An equal right to pollute?

Happy New Year! I'll kick off 2010 with an interesting idea from Bono, via Owen Barder:

An Equal Right to Pollute (and the Polluter-Pays Principle)
One smart suggestion I’ve heard, sort of a riff on cap-and-trade, is that each person has an equal right to pollute and that there might somehow be a way to monetize this. By this accounting, your average Ethiopian can sell her underpolluting ways (people in Ethiopia emit about 0.1 ton of carbon a year) to the average American (about 20 tons a year) and use the proceeds to deal with the effects of climate change (like drought), educate her kids and send them to university. (Trust in capitalism — we’ll find a way.) As a mild green, I like the idea, though it’s controversial in militant, khaki-green quarters. And yes, real economists would prefer to tax carbon at the source, but so far the political will is not there. If it were me, I’d close the deal before the rising nations want it backdated.

This sounds attractive, but it shares problems with the "carbon intensity" pledges that China has offered. For overall emissions to be reduced (or even levelled), the "average" right to pollute would be quite low (I'm guesstimating 1-4 tons a year based on relative rich/poor populations in the world), so it requires Americans and other rich-world citizens to pay for virtually all of their pollution... except unlike cap-and-trade, where the money goes to their governments (and much of it ends up rebated), all of that money goes to poor countries. Once that math is laid out... how exactly is this more sellable than what failed to be agreed upon in Copenhagen?

Better messaging

Proponents of the Senate climate bill are leading with the message that most of the proceeds go to reduce the burden on consumers:

Senate Democrats will initially devote 70 percent of the pollution allowances in their new climate measure to making it easier for people to pay their energy bills, Senate Environment and Public Works Chairman Barbara Boxer said in an interview to be aired Sunday on C-SPAN.

This is also the case in Waxman-Markey, but was not clearly marketed as such; this time around the spinmeisters seem to have corrected that particular mistake.

Feature or bug?

Greg Mankiw says that Waxman-Markey’s customer rebates are a bug, not a feature as Paul Krugman claims. But this is easily remedied with a lump-sum rebate, rather than lower prices (a nice trick which has interesting potential elsewhere in the realm of energy efficiency, and also bears some similarity to cap-and-dividend).

Felix Salmon gets it, noting that a flat refundable tax credit avoids the problem. He adds that it's hard to avoid generating any unequal results:

Even that, however, would create inequities: three college roommates sharing a small city apartment would get three times the amount going to a single mother trying to raise three kids in the countryside — someone whose energy consumption would naturally be much higher.

There isn’t a simple and fair way of doing things — even channeling fixed payments through the energy companies themselves would unfairly advantage people who use say electricity and natural gas and heating oil. Instead, I fear that the fair method is going to be complicated, based on ZIP codes and size of household at the very least.

Yes, it's hard to get it perfect, but Mankiw's original argument is easily refuted.

Implausible fantasy of the day

Ban Carbon Emissions, Don’t Price Them.

However, I do think cap-and-dividend has some merits... many of which are shared, incidentally, by the Waxman-Markey bill, which behaves more like cap-and-dividend than most people give it credit for (~80% of revenues are effectively rebated to consumers). The only major difference is how the dividends are allocated, a subject on which reasonable people could disagree (for example, "it's progressive" doesn't play as well with libertarians).

Note: I liked an analogous idea as a politically feasible gas tax that was proposed a few months ago.