Robert Samuelson Drinks Deeply From the Cup of Stupid

Washington Post columnist Robert Samuelson has long impressed me as one of the most hackish economic columnists not associated with the Wall Street Journal and not named Ben Stein, but today’s piece on cap-and-trade is dismally, embarrassingly stupid. Its essential premise is that consumers and producers of energy don’t respond to price signals, something so incredibly, obviously wrong that even the dolt editors of the Post opinion section should have wondered what was up. Samuelson should be ashamed of himself.

Let’s go to the videotape:

Carbon-based fuels (oil, coal, natural gas) provide about 85 percent of U.S. energy and generate most greenhouse gases. So, the simplest way to stop these emissions is to regulate them out of existence. Naturally, that’s what cap-and-trade does. Companies could emit greenhouse gases only if they had annual “allowances” — quotas — issued by the government. The allowances would gradually decline. That’s the “cap.” Companies (utilities, oil refineries) that needed extra allowances could buy them from companies willing to sell. That’s the “trade.”In one bill, the 2030 cap on greenhouse gases would be 35 percent below the 2005 level and 44 percent below the level projected without any restrictions. By 2050, U.S. greenhouse gases would be rapidly vanishing. Even better, their disappearance would allegedly be painless. Reviewing five economic models, the Environmental Defense Fund asserts that the cuts can be achieved “without significant adverse consequences to the economy.” Fuel prices would rise, but because people would use less energy, the impact on household budgets would be modest.

This is mostly make-believe. If we suppress emissions, we also suppress today’s energy sources, and because the economy needs energy, we suppress the economy. The models magically assume smooth transitions. If coal is reduced, then conservation or non-fossil-fuel sources will take its place. But in the real world, if coal-fired power plants are canceled (as many were last year), wind or nuclear won’t automatically substitute. If the supply of electricity doesn’t keep pace with demand, brownouts or blackouts will result. The models don’t predict real-world consequences. Of course, they didn’t forecast $135-a-barrel oil.

As emission cuts deepened, the danger of disruptions would mount. Population increases alone raise energy demand. From 2006 to 2030, the U.S. population will grow 22 percent (to 366 million) and the number of housing units 25 percent (to 141 million), the Energy Information Administration projects. The idea that higher fuel prices will be offset mostly by lower consumption is, at best, optimistic. The Congressional Budget Office has estimated that a 15 percent cut of emissions would raise average household energy costs by almost $1,300 a year.

This is just a fundamental misreading of the intent and probable effect of a cap and trade system. At base, cap and trade is about establishing a price for the right to emit carbon because unpriced emissions have huge social costs. The effect of a carbon price will then be to make alternatives competitive and to induce investments in efficiency. I don’t know anyone who believes that a transition away from fossil fuels will be painless, but there is wide agreement that the market mechanisms embodied in a carbon pricing scheme are the least painless way to achieve reductions.

Now, Samuelson may not have realized it, but 2030 is a long way away. While there won’t be “automatic” substitution away from coal, two decades in an environment where cap and trade has made alternatives profitable is more than enough time to allow industries to do what they need to do. And there will only be shortages of energy if consumers don’t feel the cost of the carbon price, which they will. Maybe that additional cost will be painful, or maybe households will save themselves money by simply buying more efficient appliances, and opting for the 2,500 square foot home rather than the 3,500 square foot home.

But really, this is just laying the groundwork for the big stupid conclusion:

Unless we find cost-effective ways of reducing the role of fossil fuels, a cap-and-trade system will ultimately break down. It wouldn’t permit satisfactory economic growth. But if we’re going to try to stimulate new technologies through price, let’s do it honestly. A straightforward tax on carbon would favor alternative fuels and conservation just as much as cap-and-trade but without the rigid emission limits. A tax is more visible and understandable. If environmentalists still prefer an allowance system, let’s call it by its proper name: cap-and-tax.

Yowza. As any economist worth his or her salt will tell you, a cap and trade plan with auctioned permits is essentially identical to a carbon tax. That also happens to be exactly what Barack Obama is proposing. So, another way for Samuelson to have written this column would have been to title it, “Barack Obama has a good plan to reduce carbon emissions.”

I’ll give Samuelson some credit–he’s right to worry about government handouts, of either permits themselves or of revenues from the sale of the permits. But that’s a concern with either plan (and a much bigger concern in conservative plans to forgo pricing altogether in favor of large research subsidies). And he fails to mention the big advantage of a cap and trade plan, which is that it allows us to target an emissions level (and adjust it easily) rather than guessing at a carbon price.

But apparently, Samuelson thought the best way to inform his readers was to significantly misrepresent the details of a cap and trade plan, en route to advocating a different solution which is nearly identical and in some ways inferior to cap and trade. His readers are now dumber for his efforts.

Comments

  1. low-tech cyclist says:

    Thanks for doing the slice-and-dice of Samuelson that I didn’t have time for. But this was an atrociously bad column even by Samuelson’s low standards.

    Another weakness of a straightforward carbon tax is political: in order for it to reduce CO2 emissions over time, the tax rate has to be increased regularly in order to make carbon emissions less affordable. And that’s politically harder to do, and easier to undercut, than gradually lowering the ‘cap’ on a cap-and-trade scheme, even if they’re functionally the same thing.

    And maybe that’s what Samuelson wants: a visible, understandable, easy-for-Republicans-to-filibuster tax.

  2. ryan says:

    Yeah, that’s a good point–just added it, actually, to a follow up post. As you say, the last thing Samuelson appears to be interested in is an honest debate about policy.

  3. usufruct says:

    In the fullness of time, the current hysteria surrounding carbon dioxide emissions will be recognized as an embarassing socio-political episode fuelled by homo stultus’ unfortunate paranoid tendencies. It is, in essence, a mass hypnotic focus.

    CO2 is a minor greenhouse gas with limited forcing capability. Its effect on temperature is logarithmic. 400 units of CO2 are required to produce the same effect on temperature as the first 20 units. And so on.

    Its effects on temperature decrease as its concentration increases. An exponential increase in CO2 emissions is required to produce increased warming and no such rate has existed since 1972. It is simply not true that more CO2 equals more warming.

    In fact, the CO2 bands in the atmosphere are about 3/4 saturated, so we’ve already experienced most of the warming potential CO2 can produce. Whatever happens to global temperatures in future, it will have little to do with CO2 emissions.

    If the atmosphere was that sensitive to minor greenhouse gas increases, we wouldn’t be here today. We’re at about 380 ppm today. It’s been about 10 times higher than today during this planet’s past. Plants begin to suffer at about 250 ppm. They thrive at about 1000.

    The historical relationship between temperature and CO2 proves absolutely no correlation. Sometimes temperature and CO2 are negatively corellated, other times positively and at other times, not at all. Some of the highest CO2 concentrations have occurred during the worst ice ages. Scientifically, it is a very weak reed upon which to lean. It would never survive in a court of law.

    And it is becoming increasingly apparent that higher temperatures actually cause higher CO2 levels, as warmer oceans give off more CO2. Thus, the theory that greater CO2 levels cause higher temperatures may have it completely backwards.

    If you track solar cycle activity along with oceanic currents like the Pacific Decadal Oscillation that alternate between warming and cooling phases every couple of decades, you will discern a pattern that accounts for almost all the climate variability we’ve had over the past century. CO2 levels are next to insignificant.

    It is singularly unfortunate that the U.S. Government is determined to implement an economically destructive central planning rationing scheme worthy of Soviet Russia due to the spectatularly flawed doctrine that carbon dioxide is driving climate change. There is little we can do to change the climate.

    At the cost of trillions of dollars, we may reduce global temperatures by a few hundredths of one degree over the course of a century. Yes, that’s about it. Please think about that for a minute before throwing your arms around this nocuous rationing plan or some equally repugnant carbon tax.

    Experience runs an expensive school, but it is unfortunately the only one in which many humans will learn.

  4. Alex B. says:

    usufruct, you’re not a climatologist, are you? There’s so much misdirection and pseudo-science in that post that I don’t even know where to begin.

  5. low-tech cyclist says:

    Yeah, that’s a good point–just added it, actually, to a follow up post.

    Thanks – nice followup, btw. I’m going to have to start dropping by here more often.

  6. mq says:

    As any economist worth his or her salt will tell you, a cap and trade plan with auctioned permits is essentially identical to a carbon tax.

    This is just false. Pure carbon tax gives price certainty, pure cap and trade gives quantity certainty. In a situation where there is an unknown but possibly very steep marginal cost curve for emissions reduction, while the marginal benefit curve is probably flat, a carbon tax is more economically efficient. This is a basic point made in intro econ textbooks, and it is the point Samuelson seems to be making here. It is not a “stupid” point — you can disagree with it, but being nothing but snarky and dismissive is making you look like the stupid one.

    IMO, the political economy of cap and trade is that if an emissions limit runs afoul of a very high marginal cost of emissions reduction, then all kinds of exceptions will be made to reduce the cost to business. This is pretty much what happened in the EU scheme. The system will not tolerate a price of emissions reduction that is too high. Better to just find the highest price of emissions reductions people can live with, set that price as a tax, and run things as a simple, transparent tax. Cap and trade systems are easier to manipulate behind the scenes than taxes.

    Alternatively, one could set up a cap and trade system with a safety valve price — e.g. if the price of tradable permits went over say $25 a ton, then you could buy a permit for $25 from the government. That system really would become equivalent to a tax once the price went over a certain level.

  7. mq says:

    Note also: a tax could easily create greater cuts in emissions than a quantity limit, if we have overestimated the costs of reduction. So if we are mistaken in where we set our limit, we get a good surprise.

    I don’t actually believe that an emissions limit gives quantity certainty, because the simple fact is that if the price of a certain emissions level turns out to be too high, the system will be gutted and riddled through with exceptions. Indeed, the uncertainty about price will cause all kinds of pressures to set the quantity too high in the first place. But I do actually believe a tax will give price certainty that people can live with.

  8. DCBob says:

    usufruct, go get a real education before you waste everyone’s time mouthing off with right wing talking points.

    mq is entirely correct that a tax beats a cap, and for just the reason s/he explains. The only down side to a safety valve is that it doesn’t keep the allowance price from falling below the tax – for that you’d also need a price floor, which the current bill provides for.

  9. usufruct says:

    I realize this greatly discomfits those who believe so fervently in manmade global warming and the urgent need to stop it, but it must be said. There is only a moderate warming potential from carbon dioxide emissions, based on the physics of atmospheric gases.

    First of all, humans can only claim responsibility, if that’s the word, for about 3.4% of carbon dioxide emitted to the atmosphere annually, the rest of it is all natural. Man’s contribution is well within natural variability and will remain so.

    If we consider the warming effect of the pre-Industrial Revolution atmospheric carbon dioxide (about 280 parts per million) as 1, then the first half of that heating was delivered by about 20ppmv while the second half required an additional 260ppm.

    To double the pre-Industrial Revolution warming from CO2 alone would require about 90,000ppm but we’d never see it – CO2 becomes toxic at around 6,000ppm (although humans have absolutely no prospect of achieving such concentrations). Think about these numbers and how far we are from them. We’re currently at about 380 ppm.

    With a proper understanding of the logarithmic nature of CO2, the estimated temperature increment range for a doubling of pre-IR CO2 (300ppm to 600ppm) is just +0.6 °C to +1.5 °C and for a quadrupling (to 1200ppm) +1.3 °C to +2.9 °C.

    A worst case doubling of atmospheric carbon dioxide will still only produce a total warming under 1.5 °C (and we’re thought to be almost half-way there already). This is well within natural variability and benign.

    The trouble really begins with positive feedback mechanisms. Most lurid climate projections assume an extreme climate sensitivity to CO2, producing all sorts of positive feedback mechanisms that will result in an enhanced greenhouse effect, especially regarding water vapor. The trouble is, reality hasn’t cooperated with these models.

    Since the known physics of carbon dioxide when modeled with measured 20th Century changes do not produce sufficient swings to match measured 20th Century temperature trends, a multiplier of 2.5 is used.

    While it is intuitively reasonable that the most prolific and important greenhouse gas could act as a magnifier there is no evidence that it does. In fact water vapor is self limiting because it precipitates out as rain and snow and its effect also varies as clouds, with more bright low clouds acting as a cooling effect.

    If these feedbacks existed to any great extent, then the 1997-98 El Nino event should have produced them. Since the world cooled almost as abruptly as it warmed since that event(no net warming since 1998 despite increased CO2) we can only assume no positive feedback mechanism was invoked and thus Earth is not perilously perched upon some critical temperature threshold beyond which some new physics takes over and runaway enhanced greenhouse warming becomes a self-perpetuating nightmare. That test for a multiplier effect surely failed.

    It is evident that if positive feedback mechanisms exist (entirely plausible) then their effect is negligible or mitigated by negative feedback mechanisms (equally plausible). Unlike modelers, who alter their virtual worlds at whim, we can only measure what the world actually does, and there simply isn’t room in the measured change for the existence of significant unmitigated positive feedbacks.

    In addition, the level of methane, which is a far more potent greenhouse gas than CO2, has actually stabilized, despite what James Hansen would have you believe. Climate models predicting heightened warming assume a continuous rise in methane, which is simply not happening. Very imporant.

    Also, if a greenhouse warming was happening, there should be a thermal “hot spot” in the tropics, at 8-12 kilometers above the surface. Recent satellite and balloon data demonstrate that no such signature is present. The data must be continually checked for errors, but as of very recently, it just aint there.

    Until you can provide solid scientific evidence to the contrary – not guesswork – there is no compelling reason to believe that CO2 emissions pose a grave threat to the environment. Natural forces explain climate change far better that industrial emissions. That’s just a fact. I just hope they don’t screw up the world’s economy in the meantime.

  10. Bob Murphy says:

    I don’t understand the hostility for Samuelson’s article. His points about the advantages of a carbon tax are consistent with the arguments of William Nordhaus (see chapter of this pdf) and the CBO (pdf). Say what you will about Nordhaus, but he’s certainly worth his salt on the economics of climate change.

    Besides the economics of it, I don’t understand why you’re accusing Samuelson of dishonesty, at least on this article (maybe he’s a bald-faced liar on other pieces). Low tech cyclist wrote:

    Another weakness of a straightforward carbon tax is political: in order for it to reduce CO2 emissions over time, the tax rate has to be increased regularly in order to make carbon emissions less affordable. And that’s politically harder to do, and easier to undercut, than gradually lowering the ‘cap’ on a cap-and-trade scheme, even if they’re functionally the same thing. And maybe that’s what Samuelson wants: a visible, understandable, easy-for-Republicans-to-filibuster tax.

    To which ryan replied:

    Yeah, that’s a good point–just added it, actually, to a follow up post. As you say, the last thing Samuelson appears to be interested in is an honest debate about policy.

    So let me summarize. You two guys think that cap-and-trade and a carbon tax are the same thing. You know voters would never approve a carbon tax. So you favor cap-and-trade–which you think is the exact same thing–because the voters won’t know enough to object to it.

    And you’re accusing Samuelson of dodging honest debate?

  11. Tim Cleaveland says:

    Why doesn’t the coward who goes by ‘usufruct’ give us his real name?

  12. Knemon says:

    Why don’t those brave souls who use their real names explain why “usufruct” is wrong?