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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.

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slide1

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

Stodder, Presentation on Pollution Permits, Sept. 14, 2011

co 2 and temperature change

CO2 and Temperature Change

http://www.ngdc.noaa.gov/paleo/icecore/antarctica/vostok/vostok_data.html

Stodder, Pollution Permits, Sept. 14, 2011

co2 and industrialization
CO2 and Industrialization

http://www.globalwarmingart.com/wiki/Image:Carbon_Dioxide_400kyr.png

Stodder, Pollution Permits, Sept. 14, 2011

surface temp hurricane intensity
Surface Temp & Hurricane Intensity

Hurricane Intensity - - -

Sept. Surface Temp __

“Increasing destructiveness of tropical cyclones over the past 30 years”,

Nature, 8/4/05, ftp://texmex.mit.edu/pub/emanuel/PAPERS/NATURE03906.pdf

Stodder, Pollution Permits, Sept. 14, 2011

majority believes in global warming
Majority Believes in Global Warming

Source: Yale University Project on Climate Change Communication

Stodder, Pollution Permits, Sept. 14, 2011

good old supply demand
Good Old Supply & Demand!

Stodder, Pollution Permits, Sept. 14, 2011

planning is perfect if no uncertainty
Planning is Perfect – if No Uncertainty!

Stodder, Pollution Permits, Sept. 14, 2011

but if costs are uncertain
But if Costs are Uncertain …

Stodder, Pollution Permits, Sept. 14, 2011

outcome with quantity controls
… Outcome with Quantity Controls

Stodder, Pollution Permits, Sept. 14, 2011

losses with quantity controls
Losses with Quantity Controls

Stodder, Pollution Permits, Sept. 14, 2011

losses with quantity controls1
Losses with Quantity Controls

Stodder, Pollution Permits, Sept. 14, 2011

with cost controls further from equ
With Cost Controls, further from Equ.

Stodder, Pollution Permits, Sept. 14, 2011

greater losses with cost controls
Greater Losses with Cost Controls

Stodder, Pollution Permits, Sept. 14, 2011

what if more gradual define in benefits
What if more Gradual Define in Benefits?

Stodder, Pollution Permits, Sept. 14, 2011

quantity or cost controls
Quantity or Cost Controls?

Stodder, Pollution Permits, Sept. 14, 2011

cost controls closer to equilibrium
Cost Controls Closer to Equilibrium

Stodder, Pollution Permits, Sept. 14, 2011

quantity controls further from equilibrium
Quantity Controls Further from Equilibrium

Stodder, Pollution Permits, Sept. 14, 2011

costs more steeply sloped than benefits cost controls
Costs more steeply sloped than Benefits => CostControls

Prices vs. Quantities Revisited: www.rff.org/documents/RFF-DP-98-02.pdf

slide20

Best Method is an Empirical Question: If Social Benefits are Less Price Sensitive (More Steeply Sloped) than Costs=> Use Quantity Controls(Pollution Permits).

Stodder, Pollution Permits, Sept. 14, 2011

benefits more steeply sloped than costs quantity controls
Benefits more steeply sloped than Costs=> Quantity Controls

Prices vs. Quantities Revisited: www.rff.org/documents/RFF-DP-98-02.pdf

slide22

If Social Benefits are More Price Sensitive

(Less Steeply Sloped) than Costs =>

Use Cost Controls

(Taxes / Subsidies).

Stodder, Pollution Permits, Sept. 14, 2011

costs more steeply sloped than benefits cost controls1
Costs more steeply sloped than Benefits => CostControls

Prices vs. Quantities Revisited: www.rff.org/documents/RFF-DP-98-02.pdf

volatility of s0 2 prices us 1995 2006
Volatility of S02 Prices, US: 1995-2006

William Nordhaus (Copenhagen, 2009)

Stodder, Pollution Permits, Sept. 14, 2011

basic business argument what is more important for your business
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 thecountry as a whole must use?

Stodder, Pollution Permits, Sept. 14, 2011

additional arguments
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.

Stodder, Pollution Permits, Sept. 14, 2011

what about the recession
What about the Recession?

Martin Wolf, Financial Times, Sep. 6, 2011

Stodder, Pollution Permits, Sept. 14, 2011

bond market worried about growth
Bond Market Worried About Growth

http://research.stlouisfed.org/fred2/graph/?id=FII10,