Tradable Pollution Permits or Green Taxes/Subsidies?

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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
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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. CO 2 and Temperature Change. - PowerPoint PPT Presentation

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CO2 and Temperature Change

Tradable Pollution PermitsorGreen Taxes/Subsidies?

James Stodder, (Ph.D., Economics, Yale 1990)Lally School of Management & TechnologyRensselaer Polytechnic Institute at HartfordHartford, Connecticut, USA

Stodder, Presentation on Pollution Permits, Sept. 14, 2011CO2 and Temperature Change

http://www.ngdc.noaa.gov/paleo/icecore/antarctica/vostok/vostok_data.html Stodder, Pollution Permits, Sept. 14, 20112CO2 and Industrializationhttp://www.globalwarmingart.com/wiki/Image:Carbon_Dioxide_400kyr.png

3Stodder, Pollution Permits, Sept. 14, 20113Surface Temp & Hurricane Intensity

Increasing destructiveness of tropical cyclones over the past 30 years, Nature, 8/4/05, ftp://texmex.mit.edu/pub/emanuel/PAPERS/NATURE03906.pdf Hurricane Intensity - - - Sept. Surface Temp __4Stodder, Pollution Permits, Sept. 14, 2011Stodder, Pollution Permits, Sept. 14, 20115

Majority Believes in Global WarmingSource: Yale University Project on Climate Change Communication

Good Old Supply & Demand!Stodder, Pollution Permits, Sept. 14, 20116

Planning is Perfect if No Uncertainty!Stodder, Pollution Permits, Sept. 14, 20117But if Costs are Uncertain Stodder, Pollution Permits, Sept. 14, 2011

8 Outcome with Quantity ControlsStodder, Pollution Permits, Sept. 14, 20119

Losses with Quantity ControlsStodder, Pollution Permits, Sept. 14, 201110

Losses with Quantity ControlsStodder, Pollution Permits, Sept. 14, 201111

With Cost Controls, further from Equ.Stodder, Pollution Permits, Sept. 14, 201112

Stodder, Pollution Permits, Sept. 14, 201113

Greater Losses with Cost Controls Steep Decline in Benefits => Quantity Controls14

Weitzman (1973)What if more Gradual Define in Benefits?Stodder, Pollution Permits, Sept. 14, 201115

Stodder, Pollution Permits, Sept. 14, 201116Quantity or Cost Controls?

Stodder, Pollution Permits, Sept. 14, 201117Cost Controls Closer to Equilibrium

Stodder, Pollution Permits, Sept. 14, 201118Quantity Controls Further from Equilibrium

19Costs more steeply sloped than Benefits => Cost Controls

Prices vs. Quantities Revisited: www.rff.org/documents/RFF-DP-98-02.pdf Stodder, Pollution Permits, Sept. 14, 201120Best Method is an Empirical Question:

If Social Benefits are Less Price Sensitive (More Steeply Sloped) than Costs =>

Use Quantity Controls(Pollution Permits).21

Prices vs. Quantities Revisited: www.rff.org/documents/RFF-DP-98-02.pdf Benefits more steeply sloped than Costs=> Quantity ControlsStodder, Pollution Permits, Sept. 14, 201122If Social Benefits are More Price Sensitive(Less Steeply Sloped) than Costs =>

Use Cost Controls (Taxes / Subsidies).23Costs more steeply sloped than Benefits => Cost Controls

Prices vs. Quantities Revisited: www.rff.org/documents/RFF-DP-98-02.pdf Stodder, Pollution Permits, Sept. 14, 201124

Volatility of S02 Prices, US: 1995-2006William Nordhaus (Copenhagen, 2009) Stodder, Pollution Permits, Sept. 14, 201125 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 the country as a whole must use?Stodder, Pollution Permits, Sept. 14, 201126

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.What about the Recession?Stodder, Pollution Permits, Sept. 14, 201127

Martin Wolf, Financial Times, Sep. 6, 2011Bond Market Worried About Growth28http://research.stlouisfed.org/fred2/graph/?id=FII10,