Gristmill

Coen brothers shoot an ad busting the ‘clean coal’ myth

The Reality Coalition is at it again. This time, they recruited the Coen Brothers to shoot an ad debunking the “clean coal” myth: The Coens are also shooting a second ad for the campaign, due out soon.

Cap-and-trade rebates to taxpayers favor efficiency over equity

UPDATE: There are two important updates at the bottom of this post.

Another striking feature of the way cap-and-trade is treated in Obama's budget: rebates to taxpayers are administered through a payroll tax deduction. This is interesting stuff indeed.

The question of how to rebate auction revenue back to people (to offset the increased costs of energy under a cap) reveals a tension between equity and efficiency.

If the goal is equity, the payroll tax rebate is probably not the way to go. On one hand, it's far more progressive than an income tax rebate (about a third of U.S. workers pay no federal income tax at all). On the other hand, there's reason to believe it's less equitable than a simply writing an equal check to every citizen. That's what a recent report from the Center on Budget and Policy Priorities recommends. (Technically it recommends refundable tax credits, more or less the same thing).

CBPP says flat rebates would be more equitable than income or payroll tax cuts -- the latter would less regressive, but regressive nonetheless:

CBO found that if all the revenue from auctioning emissions allowances were used to reduce payroll tax rates, households in the bottom 60 percent of the distribution would get a smaller benefit from the tax cut, on average, than they would lose from higher energy prices. Those in the next 20 percent would come out even and the top 20 percent of the population would get a tax cut that exceeded their increase in energy costs. [my emphasis]

In addition, "seniors and others without earnings would receive no rebate" -- no pay, no payroll tax.

To solve the first problem, you could put a cap on payroll tax rebates, so higher income workers don't get a windfall. To solve the second problem, you could make seniors, the disabled, and other folks with no earnings eligible for a special tax credit. But if you're going that route, why not just use the same tax credit for everyone?

If your goal is efficiency, however, the payroll tax rebate is better. Efficiency here means emission reductions with the least macroeconomic impact. A cap-and-trade refunded through payroll taxes effectively raises one tax (an fossil energy tax) and lowers another. The idea is to get less of what you're taxing (fossil energy) and more of what you're taxing less (work). That's why Obama's people are calling it the "Making Work Pay" measure.

Still, the CBPP says it's not worth it:

The efficiency gains are largest -- although still quite small -- when the rebate comes exclusively in the form of a payroll tax cut. But that approach leaves millions of low-income and senior households out in the cold.

Guess efficiency beat equity in the Obama budget team. That would be Summers and Orszag at work. Yay economists!

UPDATES: Two important notes to add:

First, there is a cap on the payroll tax deduction: the tax credit offsets payroll taxes "up to the first $6,450 of earnings." So that does reduce the regressivity somewhat. Thanks to Kate for pointing this out.

Second, it might not be clear in the post that the tax credit's effect is to offset payroll taxes, but the credit itself is administered via the income tax. Those who pay payroll tax but no income tax will just receive an income tax credit -- a check. The payroll tax is the target but the income tax is the instrument. Why this is, I'll leave for people who know way more about the tax code than me.

Congressional leaders call for capitol plant to can coal days before big protest

Several thousand people are expected to gather on Monday for a massive protest at the coal-fired plant that provides power to the U.S. Capitol. Organizers from Chesapeake Climate Action Network, Rainforest Action Network, and Greenpeace anticipate that it will be the largest display of civil disobedience against global warming in United States history. Today, however, […]

The projected revenue from cap-and-trade auctions is strikingly low

Hey, look, the New York Times and the Washington Post have decided it's significant that Obama's budget includes carbon auction revenue! I guess people are allowed to talk about it now. A good start might be reading my post on the subject from three $%@^! days ago. (Yes, I'm aware bitterness is unattractive.)

There are a few notable features of the treatment of cap-and-trade in the just-released budget proposal. I'll break it up into a few posts.

First, the projected revenue seems strikingly low. Partly this is a function of the fact that the targets themselves, particularly in the short term, are fairly weak -- 14 percent under 2005 levels by 2020, 83 percent by 2050. (Sane climate policy would reduce emissions 20 percent below 1990 levels by 2020, at least.)

Still, the proposal explicitly says that the administration expects 100 percent of the permits to be auctioned off. As Kate noted, the CBO estimated (PDF) that "the value of those allowances could total between $50 billion and $300 billion annually (in 2006 dollars) by 2020." The administration's estimate -- $83 billion a year by 2020 -- is well at the bottom end of those projections.

My guess -- apparently confirmed by "senior White House officials" who don't invite me to their conference calls -- is that this is simple conservatism. The inclusion of any carbon revenue at all is sure to spark controversy, so they're simply being cautious not to lay too ambitious a marker. It's possible both the targets and the revenue could be boosted in the course of Congressional sausage-making, though color me somewhat pessimistic about that.

L.A. solar vote could measure nation’s appetite for renewables

Next week Los Angeles voters will vote on an ambitious solar energy plan that would add solar panels on rooftops and parking lots across the city and require the city’s energy utility to rapidly increase the amount of solar power it uses. The vote could give a snapshot of public support for renewable energy, just […]

The myth of the universal market … debunked!

Communication among economists, other social scientists, natural scientists, and lawyers is far from perfect. When the topic is the environment, discourse across disciplines is both important and difficult. Economists themselves have likely contributed to some misunderstandings about how they think about the environment, perhaps through enthusiasm for market solutions, perhaps by neglecting to make explicit all of the necessary qualifications, and perhaps simply by the use of technical jargon.

So it shouldn't come as a surprise that there are several prevalent and very striking myths about how economists think about the environment. Because of this, my colleague Don Fullerton, a professor of economics at the University of Illinois, and I posed the following question in an article in Nature: how do economists really think about the environment? In this and several succeeding postings, I'm going to answer this question, by examining several of the most prevalent myths.

One myth is that economists believe that the market solves all problems. Indeed, the "first theorem of welfare economics" states that private markets are perfectly efficient on their own, with no interference from government, so long as certain conditions are met. This theorem, easily proven, is exceptionally powerful, because it means that no one needs to tell producers of goods and services what to sell to which consumers. Instead, self-interested producers and self-interested consumers meet in the marketplace, engage in trade, and thereby achieve the greatest good for the greatest number, as if "guided by an invisible hand," as Adam Smith wrote in 1776 in The Wealth of Nations. This notion of maximum general welfare is what economists mean by the "efficiency" of competitive markets.

Opportunity for a defining moment

The inauguration of Barack Obama as the 44th President of the United States is a defining moment in American history. For most Americans and countless others around the world, this is an inspiring political transition. The question we must face, however, is whether compelling inspiration will lead to effective action. As I wrote in a Boston Globe op-ed (November 12, 2008) one week after election day, environment and energy issues -- particularly climate change policy -- provide a microcosm of the forces that are shaping and will shape the actions of the new administration and Congress.

About eight years ago, President-elect George W. Bush promised to be President for all the people, not just those who had voted him into office. Bush's ability as Texas governor to bridge differences across the political aisle provided cause for optimism.

But hope for a centrist and sensible presidency dissolved under the influence of White House political operative Karl Rove and Vice President Dick Cheney. The Bush Administration moved not to the center, but toward solidifying its base on the political right. Nowhere was this more apparent than in energy and environmental policy, with Vice President Cheney running energy policy, and EPA Administrator Christie Whitman virtually driven from office.

Obama’s first budget includes green spending and anticipated revenues from a climate plan

President Barack Obama on Thursday outlined his first proposed budget, notably including billions of dollars for renewable energy investments and taking into account billions in expected revenues from a carbon pricing scheme. In his remarks on Thursday, Obama also reaffirmed his directive to Congress to send him legislation putting a price on carbon. The “climate […]

British recycling site to feature celeb cast-offs

This just in: MySkip.com, which as near as I can tell is the British version of Freecycle (TM!), is hosting a 24-hour Celeb Throwaway next week to show users just how sexy recycling can be. While the names of the participants have been revealed, their items have not. What will Boy George donate? Sheryl Crow? Cuba Gooding Jr.? The cast of Mamma Mia? One's imagination hardly dares wander.