Kevin Drum

Cap-And-Trade vs. Carbon Taxes

| Fri Jan. 9, 2009 1:32 PM EST

CAP-AND-TRADE vs. CARBON TAXES....Exxon's CEO call for a carbon tax:

The chief executive of Exxon Mobil Corp. for the first time called on Congress to enact a tax on greenhouse-gas emissions in order to fight global warming.

In a speech in Washington, Rex Tillerson said that a tax was a "more direct, a more transparent and a more effective approach" to curtailing greenhouse gases than other plans popular in Congress and with the incoming Obama administration.

Is this good news? Hard to say. It's certainly good news that Tillerson is in favor of something, and favoring a carbon tax puts him on the side of Al Gore and lots of academics, who think that a tax is the quickest, cleanest, and technically most efficient way of pricing carbon, thus reducing GHG emissions and slowing the progress of global warming.

But it's bad news if his goal is mainly to roil the waters. Barack Obama has called for a cap-and-trade system, not a carbon tax, and most green groups have backed cap-and-trade as well because they feel that a tax is a political nonstarter. But if Exxon can help gin up a big fight between tax advocates and cap-and-trade advocates, who knows? Maybe nothing will get passed at all. If that's Tillerson's calculus, then his newfound support for carbon taxes is just a cynical ploy.

Technical and political issues aren't the only big difference between taxes and cap-and-trade, either. Both raise money (the tax directly, cap-and-trade by selling emission permits), but with a tax you don't know for sure what effect it will have. You have to guess. So you set a carbon tax of, say, $50/ton, with the goal of reducing carbon emissions 5%, and then cross your fingers and wait a few years. Maybe it works, maybe it doesn't. Conversely, cap-and-trade works on the theory of a hard cap. If you want to reduce carbon emissions by 5%, then you auction off credits equal to 95% of current emissions and you're done. You're taking a chance on what the price of credits will be (something that businesses hate since they like price stability), but you know for sure that you'll meet your cap as long as your have adequate enforcement mechanisms in place.

This alone is enough to make me a cap-and-trade advocate. Not only is it more politically feasible than a tax, but it's more attractive to the public since it focuses on the thing they really care about: a hard cap on carbon emissions. Price instability is a legitimate issue, but I don't think it's a big one: energy intensive companies already have to deal with considerable instability in gas and oil prices, and Wall Street will eagerly help them hedge against future instability in carbon permit pricing if it's really important to them.

The "trade" part of cap-and-trade is attractive because it makes the whole system more efficient. But it's the "cap" part that's really important. In my mind, that makes it a better solution than a tax for the carbon pricing piece of a broad climate change plan.

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Lighting a Fire

| Fri Jan. 9, 2009 12:15 PM EST

LIGHTING A FIRE....Felix Salmon finds a silver lining to today's very, very grim employment report:

Maybe the only real upside to this report is that it should light a fire under Congress to pass a stimulus package sooner rather than later — including the release of the second tranche of TARP funds. Let's start getting money out the door now: that's more important than haggling over what goes where.

Well, it worked for FDR. Maybe it will work for BHO too.

Pay No Attention to the Party Behind the Curtain

| Fri Jan. 9, 2009 1:56 AM EST

PAY NO ATTENTION TO THE PARTY BEHIND THE CURTAIN....Citigroup has agreed to drop its opposition to "cramdown" legislation:

Key congressional Democrats on Thursday reached an agreement with financial giant Citigroup Inc. on a proposal to make it easier for bankruptcy judges to adjust the terms of home loans and possibly forestall many foreclosures.

....The breakthrough agreement boosts the chances that Democrats can push new laws through Congress that direct bankruptcy judges to rework mortgage terms by writing down the principal on the millions of homes that now are worth less than the mortgages they carry.

Most of the reaction to this announcement has been dismay that Congress had to "negotiate" with Citigroup in order to pass this legislation, but it's important to get clear what's actually going on here. The negotiation wasn't really with Citigroup, it was with Senate Republicans, who have almost unanimously opposed this legislation in the past. With Citigroup on board, Durbin and Dodd and Schumer hope that other banks will hop on board too, and once the banks are on board then maybe a few of those legendary "moderate" Republicans will also see the light and do the right thing.

Maybe it will work, maybe it won't. But it's Republicans that are the problem. Banks are just fronting for them.

Conyers vs. Gupta

| Thu Jan. 8, 2009 3:01 PM EST

CONYERS vs. GUPTA....Sam Stein reports that Rep. John Conyers has decided to publicly oppose the nomination of Sanjay Gupta as Surgeon General. That's.....weird. I don't really care much one way or the other about Gupta (though having a telegenic personality lead our public health service seems like a pretty inspired idea, frankly), and it's hard to believe that Gupta's smackdown with Michael Moore three years ago is anything more than a minor blip in the grand scheme of things. I wonder why Conyers is bothering to expend political capital on this?

Quote of the Day - 01.08.09

| Thu Jan. 8, 2009 2:26 PM EST

QUOTE OF THE DAY....From Ezra Klein, explaining why Cass Sunstein's appointment as head of OIRA matters:

The key event here, and this gets a bit dull, was Executive Order 12291.

That does sound dull, doesn't it? But it's not, really, and Ezra provides a nickel summary of how the Office of Management and Budget has gotten so powerful over the past few decades and why its regulation watchdog is important. Go read.

Green Regulations

| Thu Jan. 8, 2009 2:12 PM EST

GREEN REGULATIONS....Josh Marshall wonders what kind of coalition is likely to arise to support green infrastructure spending:

In the avalanche of writing about a massive Stimulus Bill, the one proposition (though grandly general) that's been of most interest to me is one that is heavy on infrastructure spending and spending and R&D geared toward developing a sustainable Green economy....But is there a constituency in Congress for that?....The key is that I don't think it really lines up in traditional left-right terms. For instance, it's not clear to me that the Progressive Caucus in the House is that constituency necessarily. I suspect it likely cuts across established factions among the Democrats, and likely brings in elements of the business community — not surprisingly, the ones who'd get the contracts.

I don't know enough about this to say anything substantive, but I have the strong impression that a huge part of the answer to this is related to regulation. Right now, the energy industry is hemmed in by a vast web of state, local, regional, and federal regulation, and to get anything serious done you have to somehow either get all these various actors moving in the same direction or else cut completely through the mess via federal fiat. Which is much harder than it sounds. Even something relatively simple, like a carbon tax (simple from a policy perspective, anyway), has wildly varying consequences on different power generation plants depending on what kind of regulatory regime they operate under. Getting projects built and economic incentives right when they intersect with byzantine networks of regulation will turn you old and gray before your time.

This is something I should learn more about, but I haven't done it yet. In the meantime, I just wanted to mention it. In the real world, a lot of the solutions we'd like to see happen are going to be harder on a micro scale than a macro scale, and the coalitions that support them could end up looking pretty peculiar depending on what local regulatory changes are needed. On the upside, it's also a chance to bring in more supporters for green projects, since well-conceived regulatory changes could turn an erstwhile enemy into a newfound friend. More on this later.

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Cheap Parking

| Thu Jan. 8, 2009 1:28 PM EST

CHEAP PARKING....One of Matt Yglesias's hobbyhorses is the scourge of cheap parking, and today he explains how mispriced parking can hurt downtown businesses:

On the one hand, meters might be so expensive that there are just tons and tons of vacant parking spaces haunting downtown. In this case, the high price of parking is keeping customers away from stores and the meter rates are [too] high. On the other hand, meters might be so cheap that convenient street parking is rarely available and drivers leave their cars parked for long stretches of time. In this case, the low price of parking is creating parking shortages and low turnover, keeping customers away from stores.

As a born and bred suburbanite, my reaction naturally is, "What are these parking meters you speak of?" Here in The OC, when you want to park your V-8 Cadillac Escalade, you just cruise through a vast expanse of asphalt until you find a suitable spot. What's to meter?

But I guess you city slickers do things differently, don't you? So here's my question: what's the best way to figure out a market price for parking? Surely someone has done this, haven't they? Electronic meters that adjust pricing to different times of day? Experiments with different prices? Studies of how many open spaces there are at different times and places? What? There must be some clever answer.

Wall Street Blues

| Thu Jan. 8, 2009 1:09 PM EST

WALL STREET BLUES....Given the increasingly grim economic news, Felix Salmon wonders why the stock market is up 20% over the past couple of months:

My feeling, mainstream as it may be, is that stocks are drifting upwards in blissful ignorance of reality, much as they did for nearly all of 2007, even after the credit crisis first hit. The panic sellers and the people desperately needing liquidity have left, volumes have fallen (as they always do around the holidays, no news there), and volatility has decreased. And so both value and momentum players are feeling increasingly comfortable rotating back in to the market.

But if the recession gets to be as bad as people are increasingly expecting, fundamentals will eventually start asserting themselves — and if we're unlucky, they'll do so in a violent downward manner, much as they did last fall.

Somebody yesterday was asking the same question — when will stocks start heading down again? — and the answer is pretty obvious: when earnings season rolls around and we learn just how bad corporate profits are these days. Time Warner and Intel issued profit warnings yesterday and the market dropped 3%. Today Walmart downgraded its profit projection for the fourth quarter and major retailers all reported that December was as dismal a month as they've ever had. In a few weeks, when earnings start getting reported more widely, there's going to be blood on the streets.

The Fairness Doctrine

| Thu Jan. 8, 2009 12:24 PM EST

THE FAIRNESS DOCTRINE....Steve Benen passes along the news that a small gaggle of Republican congressmen are continuing to obsess over the possibility that the Fairness Doctrine might make a comeback. I assume Rush Limbaugh is bloviating daily about this too. I'm torn on what to do.

Option A: Let 'em rant. These guys need something to harangue their base about, and this is fairly harmless. It keeps them off the street and away from the matches.

Option B: Let 'em have their way. Stick in a Fairness Doctrine ban as an amendment to some random bill and pass it. I'm opposed to the Fairness Doctrine, so I wouldn't mind, and nearly all Democrats are opposed to it too. It's a freebie that will make David Broder happy, soothe the bipartisan waters, and shut up the conspiracy theorists.

I guess I Iean toward Option B. It was entertaining for a while, but I'm bored hearing about this nonsense. Go ahead and throw the whack jobs a bone.

Invade the Caymans!

| Thu Jan. 8, 2009 1:44 AM EST

INVADE THE CAYMANS!....In our current issue David Cay Johnston has a great piece about all the tax loopholes we ought to close as we tackle the long-term reengineering of our fiscal system. Here's my favorite:

The Obama administration could tell the Caymans — now fifth in the world in bank deposits — to repeal its bank secrecy laws or be invaded; since the island nation's total armed forces consists of about 300 police officers, it shouldn't be hard for technicians and auditors, accompanied by a few Marines, to fly in and seize all the records. Bermuda, which relies on the Royal Navy for its military, could be next, and so on. Long before we get to Switzerland and Luxembourg, their governments should have gotten the message.

Barring gunboat diplomacy (tempting as it is), there is no reason we cannot pass laws to block financial transactions with tax havens or even, Cuba-style, make it a crime for Americans to visit or do business with them without special permission. Congress could declare the hiding of funds a threat to national security and require that anyone with offshore assets disclose them to the IRS within 30 days and pay taxes, interest, and penalties within 180 days. For the holdouts, temporary special teams in the IRS and Justice Department could speedily pursue civil or criminal charges.

Boo yah! Other (slightly less bloodthirsty) suggestions include rules preventing companies from keeping two sets of books; increasing top marginal rates on the super-rich; reining in abuse of tax deferrals; ending utility scams (a new one to me); ditching the home mortgage deduction (good luck with that); bringing back usury laws; ending the burglar alarm subsidy (seriously); and a whole slew of others. A great read.