Carbon Tax Thresholds

Jack Pezzey and Frank Jotzo have a new short piece in Nature Climate Change on carbon taxes with free emissions thresholds.

Jack Pezzey comments on this piece:

"We're hoping this piece will shift economists' views on a basic assumption about carbon taxation, which we argue is unnecessary, and is stifling the adoption of a tax, with its well-known advantages over carbon (emissions) trading.

The basic, unnecessary assumption is that a carbon tax must be charged on ALL emissions coming from any source that's included in the tax scheme. Our commentary notes that current tax schemes typically do charge for all emissions from included sources, and have low tax rates with key emitters given even lower tax rates or excluded altogether. On the other hand, charging a high tax rate on all emissions would generate implausibly large revenues, at least in the short to medium term. We highlight the academically established, but institutionally ignored alternative of taxing only emissions above fixed thresholds, which are equivalent to free tradable permits in many ways.

We're not arguing that carbon tax thresholds are always a good idea, or that they solve the intractable problem of international cooperation on emissions control, just that a tax with thresholds should always be considered as an option whenever emission pricing is debated (or explained in textbooks). For example, starting a carbon tax at a low rate and with no thresholds may be a good idea. But the trading equivalent of this is full permit auctioning and an unambitious emissions cap, which in the profession is now usually seen as inferior, so why not also consider a higher tax rate with thresholds, the equivalent of the standard trading system seen in practice, with some free permits and (sometimes) a more ambitious cap?

We do not advocate for carbon tax thresholds as a permanent feature. Rather, we see them as transitory measures that facilitate the introduction of carbon taxes, at higher tax rates than might otherwise be possible politically. Carbon tax thresholds could be phased out over time. In the article, we point out the potential benefits from treating carbon taxes as a source of fiscal revenue, and recycling it to achieve greater efficiency in taxation, and to assist low-income households in dealing with energy price increases.

Thresholds also raise contentious issues which complicate taxation; but as we note briefly in the paper, and at length in the Supplementary Information, many of these issues have already been "dealt with" for free tradable permits, that is, resolved, albeit imperfectly, well enough to allow permit trading in practice. So we contend that similar resolutions can be found for tax thresholds, but only if they are first put on the agenda."

Energy and Climate: A Primer

A new online textbook written by Cutler Cleveland (who was my PhD adviser) published by Trunity. You can request a desk copy just like you can for conventional hard copy textbooks.

The book's theme is that "a stable, predictable climate is an essential life support function of the Earth. Human use of carbon-based fuels such as oil, natural gas, and coal has increased the quantity of greenhouse gases in the atmosphere that warm the planet. The increase in the Earth's temperature since 1850, and the increase that is forecast to occur over the next 100 years, pose grave risk to all nations. The "climate problem" and the "energy problem" thus are are intimately linked, and must be tackled together."

Produce a List of All Your Department's Publications on RePEc

Something I just discovered, you can make a list of all an academic institution's publications on RePEc. Here is the link for the Crawford School. I don't know where you can access this list from the menus on IDEAS (let me know if you know) but you can produce a list for another institution by pasting the institutions EDIRC handle into the URL in place of Crawford's.

P.S.
René Böheim explains in the comments how to navigate to the list of publications for each institution. I hadn't noticed that link before...

Can Negotiating a Uniform Carbon Price Help to Internalize the Global Warming Externality?

Martin Weitzman has a new NBER working paper on whether negotiating a common global carbon price will be more likely to succeed than negotiating for emissions quantity reductions has been. His answer is, yes, on the grounds that it is easier to negotiate a common carbon price than separate emissions reduction targets for each country, and that each country has an incentive for a high price on everyone else and to collect taxes itself. For the developed countries it also has the political advantage that they won't be forced to buy permits from developing countries and transfer money overseas.

But, as we showed in our paper in AJARE last year, a common carbon price will impose much higher total direct costs on developing countries than developed countries. Developing countries already argue that global warming is mainly the historical responsibility of the developed countries and, therefore, they should take stronger action. So, a common carbon price doesn't look very politically attractive to developing countries unless there are large side payments. Weitzman misses this dimension of the problem. This will negate the supposed political advantage that developed countries would see in retaining all their carbon tax revenue. Weitzman does admit that: "The model of this paper is so abstract and so removed from reality that it is open to enormous amounts of criticism on many different levels" (p. 17). He does write that: "Nothing in the model excludes side payments to help obtain an international agreement on harmonized national carbon prices" (p18). But won't those change the political acceptability of such an approach?

Fossil fuel exporting countries are a group that will suffer high GDP losses under any emissions reduction plan. Not only do they have fossil fuel intensive economies, but the reduction in demand for fossil fuels under a carbon tax reduces their income, which maybe a cap and trade approach does not do to the same extent. I'm skeptical that they would find it optimal to agree to a high carbon tax. These countries differ from the players in Weitzman's model who only suffer costs from their own abatement.

I do think that carbon taxes have important advantages over cap and trade schemes but I'm skeptical that a global uniform tax rate would see more success than a global Kyoto style quantitative emissions reduction.

Anthropogenic and Natural Causes of Climate Change

I have a new article coauthored with Robert Kaufmann in Climatic Change titled "Natural and Anthropogenic Causes of Climate Change." In the paper, we test for Granger causality between temperature and, as the title says, potential natural and human causes of climate change. We find that both natural and anthropogenic factors cause temperature change and also that temperature causes greenhouse gas concentration changes. Although the effects of greenhouse gases and volcanic forcing are robust across model specifications, we cannot detect any effect of black carbon on temperature, the effect of changes in solar irradiance is weak, and the effect of anthropogenic sulfate aerosols may be only around half that usually attributed to them.

It is very important in Granger causality testing to control for as many other possibly relevant explanatory variables as possible. So, in the paper we always include all the causes we consider in each regression model. We found only one other paper that attempted to do this - Triacca et al. (2013) - which was very recently published after we initially submitted our paper. And the latter paper still does not include anthropogenic aerosols. This was the main reason why we wrote this paper. The paper is also a follow up on our 1997 paper in Nature which pioneered the application of Granger causality testing to climate change.

All models in the paper include all the potential causes, the differences between models in the paper are in terms of:

1. Sources of temperature data - We use both the HADCRUT 4 and GISS3 datasets.

2. Time periods - We look at the full 1850-2011 period as well as the post 1958 period. Regular atmospheric sampling  of carbon dioxide started in 1958 at Mauna Loa.

3. Ocean heat content - The ocean stores most of the heat accumulated through global warming. It is important to include it in climate modelling especially when using short time series. But we only have data from 1955 on. So we estimate models with and without this variable.

4. Restrictions on the equality of climate sensitivity across causes - All explanatory variables are converted to radiative forcing in Watts per square metre. If we aggregate all of these together into total radiative forcing we assume that the relative sizes of the effects have been correctly estimated and the dynamics of temperature in response to changes in radiative forcing are equal across all factors. So we estimate both more restrictive models that impose these assumptions and ones that don't. In particular, we allow the size of the effects of anthropogenic aerosols to vary. There is particularly high uncertainty concerning the size of the effects of sulfur and black carbon aerosols.

Another important dimension of the paper is that we use Granger causality tests that are robust to the non-stationary (potentially stochastically trending) nature of the global climate data. These are the Toda-Yamamoto Granger causality tests.

First Issue of Asia and the Pacific Policy Studies Now Online

Most of the papers for the first issue of the Crawford School's flagship journal are now online in "early view". All of the papers for the first issue have now been finally approved. It looks like a few more still need to be processed into the journal format (I know that there should be a paper by Bob Costanza and Shuang Liu in this issue). The journal is open access - so no problems or fees for anyone to download the papers.

The Economics of Global Climate Change: A Historical Literature Review

I have a new working paper coauthored with Frank Jotzo and Leo Dobes up on RePEc titled: The Economics of Global Climate Change: A Historical Literature Review. It is a by-product of a book of collected papers we edited for Edward Elgar to be titled Climate Change and the World Economy. The paper has three sections. The first is on trends and drivers of emissions, the second on mitigation and impacts, and the third on adaptation. I wrote the first section, Frank wrote the second and Leo wrote the third. I then edited all the sections together into a hopefully coherent whole. The paper is titled "A Historical Literature Review" because we focus to some degree on the evolution of the literature from some of the early classic papers to the latest contributions. Of course, there is no way we can write a review that is at all comprehensive. The IPCC reports struggle to do that. I think we do cover some of the key papers in the literature and it could be a useful reading guide for further research.

2012 SNIP and SJR Values Released

I'm a bit behind the curve here but new values for Elsevier's bibliometric indicators SNIP and SJR were released on 18th October. The indicators have been refined further. Both SNIP and SJR are supposed to now average 1 for the journals included in Scopus. But I found that only 5949 journals had a SNIP of one or greater out of 18684 journals with a non-zero SNIP. For SJR only 3234 journals out of 19988 had values of of one or greater. So, this is pretty confusing. Also, unfortunately The Energy Journal still has missing values. We use SNIP internally at Crawford School, because it is the best indicator we have to compare across journals, but clearly there are still some questions about it both regarding the normalization and the very large number of journals with missing values.

ANZSEE 2013 Presentation

I'm at the ANZSEE 2013 conference. As it is in the Crawford Building, I don't actually need to go anywhere to be "at" the conference :) So far it has been quite interesting with an opening plenary by John Thwaites from Monash on the report of the National Sustainability Council. My presentation is on Thursday morning at 8:30am in Weston Theatre in the Crawford Building. It's titled: "Identifying the effect of the elasticity of substitution on the rate of economic growth"...

Steve Dowrick

Here is a link to the obituary that Bruce Chapman and Maria Racionero wrote. All I can add is that I interacted a bit with Steve after I started working for the Environmental Economics Research Hub at Arndt Corden Department of Economics in 2009. I found him to be a very friendly and helpful person. Steve came in to chat a few times when he happened to be visiting over at Arndt Corden and took an interest in my work and also gave me some very nice comments on my draft proposal for the ARC (my first) - he said that if it was up to him he would fund it - this made me feel much more confident! I certainly saw him as a role model.

I knew he had been ill and then heard recently that he had died. It was very sad news, especially as he was only 60 years old.

New Journal: Energy Research and Social Science

Another new journal in the energy space: Energy Research and Social Science. Published by Elsevier and the editor in chief is Benjamin Sovacool. The journal will cover all social science approaches and all energy technologies.