Articles by Sean Casten

The solution: Output-based standards

This is the fifth and final post in a series on the details required to get carbon policy right. See also parts one, two, three, and four.

So far, I've done a lot of complaining -- which, in and of itself, is just, well ... whiny. Here, then, is a solution.

First, a very brief review:

1. A test of good carbon policy is whether it encourages the private sector to invest capital in projects that will reduce GHG emissions.
2. "Additionality" confuses carbon policy, by preferentially shifting investment toward less economic GHG-reduction technologies.
3. Carbon taxes provide sticks without carrots, and thereby provide no direct incentive to those who might otherwise use carbon pricing to invest in projects that lower GHG emissions.
4. Long-term carbon pricing is necessary to encourage private sector investment. Spots alone will not.
5. Although not covered in this series, it bears repeating that auctions trump allocation.

Unfortunately, virtually all of the GHG-reduction strategies currently in existence (e.g., Kyoto, RGGI) or being contemplated (e.g., Lieberman-Warner, California AB 32) fail one or more of the prior tests. Moreover, all those actual/proposed bills are really complicated, with many moving parts that are rife for gaming -- or, more charitably, significant legislative error. Here, then, is a better approach: output-based GHG regulation.

Joe Barton: Pork lover

Joe Barton (R-Texas) spoke to the U.S. Energy Association yesterday and made it clear ($ub req'd) that he's going to do everything he can to block cap-and-trade legislation from coming out of Congress:

As the Democrats move to pass climate change legislation this year, Rep. Joe Barton, R-Texas, will be there to fight them, he told the U.S. Energy Assn's annual membership meeting yesterday.

As a senior member of the House Energy Committee, that's not a threat to be taken lightly. So why is he opposed?

As justification, he cites both his passion for economic stewardship and his scientific judgment:

Spots vs. strips

This is the fourth post in five-part series on the details required to get carbon policy right. See also parts one, two, and three.

We now get into an issue that will seem a bit arcane, because no one's talking about it, at least not explicitly. But it's a real choice, and in many conversations about carbon policy we are implicitly getting it wrong.

Should we price carbon in spots, or strips? Or, to take it out of financial jargon, should we:

1. set up markets such that people who are selling or buying emissions credits have to go to the market with each incremental ton to determine what the price will be (a "spot" market), or
2. set up markets such that buyers and sellers can enter into long-term contracts for the emissions they will produce/reduce (a "strip" market)?

Carbon taxes vs. carbon trading

This is the third post in a series about details we are still getting wrong in the climate policy discussion. See also part one and part two.

There is no shortage of economic analysis and policy discourse that shows that carbon tax and cap-and-trade methodologies can deliver economically equivalent outcomes. The general consensus -- at least today -- seems to be that since they're equivalent, it really comes down to politics, and it's politically difficult to do anything with the word "tax" in it, so we'll do cap-and-trade. I like the conclusion, but the rationale is pure bunkum.

To understand why, we need only go back to my simple test of any climate policy proposal: the degree to which it encourages investment in capital that lowers atmospheric greenhouse gas concentrations.

Cap-and-trade and carbon taxes do not pass the test equally.