Abstract: “Cap and Trade” is the most sophisticated way of controlling carbon dioxide emissions, the final touch in a vast anti carbon arsenal,  but it is neither the simplest nor the most efficient weapon. Even the French, who invented it, could not figure it out for the longest time. So why is Obama hell bent at starting with that? To fail? (As a pseudo non tax tax, it failed already, because even republicans figured that one out.)

Instead Obama should have kept things simple to start with, and kill two birds with one stone.

A straight WORLDWIDE carbon tax as France suggested a few years ago would do wonders, and not just for limiting carbon dioxide production. The idea would be to tax all and any CO2 used in production, including transportation. So it would be good for the planet, but also for EMPLOYMENT in advanced countries (such as the USA). No more cheating around by going to China to pollute the planet, and undermine the workers of the world! This is not just fair to the planet and advanced countries’ workers, but it would allow to introduce Americans pleasantly to ecological correctness.

It’s funny how the human mind works: give it a bit of pride, and principle is out of the window. Thus Obama invited “Nobel” prize economists Stiglitz and Krugman over dinner at the White House. In consequence of what Krugman declared haughtily that the conversation was “off the record”, and he fell uncharacteristically silent on his usually hyper active blog.

Stiglitz and Krugman have been highly critical of subsidizing rogue bankers on the ground that otherwise the world as we know it would end (although not as vociferously, and not as early, as the present author). The opposition of Stiglitz to Summers is legendary. Stiglitz resigned from his hyper important international job during Summers’ preceding reign when Clinton was nominally on the throne. Stiglitz could not stand what Summers was doing to the world’s finance and economy (making it so that the world would become a plutocracy, rather than a democracy). Krugman opposed the invasion of Iraq, and is very familiar with Summers, because Summers was Reagan’s economic adviser for the interior, while Krugman, sitting on the same council of economic advisers of Reagan, was in charge of the rest of the universe.

We are talking establishment and great navigation here, among the masters of the universe. They all live very well, lords among the lords.

So, after dinner at the White House, Paul Krugman goes to China, and discovers the planet will “explode” (as Goshn, CEO of Renault-Nissan put it), if China keeps on its present course of one new coal plant a week, or so. Harmoniously forgetting to mention that, as the Chinese point out, they produce for America.

Obama being the change-you-can-believe chief, he has to deliver some change and belief towards mitigating planetary explosion, thus he came around with his “CAP and TRADE” plan.

You have to understand that “Cap and Trade”, like many concepts in economy and taxes, is a French idea. (Indeed: Adam Smith learned many of his ideas by the knees of his French “physiocratic” masters! And Colbertism, using the State to organize the socioeconomy, was blatant under Henri IV, and even as early as the 7C Imperium Francorum.) 

“Cap and Trade” is extremely convoluted and regulated, full of devils all over the details, the sort of thing French bureaucracy loves, to exhibit its own interpretation of what mastering the universe means. In other words, the dark side of France.

The carbon trade market is, naturally enough, based in Paris, and the European Union tried to make it work. Well, unsurprisingly, it worked very badly, for a very long time. Companies lied about their emissions to get bigger credits, the price of carbon pollution fluctuated wildly, and collapsed (so it came to cost nothing to pollute a lot), etc. (The latest news would be that it is working better, after manipulating it forever.)

Anyway, after dinner with the nominal master of the universe, Krugman comes up with an incredibly hare brained support of “Cap and Trade”: it’s the only way to control China, did he write in the New York Times. Says he: “Not to put too fine a point on it, think about how hard it would be to verify whether China was really implementing a promise to tax carbon emissions, as opposed to letting factory owners with the right connections off the hook. By contrast, it would be fairly easy to determine whether China was holding its total emissions below agreed-upon levels.”

This is completely silly: “China” could lie about its emissions, factory by factory, just as European industrialists did to European regulators when “Cap and Trade” became the law there. Sending an inspector next to all and any exhaust pipe would be a nightmare of economic inefficiency.

On the other hand, it’s impossible to lie on CO2 emissions by cars (China is saintly for cars, having simply adopted the EU regulations). And it is impossible to lie on the price of carbon fuel (if China put an enormous European style tax on fossil fuel, it would be in plain sight; and China just multiplied its gas tax by five fold). 

Now Americans have to understand that France has basically no indigenous fossil fuel energy production anymore (1% of needs or so on gasoline, all the rest is imported). Can’t have everything. France, having defeated fascism after a series of exhausting wars, characterized by fascist Prussian generals occupying or trying to, the coal beds of north east France, was hyper conscious of the need to have energy.

Thus, after W.W.II, France unified its coal industry with that of Germany, to make war with Germany impossible looking forward. The coal beds were exhausted by the 1970s, and France developed conservation, efficiency, and nuclear massively. To develop the first two, France slapped enormous taxes on carbon (or more exactly energy, but it boils down to the same). The rest of Europe quickly realized that was the way to go, and high carbon taxes rose all over Europe (even in massive fossil fuel producers such as Norway, a country with a per capita income north of $100,000).

The French ways were pretty much followed, except about nuclear energy (countries that thought of themselves as more ecologically minded abandoned nuclear, and argued with France about that strenuously, France insisting that nuclear was ecologically correct; besides, the Chernobyl radioactive cloud respectfully stopped when it came in sight of Gaul).

Now many countries are re-nuclearizing, and many ecological fanatics have gone 180 degrees and are now pro-nuclear, having discovered that the lesser of many devils is better than the worse of them all. (The present author is extremely pro nuclear, when, and only when nuclear is GOOD, and fanatically against bad nuclear; the present U.S. nuclear park is pretty bad, by the way: it is open cycle and obsolete; this is an area in need of Obasmic change and belief; the worst nuclear is unsupervised nuclear, by the way, so we need a pretext to inspect the entire planet continually, since military nuclear can be evolved underground, the whole argument with Iran.)

Nowadays, to reduce carbon pollution, the European Union is using everything: CO2 emission caps on cars, cap and trade, and simple carbon taxes, starting with massive direct gasoline and fossil fuel taxes. These methods differ in complexity. The gas tax is the simplest, cap and trade the most complex.

Weirdly, the Obama administration starts with cap and trade, the most difficult, most sophisticated: baby has not walked yet, so we will start with downhill skiing, faster than the world’s champion. 

So it looks as if Obama was firmly determined to crash his entire carbon effort. Sure enough, Obama wanted to extract $650 billion from selling the permits, over ten years, but was told no by “Congress”.

The Americano-American argument, of course is that the USA is not ready for a gas tax. It already has had one for decades, but it was not indexed on inflation. So why not start by going back to the past, and charge the gas tax as intended, using constant dollars?

Some will say: very bad, there is a recession, it will get worse if we add a dime a gallon. But then a tax subsidy on the income tax could compensate, especially for the poorest. So a gas tax could be revenue neutral (but will force fossil fuels efficiencies). Initially.

“Cap and Trade” has created problems by subsidizing particular companies in Europe. But maybe now that the USA has discovered climate change, it is so much smarter than the European Union that it can easily make work the one and only European carbon limiting program that is highly controversial, and the less effective?

When steel is imported from India to the USA, the price of transportation is added automatically. But transportation comes from fossil fuels. And the cost of fossil fuels does not reflect the damage they cause to the planet. That later cost ought to be included for a full accounting. That would augment the price of imported carbon intensive products considerably. (Whereas nuclear civilian energy kills no one in the USA, year after year, the official number killed by carbon pollution is 24,000. The real number is probably much higher.)

Hence a carbon tax on the total carbon bill of any product would help both employment and the environment. (That was the essence of my critique of Cap & Trade versus straight carbon tax: the first is hard to compute, the later, easy.)


Patrice Ayme


P/S: 1) But, true and very sad, a worldwide carbon tax would lower the profit margins of the international plutocrats, the world’s most important people, so much more worthy than simple steel mills’ workers. Something everybody recognizes, considering how well the enormous subsidies to the richest bankers in the world have been accepted by those who are nearly nothing, and will be even less tomorrow. Summers and his plutocratic brain trust have no doubt pointed this out: a carbon tax is democratic, and therefore an enemy of the self proclaimed best and brightest.

2) Air travel is subsidized: worldwide, jet fuel is not taxed. That may have to be reconsidered: if you want to travel, start with Internet. It is time to save oil, which is irreplaceable, precisely for air travel. Everything indicates we have reached “peak oil”. Hydrogen and electric planes are not a possibility: oil is much denser energetically. Biofuels have a greater future (from algae), but are far from here yet: too expensive.

3) OK, things are starting to move faster, as king Obama has discovered he had the power, and the old experts are not just clueless, but weirdly stupid. Obama just raised the fleet mileage to 35.5 mpg by 2016 (new car average in the Europe Union is 44 mpg, 2009). Obviously a good step in the right direction (now give high speed trains more than 8 billion dollars, please, since the government gives more than 100 billion a year subsidizing car transportation, and high speed rail, besides being comfortable, and hyper fast, is essentially CO2 free, because of extreme efficiency ). More could be done, such as yearly special taxes on gas guzzlers (as done in Europe).

But, in any case, cracking down on gas guzzling cars does not replace the WORLDWIDE CARBON TAX , especially in light of its effect in saving LOCAL EMPLOYMENT. Actually the Worldwide Carbon Tax is the next step in reducing CO2. Call it good protectionism. Which it is: protecting the planet. Remember this: it could become such an emergency, any time, that emissions may have to be enforced close to zero any time, because of the threat of the methane gun (see preceding post “Terminal Problem”…)

4) Question by “GameMusic”, from the Internet: “I think that a world carbon tax would be better, but how would it be established in the first place?  How can you verify that countries are using it any more than caps?”

Answer: Good question. The Carbon Tax can be unilaterally applied. France has been pushing the EU for the “go it alone” policy, or even to start all by herself. (So as not to be taxed of protectionism, while already cracking down on the world plutocracy, the French government has momentarily shelved the effort.)

It is easy to compute the tax. In the case of steel from India, for example, lower bounds on how much carbon per ton is used, both at the source and in transportation, are well known. (That ease of computation is one advantage of the carbon tax, especially in comparison with “Cap & Trade”.) 


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  1. pshakkottai Says:

    Who gets the carbon tax money? Should it be the United Nations?


    • Patrice Ayme Says:

      Sorry Partha I did not react before, I was under the weather, to the point I had to get off the Internet. (I did not open my mail for days!) carbon tax is like any other tax, since there taxes and they tax us. It’s a behavioral modification tax. And there it’s the free market that’s told to behave. So they go to the existing governments.
      The USA gov has been fuming because various recent EU taxes strike worldwide. (In their, biased, view of things…) But if all governments joined in the fray, there would be no imbalance.


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