Friday, January 4, 2008

Bali As a Rent-Seeking Brokerage

Here's a particularly cynical take on the Bali climate-change conference. The third-world carbon offset schemes enshrined in Kyoto were obviously going to be mighty fine hog-calls for various shady folks to sidle up to the trough. Fernandez seems to think that nothing's changed with Bali. I don't have enough info to comment one way or another.

It does seem to me that the fundamental flaw with cap-and-trade schemes, either the allocated or auctioned varieties, is that the ability to fudge emissions or offset them into the ectoplasm of the international offset market makes it impossible to a) put a reasonable value on the permits and b) use them as a regulatory mechanism for actually reducing greenhouse gases.

The advantage to straightforward carbon taxes is that the ability to defraud the system is vastly reduced: If you produce oil or coal or natural gas or various other chemicals, you pay a producer tax, which gets passed on to your customers. As with all taxation schemes, you can provide credits to act as subsidies for various disadvantaged groups. So if the treaty that finally comes out of the Bali framework were to assign an overall price to a certain level of carbon emissions, you can subsidize the developing world with tax credits, which in turn more heavily burden the developed world.

Producing the tax framework for such an agreement will be ugly but it's achievable. It's enforceable, within certain limits. This is probably why everybody's so hot to do cap-and-trade. Nobody wants to see clean enforcement.

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