Guest Post by Willis Eschenbach
I’ve crossposted this from my blog, “Skating Under The Ice“.
The unscientific enterprise called the Social Cost of Carbon (SCC) is a thinly disguised political attempt to justify some kind of a “carbon tax”. Of course calling it a “carbon tax” or the “social cost of carbon” is doublespeak, or perhaps triplespeak. It is doublespeak because the issue is carbon dioxide, not carbon. What they are talking about taxing is not carbon but CO2. (In passing, the irony of a carbon-based life form studying the “social cost of carbon” is worth noting …)
It is triplespeak because in the real world what this so-called “carbon tax” means is a tax on energy, since the world runs on carbon-based fossil fuel energy and will for the forseeable future.
This energy tax has been imposed in different jurisdictions in a variety of forms—a direct carbon tax, a “cap-and-trade” system, a “renewable mandate”, they come in many disguises but they are all taxes on energy, propped up by the politically driven “Social Cost of Carbon”.
I’ve written before about how taxes on energy are among the most regressive taxes known. Increasing fuel prices hurt the poor more than anyone, because the poor spend a larger fraction of their income on energy. Gasoline prices to drive to work don’t matter to the wealthy, but they can be make-or-break for the poor.
However, in addition to harming the poor, there is a deeper reason that such a tax on energy is a very bad idea.When you tax energy, you are taxing an input to wealth production. Taxing any of the inputs to wealth production is destructive. Instead of inputs, you want to tax the outputs of wealth production. Let me lay out the several reasons why.
I’ve discussed in the past that there are three and only three ways to create real wealth. By real wealth I mean the actual stuff that we use—houses and food and cars and clothing and nails and fish. Real wealth. Here are the three ways to create wealth:
First, you can manufacture wealth—you can build a shirt factory, manufacture a new medicine, or sew clothing in your living room and sell it on the web.
Next, you can grow wealth—you can cultivate an apple tree, keep a home garden, or plant a thousand acres of corn.
Finally, you can extract wealth—you can drill for oil, dig for gold, or fish for trout in a mountain stream.
Everything else is services. Important services to be sure, life-and-death services in some cases … but services nonetheless.
To understand this distinction between services on the one hand and wealth generating activities on the other hand, let me use an example I’ve given before. Suppose there are two couples on a tropical island. One person fishes, one has a garden, one gathers native medicines and building materials from the forest, one builds huts and makes clothes from local fiber. They could go on for a long time that way, because they are creating real wealth. They have food and clothing and housing, the things that we need to survive and thrive.
Next, suppose on a nearby tropical island there are two other couples. On that island one person is a barber, one is a doctor, one is a journalist, and one is a musician. Noble occupations all, but services all … those folks will have nothing to eat, nothing to wear, nothing to keep the rain off. None of those occupations create any real wealth at all, while all the activities on the first island do create real wealth.
This means that if we want our country to be wealthy we need to do everything we can to encourage manufacturing, agriculture, and extraction. And that brings me back to the subject of this essay, the energy tax masquerading as a “carbon tax” and crudely propped up by the laughable “Social Cost of Carbon”.
Let’s set aside for the moment the question of whether a given tax is used wisely or not. And let’s also set aside the consideration of WHAT we tax. Instead, let’s look at the effects of WHERE in the economic cycle we apply our tax.
Each of the three ways to earn wealth has both inputs and outputs. For example, I’ve worked a lot as a commercial fisherman, an extractive industry. The inputs to this way to generate wealth are a boat and motor, nets, diesel, a captain, and some deckhands. The output is yummy fish.
Similarly, the inputs to manufacture are things like raw materials and labor and energy and machinery. The outputs are manufactured goods.
In the third and final way to create wealth, inputs to agriculture are things like water and seeds and fertilizer and tractors and diesel and farmers and field workers. The outputs are fruits and vegetables and fiber and oils and all the rest of the things we grow.
So let me pose you a theoretical question. Assuming that we need to tax the wealth generating process … is it better to tax the inputs to the process, or to tax the outputs of the process?
The answer is perhaps clearest in the field of agriculture, where the question becomes:
Should we tax the seed corn, or should we tax the resulting corn crop?
The first and most obvious reason that we should tax the corn crop is because taxing the seed corn makes it more expensive, and thus it discourages people from planting. We don’t ever want to do that. Discouraging the generation of wealth weakens the economy. We want to encourage the generation of wealth.
The second reason not to tax the seed corn is that agriculture, like all ways to generate wealth, has a multiplier effect. Every single corn seed will likely turn into a plant yielding hundreds of corn seeds. Taxing the seed corn means a farmer can buy less seed … and a reduction of one seed can reduce the eventual crop by a hundredfold. This damages the economy in a second and distinct way.
Finally, there is a third separate hidden damage from taxing the seed corn instead of the corn crop. Having grown up on a remote cattle ranch I know that farmers are broke in the spring and generally only have cash when the crop comes in. The same is true of most wealth generating activities. Money is scarce at the start of the process and ample at the end. This means that extracting the dollars by taxing the inputs to the wealth generating activities puts a much greater strain on the individual wealth generators, the farmers and the fishermen, than does extracting the same dollars from the outputs of the process.
From these three separate kinds of damage it is clear that taxing the inputs to wealth generating activities is generally a mistake.
And this brings me back again to the question of taxing energy. The problem is that energy in the form of fossil fuels is an input to all forms of large-scale wealth generation. This means that driving the cost of energy up for any reason, or in any manner, imposes a greatly magnified cost on the economy through at least the three separate and distinct mechanisms I listed above.
And this is the reason that I am utterly opposed to any kind of tax on energy, whether it is a so-called “carbon tax”, a “renewable energy mandate”, or any other measure to increase energy costs. We have businesses fleeing California for neighboring states in part because our laws REQUIRE that we pay astronomical costs for electricity from expensive green power sources.
When I was a kid, my schoolbooks were clear that cheap electricity was the savior of the poor housewife and the poor farmer. And growing up on a remote cattle ranch where we generated our own electricity, I could see as a kid that it was absolutely true. Having ample cheap electricity transforms a family, a farm, a town, or a society.
But now, based on the crazy war on CO2, people are doing everything that they can to drive the cost of energy up. Obama’s Energy Secretary famously said he wanted US gasoline (petrol) prices to go up to $8 a gallon like in Europe. Obama himself said that his electricity policy would necessarily cause electricity prices to “skyrocket”. We were into this nonsense all the way back to Clinton.
Let me recap. In addition to energy cost increases hitting the poor harder than anyone, taxing or increasing prices of any of the inputs to wealth generation also damages the economy in three separate ways.
First, taxing or increasing the price of the seed corn discourages planting.
Second, taxing or increasing the price of the seed corn has a very large effect because of the multiplicative power of wealth generation. Since each corn seed can become a plant that produces hundreds of kernels of corn, anything affecting the seeds has a disproportionately large effect on the eventual production.
Third, taxing or increasing the price of the seed corn hits the producers when they have the least money to pay the tax.
Now, consider the role of energy in this process. For all three wealth-generating activities, energy is an input. And this in turn means that any increase in energy prices reduces wealth generation by more, sometimes much more, than the price increase would suggest.
==================
Let me move to a final topic, the size of the claimed Social Cost of Carbon. Estimates range from a “negative cost”, or what ordinary humans would call a “Social Benefit of Carbon”, through net zero cost to a cost of fifteen hundred dollars per tonne. Let me take eighty dollars a tonne as a representative price for the following calculations.
In 2016, humans emitted on the order of ten gigatonnes (10E+9 tonnes) of carbon in the form of CO2. At eighty bucks a tonne, that works out to about $0.8 trillion dollars per year. Since the global GDP (the value of all goods and services) is about eighty trillion dollars per year, supporters of a carbon tax have pointed out that if we taxed all emissions that is only one percent of GDP. They say that this is a small price to pay.
But this is a simple view that ignores several important things.
First, the critical metric is not GDP. It is GDP growth. GDP growth averages something around 3% per year. This continued growth is critical both to provide for the needs for an increasing population as well as to providing for lifting the global population further out of poverty. A drag of one percent on the economy reduces growth by a third.
Next, the carbon tax itself would be somewhere around 1% of GDP or less … but that doesn’t allow for the multiplier effect of taxing energy. Because energy is an input to all forms of wealth generation, for all the reasons discussed above the cost to the economy of taxing an input to all wealth generation is much larger than just the size of the tax itself.
Finally, the magic of compound interest and the “rule of seventy”. At three percent growth per year, the “rule of seventy” says that the economy will double in size in 70 / 3 = 23 years. But if we foolishly impose a carbon tax and it drags economic growth down by only a single percent, at 2% growth it will take 70 / 2 – 35 years for the economy to double in size. And since all of these CO2 fears are a long ways out, fifty or a hundred years, over time the small drag of a carbon tax on the economy will loom large.
All of this leads us to a simple conclusion. Even if you wish to fight the eeeeevil scourge of CO2, increasing the cost of fossil fuels is the wrong way to go about it. The associated present and future damage from increasing energy costs, both to the poor and to the economy, far outweigh any possible future benefits fifty years from now.
Now me, I see no reason to fight CO2. I don’t think CO2 is the secret temperature control knob of the climate. No persisting complex natural system is that simply controlled.
But if you do want to fight CO2, DON’T RAISE THE COST OF ENERGY. If you raise energy costs in any manner you are fighting CO2 on the backs of the poor housewife and the poor farmer, the very people you are claiming you are helping. And it’s not just the poor you are hurting. If you raise energy costs you are doing untold damage to the economy itself.
There are other options. Go for greater energy efficiency if you wish, that will reduce emissions without increasing energy cost. Get more production out of each gallon. Or support a shift from coal to natural gas. That shift does both—it reduces both energy costs AND emissions of CO2. Or for the third world solution, fog nets in Peru provide water for hillside dwellers without requiring energy to pump water up the hills. And as always, the mantra of reduce, reuse, and recycle combined with general energy conservation all can cut emissions without cutting CO2.
Because in all of this useless and futile fight against CO2, I can only implore everyone to follow the Hippocratic Oath, which says “First, Do No Harm“. And that means no carbon tax in any form, no “renewable mandate”, no “cap-and-trade”, because they all raise the cost of energy. A carbon tax, backed up by the anti-scientific political cover story for that tax called the “Social Cost of Carbon”, will do and in some parts of the world already is doing immense harm to both the economy and the poor. Carbon tax and the “Social Cost of Carbon” do uncalculated damage, they should be avoided completely.
My best to everyone,
w.
As Usual: if you comment, please QUOTE THE EXACT WORDS YOU ARE REFERRING TO, so that we can all understand your exact subject.
Previous Posts on the SCC:
The Bogus Cost Of Carbon
[See update at the end] From the New York Times a while back: In 2010, 12 government agencies working in conjunction with economists, lawyers and scientists, agreed to work out what they considered a coherent standard for establishing the social cost of carbon. The idea was that, in calculating the costs and benefits of pending…
Monetizing Apples And Oranges
Let me start by thanking Richard Tol, Marcel Crok, and everyone involved in the ongoing discussion at the post called “The Bogus Cost of Carbon”. In particular, Richard Tol has explained and defended his point of view, giving us an excellent example of science at work. In that post I discussed the “SCC”, the so-called “Social Cost of Carbon”. There…
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There are other options. Go for greater energy efficiency if you wish, that will reduce emissions without increasing energy cost. Get more production out of each gallon. Or support a shift from coal to natural gas.
The first two options run into Jevons’s parodox. Greater efficiency will lead to increased use, which leads to higher emissions. Greater production, cheaper prices, higher demand, higher emissions.
And how would you support a shift to natural gas? Without taxing the use of coal, you would have to offer subsidies to gas. Who’s going to pay for it? An income tax will hit the middle class. A consumption tax will hit the poor.
A carbon tax would make coal more expensive than natural gas, supporting a move to natural gas. It would also offset financial gains from increases in efficiency.. ie you would get the same end result, for the same cost, but use less energy. This would help aviod Jevons’s parodox.
Yes the tax would be a hit, but a one off hit. So to lessen the blow, you would start it lower, and increase it over time.
And as we replace things so that they are more efficient, or build more gas power plants, wouldn’t that boost the economy? And as we start lowering our emissions, we would be paying less tax. So the negative multiplying effects you mentioned, would then revet to positive effects, further boosting the economy?
And as it’s the poor you are concerned about, some/all of the money raised could be used as tax subsidies for those on minimum wage/below average wage. This would cover any additional cost the carbon tax imposes on them, and put more money in thier pockets, making them less poor.
Daveo,
In a perverse way, encouragement to use gas over coal need not be from positive incentives. It can also be done by removal of negative imposts, which sadly are all too abundant these days.
In the US the shift will happen anyway: cleaner burning and lower capital cost per MW to build. The thing which held back natural gas for power all these years was the high price volatility for gas. If you’re building a plant with an expected service lifetime of 40 years and the main operational cost is fuel, you need to have confidence the fuel will continue to be available at a reasonable price. Fracking provided that confidence.
Rather than impose a carbon tax, just approve expanded fracking leases on public lands and grant the pipeline permits. Current federal policy actually gets in the way of accelerating the shift to natural gas.
Daveo, did your mother have any children who were not stupid?
If you want to replace coal plants to reduce the use of fossil fuels, you build nuke plants.
Communities with nuke plants love them. Why? Nuke plants pay lots of property taxes and provide high paying jobs.
Nukes are not too popular with California hippies who worry about radiation but not getting high.
Since I am skeptical about CAGW, I only advocate building nukes to meet power demand.
As someone who does believe CO2 is a problem I also advocate building nukes to meet power demand.
Kit, yes shd did, unlike your poor mother who obviously rasied a fool. Please point to where in Willis article he mentioned nukes? Can’t find it? Well take your rant some place else. Are you really retired, or just cant keep a job causd you talk up irrelevant crap?
A 100% tax credit to US employers on their US payroll taxes would reduce taxes on labor as an input to the wealth generating process and remove a large incentive to offshore production.
Ultimately tax credits are paid for by different tax payers. Would you volunteer to pay higher so another doesn’t pay? Someone always pays full price . . .plus tax.
We should end payroll taxes and use only income and wealth taxes. A tax credit on payroll taxes is only economic friction (i.e the company pays half of your payroll taxes today, but doesn’t get the credit until next year.)
The gas and oil industries are heavily taxed already, The promoters of carbon taxes never seem to mention that they’re arguing for even higher taxes on an already heavily taxed industry and commodity. There were riots recently in Mexico as the A-narco/socialist Mexican gov’t raised the price of unleaded gasoline up to over $4/gallon. Are Mexicans paying the “true cost” for their petro-based economy? After all, the “true cost” is far higher than the price you pay at the pump because of all those darn externalities “they” tell us. Not to pick on the Catholic Church, but the old line about paying money for “indulgences” for the sin you are going to do anyway makes me wonder if there is anyway to wire the money directly to God? Or is the Mexican gov’t as close as some of us in this life will ever get?
Look at that Vatican, the money was not directly wired to God, just those at the Vatican, with every level from the receiver in a church to the Pope taking their cut. And those that think it is, and there are millions, who believe this, are seriously deluded…
Tax on sins. Tax on windows. Tax on CO2.
Sorry, had to stop when the wealth discussion went into the land of the lunatics.
Let’s take banking. An intermediary ensures that those with excess capital (savers) can provide that capital to those with potential investments but no capital. A banker aggregates the savers money and lo an behold a new factory is built. That function, that service, isn’t creating wealth? Of course it is.
Let’s take hairdressers. You pay to have your haircut because you value the way you look. You put a higher value on that look post-hair cut (if you did not, you would not pay). So if we had no hairdressers, that value could not exist. Thus it is utterly obvious that hairdressers create wealth.
Let’s take a book. You pay, you read it, you are amused. That amusement is wealth, that’s why you pay for it.
The idea that “wealth” is only material things is simply dumb. What wealth is is the very basic key to understanding the very basics of economics.
Yes, that troubled me, thanks for setting it out so clearly. UK’s manufacturing output is as high as it’s ever been in real terms (even when we were the workshop of the world) but services are now much higher and we are much wealthier (even if Royal Navy can’t beat everybody else any more!).
Cape St Vincent 14 February 1797, Admiral Sir John Jarvis on HMS Victory with 15 ships of the line as the Spanish fleet is spotted through the early morning fog.
“There are eight sail of the line, Sir John”
“Very well, sir”
“There are twenty sail of the line, Sir John”
“Very well, sir”
“There are twenty five sail of the line, Sir John”
“Very well, sir”
“There are twenty seven sail of the line, Sir John”
“Enough, sir, no more of that; the die is cast, and if there are fifty sail I will go through them”
On 11 February, Commodore Horatio Nelson on the frigate HMS Minerve had passed through the Spanish fleet unseen in heavy fog. Nelson reported the location of the Spanish fleet on 13 February but did not know its size (because of the fog). Jervis’s immediately sailed to intercept.
Tim, I disagree, using your hairdresser example, this service only transfers wealth, it does not create wealth. Once the hair grows back, that wealth disappears. Wealth can be transferred, haircuts cannot. Another example are cars, bolt together one unit of steel (iron ore & energy combined), one unit of engineering and one unit of labor services, then sell it for 5 units as people place value (two units of profit) on the prior three units being combined, two units of wealth seem to have been created, they have not. Once that cars service life it up, it is only worth one unit of steel (scrap). The only way to re-inject those missing units of wealth, excluding “printing money”, is to dig, collect, grow and create new units of energy (heat or electricity). When you manufacture steel, you combine one unit of Iron ore and one unit of energy. When you machine or stamp steel it takes energy input. It is the energy input that start the cycle again. Iron ore would be almost worthless otherwise to a modern economy without the energy input (mechanical, heat and/or electricity).
My understanding what is being argued by Willis is not text book economics but the initial source/input of wealth creation into the economic/human system. This is only raw materials and energy. “Amusement” is not wealth, it is created and destroyed within seconds. Books are wealth but can only be had when there is an excess of energy and raw material above and beyond what is required to sustain our basic needs. A humans, we will waste raw materials/energy to receive amusement or look good (or haircuts) as we like it but “social” wealth is not being argued here.
“My understanding what is being argued by Willis is not text book economics ”
Well, not textbooks from this or the last century, as Richard Tol pointed out. If discussing economics (or anything else) then textbooks are a pretty good starting point.
Seaice, text book economics (I am just a laymen) suggest people and the skills they provide are the true measure of a nations wealth. Gold, copper, trees, fish, farming cannot either sustain life by themselves, nor could be harvested without human input and ingenuity. I agree with that (my) statement. But if a nation has no energy or resources, the nation cannot create wealth. Sure, some nations can become enriched by importing wealth and trading that with services (tourists vacationing on a tropical island) but if those services fall out of favor, or the wealth to procure those services is not there, that nation cannot generate wealth on its own without resources and energy. As is the case with many tourist driven economies in my example above.
Transferable wealth is only one type of wealth. Don’t think of wealth like a savings account. Wealth is an item or service with an agreed upon value.
There is a time value on such wealth. You are saying the equivalent that food has no value because once it is consumed, there is no value. A haircut is “consumed” like the food. It might last a month, but it has value to the consumer (i.e. you look more professional at work.) A barber can cut hair better and cheaper than you cut hair, therefore the service has value.
“You are saying the equivalent that food has no value because once it is consumed, there is no value. A haircut is “consumed” like the food.”
Of course a good hair cut has value to humans but it is many levels up/removed from the original wealth creation which is is based on energy input (sun, hydrocarbons, nuclear, etc) using natural resources. You can trade a hair cut for bag of potatoes, both get consumed. A month later, the farmer then can just grow another bag of potatoes (sun, minerals, water), you have nothing. The farmer can just keep creating wealth, you can only receive the proceeds of this wealth for services. Politicians provide a paid service, does this mean they are creating wealth? I am not saying it is free but for a small labour input, energy magnifies the output. In a real economy of course it is much more convoluted than this. My two cents.
I would add that it is also the difference between essential and non-essential economic activity. True wealth is created by essential activity whilst social wealth is created by non-essential activity. In the farmer/barber example, food production is essential but no one has to have a haircut save for reasons of vanity.
Agree somewhat David, but like I said in a real economy it is more convoluted. Farming is essential, but so is the service to repair the tractor, or the person that clears the snow off the roads so food can get to market. Someone could even argue the barber is an essential service, how else would the farmer look respectful enough to receive a bank loan for his farm, or attract the opposite sex for reproduction.
When I think of wealth “creation”, I am actually arguing the “create” part (money from nothing). You plant one small seed, months later the return is multiple times larger than the initial input. This takes energy (sun, hydrocarbons, etc). Getting back to Willis point, tax the input, the output is reduced, better to tax the output. In other-words, don’t tax the seed, tax the bag of potatoes, otherwise we will have less potatoes.
I should clarify, Willis’s point was not about taxing the ‘seed’ (that was my example), his point was by taxing the energy input with a carbon tax, this will only reduce the output. If taxes are needed (and they are), it is better to spread that tax over the output, taxing the energy input just reduces the output and presumably the input tax would have to be exponentially larger to equal the same tax revenue as the output. If a tax could be put on the suns rays (I am sure they have thought about it), we would just have less food.
Tim says “An intermediary ensures that those with excess capital (savers) can provide that capital to those with potential investments but no capital. A banker aggregates the savers money and lo an behold a new factory is built. That function, that service, isn’t creating wealth? Of course it is.”
The argument is that without the excess capital in the first place, the banker has nothing to lend. Making inputs MORE expensive means LESS excess capital and hence less money for bankers to lend to a new factory. To me, your counter argument seems to support Willis’s argument.
all well and good when it works like that tim. the reality, where banks create money by loaning money they do not actually have, did not work out so well in recent times.
if your system was actually in place the tax payer would not have had to bail out numerous banks as a result of the 2008 crash.
All your money are belong to us.
Democrats, and some Republicans, would raise taxes to 100% on everything, if we let them. We won’t. So they use an incremental approach.
Would you pay a carbon tax? “Sure, if it will save the planet.” A carbon tax is just a tax, wearing a special cloak to get you to okay it. It’s not about carbon, it’s about tax.
Interesting analogies and for me, an unusually black/white clarity of view in an otherwise complex dynamic.
Willis, you might clarify/amend the following…
…And as always, the mantra of reduce, reuse, and recycle combined with general energy conservation all can cut emissions without cutting CO2.
in the last but one paragraph…I could not make “sensetence” of this bit
Personally I think the rich ran out of ways to tax the output further so started on taxing the inputs (perhaps also to control/reduce oil consumption in view of the limited supply). Either way the damage is evident, production of everything suffers and the workers have a hard time. Hopefully, the businessman in Trump will adjust this.
I hesitate to pick a quarrel with Richard Toll, but I agree with Willis. Rich countries like Norway can afford the negative and regressive consequents of input taxes, but they slow the development of the third world. In an ideal world only two taxes make any sense. These are taxes on purchases and wealth and should be structured so as not to be a burden on the poor or discourage the reasonable accumulation of wealth.
Of course we do not live in an ideal world and taxes can have unforeseen consequences from quaint and relatively harmless three wheel cars to the immensely harmful turbocharged diesel cars which have caused a greater reduction in life span in Europe that CO2 is ever likely to do.
“I hesitate to pick a quarrel with Richard Toll, ” If the subject is basic economics that would be very wise. Maybe there is room for discussion over selection of the exact discount rate for inter-generational transfers, but about the basics it is usually better to side with the expert.
George Soros became a billionaire by realizing that the experts were dead wrong. As the saying goes, an expert is anyone from out of town.
Don’t forget the quiet hand of feedback mechanisms of energy taxes. Obama and Hillary turned coal mining precints from democrat to republican. Oh, those nasty feedbacks….
I think that there is a strong analogy between “Carbon Tax” – a tax on energy and the Corn Laws – a tax on food. I also think that we can equate any tax on the wealth creation process as the economic equivalent of friction in mechanics. For any machine to run efficiently and therefore perform the maximum amount of useful work we need to reduce its internal friction and design an engine for which the maximum amount of output power is created from the highest density input energy source.
The issue of energy density is critical here because for a given machine the maximum power is generated from the densest source of energy. A spoonful of sugar can be a useful energy source for a small mammal. Scatter the same teaspoon of sugar on the floor and its energy density is reduced. An ant can still benefit from the energy in each grain of the dispersed sugar, but a larger animal cannot, because too much energy is spent by the larger animal finding and collecting the individual scattered grains, compared to the low finding cost per sugar grain of the ant’s energy expenditure.
Taxing the input energy is a loss to the wealth generation process because we are diverting energy to other means, so while Richard Tol is correct, we have not destroyed the energy and have put it to another use, we need to ensure that the diverted energy is also used in wealth creation and not consumption (“gold statues of the president’s daughter”). All the tax levied on the supply side of an economic machine that is diverted to consumption produces a less powerful machine and is therefore detrimental to society, as the wealth generation process suffers and becomes less effective.
Yes. Willis has described it well, but it is distressing how many people don’t realise the consequences. If expensive new taxes on water and food were introduced then there really would be real riots in the street, not just bad losers who don’t like an election result. Yet the importance of energy still appears not to be understood by the majority of talking heads in the MSM.
Energy density is a red herring. Efficiency is a red herring. If I were to offer you a vehicle that ran on one pellet of super-dense energy at 95% efficiency but cost $100,000,000, or a less efficient vehicle that ran at 35% efficiency but cost $5,000, which would you choose?
Your example is silly. More of a red minnow than red herring. In reality the low energy density sources like wind are the ones that are inherently costly in terms of acquisition, distribution, and especially reliability.
Hunter, you make my point. It is not energy density but cost that is important. You are using energy density and efficiency as a proxy for cost when there is simply no need to do so as we know the costs. Wind energy is not very expensive despite the low energy density and efficiency. You say low energy density production is expensive, wind is low energy density, so wind must be expensive. Why not simply look at the cost?
seaice1,
The all in cost of wind, including the backup power and infrastructure to pick up the lapses and gaps in wind output, would make wind untenable nearly everywhere in the world.
And the waiver on environmental degradation that a large windmill array inflicts on the landscape and environment is a soft cost taht has until now, for some perverse reason, been ignored by alleged environmental activists.
Exactly – energy density is a red herring.
Sealice, has anyone ever told you you don’t have the first clue?
Energy density is nearly everything in the real world. You are a waste of time.
“Sealice (sic), has anyone ever told you you don’t have the first clue?” Actually, funny you should say that but they have. Although nobody has demonstrated that to be the case.
Willis:
I have just posted an analysis on US-issues.com which proves that over the past 150 years the control knob for temporary (apart from El Ninos) and permanent increases in average global temperatures has been the amount of SO2 aerosol emissions in the atmosphere, .
There has never been any warming due to greenhouse gas emissions!
Definitely worth reading and commenting on.
.
Thanks, Burl. Before reading your analysis I’d make three comments:
1. Complex persistent natural flow systems are governed by the Constructal Law, which makes it extremely doubtful that any single element or compound is the control knob.
2. Anyone who claims that their research “proves” something about the climate misunderstands climate science. In climate science as in science in general nothing can be proven except mathematical theorems.
3. I don’t go on a snipe hunt for anyone. I don’t have the slightest interest in rooting around looking for your deathless prose when I don’t know its name. If you want me to look at something, give me a link directly to the document.
Best regards,
w.
Willis:
The name of the Post is: “Climate Change Deciphered”
The direct link is: US-issues.com.:
Willis:
You had asked for the title and a link to my post identifying SO2 aerosols as the control knob for Climate Change.
It appears that you may have missed my reply, so I am resubmitting the information..
The title is “Climate Change Deciphered”.and it is a recent post on US-issues.com.
I am looking forward to your comments.
Thanks, amigo. I got as far as this:
and I busted out laughing.
Not happening. Sorry, but there is is nothing on this planet that would unequivocally cause a business recession every time there is a two-tenths of a degree warming. Nor is there any way that the climate is ruled by business swings.
Finally, anyone who makes the claim that ALL (in all caps) of anything are correlated with minor temperature fluctuations loses my interest immediately. The climate is nowhere and never that predictable.
Finally, after reading the rest of your paper, I repeat my objections from above:
I’m sorry to be so negative, but you have not come anywhere near close to establishing your case.
Best regards,
w.
Willis:
You wrote “Sorry, but there is nothing on this planet that would unequivocally cause a business recession every time there is two-tenths of a degree warming”
You have it COMPLETELY backwards. The business recessions CAUSE the warming shown on the accompanying graphs, for the reason which I have given.. Again, ALL of the recessions cause increases in average global temperatures….
You also state “The climate is nowhere and never that predictable”
On the basis that about .0.2 deg. C. of temporary warming will occur whenever there is a business recession, climate can be quite predictable.
Also, in the essay, I show that it is possible to predict/project average global temperatures between 1975 -2011 to within an accuracy of .02 deg. C. or less, based solely upon the amount of reduction in SO2 aerosol emissions, is an example of essentially exact predictability.
In view of the above, your repeated objections, 1 and 2, are both patently wrong.
.
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Burl Henry January 23, 2017 at 11:52 am
Sorry, but that one makes no sense either. Volcanoes put out orders of magnitude more SO2 than the difference between peak business activity and business recessions, and they do it basically all at once … and they do not make a detectable fluctuation in the temperature. As a result, the idea that the climate is ruled by business recessions doesn’t pass the laugh test.
In any case, your paper is only half done. Come back when you have actually calculated the statistical significance of your results, including the effect of autocorrelation, and we’ll talk about it. I don’t do graph squinting as an analysis method, I insist on real statistical analysis.
w.
Willis:
You COMPLETELY miss the whole point of my paper.
The temporary warming which occurs during every business recession can only be due to the reduction in the amount dimming SO2 aerosols emitted into the troposphere because of the reduced industrial activity.
The actual amount of the warming is IRRELEVANT, but is about 0.2 Deg. C. For a depression, where there is greater reduction in industrial activity, the warming is higher (about 0.5 deg. C.).
Since the unintentional reduction in SO2 aerosol emissions will cause average global temperatures to increase, it is absolutely certain that the EPA-driven intentional reduction in SO2 emissions will ALSO cause temperatures to increase.
My presented analysis of the rise in temperatures due to decreased SO2 emissions is essentially a perfect match to NASA’s reported average global temperatures for the years 1975 to 2011.
This completely eliminates any possibility of any additional warming due to greenhouse gasses.
You wrote “In any case, your paper is only half done. Come back when you have actually calculated the statistical significance of your results, including auto-correlation, and we’ll talk about it”
My paper meets Karl Poppers criteria that “Scientific theories must be falsifiable, and that prediction is the gold .standard for their validation”.
Since the paper meets both criteria, and perfectly matches the rise in average global temperatures over the past 36+ years, it fully describes reality, What could possibly be gained from a “statistical ” analysis?
Relative to your remark that volcanoes don’t make a detectable fluctuation in the temperature, I would remind you of the 1815 eruption of Mount Tambora which lowered global temperatures for about 5 years (816 was “the year without a summer”).
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In a normal world the input is tax deductible. Carbon tax is the world upside down.
It’s a Pro-Choice culture, selective and opportunistic.
How do you explain Delta Airlines? They neither grow nor extract nor manufacture, but I along with a bunch of other people willingly give them money in exchange for their service, which comes down to saving me time. I can get from Atlanta to Seattle in 5 hours instead of the three days it would take by train. Is that not real value?
I think it is, and Delta is the reason workers at Boeing have jobs manufacturing airplanes, which in turn is why workers at Alcoa have jobs making aluminum, which is why other workers have jobs mining bauxite. The reason there are willing buyers for all the stuff extracted and manufactured to finally produce an airplane is because Delta can make money in saving me time.
I contend that creates value.
What happened to the jobs making aluminium in Washington State when California demanded cheap hydro power?
What happened to the jobs making aluminium in Ohio State when new regulations made coal power more expensive?
If you can not answer these questions, you may also be confused why Trump got elected.
There are a lot few American aluminum workers flying Delta.
I am not at all surprised that Alan is confused about creating wealth since he is another California service worker. Nothing wrong with providing a service.
RKP: I am not a California service worker. Your points above do not address the issue I raised. Where the jobs are is a separate issue from why the exist. The fact remains that aluminum workers (wherever they are) have jobs because what they produce is indispensable to the commercial aircraft industry, among others. And the workers in the aircraft industry, wherever they are, have jobs because what they produce is indispensable to commercial airlines, who can afford to purchase aircraft because they provide value to me for which I compensate them.
Time is money and saving time creates value.
You’re right (of course). Distribution is a key facet of wealth which is ignored in this article — including people.
When you allow an energy tax by implication you allow a targeted energy tax and that means you have the power to direct how energy will be used or not used through taxation. At this point you might just as well be a centralist government like Russia of the 1960’s, or Cuba today.
Thanks, Willis, for bringing the flaws of energy taxation back to the front page.
This is also about their agenda of pushing expensive, unreliable “green” energy on us. They do that with both “carbon” taxes (which especially hurts coal), and with subsidies. Fortunately, the election of Trump throws a monkey wrench into their plans.
I think the intent of the carbon tax is to force us to use ALTERNATIVE (i.e. renewable) sources of energy, not to abandon the use of energy per se. However, since renewables, because of their inherent deficiencies (low density, unreliability, cost and lack of scalability) are more expensive, the end result is the same.
Willis, this may be your most timely and significant post yet. I would urge you to consider editing this series of articles into a form that could be read by a broader audience as well as those who follow tax and finance. Does your math kung 4th permit you to convert these concepts into mathematics? If so, this could become a very serious powerful paper.
Willis Eschenbach
I heartily agree. A fourth way for wealth generation is transforming technologies including inventions (patents).
Rather than a “carbon tax”, the US needs a strategic transformation in its tax code to be internationally competitive. Paul Ryan gave a brilliant eloquent summary of the impact of Obama’s and Trump’s tax policies on Charlie Rose Jan 18, 2017. US exports are DOUBLY taxed: By US tax on production labor, and by foreign import taxes. Foreign production for export is NOT taxed, and US does NOT tax on imports. Foreign companies are taxed ~ 23% while US companies are taxed 35% to 49%. US company earnings overseas are taxed at this higher rate when brought back. Redressing these tax imbalances is a critical target for Trump/Pence and Ryan.
Ryan said:
See: Ryan’s full interview at: https://charlierose.com/videos/29730
The tax farmers expect a positive effect on thier personal lives. This provides the life blood of the green blob making it very difficult to fight. Greenies learned the lessons of military procurement. Make some portion of the plane, tank, or missile in every state. Now let the Congressman vote against local jobs. TA DA!
Wal-Mart has a PR problem. Hook up with the Natural Resources Defense Council to farm solar subsidies and get positive press. Neat trick that. Very transparent but it usually works. Saw a TV ad asking me to contact my Senator to stop Scott Pruitt at EPA. Apparently I will die from dirty air if I don’t. The cage match is on.
Indulgence taxes are ubiquitous in the modern age. Anything that middle to infinate income can afford is ripe for taxing. The social costs are made up after the commodity or goods have been targeted. The resultant “sin tax” is applied just enough to social needs in such a way to justify the bank account enriching legitness of the subsequent exclusive tax-evaded clubs dedicated to talking about solving the sin, like the Clinton Foundation currently under investigation. The unwritten rule is to never solve the proposed sin lest the money and tax evasion hole dry up.
One of the little con-jobs used by the promoters of a carbon tax is some kind of rebate that would allegedly make the whole process “revenue neutral” and the poorest will get their money back. In practice this is nonsense, of course. The damage is already done up front, as described by Willis above, and the rebate is invariably inadequate to repair that damage. Not to mention all of the required paperwork and processing costs that have to be covered somehow.
Interesting article, but you miss the real engine of wealth: entrepreneurs. Before you can produce things productively, you have to know what to produce and who should produce it. The notion that Wal-Mart, Amazon, American Express, Federal Express, McDonalds, Microsoft, Google, Facebooks, etc are not wealth building is a materialist superstition. On the island, you really need someone who can figure out what is best and indeed, entrepreneurialism is implied. Read George Gilder or Ralph Peters and keep up the good work.
You are really getting to the root of things
There is an important distinction to be made.
The origination of wealth is the foundation upon which everything sits.
generating a margin or profit is altogether different.
I am a farmer I have managed to produce some grain “Wealth” every year
for the last 35 years but not necessarily a margin every year.
I believe it is in the interest of the nation to promote risk taking in the origination of
wealth. It is not in the interest of the nation to guarantee a margin.
A few more things to ponder.
1. Grain is unique among commodities because it is not existing. But you can store it. Old Idea.
2. All wars are fought over land. That is where the wealth comes from.
your nationality, religion, race or sexual preference just determines who’s side you are on.
3. Lastly we store margins in dollars and have allowed dishonest people to poke a hole in the bin!
I agree with your premise that the “Social Cost of Carbon” is a ridiculous concept. The reason being that they would include the “Social Benefits of Carbon” in the calculation and they have to assume that they can reasonably estimate the costs. This last concept is the one that makes the idea absurd. The Social Cost of Carbon is an easily manipulated concept to achieve a goal rather than achieve an understanding.
I also agree that any fuel tax is a regressive tax just like sales taxes and government fees. Our government has grown through regressive taxes to avoid taxing their campaign contributors. To me, this is one of the biggest economic problems in our nation.
For the rest of the narrative, you rely on questionable economics. I would be surprised if any legitimate economist would buy into it. I’m not claiming your conclusions are wrong, but some of your assumptions are poor. Some examples:
1) “I’ve written before about how taxes on energy are among the most regressive taxes known.” This isn’t true. While energy taxes are regressive, there are many other more regressive taxes. The biggest is payroll taxes which pay for over a third of our government, yet is levied almost entirely against the middle class. Other significant regressive taxes include property taxes and sales taxes.
2) “Here are the three ways to create wealth: First, you can manufacture wealth … Next, you can grow wealth—you can cultivate an apple tree, keep a home garden, or plant a thousand acres of corn. … Finally, you can extract wealth—you can drill for oil, dig for gold, or fish for trout in a mountain stream.”
Again – there are many other ways to create wealth. I can’t believe an economist would let you slide with this assumption. The most obvious way (which will support your argument) is through distribution. Delivering those goods to the consumer is a significant component of wealth creation. Improving productivity is also wealth creation in that the value of one hour of labor is increased (fertilizer is such an example). Finally, many services can be wealth creating (although this is the most often abused.)
A prime example is insurance. Insurance helps to reduce the cost in the transaction of goods. Few people could get a home loan without homeowner’s insurance. However, insurance companies have proven to be voracious rent-seekers (using their government influence to gain more income.)
3) “On that island one person is a barber, one is a doctor, one is a journalist, and one is a musician. Noble occupations all, but services all … those folks will have nothing to eat, nothing to wear, nothing to keep the rain off. None of those occupations create any real wealth at all, while all the activities on the first island do create real wealth.”
Yikes!!! Your concept of service wealth is very backward.
A barber most certainly creates wealth just as any other manufacturing type of organization. Granted, it is not as significant as food or clothing production, but it is still the same concept as any manufacturing operation. He is converting a raw material (your hair) into something more valuable at a lower cost than you can. A doctor, musician, and (gasp!) even journalists can be wealth creating positions.
Many services shift wealth usually at an economic cost (ex. lawyers, government, finance, and insurance,) but even these fields have examples where they increase wealth which is why they are so easily abused. The enforcement of laws maintains a free and fair exchange of goods, but lawyers can abuse these necessary laws to increase their income.
In the end, I agree that the social cost of carbon is nonsense and fuel taxes are regressive (and harmful.) The result is that the most successful forms of taxation should be a progressive income tax (on corporate and personal income) and wealth taxes (as opposed to property taxes.)
Regulations (including environmental regulations) are an important part of society. We can all understand the economic cost of a “love canal” type environmental disaster to the economy. The benefits of regulations need to be weighed against the cost. The Social Cost of Carbon pretends to accomplish this, but it fails miserably for many of the reasons you state.
(Note: sorry for the dissertation.)
“I agree with your premise that the “Social Cost of Carbon” is a ridiculous concept. The reason being that they would include the “Social Benefits of Carbon” in the calculation ” As they of course are. That is why some estimates for the social costs at some periods is negative.
Let me say it differently. The benefits of the cost of carbon are not fully incorporated in the estimates. They do include some benefits of climate change and agricultural benefits, but there are many more economic benefits from inexpensive fossil fuels. For instance, getting to work.
The truth is that many of the inputs to the social cost of carbon are little better than guesses. This means that the estimates are flexible based on the outcomes. $40 per ton would likely have little impact on carbon dioxide emissions, but it would add to the costs of the middle class. However, if that cost can be changed to achieve a desired outcome (and the desired outcome is reduced carbon emissions), then the calculation is worthless.
lorcanbonda, “there are many more economic benefits from inexpensive fossil fuels. For instance, getting to work.”
You are mixing up economic with social costs and benefits. Economic costs and benefits are all included in the price of the fuel. Social costs and benefits are not. They are externalities.
“$40 per ton would likely have little impact on carbon dioxide emissions, but it would add to the costs of the middle class.” You are suggesting that price will have little effect on consumption. That seems unlikely.
SeaIce writes:
I’m saying that the supply-demand curve of fuel is relatively inelastic. IIRC a $40 per ton of CO2 tax would add ~ $0.40 per gallon to the cost of gasoline. I don’t believe this is sufficient to drive behavior.
For this evidence, I referred to the increase in the cost of fuel from 1998 to 2007. During this period, gasoline cost rose ~ $3 per gallon with little impact on consumption. Following the recession, consumption dropped by ~10%, but the cost of fuel also dropped.
As far as the economic vs social cost of carbon dioxide, I don’t consider them as mutually exclusive as you do. In other words, the economic cost does not equal the economic value. Or, another way to say it, the economic value has social benefits beyond the direct cost.
Iorcanbonda, I believe you are correct that the the fuel demand curve is relatively inelastic. The tax on fuel will have less effect on consumption than might be expected. Fair point and well backed up with evidence. I am not sure that this is true long term, as fuel economy of vehicles takes a long time to show up in the figures. Fuel is much more expensive in the UK compared to the USA and fuel economy of cars is way higher.
As to the economic vs social cost, they are definitely different and mutually exclusive in principle. There a may be difficulties in picking it apart in practice.
SeaIce — I agree there may be a long term reduction in fuel usage as a result of cost. However, there are many differences between the UK and US which are not directly transferable. For instance, the size of the country means that there will more dependence on transportation and less capability for public transportation. Regardless, I believe the cost will need to be much higher than $0.40 per gallon to make a difference in carbon dioxide emissions — and most policies are looking for at least a 50% reduction in emissions.
My bigger concerns is the unintended consequences for those at the margin. Many live at a distance from an employment center because of the cost of housing. With higher fuel taxes, their cost of their transportation rises faster than the norm. The unintended consequence is that the cost of fuel efficient cars will also increase (especially the limited supply of fuel efficient used cars) and the value of housing will also shift. These effects traps those who need to travel far to work with these higher costs. They can’t afford a new car; they can’t afford to move; and there is no public transportation to their region.
I personally believe our government has been pushing these sorts of costs onto the middle class for decades. Health care is a prime example. The result is to drive the income inequality further apart. For example, those more wealthy can purchase the newer cars to offset the higher fuel prices. It’s only the middle class who can’t afford to change their behaviors.
You could pretend that the government would offset these cost increases through tax breaks, but a casual reading of these posts explains how politically impossible such “welfare” is in today’s political climate. Any such breaks are usually sacrificed within a few years to pay for other programs.