Cap-and-trade vs. carbon tax

The United States Northeast has instituted the country's first mandatory cap-and-trade system for carbon emissions, called the Regional Greenhouse Gas Initiative (RGGI). Here's a map of how it works. Basically, there's a limit set on how much carbon can be emitted by the region, and all power plants will receive permits to emit some fraction of the total. Those who want to emit more than their allotment have to buy the right to do so from those who aren't using all of their allotment.

There are many instruments for lowering carbon emissions. Cap-and-trade is one, and a carbon tax is another. In some ways, carbon taxes and cap-and-trade are equivalent, but not all. In particular, in the event of a clean energy innovation, a carbon tax produces a superior result. Check out the economics:

First, consider the demand curve that could be drawn on a graph with Quantity of CO2 (Q) on the x-axis and Price of CO2 (P) on the y-axis. The demand curve slopes down to the right because higher carbon emissions are only desirable if the price of CO2 goes down.

A carbon tax amounts to controlling the P variable. The government might charge a price P* for emitting CO2, in which case companies will settle on emitting some quantity Q* that balances how much tax they pay with making money by producing and selling goods, which creates CO2. The government’s tax revenue is P*Q*.

In the case of cap-and-trade, it is Q that is controlled. Perhaps the government declares that only Q* of CO2 can be emitted and auctions off the permits to do that. The price of a permit will settle at - you guessed it - P* because that is the price that companies will be willing to pay for the right to emit Q* in their operations and still make the maximum profit possible. Again, the revenue from permits is P*Q* (although not to the government this time). [Aside: Notice that the amount of money a company has to pay is identical whether there is a tax or cap-and-trade. These two choices are economically equivalent, even if they have a different psychological effect].

However, which axis is controlled affects what happens when there is a clean energy innovation. Such an innovation has the effect that less CO2 can be emitted for any given level of activity – in other words, the curve shifts to the left.

• If there is a carbon tax, then that means the price of CO2 is held at P*, and the result is that Q(new) is to the left of Q* on the Q axis – ie, less CO2 is emitted.
  
  
• But if there is a cap-and-trade system, then the quantity is held at Q*, and the result of the shift is that P(new) is below P* on the P axis – ie, the price of permits goes down.
  

Conclusion: Because the larger goal is less pollution, the carbon tax gives the better result.

The flip side is that the carbon tax gives the worse result if technology changes mean greater energy consumption. With a carbon tax, emissions would go up, supported by higher revenue from the new technology, while the cap-and-trade system would hold emissions steady at Q* (and the price of permits would rise). However, given that we are currently in a time of clean-tech goldrush, it seems far more likely that we'll benefit from the carbon tax. Thus, I support a carbon tax over cap-and-trade.

However, companies generally prefer cap-and-trade. Recall from above that they are totally economically equivalent to a company: the same dollars must be paid out. Maybe the preference has to do with maintaining some sense of control; the very word "tax" is annoying to companies. Or maybe there is an ulterior motive: they'd like to influence the type of cap-and-trade system such that it includes grandfathering.

There isn't just one way to set up the cap-and-trade system. One possibility is to do it like the Northeast is doing it, where the total emissions are capped at constant in the near term, and then begin declining. There is also a scheme that includes "grandfathering"-- allowing plants to keep emitting what they are already emitting even though the cap may go down in the future. That means the brunt of the lower emissions is borne by new power plants, the argument being that it makes more sense to start fresh building clean plants than to mess around spending money on improving old plants.

I'm not so sure it's worth "writing off" the old plants. And I suspect another reason why companies support grandfathering is that it allows them to buy time, hoping that the legislation will change before the cap starts going down. After all, the cap usually starts declining a few years in the future (2009 for RGGI)-- plenty of time to change political administrations and get the whole scheme changed.

Again, the carbon tax is the superior option for the actual goal.

On the other hand, I have a friend who just made the cut to proceed with a Phase II proposal to sell carbon credits to RGGI power plants. His little company could supply a couple hundred thousand out of the 188 million permits being issued. It's a neat energy production method too: a biodigester that turns manure into energy. This has the duel advantage of preventing the manure from turning into nitrogen pollution, which is a big problem in agriculture these days. So I wish him well.

[Supplementary note: I just ran across this bit from New Scientist (June 23):

New Scientist Magazine has undertaken a survey to measure the level of US public support for three different forms of carbon emission regulations on the production of electricity and the manufacture of vehicle fuel. The three forms of carbon regulations that were examined were: low-carbon standards (i.e. setting fixed carbon reduction targets for either producers of electricity or producers of vehicle fuel), emissions taxes and cap-and-trade systems (i.e. emissions trading). The survey found that US citizens showed a clear preference for schemes that would set mandatory low-carbon standards on either electricity generators or producers of vehicle fuel and cost the consumer the least. Thirty-nine percent preferred low-carbon standards for electricity generators, compared with 8 percent who wanted to see the introduction of a cap and trade system for the production of vehicle fuels by oil companies. The survey also found that 85 percent of US citizens believe that global warming is happening – similar to the findings of earlier research.

There is a third way to control carbon - just dictate that it must be reduced to X amount by some deadline. This is, hands-down, the least efficient and least pleasant way to do it. It's not even the most just. In other words, Americans are favoring the worst scheme from nearly any viewpoint. So we should not be surprised when policies created based on this viewpoint fail in the near future. Cause, effect.

Carbon taxes and cap-and-trade are both more likely to be effective.]

An Expanding Physicist

When I mentioned to someone recently that I had been trained as a physicist but no longer worked in that discipline, they asked with a knowing smile, “Oh, so you’re a recovering physicist?” But I didn’t say Yes. I said, “No, not quite. More of an expanding physicist.”

I’ve been pondering what I meant. When I think about physics (and science in general) these days, I have a sense that science is true, but incomplete. It is fine as it is, but misses something essential. I was drawn to science for a love of Nature, and a desire for Truth. To progress farther on that path, I must now look beyond science—at least, as it is practiced today.

I have been reading the work of Steven Talbott for nearly a decade (http://netfuture.org/). His keen perception of Nature rivals that of the ideal of science, but his conclusions are oriented at an angle to those of science, and often highlight the hidden assumptions of current scientific views. Over the years, his observations have coalesced into a vision for a more inclusive, humanistic, and conscious science. Now and then I find points where I would like further engagement with him in order to better understand this vision, but overall, his attempt to unify the mind with the heart speaks to my own heart.

His writing is dense. He is expounding a revolutionary transformation in the way we think about and do science. A redrawing of the boundaries that includes the human at the heart of Nature, and yet does not sacrifice rigor or appropriate objectivity. If you are intrigued, please set aside a couple of hours to read his latest compilation: The Language of Nature – it is published in three parts, and all three are linked from Part III.

Near the end, he summarizes why our own societal progress in science, from the Enlightenment forward, makes sense. Even though we have gone too far in terms of objectifying Nature, this was a natural overcorrection from the immaturity of many myth-based, magical, religious approaches we tried before. Now we are ready to correct back closer to center.

The only way to recognize the wholeness of nature in all its expressive power is to perceive it with the full range of expressive powers of the human being. The instrument of perception must be equal to its object. We will never develop a truly holistic science as long as the scientist must paralyze or imprison major human capacities -- for example, the capacity to recognize the very real unity of a great work of art.

When we accept the human being as the primary instrument of scientific understanding -- when we realize that we must discover within our own powers of speech what speaks in the world -- then the need for uncommon inner discipline becomes apparent. This is what Owen Barfield had in mind when he wondered (1977, p. 139) why there is any need “to make quite such a song and dance” about objectivity in the more usual sense. After all, it shouldn’t be so hard to get rid of personal bias if there is no genuine personal connection between ourselves and the things we’re investigating.

"To put it rudely," Barfield expostulated, "any reasonably honest fool can be objective about objects." But it’s altogether different when we must attend

"not alone to matter, but to spirit; when a man would have to practice distinguishing what in himself comes solely from his private personality -- memories, for instance, and all the horseplay, of the Freudian subconscious -- from what comes also from elsewhere. Then indeed objectivity is not something that was handed us on a plate once and for all by Descartes, but something that would really have to be achieved, and which must require for its achievement, not only exceptional mental concentration but other efforts and qualities, including moral ones, as well."

Indeed, the task may have been too great for humankind to attempt at the dawn of modern science. We can imagine there was a deep, unconscious wisdom in the resolve to shackle the greater part of the human instrument and subject ourselves to the discipline of mathematics, where a certain kind of rigor and objectivity are almost "handed us on a plate."

Without that preliminary training, it would have been nearly impossible to subdue the disorderly babel of voices still reigning in the human soul -- voices of magic and superstition, of myth and legend, of religion and irreligion, of ethnic pride and prejudice -- voices still capable of disrupting in childish ways the sober, geometric imaginations of Kepler, Galileo, and even Newton.

But we have completed this training -- more than completed it, for we have carried our mathematization of reality to the unhappy point were the world begins to disappear behind a ghostly veil of abstraction. This veil conceals the perceptible, testable world from us as effectively as the old metaphysics ever did. Today, if we would test the phenomena around us, we have the opportunity to bring to them not only our measuring rods and mechanical instruments, but our full-fleshed capacity to speak the living language of the phenomena, a capacity now chastened by our awareness that "even where we do not venture to apply mathematics we must always work as though we had to satisfy the strictest of geometricians" (Goethe 1995, pp. 11-17).

We do not, after all, have to accept a science lacking in rigor. We only need to realize that there are two different, almost opposite ways to seek ideal clarity and precision. One is by following the path we traced earlier, admitting into our science only what we can grasp unambiguously, only what we can lay hold of, immobilize, and tie down, only what can be isolated as a separate thing and analyzed strictly in terms of its external or mechanical relations with other isolated things. In such a spirit (rudely disturbed by the discoveries of the past century), physicists have always sought for "fundamental particles" -- particles lacking in qualities and accounting for the world’s phenomena solely through their aggregate configurations, that is, solely through their clean, mathematically describable, external relations.

We gain a very different kind of clarity, not by minimizing the qualitative, phenomenal content of our scientific descriptions, but by maximizing it. We illuminate a phenomenon from every possible side, in every different light, exploring its contextual relations and potential for transformation as fully as we can. This clarity is not attained by stripping reality down to a formal grammar. It’s the clarity produced by fullness of understanding rather than ease or simplicity of understanding.

Instead of obscuring phenomena with the blinding white light of abstraction, and so reducing them to a kind of black-and-white skeletal syntax, we open ourselves to receive the phenomena in all their full-throated color.

Sometimes I feel like Talbott is describing a kind of science that is already on the way out. Particle physics, and the reductionism upon which it is founded, is increasingly seen to be inadequate in capturing the essence of Nature. More and more we hear of emergence, interconnection, and observer-dependence.

And yet, how deeply do scientists really understand those words? Even as the evidence mounts that objectivity itself is not as simple as we have forced it to be, we continue with the same essential tactics of measurement, hoping that small modifications will suffice. Talbott asserts that genuine transformation is required.

I have great faith in science, and even greater faith in Nature, which produced science. We already have hints that the “scientific method” is working to uncover its own inadequacies. A system always contains the seeds of its own transformation because the system is always whole and dynamic, whether we perceive it that way or not. So let’s just keep looking.

I am an expanding physicist because physics is expanding.

CatCam

Ever wonder what your cat does all day? A guy in Germany decided to find out by attaching a camera to his cat's collar and programming it to take pictures periodically. I have mixed feelings about making the cat carry an attachment that wasn't intended for any purpose other than human curiosity. But the results are quite intriguing: He learned that cats mostly hang around the neighborhood checking out other cats.

What strikes me most is that the cat's world is really about cats. This should not be surprising given that the human's world is mostly about humans, but sometimes our very self-centeredness does not permit us to see how self-interested others are too. And I'm not meaning this in a totally negative way: Of course people care about people, and cats care about cats. This makes sense as a way of nature. Anyway, it's worth knowing that Kitty's attention is mostly attuned to all the other cats in the neighborhood.

Check out the CatCam project.

Cicadas!

I was recently in Chicago, and found it was the time of the cicadas. For those uninitiated to this phenomenon, these are insects that emerge periodically to breed, where "periodical" means anywhere from a 7-year to a 13-year to a 17-year cycle. They come out from underground (where they've been growing for the rest of the cycle), molt, spread their wings, and join a chorus of millions of other cicadas. Their singing is heard -- loudly -- all day, like a powerful electric buzz to the air. Flocks of cicadas swirl around and collect on trees, cars, your body, etc. When they've done their reproductive work, they die and collect in crunchy piles around the area. Because there are various broods of cicadas in various areas of the US, some town experience cicadas nearly every year, while others have them only now and then.

This website has quite a lot of information, including maps, full-color photos, and... recipes.

It was neat to see them doing their own thing, essentially oblivious to human civilization around them. A valuable reminder that nature is not all about us. I suspect they don't even notice the changes in landscape-- not to mention politics, world affairs, or technology-- over the 17 years since they were last above ground.

I saw one amusing thing when I was about to leave Chicago. Sitting in the plane before departing, I observed one of the air traffic directors out on the tarmac -- you know, the people who wave the orange sticks to direct the planes as they taxi to and from the runway. She was surrounded by a cloud of cicadas, and apparently felt uncomfortable with their presence because she was occasionally swatting at them to shoo them away. But she was dong so with her orange sticks in hand! I wondered if the planes would end up being directed in strange ways.

Thomas G Ayers, 1915-2007

My grandfather passed away last week. As one of my uncles noted, it was sad but not tragic -- he was 92, had lived a full life, and was declining in health.

There were some news articles published about him, which I include below. Rest in peace, Grandpa.

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Utility executive led civic, racial initiatives

Former Commonwealth Edison chief helped develop Dearborn Park and pushed for an end to housing discrimination against blacks

By Jo Napolitano
Tribune staff reporter

June 12, 2007

Thomas G. Ayers, a longtime civic and business leader, had a vision for Chicago's urban landscape and its minority communities.

In addition to serving as the chairman and chief executive officer of Commonwealth Edison in the 1970s, he was a major force in the development of the area just south of the Loop known as Dearborn Park.
He also was an advocate of fair housing and equal opportunity for women and minorities.

His son William Ayers was once the leader of the radical Weather Underground, formed amid the tumult of the Vietnam War and responsible for a series of bombings in the 1970s.

William Ayers, separated from his family during 11 years as a federal fugitive, said his father did not turn his back on him.

"He understood more than most the anger and frustration young people felt about that endless war," said Ayers. "He really admired and loved all of his kids."

Mr. Ayers, 92, died of congestive heart failure Friday, June 8, at home in Hyde Park, his family said. He was battling Parkinson's disease but was talking up until the day before he died. He spent the last three years living with his once-estranged son and died surrounded by family.

"We were unanimous in the desire to have him close to us," William Ayers said. "It was very special. I wouldn't trade it for anything."

Mr. Ayers headed Commonwealth Edison for seven years, ending in 1980.
Before assuming the top job, he helped negotiate the first labor contract between the energy giant and the International Brotherhood of Electrical Workers.

He served on many boards, including that of G.D. Searle, Chicago Pacific Corp., Zenith Corp., Northwest Industries, First National Bank of Chicago and Tribune Co., owner of the Chicago Tribune, his family said.

He also worked with many nonprofits, serving as the chair of the Chicago Urban League, the Chicago Symphony Orchestra, the Chicago Chamber of Commerce and Industry, Chicago United, Community Renewal Society and the Chicago Community Trust.

Respected by Rev. Martin Luther King Jr., Mayor Richard J. Daley and the business community, he worked with all sides in an effort to curb housing discrimination, his family said.

James O'Connor, former chairman and CEO of Commonwealth Edison and its former parent company, Unicom, said Mr. Ayers had an impact on Chicago unmatched by businessmen of the era."He had an extraordinary social conscience," O'Connor said. "He was willing to step into situations where very few people were willing to risk their reputation. He had total courage and never seemed to weigh the consequences of that sort of activity. He never did anything for applause or for any sort of recognition."

O'Connor said Mr. Ayers was devoted to hiring and promoting women and minorities within Commonwealth Edison. He was often called upon to build consensus on sensitive topics.

"He was able to bring people together, which was why he was so often asked to be the head of different organizations and teams," O'Connor said.

Mr. Ayers saw potential where few others did. Standing in his office in the early 1970s and looking out onto the railroad yard near the Loop, he believed that the right type of development would draw people to the area.

Critics dismissed the idea, but in the years since then the South Loop has become among the city's more vibrant neighborhoods.

Although he was born in Detroit and attended the University of Michigan, Mr. Ayers was a staunch supporter of Northwestern University.
He was chair of the school's board of trustees for 10 years, and a university building bears his name.

"He was a guy of great intelligence and integrity, and he was willing to put the time in as well," former NU president Arnold Weber said.
"Those offices are not just honorary or for social distinction."

Equally important to Mr. Ayers was the educational and financial advancement of African-Americans.

"He felt the black community's success was key to Chicago's success,"
son John Ayers said. "He pushed business people to be more open in the 1960s."

John Ayers described his father as a "wonderful and generous man."

"In the '60s and '70s, we went through some rough patches in our family," he said. "He was very sweet and supportive of us all. He used to say, 'It takes all kinds' to get the world moving forward."

When William Ayers resurfaced in the 1980s, it was as though no time had passed between him and his father.

"It was as if we were in the middle of a conversation and nothing much had changed," William Ayers said.

In addition to sons William and John, Mr. Ayers is survived by a daughter, Catherine Allen; two other sons, Thomas G. Ayers Jr. and Richard; 10 grandchildren; and four great-grandchildren.

His wife, Mary, died in 2000.

Copyright (c) 2007, Chicago Tribune
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Former ComEd CEO

June 12, 2007

BY CHERYL V. JACKSON Staff Reporter Sun Times

Former Commonwealth Edison Chairman and CEO Tom Ayers was many men -- a prominent player in the cultural, social and economic advancements of Chicago.

He was the Chicago establishment, serving on the boards of Sears, G.D. Searle, Chicago Pacific Corp., Zenith Corp., Northwest Industries, General Dynamics Corp. of St. Louis, First National Bank of Chicago, the Chicago Cubs and the Tribune Co.

Mr. Ayers also was an agent for change, negotiating between Mayor Richard J. Daley's administration and the Rev. Martin Luther King Jr.'s open housing campaign in the mid-1960s, and developing the Leadership Council for Metropolitan Open Communities to fight racial discrimination in housing.

He was a buddy to his five children. Each of his sons called him by his first name.

"Since we've been adults, we've always called him Tom," said son John Ayers. "I guess it's because we're very close to him. We think of him as a friend."

Mr. Ayers died at his Hyde Park home Friday of congestive heart failure. He was 92.

Mr. Ayers, a Detroit native and University of Michigan alumni, married Mary Andrew in 1938, the year he moved to Chicago.

'He believed in change'

His entire career was spent at some aspect of Commonwealth Edison, of which he became president in 1964 and served as chairman and CEO from 1973 to 1980. He was the architect of ComEd's nuclear power program in the 1960s and 1970s.
"He had a great social conscience and believed in breaking down the barriers that confronted so many people, particularly minorities and women," said James O'Connor, who succeeded Mr. Ayers as ComEd chairman. "Beyond what he did at Commonwealth Edison, he really set an example for other leaders in the Chicagoland business community to follow."

Mr. Ayers also served on boards of nonprofit initiatives and chaired those of the Chicago Urban League, the Chicago Symphony Orchestra, the Chicago Chamber of Commerce and Industry, Erikson Institute, Bank Street College of Education in New York, Community Renewal Society and the Chicago Community Trust.

While chairing the Northwestern University Board of Trustees, he helped start Chicago United, dedicated to racial minority group access to jobs and education. The project that made him most proud, son John Ayers said, was Dearborn Park, an integrated South Loop housing project, which he conceived and for which he raised funds.

With his sons deep in protest of the Vietnam War (one, Bill Ayers, was a member of the radical Students for a Democratic Society who went underground for about 11 years) the businessman supported his children and their campaign. "Our father always stood by us," John Ayers said. "He was an establishment guy, but he believed in us. He believed in change."

After the Board of Education's financial collapse of 1979, Mayor Jane M. Byrne named Mr. Ayers as her choice for president of the new board..

Mr. Ayers' wife died earlier. In addition to sons John and Bill, he also is survived by sons Tim and Richard; his daughter, Catherine Allen; 10 grandchildren and four great-grandchildren.

Chicago Sun-Times

Congrats to the BGI grads!

06/10/2007: Press Release from Bainbridge Graduate Institute

Riding the Sustainability Wave Bainbridge Graduate Institute Graduates its Largest Class: David Bornstein, author How to Change the World: Social Entrepreneurs and the Power of New Ideas to Deliver Commencement Address


(CSRwire) BAINBRIDGE ISLAND, WA -- June 10, 2007 - The Bainbridge Graduate Institute (BGI) announced the graduation of its fourth class of MBAs in Sustainable Business. "This class is already making a difference in the world," says BGI President and Cofounder, Gifford Pinchot. "They've started up a new biodiesel venture, contributed to a book, and reduced carbon footprints. And now that the world is finally coming to grips with the need to change towards a more sustainable future, we expect our alums to be driving the new, more green, more just economy."

Graduate, Stuart Stranahan chose BGI hoping it would be a springboard for the launch of his new biodiesel company. "Before the first year was over I had my business plan and venture capitalists. And now I'm graduating not only with my MBA in Sustainable Business, but with my new business launched, up and running. There's simply no where else to get this kind of education."

Also participating in this year's commencement are students receiving Certificates in either Sustainable Business or Sustainable Entrepreneurship and Intrapreneurship, or both. Kevin Wilhelm, President of Innovative Strategies, a consulting firm focused on making the business case for sustainability, comments "Good business means making profit while improving your social and environmental business performance. We're showing that you can make a profit, even make more profit while giving back to our communities and to the planet." Kevin's personal philosophy is "make a living by what we get; we make a life by what we give." Wilhelm was chosen by his MBA peers to speak on their behalf. Henry Fielding, who was "greening" the lines of major apparel and home furnishing companies before it was fashionable, was chosen to speak for the certificate students.

With changing the world for good a key tenet of BGI's philosophy, the class of 2007 chose David Bornstein, author of How to Change the World: Social Entrepreneurs and the Power of New Ideas, as this year's commencement speaker. The New York Times describes Bornstein's book as "must reading" for "anyone who cares about building a more equitable and stable world." It chronicles and analyzes the work of social innovators who are successfully addressing social problems at scale in several countries. Bornstein's writing and interviews are published in 16 languages for countries around the globe.

Bornstein's first book, The Price of a Dream: The Story of the Grameen Bank, won second prize in the Harry Chapin Media Awards, was a finalist for the New York Public Library Book Award for Excellence in Journalism, and was selected by the San Francisco Chronicle as one of the best books of 1996. The book traces the history of the Nobel Peace Prize-winning Grameen Bank during its first 20 years, describing the global emergence of the now-famous anti-poverty strategy known as "micro-finance."

Commencement services for this year's graduating class of 30 MBAs in Sustainable Business and 31 Certificates in Sustainable Business and/or Sustainable Entrepreneurship & Intrapreneurship will take place at the Bell Harbor International Conference Center, 2211 Alaskan Way, Pier 66, Seattle, WA 98121 at 4:00 p.m. on Sunday, June 10.

"It's been a great year for us" comments Pinchot. "It's not every year that you receive a #1 ranking in Net Impact's 2006 Student Guide to Graduate Business Programs, land your biggest class yet, launch a successful concentration in Outdoor Industry and a certificate program in downtown Seattle, are named One of the 20 Ideas That Changed the Way the World Does Business [by Social Venture Network] and have 3 students inducted into the Society of Royal Arts for figuring out new ways to bring food to market. It's going to be tough to top this year. But we'll figure out a way."

About Bainbridge Graduate Institute

BGI was born five years ago when Cofounder and President, Gifford Pinchot, a renowned business consultant, realized that the nation's graduate business schools were churning out one-dimensional MBA graduates who had solid short-term profit-maximization skills but lacked a deep understanding of how to integrate social and environmental issues into business decisions.

The Institute's pioneering MBA and certificate programs prepare a diverse group of leaders to build enterprises that are economically successful, socially responsible and environmentally sustainable. The innovative curriculum preserves the rigor of a traditional MBA program, while infusing sustainability - including both environmental and social responsibility - throughout every course.

Northern light!

I am up in Seattle right now, and am noticing how amazingly light it is. The summer solstice is quite close, and the sky is still reasonably bright at 9:15 pm (although the sun has apparently set-- a bit hard to tell with the clouds). I am definitely 750 miles closer to the Arctic Circle than I am at home, which explains the chilly temperature too.