I know there will be readers who will say vehemently that there is no such thing as a sensible carbon tax, but a proposal floating around the Internet (and elsewhere — it was voiced last month in the House of Lords in the UK) is worth considering. It was developed by Ross McKitrick, a Canadian Professor of Economics who, along with Steve McIntyre, was one of those who showed the weakness of the Michael Mann ‘hockey stick’. You can read about it here.

His scheme bought a lot of criticism from both sides of the issue, as you might expect. I think it is worth examining, nonetheless, because it is quite simple in concept. First, it is to replace all the other ‘carbon taxes’ and regulatory mechanisms, ETSs, RETs and the like, and its intention is to be revenue-neutral. Second, the tax is set to vary with temperature, as measured in a fashion that removes the threat of tampering (a fear that many observers share, as they see that raw temperature data are always being ‘adjusted’).

The beauty of the tax is that both sides of the issue ought to be able to see a benefit. For the AGW orthodox, if the temperature rises, as they expect to happen, then the tax will rise, and producers and consumers will vary their behaviour to avoid the higher tax. For the sceptics, if the temperature fails to go up with the rise in carbon dioxide accumulations, which has been the case for the past decade or so, then the tax will not rise. If the temperature actually declines — if we go into a cooling period, like the one between 1940 and 1975 — then the tax will decline too. Since many sceptics expect one or other of these outcomes, they too have something to gain. If one side or the other is wrong, then — hey —something has been learned.

Why have a tax at all? Well we already have one, and ours is pretty silly both in the way it is constructed and the premises on which it is based. That would go. We also have a lot of other ‘climate change’ regulatory stuff that would go too. In its place we would have a single tax that would vary upwards or downwards according to the movement in measured temperature. All of these regulatory measures operate to distort the market, require a lot of compliance work, and achieve very little. Getting rid of them would be a big improvement.

How would we measure temperature? McKitrick proposes to take the average of two separate measuring systems and five different laboratories in three countries, which would make it difficult for the outcome to be corrupted. What temperature? He argues that since all ‘climate models in use today predict that, if CO2 drives climate change, the strongest and most rapid response will be an amplified warming trend in the tropical troposphere’, we should use the temperature there.

It is a big area, and the troposphere runs from near the surface to about 16 km in altitude. The great advantage of this area is that is not much affected by land-use changes, ozone holes and solar variation. It is also well measured.  ‘So I consider temperature levels in the tropical troposphere to be an ideal place to see the general magnitude of CO2 emissions on the climate.’ And here McKitrick is simply following the IPCC.

What is wrong with that? Nothing much that I can see. Is it likely to be introduced? I don’t think so, but not because the idea is flawed. It is a good idea, but it contains a premise that will be unacceptable to the warmists: that there is any uncertainty in the AGW proposition. They will say that the only way forward for temperature is UP, so why bother with a carbon tax that could go down? And here we have ‘belief’ getting in the way of reason.

For while greenhouse emissions continue to accumulate, temperature has not been rising, so something else must be operating to interfere with the effect of emissions, or the initial proposition that increasing carbon dioxide in the atmosphere must lead to an increase in temperature is inadequate in some way.

For some years now the orthodox have been arguing that the explanation for the pause must lie in aerosols emitted by Chinese and Indian power plants, or that ‘natural variability’ has somehow kicked in. The last explanation runs counter to what I heard several years ago when I became interested in this fascinating subject: all sources of natural variability were known and accounted for, so the increase in temperature could only be due to carbon dioxide emissions. What then if temperatures stop rising?

I like McKitrick’s proposal, and it is useful in debate. But I see no sign of any government’s being likely to put it into practice — yet.

 

 

Join the discussion 8 Comments

  • Peter Lang says:

    See my comments on Ross McKitrick’s C tax and his reply on Bishop Hill (start @: Jul 7, 2013 at 2:49 PM) http://bishophill.squarespace.com/blog/2013/7/5/ross-responds-2.html#comments

    Also see the issues with all carbon pricing schemes here:
    http://tinyurl.com/ld46ld2

  • Peter Lang says:

    My first comment posted on Ross McKitrick’s post on the Bishop Hill web site is reproduced below to save readers having to click 🙂
    [Sorry, for formatting; formatting issues remain when copying and pasting a Word page in this web site]

    Ross McKitrick,

    Compliance cost of carbon pricing?

    Thank you for your responses to the main criticisms, posted
    on Bishop Hill and WUWT, of your paper AN EVIDENCE-BASED APPROACH TO
    PRICING CO2 EMISSIONS
    http://www.rossmckitrick.com/uploads/4/8/0/8/4808045/gwpf-paper-responses.pdf. An issue not yet mentioned is what would be
    the compliance cost of your proposal or, probably, of any carbon
    pricing scheme? This is an issue that
    seems to be largely ignored in the economic analyses to date (e.g, Nordhaus,
    Tol, Garnaut). I doubt the compliance cost
    would be trivial.

    I suspect the compliance cost for any carbon pricing scheme
    will become substantial over time. I
    expect it would increase as more and more, and smaller and smaller, emissions
    sources are required to be included.

    I expect the compliance cost would relate more to the size
    of the emission sources and the complexity of measuring emissions from those
    sources, rather than the quantity of total emissions covered. (For example, it
    is cheaper per tonne to measure emissions from a large power station than from
    a paint factory or a farm (see comment below regarding compliance issues for a
    paint factory). So, the compliance cost
    per tone would increase as the participation rate increases.

    I also expect that, over time, any carbon pricing scheme
    would tend towards requiring more and more participation; i.e. more countries
    included, more emissions sources included, more of the twenty-three Kyoto
    greenhouse gases included and lower threshold for inclusion. Any carbon pricing scheme will tend towards requiring
    every GHG emissions source in every country be included and the emissions
    measurements must be as precise and accurate as they are for trade, including
    international trade, in any other commodity we trade. At the limit, the emissions from every cow,
    sheep and goat in every country (e.g. including Eretria,
    Ethiopia, Mogadishu
    and Somalia)
    will have to be measured and reported.

    The ultimate compliance cost of the ETS
    http://www.onlineopinion.com.au/view.asp?article=13578
    suggests some of the cost items that need to be estimated.

    Contributors
    to compliance cost

    Question: what would be the compliance cost for carbon
    pricing once it is fully implemented and running at the level of financial
    integrity that will be expected?

    For example, what would be the annual cost for a country
    (e.g. Australia)
    for:


    Bureaucracies (e.g. for Australia these bureaucracies
    would have a role: Department of Climate
    Change and Energy Efficiency (DCCEE), Treasury, Australian Taxation Office (ATO),
    Australian Federal Police, state police forces, state bureaucracies, Attorneys’
    General Departments, Federal Department of Resources, Energy and Tourism,
    Bureau of Energy and Resources Economics (BREE), the equivalent state
    departments of energy, resources, agriculture, forestry, environment, Prime
    Minister and Cabinet, State departments of Premier and Cabinet, the law courts,
    High Court, jails, any others I haven’t thought of?


    The businesses that have to report their emissions –
    what is the cost to implement and maintain the monitoring equipment and to
    report? See the EPA monitoring requirements:
    http://www.epa.gov/airmarkets/business/ecmps/docs/ECMPSEMRI2009Q2.pdf
    and http://www.epa.gov/airmarkt/emissions/docs/plain_english_guide_par75_final_rule.pdf


    What is the cost to update and replace equipment,
    reporting systems and legacy data each time the rules change (as they do every
    few years; see history of past changes in US EPA’s monitoring requirements: http://www.epa.gov/airmarkt/emissions/docs/plain_english_guide_par75_final_rule.pdf
    , Section 1.2)?


    Farmers and all the upstream and downstream industries
    (farming will be included eventually)


    Accountants, lawyers, law courts?


    Firms that use the data, analyse it and report? What is the cost for them to have to maintain
    and continually update their systems and legacy data?


    Cost of monitoring the compliance of international
    carbon credit schemes?

    A real world
    example of the compliance cost of carbon pricing:

    Comment by an engineer, Graeme No.3: http://forum.onlineopinion.com.au/thread.asp?article=13578#235297

    I’ve retired from all that estimation but
    was involved when it started in NSW when I worked for a paint Company making
    some resins. The short answer is that we didn’t know what specific fuel types
    or amounts were combusted in our after burner (to reduce all emissions to CO2
    and some nitrogen oxides).

    Firstly, a portion of the resin ingredients were chemically
    changed during reaction, and a mixture of the reactants and the changed
    substances went straight to the oil fired after burner. It was a complex and
    variable mixture, and analysing each reaction would have been a nightmare of
    complexity.

    Also into the afterburner went volatiles from the paint
    production. As there were over 6,000 products and hundreds of volatile
    ingredients it was impossible to calculate emissions.

    The 4 “methods” put forward by the public servants
    ranged from idiotic to bizarre. (No-one in the paint industry could supply the
    answer, but were threatened with fines if they didn’t).

    I moved on, thankfully, and my successor was a practical
    (unscrupulous) fellow who responded by generating a vast spread sheet of over
    600MB. 16 pages of calculations, I’ve forgotten how many pages of information
    on composition, tonnage produced, batch sizes and frequency of manufacture. All
    in 10 point Arial font with no graphics. Factors were assumed and buried in
    obscure corners with no explanations.

    One resin might be spread over 200 products. And with 6000
    rows and 120 columns on a page, try following through that, esp. with
    references from page to page to another page. It looked impressive, but trying
    to check it was nigh on impossible, but the public servants were pleased and
    even recommended that other paint companies consult him! His view was that he
    retired in 5 years and they wouldn’t figure it out in that time.His comment was
    “Brains baffle b*llsh*t”.

    This I add happened more than 5 years
    ago.

    Graeme No.3 posted four other interesting comments on the
    subject and finally this one: http://forum.onlineopinion.com.au/thread.asp?article=13578#235415

    curious how the old memories come back.

    At the time it seemed a clash of cultures; there wanted
    something and couldn’t see why it wasn’t supplied a.s.a.p. The public servants
    weren’t interested in our difficulties, they expected us to drop everything and
    comply with their demands. Almost feudal, like a Baron addressing serfs.

    The original demand came with a deadline, and threatened us
    with fines and/or imprisonment if we didn’t supply the information on time and
    guarantee its accuracy.

    I don’t think that the question of the costs of compliance
    ever crossed the minds of this government or its advisors. For over 50 years
    the amount of paperwork they’ve demanded from industry has grown and grown.
    Each Department assumes their demands are reasonable and not much work
    (forgetting that collecting data takes far more time than filing it) and not
    allowing for other departments demands.

    The howl from industry has been loud and clear for years,
    yet ignored. The burden is becoming too great, and will be resolved by either
    of two methods – that of the Israelites departing Egypt,
    or the French peasants revolting. For companies the first is in vogue.

    That we might have other priorities wasn’t considered, but
    even then the firm was trimming staff. We were down about 40 from 4 years
    before, and had about 170-180 working there.

    I lost contact but I know that there are now less than 50
    there. Drastic cuts have been made because they are struggling to compete with
    overseas competitors, yet they were exporting quite large volumes when I was
    there.

    These comments illustrate some of the real compliance costs
    of carbon pricing. It’s important to
    recognise that once carbon pricing is begun the participation rate will
    increase over time to include smaller and smaller emissions sources. Eventually, when full international carbon
    pricing is in pace, most emissions source in every country will have to be
    measured And they measurements will be
    required to be precise and accurate.

    My Question:
    What will be the compliance cost for carbon pricing one it is
    implemented to the standard that will eventually be required?

  • Don Aitkin says:

    Peter,

    As I understand it, and McKitrick seems to have said the same, the proposed tax would either be an element in company and income taxes, or one on fuel. As temperature changes, at some later point the tax varies.

    Your worry about compliance makes sense with respect to our present carbon tax, but not, I think, to McKitrick’s. Of course, it is still a conceptual tax, and there may be administrative elements in it that would amount to compliance costs. But they are not obvious to me.

    • Peter Kemmis says:

      Don,

      Any legislation based on false science is poor practice, as is any legislation based on simplistic principle and/or poor observation and analysis. McKitrick is thoughtful and competent, but his political solution does come at a tangible price (as Peter Lang points out), and it comes at a cost to honest and objective analysis. I’d sooner kill the lion of ignorance, rather than throw it a different bait.

      • Don Aitkin says:

        McKitrick argues that we cannot be sure either way (and I would agree), even though it seems at the moment that warming has paused no one is in a sound position to say that it will or won’t resume, or when the next change will be.

        So it is a proposal that is based on what we know and what we don’t know, not on ‘false science’.

        • Peter Kemmis says:

          Don,

          Perhaps when I use the term “false science” I am sounding
          like a prosecutor from the Inquisition – “false doctrine” ! Oh dear, how pejorative! I need to distinguish
          between what we observe and can understand today, and that from 20 years ago. “False science” may imply an intent
          to deceive, so I withdraw the term as inadequate. So I substitute “unproven science”.

          Over the last 20 years and more, we have obtained additional and more reliable observations. We have also learned far more about climate behaviour, as well as coming to understand more of the uncertainties. We have seen many of the dire predictions of catastrophic results from global warming, simply fail. The global warming itself has not been within predicted levels, within any of the four IPCC reports (and for convenience, see Figure 1.4 of the “pre-release” version of AR5). We know that those predictions are model-based.

          We now have major challenges emerging about the accuracy of interpretations of carbon dioxide levels in the very old ice cores (see Murry Salby, whose work is supported by Swedish climate scientist Pehr Björnbom); Salby argues that the conservation of carbon dioxide levels in the ice cores is not fully preserved over time (I think because as more overburden is laid over time, there is increasing pressure on old core content). Through
          non-conservation, carbon dioxide levels might be under-estimated by a factor of up to 15. This conclusion, if correct, knocks on the head completely any claim that we’ve never experienced 400 ppm before!

          We also now know that values given for climate sensitivity in the earlier models, have been revised downwards in view of actual temperature observations. Salby argues that the relationship between temperature and carbon dioxide levels is not a direct association, as has been presumed in the climate models, but that CO2 is associated with temperature differentials. I’m no mathematician, but I can imagine the substantial effect this conclusion would have on models.

          These are but two examples of the last several years of the challenges to the orthodox “scientific certainties” that are now arising.

          Given the now higher level of uncertainty (quite apart from any questions of integrity, competence and self-interest), what real grounds do we now have to say there is a problem? If there is no clear problem, why try to fix it? One may say “there could be a problem”. But why should we take a “precautionary measure” (as has been argued elsewhere), where the level of uncertainty is so high? That becomes an actuarial decision, like any insurance risk. On my assessment of the evidence we now have, I would rate it as a very low risk.

  • davids99us says:

    The McKitrick proposal would need to be seen in the context of tax theory. That is, it seems like a benefit tax where the revenue is directly linked to the Government expenditure. Benefit taxes would be preferred by small Government advocates because it limits Government discretion, and I suppose Ross, like me, would be among those. But then, would not a levy, such as the existing flood levy, be more efficient. Simply, link the personal tax levy to the climate damage mitigation, such as infrastructure rebuilding. I would have liked to seen the proposal embedded in a broader context.

    • Don Aitkin says:

      Good points. I guess that Ross McKitrick was concerned not to reduce the taxation income available to governments for their general purposes — hence its revenue-neutrality. But I agree that a levy, like the the one agreed to for disability carers, makes good sense too.

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