A Perspective In Which Carbon Emissions Are Not a “Bad”
In his presentation at IER’s Carbon Tax conference earlier this year, Ken Green argued that it was a misnomer to refer to “taxing bads” in this context, because (given our current technology and infrastructure) carbon emissions are an unavoidable feature of our economy.
Here at Free Advice, we got into an argument over this rhetorical move. In a separate post, I asked if there were a qualitative difference between bank robberies and carbon emissions, in the sense of being an economic “good” or “bad.” For the purposes of the argument, I stipulated that we were relying a neoclassical cost/benefit framework (as opposed to, say, a Rothbardian framework of libertarian property rights), and that the “consensus” approach to understanding the physical impact of carbon emissions was correct.
Because I deal with climate policy so much in my “day job,” I am very interested in thinking this thing through. So here are some comments to bolster my original claim that there is a legitimate sense in which Ken Green can say carbon emissions are a “good” while something like a bank robbery is indeed a “bad.”
==> If you define the terms to render carbon emissions a “bad,” then you need to be careful that you haven’t just classified labor and investment as “bads” as well. After all, labor carries disutility, and investment requires abstinence from consumption. If that happens, then the standard pro-carbon tax claim that we should do a tax swap in order to “tax bads, not goods” falls apart. So to really pounce on Green, it’s not enough to define “bad” in a way that includes carbon emissions. You also have to define “bad” in a way that excludes labor. I’m not saying this is impossible, just pointing out that the task is trickier than it might first have seemed.
==> Given the IPCC-type values, a government with perfect and costless enforcement powers would set the amount of carbon emissions ABOVE zero. The total (private plus social) benefits of the early units of carbon emissions vastly exceed the total costs. The (alleged) problem is that the total costs exceed the private costs, and so in a decentralized market, carbon emissions will exceed their (positive) optimal level.
==> Given plausible preferences, a government with perfect and costless enforcement powers would set the amount of bank robberies at zero. The social benefits of the even the first unit of bank robberies is (I imagine) well below the social cost. To see this, consider: When a bank robber steals $1,000, he gains $1,000 and the bank loses $1,000. On that score, it’s a wash. Beyond that, the psychic thrill to the bank robber is (presumably) lower than the cumulative anxiety to the people in the bank experiencing the robbery. (Austrians, give me a pass on this; we’re measuring it in dollar terms according to “willingness to pay” and I’m just thinking through the mainstream logic here.) It’s true that we can also describe the problem as the social costs exceeding the private costs in the decentralized outcome, but it’s because the equilibrium level of bank robberies will exceed their optimal level of ZERO.
==> In a more realistic setting where the government’s powers of enforcement are imperfect and costly, it is true that the “optimal” level of bank robberies is now positive. However, this is a qualitatively different type of analysis from the typical Pigovian treatment of carbon emissions. In the latter, the “costs of further reducing carbon emissions” is due to the economic harm imposed by restricting output; it’s not the the carbon emitters are dodging EPA agents, and the government is spending vast sums trying to hunt them down. In contrast, with bank robberies, when we say “it would be too expensive to further reduce the level,” we aren’t talking about the forfeited production of goods that are now not possible, because that marginal bank robbery didn’t happen. No, we’re talking about the channeling of more resources into the punishment of bank robberies.
==> There are various ways of approaching the matter, and some of them would indeed spit out the answer that carbon emissions and bank robberies are both economic “bads” (or “goods” for that matter). My point in this post is that I think there is a legitimate approach in which carbon emissions end up being classified as “goods” and bank robberies remain “bads.”
==> A clarification: According to some models (such as Richard Tol’s, which was one of the three picked by the Obama Administration Working Group), manmade climate change will confer net benefits through the year 2060 or so. However, this beneficial warming is already baked into the cake. As Tol describes it, these are “sunk benefits.” Thus, you wouldn’t (in this framework) subsidize carbon emissions now. The marginal emissions of CO2 right now still carries a social cost. (But remember, even if the first unit of CO2 emitted today has a positive social cost, that doesn’t imply that it is a “bad.” Because the private marginal benefit could be much much higher than the private marginal cost on that first unit of emissions today, the private marginal benefit is stil much much higher than the [private MC + social MC].)
==> In conclusion: It’s bad to rob a bank, but don’t feel guilty using a getaway car.
You can certainly come up with a goods/bad distinction that makes bank robberies bad and CO2 emissions not a bad. However, it wouldn’t be the one Ken Green gave, which was “gosh, so much of the economy does it, how can it be a bad?” That claim, I hope, you agree is nonsense from an economic standpoint (though not a legal one because, certainly, the fact that it’s become the norm argues against it being an actionable tort, for example).
That’s why I kept referring to the sewage example as being informative on this. We can agree that dumping it into rivers is a bad, even if its creation is unavoidable, since all humans produce it. And this is because we would avoid doing it altogether ( or mostly), if we could do that without changing anything else.
Sure, you could switch the comparison to “properly disposed sewage” but only by switching the discussion to “captured and sequestered CO2”.
Bob, Steve Landsburg (for instance in his book the Big Questions ) analyzes theft differently. He doesn’t think we should generally count the psychic benefits and harms you’re talking about. So he says, as you do, that the gain by the robber balances the loss by the victim, but then there’s still a social cost, because the robber could have spent the time and energy spent in the theft in pursuit of more productive endeavors that could have made society as a whole better off. So he thinks that the social cost of theft just depends on how hard it was to do it. A really easy theft would have very little social cost, and I suppose that in principle, a theft that was so easy that it would have required exerting effort to avoid it would carry no social cost.
That theft is wrong because it’s hard for the robber reveals the perversity of “cost/benefit framework” over “property rights framework.”
I have had a sleep since yesterday, and now have a slightly different view. It is significant that a small amount of CO2 emissions are predicted to have a beneficial effect. It is rather like shitting in a stream. A little bit of shit has a positive benefit as a fertiliser. (Substitute nitrate run-off if you prefer). A bit more is bad. An all powerful Government would set the amount of shit above zero. There are 50 million people who need a shit, and only one can do it in the stream with a positive outcome, all the rest will have a negative outcome unless they pay to treat it properly. I don’t know how you would decide who shits for free. In practice, it would probably be more expensive to separate out the useful shit, instead we would just treat it all.
So, yes, there is a theoretical difference between carbon and bank robberies, since the optimum level of bank robberies is zero. This also applies to a great many other things, and we do not usually bother to make the distinction because the overall effect is negative, and we only have any interest because the level has exceeded or is certain to exceed the beneficial level. It also has nothing to do with the benefits to the economy during the use of the fuel.
If the treated shit could be processed into a fertiliser and some of it sold to stream owners, then this has a positive effect. The running costs of the treatment works would be reduced, and the sewage charges would be a bit lower. This allows everyone to benefit from the useful effects of a little bit of shit in the stream. This seems to be a pretty conventional economic model.
In the calculation of the social costs of carbon, the beneficial effects have been included. This is the same as selling our fertiliser. All producers of carbon benefit in reduced costs. Since we are certain that the level of emissions will be above the useful level, and thus there is no need for the Govt to intervene to ensure this level is reached, is this the best way of accounting for the positive effects?
“In the calculation of the social costs of carbon, the beneficial effects have been included.”
Should be “have to be” not “have been.” Because if you are talking about the government’s estimate, they have not.
Quote from IPCC “It is projected with medium confidence (about 5 in 10 chance to be correct) that globally, potential food production will increase for temperature rises of 1–3 °C, but decrease for higher temperature ranges.” That seems to be including the positive effects to me.
The technical support document for the Govt assessment specifically refers to reduced space heating and fertilisation effects. What beneficial effects are you thinking of that were not included?
http://www.whitehouse.gov/sites/default/files/omb/inforeg/social_cost_of_carbon_for_ria_2013_update.pdf
This bit seems to go back to the original point:
“But remember, even if the first unit of CO2 emitted today has a positive social cost, that doesn’t imply that it is a “bad.” Because the private marginal benefit could be much much higher than the private marginal cost on that first unit of emissions today”.
What could be the private marginal benefit of emitting carbon? I am lost here, just as I thought I was getting it. This isn’t referring to the private benefit of using the fuel, is it?
To reply more directly to the distinction you’re drawing to show how CO2 isn’t a bad:
This is still using a very non-standard definition of “bad”. It’s the positive social (excluding creator) net MC *part* of a something that gets it classified as bad. Yes, it’s a “package deal” and all, but in all discussions of Pigovian taxation, “taxing bads” is spoken of in the recognition that some bad-producing activities will still go on, but the Pigovian tax is necessary to stop those cases where the private MB *doesn’t* exceed the social MC.
Such cases will exists regardless of how many net-positive uses of carbon there are.
It’s still at the height of misunderstanding to say something “not a bad” based on *net* considerations. It’s like saying that surgery “doesn’t hurt” because it saves your life.
Silas, OK–for real–I think we’ve been misunderstanding what the objective was, here. I totally agree with you that in the standard Pigovian framework, taxing CO2 emissions is “taxing a bad.”
But I took Green to be challenging that very framework.
So then, I thought you were saying the means by which he challenged it, would also demonstrate that no “bads” existed at all, period. Thus my blog post to try to argue otherwise.
Interesting — I just reviewed that part of the video, and I don’t see him challenging the Pigovian framework. He really is saying, just as you characterized it, that “It’s not a bad because it’s so widespread”, which is invalid from any perspective.
He goes on to say that it amounts to a tax on all kinds of related production, which again doesn’t differentiate it from any other standard kind of bad. Since all taxes “chase back” to their original factors, then yes, taxing CO2 — or SO2, or particulate matter, or sewage, or loud noise — would tax production. It’s still a bad!
Silas, I have to walk away from this one now. I agree with you that for Green to be right about CO2 emissions, he would have to say the same thing about SO2 etc. If we grabbed him on the way out of the men’s room and said, “Is SO2 a good or a bad–quick!!” I don’t know what he’d say. All I’ve been doing is trying to show that his position needn’t be vacuous.
I agree in the sense that you could defend his claim by making a completely different argument than the one he made or that you originally quoted.
“It’s still at the height of misunderstanding to say something “not a bad” based on *net* considerations. It’s like saying that surgery “doesn’t hurt” because it saves your life.”
Nonsense, it’s like saying surgery isn’t a bad, because it saves your life.
Which only someone completely insane would disagree with, IMAO.
No, it would be like saying the pain of surgery isn’t a bad because the surgery is good on net (saves your life).
No, it would not.
Yes, it would:
Surgery -> Thing with bad and good parts that is good on net
Pain -> The bad part of surgery
Life being saved -> The good part of surgery
Electricity generation from natural gas (EGFNG)-> Thing with bad and good parts that is good on net
CO2 emission -> The bad part of EGFNG
Electricity -> The good part of EGFNG
Ken Green’s claim: CO2 isn’t a bad because the stuff that produces it is good on net
Analogous claim: The pain from surgery isn’t a bad because the thing that produces it (the surgery) is good on net
Surgery -> EGFNG
Pain from surgery -> CO2 emission
Life being saved by surgery -> Electricity
“CO2 emission -> The bad part of EGFNG”
Which is wrong, which is why your analogy is bullshit.
No swearing Andrew_FL. Or LK will blow up your home planet.
I’m sorry Bob. I will restrain myself in the future.
Andrew: “Which is wrong, which is why your analogy is bullshit.”
I am somewhat confused by this exchange. To me Silas’s analogy looks very sound, yet Andrew believes that CO2 emissions are not the bad part of electricity generation. Either this is ignoring the part of the post that explains we are assuming for this argument that current emissions cause harm, or there is some other point I am missing. I still have no idea why there is a private marginal benefit of emitting CO2.
I’m not ignoring it, I don’t see that as being the assumption being made, and supposing it was, then the problem is it is an incorrect assumption.
You could say we do treat labor as a bad and already tax it. Allegedly to finance these allegedly wonderful government programs, to be sure.