Last week I pointed out mainstream environmental economics is on the side of those who oppose cap and trade. Perhaps this might seem strange to many Oregon Catalyst readers, but environmental extremists tend not to like a carbon tax.
Check out this exchange I had on Twitter:
This is not mainstream environmental economics: “The right amount of carbon to emit should not be determined by arbitrary caps but rather by the amount of carbon that still makes economic sense to emit after people pay the tax.”
Caps aren’t arbitrary.
— Sharon Shewmake (@DrShewmake) December 23, 2018
That’s Sharon Shewmake, a newly elected member of the Washington House of Representatives, taking a quote of mine from last week’s article and declaring it falsely labeled as mainstream. Whether or not one is in the mainstream likely matters much to her, rhetorically speaking, because most, perhaps all, of her experience debating opponents of cap and trade probably has entailed her interlocutor cherry-picking research critical of anthropological global warming, giving her the heuristic high-ground. But I did no such thing. Instead, I pursued her point Socratically instead:
Your reply calls into question what you think mainstream is. Is William Nordhaus outside mainstream environmental economics? Is Arthur Pigou? Can you share evidence that WA’s cap and trade referendum set caps in a non-arbitrary way with respect to the social cost of carbon?
— Eric Shierman (@eshierman) December 23, 2018
When William Nordhaus won the Nobel Prize in Economics two months ago, I saw many environmentalists get excited about it as some kind of validation, but what many did not realize is that he has also been critical of cap and trade schemes. Who is Arthur Pigou? He was a classical economist that devised a market-based alternative to command and control environmental policies. After dropping the names of those two unimpeachable giants in the field of environmental economics, I directed her to a concrete example: Washington State’s failed cap and trade ballot measure.
Those are all mainstream economists—but the economics quoted is wrong: a cap can be just as scientific (or just as arbitrary) as a tax. Tons of assumptions involved in picking either the tax or the cap and reasonable people can calculate very different numbers (see Weitzman).
— Sharon Shewmake (@DrShewmake) December 23, 2018
Notice she failed to answer my question about Washington’s referendum. Instead, she dug herself deeper into the fringe by dropping Martin Weitzman’s name. There’s a reason Nordhaus has a Nobel prize and Weitzman doesn’t. Nordhaus doesn’t deny foundational economic principals like the time value of money. (This is related to a rather technical thing I mentioned last week – the discount rate). More importantly, notice the epistemology she’s been forced to embrace when Representative-elect Shewmake said there are “tons of assumptions.” There are tons of assumptions behind mainstream climate models as well. I doubt the existence of those assumptions makes her consider the contrarian conclusions of climate scientists like Nicola Scafetta of Duke University just as valid as the scientists she prefers. But that’s how people on the fringe sometimes are wont to argue.
The economics came from Nordhaus and Pigou. If wrong, you reject the mainstream, as Martin Weitzman does. The existence of assumptions does not imply all conclusions are similarly reasonable. If a carbon tax is set equal to the social cost of carbon, how would that be arbitrary?
— Eric Shierman (@eshierman) December 24, 2018
As long as a carbon tax is set equal to the actual social cost of carbon (which mainstream economics finds to be rather low) then it’s hard to see how it could be arbitrary. If instead, we were trying to cap emissions, then how would you more accurately pick a level that’s not arbitrary, in comparison to a direct tax? She didn’t give us an answer. Instead, she tried to obfuscate by making a strange claim:
The IAMS used to calculate the SCC also calculate quantities of CO2, which would be…the cap. The cap and the tax come from the same place—it’s silly to call one more arbitrary than the other.
— Sharon Shewmake (@DrShewmake) December 24, 2018
IAMs are Integrated Atmospheric Models, that is, they take a pure climate model (GCM) and incorporate some kind of social science parameter. But what she said just isn’t true. When the amount of CO2 that needs to be capped to stop our climate from warming gets estimated, that does not require social science. It’s pure climate science.
IAMS aren’t needed for caps. GCMs will do. The way to show what I’m saying is silly is for you to show me a document from the WA referendum that said: “SCC is X, therefore the cap should by Y.” Can you? If you can’t, then perhaps Nordhaus’s rejection of caps is not so silly.
— Eric Shierman (@eshierman) December 24, 2018
I’m still waiting for her answer. Perhaps one was not forthcoming, because cap and trade policies are never designed with the actual social cost of carbon in mind. That’s why Nordhaus rejects them. Caps are designed to reduce emissions, regardless of what the costs to society actually are.
I hope this annotated exchange will give you some hope for the new year. A lot of bad ideas have been proposed for the 2019 legislative session, and many will pass. But cap and trade might not be one of them. Even in a blue state like Oregon, where most voters reject the position that we should do nothing about global warming, cap and trade is so inefficient it can be defeated by a better alternative.
Eric Shierman lives in Salem and is the author of We were winning when I was there.