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Archive for December 10th, 2009

Closing Time at ND

Via David Ruccio, it appears that the decision to close ECOP will now be handed to the Academic Council. The request is to close the department after the 2010 spring semester. This announcement, apparently made earlier this week, signifies that the dean has chosen to ignore over 1,000 of you who disagreed. That he would make this request without granting the students’ request for an open forum about the implications of this decision is somewhat galling, but not particularly surprising. Despite the lip service that Dean John McGreevy has paid to pluralism and openness in education (to my face, twice, in fact), he’s attempting to make this process as quiet as possible. Although it’s hard to see a happy ending to all of this, we can at least hope that Academic Council exercises good sense. Again, I’m not holding my breath. Sad news.

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EconoSpeak has a post with some basic S/D diagrams that lay out the economic arguments for tax versus cap-and-trade, which in large part hinge on uncertainty. The basic takeaway is that given the uncertainty about the ‘demand’ for emitting carbon dioxide, we’re better off with cap-and-trade, as it eliminates quantity uncertainty. The argument for a tax, then, is that the economic cost, not the environmental cost, is what should be limited with certainty.

However, the Lohmann paper I approvingly posted on last week argues otherwise. Not all carbon emissions are the same, nor are all offsets:

it matters not only how much emissions are cut but also how they are cut…cap and trade is designed to treat emissions-reduction measures as equal, regardless of whether they are likely to contribute to unquantifiable but important positive global synergisms…

the fact that there can be no firm basis for offset accounting opens the way for unresolvable conflicts over estimates of carbon credits.

So, in fact, cap-and-trade does open the door for significant quantity uncertainty. In Lohmann’s view, carbon accounting creates a false sense of security about the true amount of emissions deferred by an offset. A good analogy is the false sense of certainty about risk that VAR gave many investment bankers in the buildup to the economic crisis.

The alternative, it seems, is a more flexible tax. As it turns out, one doesn’t have to believe that ‘markets are poison’ a la Lohmann to advocate a tax. Brookings’ Ted Gayer (whom I unknowingly sat next to at the Saez seminar I posted about), has testified to Congress in favor of a tax. He argues that the tax would help lower deficits for the US, reduce reliance on offsets (about whose integrity, he argues, there are real concerns), and avoid some of the disruptions from price volatility.

Problematically, “tax” is a dirty word. Of course, when Sarah Palin is taking over the WaPo op-ed pages referring to cap-and-trade as “cap-and-tax”, perhaps this issue should be less of a concern.

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