through an increased chance of climate stability), though CCS was one of the most expensive. However, what the graph didn't show was the relative size of the contribution each of the strategies would make. Obviously, we need multiple strategies and some will make a larger difference than others. I'm still unsure how significant the place of CCS is. I'll have to look into this further.

byron smith said...

PS To give some numbers for the claims I made, here is an Australian academic, who is also the chief economist for World Vision Australia, discussing the economic costs of action and inaction.

Jem Cooper said...

I'm getting more unsure each day, I've just been reading some stuff about windmills that makes them look very cheap. Where can I find your graph and its source?

byron smith said...

I'm not 100% sure, but I've thought about it some more and think it might have appeared in Al Gore's latest book Our Choice, which evaluates all the various mitigation possibilities.

stan said...

It's from page 17 of a 2007 working group document "Summary for policymakers" from some nutjob group called the IPCC. It is based on likely not worse-case scenarios.


Relevant quote:
"This Assessment makes it clear that the impacts of future climate
change will be mixed across regions. For increases in global mean temperature of less than 1-3°C above 1990 levels, some impacts are projected to produce benefits in some places and some sectors, and produce costs in other places and other sectors. It is, however, projected that some low-latitude and polar regions will experience net costs even for small increases in temperature. It is very likely that all regions will experience either declines in net benefits or increases in net costs for increases in temperature greater than about 2-3°C. These
observations confirm evidence reported in the Third Assessment
that, while developing countries are expected to experience larger
percentage losses, global mean losses could be 1-5%GDP for 4°C
of warming."

dmarks said...

Nothing will convince me on any of these taxes, the excessive amount of taxation already in place.

They only thing that would make me even start to consider the "Carbon Tax" would be a tax cut of at least the amount of money expected to be obtained by the tax.

Chris M said...

dmarks, it's not really a tax, it's fair pricing. If you damage your neighbour's property, you have to pay for it. If you pollute a river, you have to pay for it.

When products are produced, they produce carbon emissions, which damage the environment, and may kill millions if they keep growing. This damage must be included in the price, otherwise the market cannot respond and react appropriately (i.e. products that cause large emissions will cost more than products that produce less.)

You get all these people talking about the how the free market can solve all our problems. Fine, let's let the market do its job, but first you have to remove all externalities so that prices actually represent realilty. If you disagree with this, fine, but be honest and admit it's not really a free market that you want.

byron smith said...

dmarks - As well as agreeing with what Canada Guy says, notice that I have spoken about a "revenue-neutral" carbon tax.

Stan - as you say, that estimate was (a) published in 2007 based on work done about five years ago; many or most studies since then have suggested significantly higher figures (such as the Stern report) and (b) is based on non-worst case scenarios, yet much of the evidence since the 4th report was put together has pointed towards us being on the trajectory of the worst case scenario assumed in IPCC4. Notice also that the report says "developing countries are expected to experience larger percentage losses". Too bad for them? Yet they are not the ones causing most of the problem. Notice too the effects of even a 4ºC rise mentioned on the previous page: hundreds of millions exposed to increased water stress, 40% of species becoming extinct, loss of almost all coral reefs, increased wildfire risks, decreased cereal production in all areas, increased damage from floods and storms, loss of 30% of the world's remaining wetlands, increased mortality from diseases, heat waves and floods and more. And perhaps the most worrying of all: terrestrial biosphere tends towards a net carbon source. Sounds innocuous, but it is referring to feedback loops, or positive forcings that would mean continuing increases in global CO2 levels even with cessation of human emissions and so locking in further heating. You're up for all that?

stan said...

"You're up for all that?"

Well, not this weekend.

But if that litany of harms can't be mitigated, then I would have to weigh it's gradual appearance against the prospect of the global population being 1/2 as wealthy as they might have been in 2100. That amount of wealth would surely comfort many through the many real losses, however exaggerated some of it may be.

It needs to be clear what the 'good guys' are asking us to sacrifice. They are asking everyone to be half as wealthy in 2100. This is easy to say when you don't need a doubling of your GDP. But many of the global poor would be lifted out of harsh poverty with that kind of increase, just as they have been over the last 50 years or so.

Jem Cooper said...

You might like the plan proposed by Sen. Maria Cantwell, D-Wash. See

Jem Cooper said...

Cap and trade is a tax. Somebody auctions off the permits and collects the revenue. If it’s applied at a national level that is not such a big issue. The US government can give the loot back to the deserving voters. But we need a universal international system because, unlike sulphur emissions where cap and trade worked well before, carbon dioxide spreads all over the globe and stays there.

There must be a global cap and some sort of agreement on how to share the trillions from auctioning off the permits. The problem doesn’t go away even if the global cap is simply the sum of lots of agreed national caps (and agreeing them is a nightmare in itself). There can only be one auction or the cost of emitting will be different in every country and import tariffs (and armies of civil servants to calculate, negotiate and collect them) will spring up everywhere to stop the unfair competition.

We do not want the UN or even the EU to collect our money and decide how to spend it. Senator Cantwell’s plan to distribute the revenue from a US auction equally to all US residents is workable and probably acceptable. But I doubt if distributing the revenue from a global auction equally to all the world’s inhabitants would be workable in many corrupt countries or acceptable in many rich countries. It would represent a massive transfer of wealth from those living in the big per capita emitters like USA, Australia, Canada, the EU and Russia to those living in Nigeria, Pakistan, Indonesia, India, Bangladesh etc. See

That is why I settled on my scheme to pay directly for carbon capture. If we accept that carbon capture is a big part of the solution somebody has to pay for it, so why not all those burning fuel?

The International Energy Agency (IEA) has concluded that tackling climate change with carbon capture is 70% cheaper than not using the technology. The IEA is an intergovernmental organisation whose founding members include the USA, UK, Canada and Japan.

byron smith said...

Stan - Can you provide sources for your claim that mitigating climate change will cost 50% of global GDP by 2100? The 4th IPCC report (3rd working group) says this (on p.18): "In 2050 global average macro-economic costs for multi-gas mitigation towards stabilization between 710 and 445 ppm CO2-eq, are between a 1% gain to a 5.5% decrease of global GDP."

Jem - As the article you link to (which is a very interesting proposal and does indeed sound better than the currently proposed bill) argued, the atmosphere does not belong simply to the rich. If it does "belong" to everyone, then the costs associated with damaging it ought to be paid for by those who have contributed the most to the damage, not by those who have contributed little. That is why on the table at Copenhagen are indeed elements of wealth-redistribution from the developed to the developing world (this too should be noted by stan). How significant these figures will be is one of the hot issues for the current negotiations.

byron smith said...

Jem - I've just found the graph I was referring to. It is the Global Greenhouse Gas Abatement Cost Curve published by McKinsey & Company. A 2007 version is here. A more up to date version can be downloaded from here, though you have to give your email.

byron smith said...

Going back to costs of mitigation and of inaction, here is the relevant section of the Stern Review:

"Using the results from formal economic models, the Review estimates that if we don’t act, the overall costs and risks of climate change will be equivalent to losing at least 5% of global GDP each year, now and forever. If a wider range of risks and impacts is taken into account, the estimates of damage could rise to 20% of GDP or more.

"In contrast, the costs of action – reducing greenhouse gas emissions to avoid the worst impacts of climate change – can be limited to around 1% of global GDP each year.

The investment that takes place in the next 10-20 years will have a profound effect on the climate in the second half of this century and in the next. Our actions now and over the coming decades could create risks of major disruption to economic and social activity, on a scale similar to those associated with the great wars and the economic depression of the first half of the 20th century. And it will be difficult or impossible to reverse these changes."

byron smith said...

"Costs could be even lower than that if there are major gains in efficiency, or if the strong co-benefits, for example from reduced air pollution, are measured. Costs will be higher if innovation in low-carbon technologies is slower than expected, or if
policy-makers fail to make the most of economic instruments that allow emissions to be reduced whenever, wherever and however it is cheapest to do so."

Jem Cooper said...

Thanks for the links to the graph. It's packed with useful information. But I need more time to think about the implications. At first glance I am filled with hope because my typical 50 euros/tonne of CO2 which was only equivalent to $32/barrel of oil seems to be enough to bring emissions down by 34 billion tonnes/year; end of problem. But I need to check it all out tomorrow.

stan said...

I am not referring to "cost of mitigation" in 2100. I am referring to a GDP shortfall, loss of potential wealth over the century. I am just using Stern's rather conservative innocuous- sounding 1% a year GDP from now til the end of the century. It's just an isolated exercise in compound interest.

That consensus minimum 1% less growth a year is certain. Its benefits are less certain and mostly delayed until much later.
Most of the damage(costs) of climate change don't come until much later in the century and we all could be much wealthier and able to effectively deal with it then.

I know Lomborg is probably no one's favorite here, but this article on Stern and GDP is a must read since you have utilized its stats in exactly the way he addresses. You should know their background and built-in assumptions.
"The Stern review's cornerstone argument for immediate and strong action now is based on the suggestion that doing nothing about climate change costs 20% of GDP now, and doing something only costs 1%. However, this argument hinges on three very problematic assumptions."

I'm more on board with Nordhaus' cost estimates of 3% GDP in 2100. Your linked to article criticizes him by - no surprise- explicitly attacking not his math but his support of consumerism and corporations. I'm sorry, but ideological axes are certainly behind much of these bad stats.

byron smith said...

I am not referring to "cost of mitigation" in 2100. I am referring to a GDP shortfall, loss of potential wealth over the century. I am just using Stern's rather conservative innocuous- sounding 1% a year GDP from now til the end of the century. It's just an isolated exercise in compound interest.
And the problem is its very isolation. To do the same exercise in compound interest with Stern's most optimistic predictions for the costs of inaction would leave us not half as wealthy as we might have been, but closer to 1% as wealthy. The point that Stern and many others are making is that "the wealth we might have" if were not to spend any money or effort on tackling climate change is an illusion, or at best, a 10% chance that climate change doesn't turn out to be anthropogenic.

That consensus minimum 1% less growth a year is certain.
Actually, it's not at all. It's a highly contested figure. Some estimates put it closer to breaking even, some (like Stern himself more recently) put it twice as high or more. It's very hard to know.

Its benefits are less certain and mostly delayed until much later.
Incorrect. Almost half of the necessary carbon reductions will actually save us money in the short to medium term. They would be great ideas even if climate change were not a factor.

Most of the damage(costs) of climate change don't come until much later in the century and we all could be much wealthier and able to effectively deal with it then.
Putting off action raises the costs of action at a much higher rate than the "lost" production of acting now. That is, trying to deal with climate change in 90 years time when we "will" be twice as wealthy means that the economic costs of climate change will have grown to be hundreds of times their present size (and the ecological costs will be incalculable - can you put a price on the extinction of tens of thousands of species?). Indeed, if we had started acting ten years ago, then the costs would have been much lower. The longer we delay, the more extreme the actions necessary to make a difference. Let me pick a couple of examples. How much will it cost to replace the Amazon? If temperatures rise by 4ºC, much of it could be lost to drought and fires (depending on how precipitation patterns are affected). How much to replace the value of the colossal carbon sink represented by the oceans? Doubling our wealth will not pay for these bills.

byron smith said...

Jem - let me know your conclusions when you get a chance.

stan said...

Actually per Stern (see below) the projected costs would never leave us 1% as wealthy. Not to mention that future costs of mitigation technology will likely go down. Per Stern:

Commentary from CATO:
"This figure shows that even after accounting for losses in GDP per capita due to climate change – and inflating these losses — net GDP per capita in 2200 would be between 16 and 85 times higher in 2200 that it was in the baseline year (1990). No less important, Stern’s estimate of the costs of climate change neglect secular technological change that ought to occur during the 210-year period extending from the base year (1990) to 2200."
Accompanying CATO journal article:

I'm all for any reforms that save money regardless of climate effects. Let's get those done. I'm all for more research about mitigation where I think we will "find the cure". I am not for retarding economic growth (which still isn't feeding a growing global population) when the cost benefit analysis is so shoddy and alarmist.

Well I imagine I have overstayed my welcome. I will read your reply. My plea is not to ignore the economic analysis of proposed legislation or the costs of the 95% likely outcomes. A much richer world can likely deal with the problems in a more effective manner that doesn't require we the present relatively poor global population paying for it all (some with our lives, some with our xboxes). (See CATO article above)

And always remember the temperance movement. You don't want to be an oddity for future comedy bits.

Jem Cooper said...

The McKinsey graph and accompanying report are packed with useful information. Although CCS makes a big contribution in it, 4.1 billion tonnes/year captured CO2 by 2030, there is another 8.7 billion tonnes from power alone that has not been captured. This low technology penetration is just an assumption but one that seems to be shared by other forecasters.

I am convinced penetration could be much higher and that my proposal on funding capture in the fuel price is the way to achieve it. see

Wind, solar and nuclear do appear to be cheaper than CCS despite the CCS Association assertion to the contrary. I think this may just reflect the way initial capital cost (which is relatively lower for CCS) is treated. I do not know who is right and I'm not sure it matters as in the end with my scheme the market will ensure that we build whatever provides clean power for less when we need it.

byron smith said...

we the present relatively poor global population paying for it all (some with our lives, some with our xboxes).
Leaving aside the question of CATO's credibility, as you say, this poverty is entirely relative and for us with access to the internet has nothing to do with absolute poverty. I don't need 88 X-boxes. I would much rather the world were wealthy in things that really matter: in trust, in the rule of law, in mutual respect, in grace, in joy and peace. Generating more stuff (beyond a certain level of basic needs) is not correlated to increased well-being. Getting people out of absolute poverty is crucial. Getting us "out of" our relative poverty (when compared with Bill Gates) is simply the love of money, which is a root of all kinds of evil.

And always remember the temperance movement. You don't want to be an oddity for future comedy bits.
So we're not still struggling with alcohol addiction? Perhaps the temperance movement may not have had the correct solution, but they sure were right on identifying a real problem. Alcoholism still destroys lives. And as you can see in this very post, I'm also critical of the main proposed "solution" to this problem, but that doesn't mean that there isn't a very serious problem.

Juggernaut1981 said...

Sorry for not replying sooner.

RE: Cap & trade Systems.
The idea behind it is simple. Solving carbon emissions costs but unlike the other costs of goods (e.g. materials, labour, electricity costs, freight) carbon emissions are neglected in the price to market.

To be blunt about offsets "for free"...
Offsets are a political tool to appease those with buckets of cash.

I am completely for companies engaging in activities that will reduce emissions or otherwise reduce carbon in the atmosphere getting a commodity that can potentially be sold. They are doing something to benefit the rest of us and I don't see a reason for not rewarding someone who is doing something that (directly or indirectly) benefits us all.

The devils are ALL in the details. If I plant a tree that will capture 100kg of CO2, how should I get credited the CO2? The ecnomically greedy, accounting friendly and significantly hard to track option is: 1 tree that captures 100kg of carbon is worth 100kg of capture carbon when it is planted. Problems: it ignores the realities of plants (some die, etc)
It also credits an ongoing process up front, which doesn't really meet the goal of reducing ongoing emissions.

This is ignoring the methods of calculating how much carbon an individual tree will store.

The biggest issue with Cap & Trade is the fact that it encourages the biggest emitters to emit exactly to the cap UNLESS a permit is more valuable than the cost of creating the permit (which is probably unlikely). So, to make sure Cap & Trade does reduce emissions below the Cap, they need to be obscenely expensive ($50+ per Tonne, rather than the $10 per Tonne people kick around) and then they become valueless (nobody needs them) and people increase emissions back to the cap.

To make it a bit easier to see why the example has to work that way.

Everybody is allocated 100L of water and everybody has to buy 100L of water. I reduce the water I use to 50L of water and each L of water is worth $100. I stand to make $5000 because I can sell my water. But my neighbour, who has to buy water from me, figures out how to cut their water use from 150L down to 50L (along with everybody else)... so nobody needs extra water so I lose my $5000 UNTIL everyone starts using more water OR the Water Allocation drops so that everyone "runs out"...

Unknown said...

Hi Byron, I have been reading your posts on Climate Change with much interest. I have been very sceptical about the whole climate change debate in Australia with science that is based on evolution and solutions that involve taxing the working class. Hence the reason I have taken interest in your posts, knowing the Biblical foundation you work from.

Anyway this post reminded me of another article from 2006 that I recently read about the proposed trade in carbon offsets and I thought you may find interesting

byron smith said...

Kathy, I am a little confused: how is climate science based on evolution? As for taxing the working class, most versions of carbon taxation include forms of rebate for those on lower incomes, since their energy usage is typically a higher proportion of their income, but lower absolutely than those with high income. Thus a rebate (even one as simple as giving everyone in the country a cheque of equal size each quarter) turns a potentially regressive tax into a progressive one, or rather, one that affects people on the basis of their carbon-intensity rather than their income. This is what 'revenue-neutral' means.

byron smith said...

Juggernaut - thanks for your reply, which is very much along similar lines to the video I posted. Perhaps the main point of difference is this paragraph:

I am completely for companies engaging in activities that will reduce emissions or otherwise reduce carbon in the atmosphere getting a commodity that can potentially be sold. They are doing something to benefit the rest of us and I don't see a reason for not rewarding someone who is doing something that (directly or indirectly) benefits us all.
I would say those companies who are reducing emissions are not so much doing something to benefit the rest of us as reducing the level of something that is harming the rest of us. Perhaps the difference is semantic (doing less damage to someone can be called 'helping' them, though wouldn't it be better to call it 'hurting them less'). Either way, the difference means that I think a tax makes ethical sense, since it would be correlated with the social cost of their otherwise beneficial activity. This would still reward those companies and individuals who find less carbon intensive (i.e. less damaging) ways of doing things that society wants done.

PS Sorry for the delay in approving your comment - I missed seeing it until today.

byron smith said...

Kathy - PS thanks for the link to that Monbiot article. He is nearly always provocative and worth reading. I am very cynical about offsetting (as is clear from the video I posted and a number of the comments in the thread above. If you haven't already done so, make sure you check out this spoof site that I mentioned earlier.

Unknown said...

Science based on evolution meaning based on the earth being x billion number of years old.

Revenue neutral sounds good in theory, but rarely plays out in practise. The government’s health rebate is a prime example... I am now paying over $200 a month for what I used to pay about $20 and I am yet to see any improvements in our health system.

I also receive a very nice rebate from the government for preschool which has now more than doubled in price to over $60+ PER DAY and seen the likes of Eddy Groves build a very nice bank balance for himself.

Now we have driving around our streets a lot of fly-by-nighters causing accidents and fires to take advantage of the governments wonderful free insulation rebate.

Can you think of any examples of a tax/rebate system that 1. has worked and 2. has not cost us in the long run?

byron smith said...


Thanks for writing back again, though I have a few points to make which might differ from your current assumptions.

First, how does the science of greenhouse warming rely on an earth that is millions of years old? Fairly straightforward chemistry and physics is involved in the fact that carbon dioxide molecules retain part of the solar radiation energy as heat, and that this effect increases as concentrations of CO2 increase. So as far as I am aware, neither the theory of evolution nor an old earth have anything to do with the fundamentals of climate change.

But having said that, I don't see any particular reason to reject the theory of evolution (or an old earth) as incompatible with a robust reading of Genesis in its context and this is by far the majority position amongst all the Christians I know (including those who would make a big deal out of being "Bible-believing" or conservative theologically). Although I haven't posted on it, I am not at all persuaded either theologically or scientifically by the arguments put forward by "creation science".

As for successful tax rebates, have you ever received a tax refund? This is an example of a rebate that generally works. Or have you ever deducted legitimate expenses incurred in earning your income from your taxable income? Another example in Australia is a rebate for installing solar panels, which I think has worked well, though I haven't been there to hear about any hitches. And a number of governments have had very successful schemes in which rebates were paid on house insulation. Of course this also requires good regulation to prevent opportunists from getting money for shoddy work, but that is not an argument against rebates, just against poor regulation. As for health care, I offer no defence of the current US system, which I believe to be deeply flawed. Virtually every other developed country has some form of socialised health care, with many/most of them having much better public health figures and life expectancies than in the US.


byron smith said...

PS Kathy - I am sorry, I mistakenly assumed you were from the US for some reason, despite your repeated comments about Australia. I don't know why. Please forgive this lapse of concentration.

Unknown said...

Oh dear, this is the reason why I rarely comment on your posts... I am way out of my league *lol*

The intent of my original post was to direct your attention to an article I thought might interest you not to start a debate on an issue that I have by no means entirely made up my mind on, or how we should tackle it. I do however trust in our Lord's Word and strongly believe that it is one of our responsibilities to care for His creation. So even if there was 0 evidence of climate change and it’s effects we still have a duty not to pollute/destroy this creation and to do everything in our power to care for it.

As far as using the tax refund as an example of a successful rebate system, would you not agree that this is the most abused rebate of all, with in fact expert lawyers and accountants making their entire livings out of showing the wealthy how to rort the system?

The solar panel rebate scheme was successful in that it had a very high uptake, however it is debatable as to whether this was money well spent, given the cost of the said scheme versus the carbon reduction benefits. Sam Wylie ( says: “simple arithmetic shows that the rebate cost the Federal Government about $175 per tonne of CO2 abatement, whereas the market price of carbon credits is only about $25 per tonne. The Government was getting about 14 cents worth of value from every $1 of taxpayers money spent. It is a $700 million program, so about $600 million was wasted.”

As far as creation science*(see below) versus evolution goes, I have yet to be persuaded either theologically or scientifically by the arguments put forward by Christian evolutionists. I am well aware of the views of those who have had much more academic training than I and have had several long conversations with them on the topic. Though they make many valid points I am yet to be convinced for two reasons:
1. That the word day in Genesis 1 is more than a day as we currently understand a day to be, because the Hebrew word yom is qualified by the words evening and morning 6 times.
2. For creation to have taken place using the method of evolution, we would have to concede that death occurred in God’s creation before the fall. It is my Biblical understanding that death is a consequence of sin and Jesus came to conquer death and sin. If death occurred before the fall i.e. sin what is the significance of Jesus’ death and resurrection?
Sadly, if my belief on creation is wrong I would have to concede that I am also wrong regarding sin and it’s consequences therefore I would have to question my whole believe in Christianity.

Whether naively or not I have chosen to trust God on this matter and accept that there are things I will not fully understand until I am made perfect. I will also not be ashamed of the Gospel even if wise men may think it foolishness.

*I raised this point, not to dispute the fundamentals of climate change but to state the climate change outcomes (predicted effects) are based on data that assumes an old earth such as, past events recorded by looking at rock layers, ice samples etc that are meant to be taken from x million years ago etc.

As I said at the start of this post ‘way out of my league’ and way much too much for this mother-of-3 brain to cope with this side of Christmas and mission.

Unknown said...

I would however be interested in your thoughts on God’s promise in Genesis 8:

Never again will I curse the ground because of man, even though every inclination of his heart is evil from childhood. And never again will I destroy all living creatures, as I have done. "As long as the earth endures, seedtime and harvest, cold and heat, summer and winter, day and night will never cease."

…and whether or not it has any relation to current events (I am not quoting this to add to my position, rather because I have heard it quoted a couple of times during the current public debate and I am interested in your perspective).

byron smith said...

Kathy, thanks again for your reply. It doesn't sound like you are out of your depth at all, since your comments were quite coherent and relevant.

I repeat that neither the basic science nor the predictive models of climatology are dependent upon paleoclimatology (the study of old climates), though this provides some corroborating evidence. Although I agree that there are good reasons to avoid polluting God's creation whether or not one accepts alarming anthropogenic climate change, this is still an important discussion because the question of whether carbon dioxide is correctly identified as a pollutant is largely* contingent on this explanation of recent temperature anomalies.
*NB Though higher carbon levels are also linked quite directly to more acidic oceans, which have a range of associated problems as well.

I am quite happy to be thought a fool for Christ, but I also want to listen carefully to the wisdom and insight of my brothers and sisters in Christ (and the wisdom with which God has blessed everyone).

In light of that, you might want to consider the following helpful reflections from Mark Baddeley, one of the lecturers at Moore College, on creation science. He has written a whole series addressing a number of concerns, though there are four posts on the issue of death here, here, here and here. As for twenty-four hour periods, I am quite happy that this is the denotation of yom; the issue is whether the narrative is to be taken as historical recount or etiological myth (though it can be affirmed as true in either case; the latter is more like a parable). The question is not whether we are reading everything literally (because no one does, not even the most ardent advocate of creation science - see here for an example). The issue is how are we meant to read this text? John Dickson gives some compelling reasons for reading the opening chapters of Genesis as something other than a journalistic recount; you can download his paper here.

byron smith said...

I concede your point about the frequency of tax rorts. However, this doesn't mean that the whole system of allowing people reductions for legitimate expenses is a bad idea, just that it requires (a) further regulation to close loopholes and (b) more repentance from greed and joyful acceptance of the goodness of taxation. Solar rebates may not be the most cost efficient form of reducing carbon (though insulation is), but it is still a good step towards reducing the carbon intensity of our energy production. It will always only be part of any response.

Finally, God's promises to Noah in Genesis 8 are indeed relevant, though not in the way that they are usually claimed (as a get out of gaol free card to clear us from any danger). Notice what is not promised: (a) protection for any given individual, group, nation, civilisation or even species. Just that God will not destroy all life. And (b) that God will prevent us from destroying ourselves. Indeed in Romans 1, we see that his pattern is to hand us over to the consequences of our idolatrous actions. When we turn to history, there are plenty of examples of even Christian groups and nations effectively undermining the ecological conditions of their own possibility. We have no guarantee that God will save us from our own stupidity and greed.

Unknown said...

Thanks Byron, I will read through the links provided in the New Year when I can consider them properly.

I did have a quick Q on the Genesis 8 passage. Do you think that there is any significance or difference between "God saying in His heart" 8:21-22 and "God establishing a covenant" Genesis 9:8-17.

For some reason (unknown - perhaps the personal feel) the wording in Gen 8 struck me and I wondered if it had any special significance?

byron smith said...

Hmmm, good question. I hadn't really noticed that before. I'm not quite sure what to make of it.

Juggernaut1981 said...

RE: Accountants et al.
I used to work in one of the Big 4 Accounting Firms (KPMG, Deloitte Touche Tomatsu, PWC, Ernst & Young) and I have seen if from the inside.

Ironically it is the "deduction of expenses for relevant expenses for the purpose of gaining taxable income" that causes so much complexity in our tax law and also the entire raft of massive accounting firms whose job is to find ways to enable companies to engage in deductions they may not have gotten. Governments add laws to close holes, usually create new ones by mistake and people use the new hole... repeat and rinse.

Some tax deductions are beneficial. R&D Tax Concessions would be a good example but again can be rorted.

I'm actually one of those that says that all forms of personal income taxes should be replaced with a single standard "non deductible" transaction/value-added tax (UK = VAT, AUS = GST, US = Sales Tax). With corporate income taxed based on revenue and deductions very limited and specifically targeted (i.e. reduce your income tax if you surrender additional carbon credits or R&D tax deductions)

RE: Evolution
Another pet favourite topic. Evolution has always had two kinds, and has ASSUMED to require large periods of time. Micro Evolution (which is the generally accepted version) in a nutshell says that organisms adapt to become the most suited for living in their current location. Tigers in rainforests become more specialised for rainforest life, those in open plains evolve differently.

Nobody has ever really been able to put a real value on how fast evolution happens. It was basically assumed that because there was a staggering level of variety and complexity there would also have to be a comparably large amount of time require to create the diversity. If it turns out you can get a lot of changes happening in a few generations, then evolution would happen faster than the assumed [X billion years]. It's all based on guesses about "How fast can evolution happen?" If the real answer is "FAST" then it may only take millions of years. If the answer is "SLOW" then Billions of years isn't out of the question.

byron smith said...

Now BHP Billiton are calling for a carbon tax and Gillard seems to be seriously entertaining the possibility.

byron smith said...

Michael Tobis offers another argument against a carbon tax, which is actually an argument against any kind of carbon price, whether set by the government or by the market: "The free market solution works best if the distribution of wealth is roughly even. The more the difference between the rich and the poor, the more price mechanisms are unfair ways to adjust collective behavior."

byron smith said...

David Roberts: Ten reasons a carbon tax is trickier than you think. Some important points made here. David's contributions are pretty much always worth reading.