Re: Green Permits and Taxes

[Rosser Jr, John Barkley]

Robin,
     Well, it is your judgment that all the other arguments 
besides the one you cite are "hot air."  Maybe, maybe not.
     I completely agree that the initial setup is very 
important and am no particular fan of this particular form 
of initial distribution.  Let them buy them from the 
government in an initial auction, which was what we 
proposed up in Wisconsin.  This whole business is one where 
the details really do matter a lot.
     Personally I am not all that against taxes.  I just 
happen to think you have overstated the argument for their 
superiority over tradeable permits in general.  All of 
these are within-system amelioriations anyway.  How would 
things work in a Hahnel-Albert society?
     BTW, I am out of here until Monday.  Off to the 
Eastern Econ meetings in New York where the International 
Working Group on Value Theory, URPE, and the Post 
Keynesians are having a lot of sessions (I am in four 
total).  Hope to see some of you there!
     Another btw, we really need to do more than letter 
writing about this AEA thing.  Need to embarrass the 
bastards royally.
Barkley Rosser
On Wed, 25 Feb 1998 17:15:49 -0500 Robin Hahnel 
<[EMAIL PROTECTED]> wrote:

> > Now please remind me why my
> > eco-guru Wally Oates said permits are more efficient
> > than taxes?
> 
> First late me quote Professor Oates. (Cropper and Oates: Environmental
> Economics, JEL June 1992, p. 687) "Some interesting issues arise in the
> choice between systems of effluent fees and marketable emissions
> permits... There is, of course, a basic sense in which they are
> equivalent: the environmental authority can, in principle, set price
> (i.e. the level of the effluent charge) and then adjust it until
> emissions are reduced sufficiently to achieve the prescribed
> environmental standard, or, alternatively, issue the requisite number of
> permits directly and allow the bidding of polluters to determine the
> market-clearing price."
> 
> Strictly speaking, this is all I wanted to point out. However, when I
> read Cropper and Oates (1992) I noticed that they went on to argue for
> various practical advantages for permits over taxes -- which struck me
> as odd since Oates had been a strong supporter of taxes before permits
> became so popular. So I read their arguments quite carefully. Every
> argument for pollution permits over taxes they offered except one was
> totally vacuous, and I mean amounted to absolutely nothing at all except
> hot air. The one substantive argument was the following:
> 
> "Polluters (that is, existing polluters), as well as regulators, are
> likely to lprefer the permit approach becasue it can involve lower
> levels of comopliance costs. If the permits are auctioned off, then of
> course polluters must pay directly for the right to emit wastes as they
> would under a feww system. But rather than allocating the permits by
> auction, the environmental authority can initiate the system with a
> one-time distribution of permits to existing sources [polluters] -- free
> of charge. Some form of 'grandfathering' can be used to allocate permits
> based on historical performance [i.e., the worse polluter you were in
> the past, the more free pollution permits you receive!]
> 
> Once again, this is all I wanted to point out: The only real difference
> between free permits and pollution taxes is that with free permits the
> public gives the polluting corporations a large present. Since this
> makes the polluters happier campers, it also makes the regulators job
> easier so they like it too. My entire attitude can be summed up as: Well
> that's just fine and dandy for them -- polluters and regulators! But it
> sure as hell doesn't best serve the interests of any constituency I've
> ever cared about.
> 
> I suspect Oates was in danger of dropping down in the academic guru for
> high price hire lecture circuit since he was burdened by the weight of
> his earlier reputation as a proponent of pollution taxes. Since the big
> money wanted to hear that permits were preferable to taxes, Wally had to
> get with the program -- which he did quite nicely in the prominent JEL
> piece I'm quoting from. But what it reduces to is: BS + corporate
> interest politics. There is no SUBSTANCE he offers to recommend permits
> over pollution taxes.
> 
> 
> > Aren't you presuming that firms can freely adjust their
> > production methods so that pollution can be precisely
> > calibrated, and hence on the margin taxes and permits
> > are both perfectly voluntary?  What about lumpiness
> > and other non-neoclassical production functions?
> 
> Sorry, this doesn't extricate you from the hole you've dug for yourself
> either. If marginal cost of pollution reduction schedules for firms are
> not smooth and continuous, they will not make smooth or continuous
> adjustments to changes EITHER in the pollution tax rate OR the price of
> pollution permits. But that is really of no concern in any case.
> > 
> > Take the other extreme:  firms with diverse
> > capacities to rejigger their production techniques.
> > Where the nunmber of permits issued is less than
> > the extent of pollution, won't the permits be traded
> > towards a distribution which reduces the costs of
> > reducing the implied level of pollution?
> 
> A program that issues more permits than the extent of pollution has
> wasted the money used to print up the permits since there will be no
> change in any polluters behavior. All permit programs issue fewer
> permits than current emissions -- which is why the market price of the
> permits ends up higher than zero. Such a program minimizes the cost of
> achieving the given level of overall reduction. But a pollution tax
> eqaual to the market price of the permit also minimizes the cost of
> achieving the same level of overall reduction. IT IS EXACTLY EQUIVALENT.
> 
> > Now, turning your point inside out, suppose we
> > let you set the floor price at which the government
> > will auction off permits in the quantity you or your
> > favorite decision-making body specifies.
> 
> I don't want the government to set a floor price. (I don't want them to
> issue permits at all.) But if they do issue permits I just want them to
> auction them off to the highest bidders. LET THE FREE MARKET REIGN! [Did
> I say that??]  At least that way the government will collect revenue
> from the polluters in exchange for awarding them ownership of the
> environment.
> 
> >Isn't that better than your equivalent tax?
> 
> No.
> 
> > > If they give away few enough permits and enforce
> > > their use effectively, you can get all the pollution reduction you
> > > want.
> > Here you're blaming permits for the political environment
> > in which they are implemented, which logic could be applied to what
> > little we have in the way of eco-taxes.
> 
> I'm saying that corporate power kept eco taxes absurdly low. Now, even
> greater corporate power has taken eco taxes off the "imaginable" policy
> debate table altogether, and substituted in their stead free marketable
> permits. I'm also saying there is no reason for those who claim to
> represent the interest of the people in policy debates to adopt the new
> corporate position.
> 
> > It is clear why firms would prefer permits to taxes, assuming the
> > implied pollution reduction is equal.  That they would prefer permits
> > to taxes, however, does not mean taxes must be better.  Permits are
> > held to reduce deadweight loss (relative to taxes) which is otherwise
> > unrecoverable.
> 
> Absolutely false. Taxes on goods and income always have dead weight
> losses -- I think that's right, but I'll recognize Max's authority in
> this area. But that does NOT HOLD TRUE FOR POLLUTION TAXES (or pollution
> reduction subsidies for that matter.) There are no dead weight losses
> from taxes that internalize an external effect. There are efficiency
> losses from any FAILURE to enact a tax or subsidy equal to the magnitude
> of the negative (tax) or positive (subsidy) external effect.
> 
> > Though Barclay argued for permits' efficiency property
> > by assertion, his other point about the meagreness of revenue under
> > an efficient pollution tax seems well-taken and takes much (not all)
> > of the air out of your point about eco-revenues being effectual in
> > the realm of income distribution or amounting to as much as a
> > property right.
> 
> Don't blame me for the fact that there are few pollution taxes and those
> few are much too low [Too low means set lower than the actual magnitude
> of the external cost]. If we enacted a pollution tax system where the
> tax was set equal to the full external cost of the emission for all
> polluting activity, I suspect we could have wipped out the federal
> budget deficit years ago. I am sure the revenue generated with be quite
> significant.
> 
> Now, I admit that the distributive effect of pollution taxes may well
> not be progressive. I have no idea, nor have I seen any studies that
> shed any light on this. But I will stipulate, for the record, that I
> would not expect the redistributive effects of a full system of
> pollution taxes to meet MY requirements for economic justice. [Since no
> "imaginable" tax that is considered part of the "relevant" policy debate
> meets MY standards of economic justice, why should pollution taxes??]
> Therefore, I agree that whatever reductions in other taxes should be
> made in light of all the pollution taxes rolling in under the Hahnel
> full marginal social cost pricing policy should be done with any eye to
> improving the overall equity of the tax system. And I gladly would let
> Max Sawicky be my expert on which taxes to get rid of.
> 
> Gar Lipow suggested not reducing other taxes at all after collecting
> pollution taxes, but giving every citizen a "green dividend." I know
> there is a policy guru out there pushing the policy -- reminding people
> how popular the oil dividend the state of Alaska hands out is among
> residents. If an equal per capita "green dividend" was more progressive
> than any taxes we could cut, I'd go with that idea too. The policy guru
> recommends it for the very practical kinds of reasons Max keeps throwing
> up: people like gifts, and any proposal that implies we have to
> re-debate tax reform is dead in the water. But since I am immune to
> those kinds of temptations, I'll stick the criteria of maximizing the
> progressivity of whatever change we can negotiate -- and appoint Max to
> execute this will of the have-nots.
> 
> > If some of our friends are right that firms
> > are missing out on profitable opportunities for lack of tougher
> > enviro regs, taxes, or permits, then your point is turned upside
> > down altogether.
> 
> If Gore is right that more stringent environmental protection will
> increase the market value of production and income, this is tantamount
> to saying that US business men and/or US economic policy makers are
> dumb. Since I have always considered that a realistic possibility, in my
> view it could be true that we would end up improving macroeconomic
> performance with more stringent environmental regulation. But to the
> extent that businessmen are maximizing profits and economic policies are
> keeping us pretty close to the proverbial production possibility
> frontier, the Gorian promise that what is good for the environment is
> good for US business is analagous to Reagan and the Supply Siders
> promise that we could lower tax rates without decreasing the amount of
> tax revenues collected. It will sell well to an electorate that votes
> for having their cake and eating it too -- but once they've eaten it, it
> will, in fact, be gone.
> > 
> 
> > More broadly, I've already said I think the entire green
> > agenda is properly secondary and subsequent to more pressing
> > matters.  If I was more perverse than I already am, this would
> > impel me to support your position in light of its relatively
> > reduced prospects of implementation.
> 
> Don't go nice on me. I'll take support for pollution taxes from any
> quarter for any reason.
> 
> > P.S.  Little or none of this addresses the question of
> > whether a realistic regime of green taxes and public
> > spending is likely to improve the distribution of
> > income or wealth, which I dimly recall was the central
> > bone of contention.
> 
> Proposal: Let me design the green taxes -- and I won't be giving away
> permits -- and you design the reduction in other taxes that the amount
> of green taxes I collect allows for.
> 
> In solidarity...

-- 
Rosser Jr, John Barkley
[EMAIL PROTECTED]