We ran across this interesting slide deck by Ross McKitrick of the University of Guelph presented to the Harvard Electricity Policy Group earlier this month. Mr. McKitrick states in his blog post here that the content of the slide deck was primarily derived from his paper on carbon pricing which can be found here.
The summary at the beginning of the slide deck states:
- “Second-best” analysis shows carbon tax unlikely to improve welfare
- Empirical evidence on model parameters & realistic implementation issues undermine case even more
- We should re-think carbon pricing along the lines of monetary policy
While we agree with points #1 and #2 above. #3 is a slippery slope considering global monetary policy at the moment, i.e.: negative yields in many countries (Switzerland, Japan, etc), eventual elimination of cash in others (Sweden, India, etc.), and still other countries fighting post WW1 German style inflation (Venezuela, etc.). The leaders of the world's monetary policy clearly have enough issues on their hands without the needs to consider Co2!
Mr. McKitrick states his "Ideal Alternative" at the end of the deck:
Temperature-indexed carbon tax
- Simple linear function of satellite-derived atmospheric temperature measure
- If warming happens, tax will go up, and vice versa
Futures market for tax exemption certificates
- Sequence of prices would reveal market expectation of warming
So if we understand this correctly we would have a system based on actual satellite temperature in real time, a futures market (i.e.: corporate casino) where entities can bet on the temperature variation and get tax credits in exchange for winning!
Sounds like a great idea, will we be able to leverage 100:1?