Tradable Pollution Permits or Green Taxes/Subsidies?

1. Tradable Pollution Permits or Green Taxes/Subsidies? James Stodder, (Ph.D., Economics, Yale 1990) Lally School of Management & Technology Rensselaer Polytechnic Institute at Hartford Hartford, Connecticut, USA Stodder, Presentation on Pollution Permits, Sept. 14, 2011

2. CO2 and Temperature Change http://www.ngdc.noaa.gov/paleo/icecore/antarctica/vostok/vostok_data.html Stodder, Pollution Permits, Sept. 14, 2011

3. CO2 and Industrialization http://www.globalwarmingart.com/wiki/Image:Carbon_Dioxide_400kyr.png Stodder, Pollution Permits, Sept. 14, 2011

4. Surface Temp & Hurricane Intensity Hurricane Intensity - - - Sept. Surface Temp __ “Increasing destructiveness of tropical cyclones over the past 30 years”, Nature, 8/4/05, ftp://texmex.mit.edu/pub/emanuel/PAPERS/NATURE03906.pdf Stodder, Pollution Permits, Sept. 14, 2011

5. Majority Believes in Global Warming Source: Yale University Project on Climate Change Communication Stodder, Pollution Permits, Sept. 14, 2011

6. Good Old Supply & Demand! Stodder, Pollution Permits, Sept. 14, 2011

7. Planning is Perfect – if No Uncertainty! Stodder, Pollution Permits, Sept. 14, 2011

8. But if Costs are Uncertain … Stodder, Pollution Permits, Sept. 14, 2011

9. … Outcome with Quantity Controls Stodder, Pollution Permits, Sept. 14, 2011

10. Losses with Quantity Controls Stodder, Pollution Permits, Sept. 14, 2011

11. Losses with Quantity Controls Stodder, Pollution Permits, Sept. 14, 2011

12. With Cost Controls, further from Equ. Stodder, Pollution Permits, Sept. 14, 2011

13. Greater Losses with Cost Controls Stodder, Pollution Permits, Sept. 14, 2011

14. Steep Decline in Benefits => Quantity Controls Weitzman (1973)

15. What if more Gradual Define in Benefits? Stodder, Pollution Permits, Sept. 14, 2011

16. Quantity or Cost Controls? Stodder, Pollution Permits, Sept. 14, 2011

17. Cost Controls Closer to Equilibrium Stodder, Pollution Permits, Sept. 14, 2011

18. Quantity Controls Further from Equilibrium Stodder, Pollution Permits, Sept. 14, 2011

19. Costs more steeply sloped than Benefits => CostControls Prices vs. Quantities Revisited: www.rff.org/documents/RFF-DP-98-02.pdf

20. Best Method is an Empirical Question: If Social Benefits are Less Price Sensitive (More Steeply Sloped) than Costs=> Use Quantity Controls(Pollution Permits). Stodder, Pollution Permits, Sept. 14, 2011

21. Benefits more steeply sloped than Costs=> Quantity Controls Prices vs. Quantities Revisited: www.rff.org/documents/RFF-DP-98-02.pdf

22. If Social Benefits are More Price Sensitive (Less Steeply Sloped) than Costs => Use Cost Controls (Taxes / Subsidies). Stodder, Pollution Permits, Sept. 14, 2011

23. Costs more steeply sloped than Benefits => CostControls Prices vs. Quantities Revisited: www.rff.org/documents/RFF-DP-98-02.pdf

24. Volatility of S02 Prices, US: 1995-2006 William Nordhaus (Copenhagen, 2009) Stodder, Pollution Permits, Sept. 14, 2011

25. Basic Business Argument: What is more important for your Business? • Knowing the future price of energy that your business must pay? • or … • Knowing the future quantity of energy that thecountry as a whole must use? Stodder, Pollution Permits, Sept. 14, 2011

26. Additional Arguments: • Carbon taxes will make the cost of carbon-based energy higher, but also more stable. • Taxes on energy are already in place. Pollution Permits would require new levels of bureaucracy. • Much easier to tax oil at the refinery than check pollution permits at the tail pipe or smokestack. • Carbon tax applies to all users, while permits are monitored for just the biggest polluters. Stodder, Pollution Permits, Sept. 14, 2011

27. What about the Recession? Martin Wolf, Financial Times, Sep. 6, 2011 Stodder, Pollution Permits, Sept. 14, 2011

28. Bond Market Worried About Growth http://research.stlouisfed.org/fred2/graph/?id=FII10,