Monday, June 12, 2006

Sky Trust

I like the Sky Trust idea. I think it is a good example of people trying to come up with new and innovative ways to solve a real problem. However, it also has some serious issues which will cause it to fail. Detractors of both the Georgist and environmental movements will use this as proof as to why our methods are wrong. The idea has been getting some traction lately because of Gore’s movie I suspect so now is the perfect time to refine this approach.

Most current Skytrust initiatives rightly revolve around the idea that the sky, the air above our heads that we breathe in and out every day is commonly owned. The sky is another classic Tragedy of the Commons problem. My benefit for adding one more unit of pollution to the sky is always greater then the cost because the burden is shared with everyone in society and so I will choose to pollute, as a rational consumer. The way to get around the Tragedy is to assign ownership. The Skytrust does this, just not very nicely.

Firstly, as the good people at point out, mixing the Skytrust with government funds would allow the government to use this as a new source of revenue for who knows what, maybe a new rent seeking war. They propose a “trust” but this is terribly optimistic. Any sort of revenue collection, for the government to sign of on it, they are going to want to be involved. It might be great for everyone, but if it’s not great for the people who actually vote on such things, the likelihood of its passing is not so high. We see good legislation go the way of burn barrel every year.

Second, the price caps. Simply declaring each unit of carbon to be worth x number of dollars (or a fraction of dollars) is not a very good system. Imagine if tax assessors assessed all land in a city or large neighborhood as one particular value? Oh wait… These prices need to be able to fluxuate so those who value pollution a lot or a little can take advantage of the price system. Not all firms or people value pollution in the exact same way.

Third, is tradability. If we are going to talk about property, which is a bundle of rights, we need to talk about tradability of those rights. Under the current scheme, no one can trade for anything. This is closely linked to the above, because not everyone values one piece of the sky the same as the next person.

Lastly, and maybe I’m missing it, but it seems to me this proposal only covers part of all carbon emissions and not all of them. As I talked about yesterday, it doesn’t matter if you pollute a lot or little or you own a little land or a lot you still need to pay for that privilege of doing so. This includes not only that 100 year old coal fired power plant, but also that sleek new hybrid car. Obviously a line will need to be drawn somewhere. We don’t the government CTEP (carbon tax emission police ™) coming to your house in black pajamas looking for your weedwackers. Where that line is? I have no idea. I am sure there is some “efficient” solution and frankly, the important thing is that we are aware that this line exists and where it is rather then hammering it out right now.

My proposal to amend the Skytrust is actually fairly simple. Instead of getting a dividend each year, each citizen will get skycredits which are little units of pollutable sky. Right now we dump around 7000M tons of carbon into the sky each year. We want to reduce carbon by ten percent? No problem, issue 6.300M skycredits. Look ma, a scarce resource! Now demanders of skycredits (those who wish to pollute) will pay suppliers of skycredits for the right to pollute the sky. According to some rough calculations I did, each person will have 50400 pounds of credits, or 25.2 tons after that 10% deduction.

People will consume some of their own credits in their vehicles. My Pontiac Grand Am spews forth about 7.8 tons of carbon each year. Heating your home with heating oil would consume some more also, as would a fireplace, gas stove, etc.

For vehicles, we already have car registrations and annual inspections. Car registrations would only need to handle how much carbon your vehicle emits each mile and inspectors would only need to add how many miles you traveled in one year. I would imagine people could change their registration amount by adding carbon saving technology to their car as the technology becomes available. Other formulas could be worked out for other things, many already exist.

I would expect some kind of trading market to take shape, which will trade these credits and some equilibrium price will develop which all credits will trade for, like in any other commodity market.

Who has a “right” to these credits? Every man woman and child in the United States, not corporations, businesses or government agencies would have a right to these credits with one exception. In order for the program to pay for itself, and to facilitate a free market exchange program, the government should withhold some small percentage of credits, whatever the operating costs are, and auction them off in a yearly or quarterly auction. Markets sometimes need a “kick” to get them started like an inertia sort of thing. I would expect the amount of credits withheld to be a very small portion, like .5% or maybe even less.

Lots of details still need to get hammered out, but I think this a good starting point.