While you mention that scrubbers were an important technology for SO2, the point was that the cost effective mass deployed solution was scrubbers that do less scrubbing. This was not the direction anyone was planning and so not how any public deployment projects would have gone, which would have thus been less efficient. In addition no one saw reclassifying coal coming. So while I agree CO2 is a much bigger problem than SO2 was, I disagree that you can distinguish SO2 because it was simply a matter of deploying available technology.

Second, I’d point out my plan is hardly cap and dividend, which I think is a terrible idea. The way I ran the numbers, I proposed giving back around $48 billion out of total carbon revenues of $115-144 billion initially (for an initial permit price of $20-25) in consumer assistance. On using EIA data, I would draw a distinction between oil price forecasting (which they’re pretty awful at admittedly) and permit price forecasting, which is going to have much more to do with what happens with the supply of electricity. But more numbers are always good, so lets run yours (Barrett‘s). 5775 million permits (which reflects 2005 emissions levels for covered sources, and was Lieberman-Warner’s 2012 starting level) at $50 per would be almost $289 billion. With a per household (family of four) cost of $1000, say we give back $300 to every person in the country (all 300 million of them)– which would be $1200 for a family of four– overcompensating families on average by $200. Now we still have ***$199 billion*** left over per year ($300 x 300 million people is just $90 billion) for research and (hopefully just a select few) other things.

Again, I’m not advocating running the consumer assistance exactly like this, those details aren’t worth getting into here. But the point remains – there will be more than enough money to compensate families for price increases incurred because a) the economy reacts and redeploys capital to reflect new prices, and b) in some competitive markets not all carbon costs can be passed through successfully without a firm risking losing customers. Because of these fundamental points, you’re gonna have a hard time finding any modeling that indicates that price increases would be greater than carbon revenue. And if you’re willing to not compensate the wealthy extra for their extra consumption (and so extra price increases incurred) that also accounts for more of the money that’s freed up for research and other things. So I’d reiterate the point is ensuring the money is spent wisely, not worries over whether there’s enough.

The fact that it would take a $200 price on carbon to stimulate the recent price increases in gasoline, which have done (relatively) very little to curb driving misses the point. An economist might tell you this is because the demand for gasoline is far more inelastic than the supply of electricity. This means basically there are substitutes for producing electricity, but not for driving cars on gasoline. Almost no matter how you get around, your transportation relies on gasoline. Similarly on the demand side for residential power – all we have is electricity (and gas for heating). However, for the supply of electricity, producers have options. This is why all models predict that the vast majority of emissions reductions under a cap would come from the electricity sector. So I guarantee you plenty will happen with under a $50 price on carbon (if its not designed horribly like the ETS), or how I’d prefer to put it – if you cap carbon, you will meet the cap and the early reductions without reaching a $50 price. It’s just that what will happen is not necessarily what you are expecting. Which again, is another reason for allowing the market to choose the cost effective reductions and not purporting to pick them out with a public program. Investors with internalized carbon costs will spend the money better.

I should interject that I would support strict mpg standards for cars to accompany the cap, but this is because our car companies do not behave rationally. I mean this in the strictly economic sense – try telling a GM investor that it’s a “profit-maximizing” firm. Better to yell it to him from a distance if you don’t want to get slapped.

On the wealth transfer – you’re right that more will be spent by rural and coal states – but only because the status quo is an effective wealth transfer to them. If you agree that CO2 imposes a cost on society, which is the only reason to bother trying to figure out how to reduce it, then we are all, especially areas who will bear the burdens of climate change worse, subsidizing those who are doing extra to cause it. Plus, on the “coal reliant” thing – we’re not all starting from an even baseline here. Look up statewide electricity prices – you’ll see those middle America coal states have the lowest electricity prices, even though the Coasts now have more efficient electricity markets. Is it such an equity/moral dilemma to potentially cause coal states to pay the same for electricity as states that aren’t using as destructive a resource?

On market failures, maybe we’ll have to agree to disagree on how widespread they are. But inelasticities of demand are not market failures. If people use electricity because they need to, not because its affordable, again, the cap will attack more elastic markets – like the supply of electricity where changes can be made at lower cost. On the insulation of houses, there are a couple market failures there, but L-W proposed fairly rigorous building code standards for all new residential buildings. Not such a complicated fix. Again, perhaps we’ll just agree to disagree but I’d just register my opinion that these issues are not so ubiquitous and intractable.

I also must respond to the response to my point that the government did not subsidize mass deployment of a crude early IBM PC. You mention that the government bought lots of microchips to bring down the price. But this “deployment” of microchips is not comparable to public money for deployment contracts for clean energy. Microchips are the essential component of controlling a digital device. When the problem was a need to move digital technologies, from computers to weapons systems forward, “microchips” was broad enough as to encompass basically the whole need. While other things were needed, microchips were complimentary, not substitutes – meaning all other advances would be absolutely moot without development of microchips. With clean energy, the goal is not any one technology. The goal is emissions reductions. Any existing technology is just a possible means to that end. Two tons of emissions reduced from wind power is just as good as one from wind and one from solar. In this context then, deployment of any particular technology is misguided (or even all current technologies), and more akin to if the government had offered to buy only microchips made of a certain metal, or placed other unreasonable restrictions that would inhibit the most efficient way of attacking the problem. Which would be discriminating among substitutable, as opposed to complimentary, goods.

Finally, just because you guys keep emphasizing the politics, I once heard the one kind of political program that’s untouchable is one that sends checks to voters. Case and point social security, which plenty of people have been trying to do away with for a while now. I wouldn’t underestimate the appeal of a bill that could be pitched as follows – “yes your energy bills will go up. But they will continue to go up regardless, as you know if you haven’t been living under a rock for the past few years. This bill will create the solutions that will stabilize those prices and bring them back down. And in the meantime, we’ll send you $300 per person in your household. Cash.” Hell we could even get Randy Moss as the bill’s spokesperson – “straight cash homey” (do you follow sports blogs as well?).

cheers Zach

Under a Cap and Dividend approach people in the 1st 6 deciles actually make money. PERI did nice study on it, go ahead read it. You should really learn more about the things you write about…