As Table 1 shows, pure carbon pricing—without subsidies—is incredibly cheap. The total cost to the U.S. is 23 ¢ per person per day. That's about the cost of a tea bag. Learn EPA's simple formula, and why it's reliable, and if anything a bit high.

The paper shows how to design an agreement so that the key parties, China, India and the U.S. can clearly benefit. (Current U.S. strategy is risky and costly to all parties.) India wins because their costs are so low that a small Green-Fund payment more than covers them.

The reduction in the world price of oil is shown to pay the cost of U.S. and Chinese climate policy. This is calculated from US DOE and International Energy Agency numbers. Reduced OPEC profits will not pay for all future emission reductions, but it will pay for a strong start to climate policy.

The alternative is now wasteful international subsidies (NAMAs). Documentation of the paper is available at the Global Energy Policy Center.

November 17, 2009. A new short book explains what to do now that cap-and-trade has hit a dead end at Copenhagen. Read the abstract and download it at SSRN

Also visit the website of the new Global Energy Policy Center. The trouble with Copenhagen is not a disagreement over the need for strong policy, as environmentalists seem to think. The problem is that the world cannot agree on how too cooperate. The roadblocks are costs and fairness. US Policy is not helping.

September 15, 2009. CDM offsets drive carbon reductions in developing countries. They're cumbersome, often corrupt, expensive, and they discourage real cooperation. The hot new approach is a policy-based sectoral crediting mechanism. It's better but ...See abstract.

August 12, 2009. For 13 years, OPEC's high carbon tax on oil kept U.S. CO2 emissions from increasing. During this period GDP increased more than it did in the previous 13 years. So CO2 effect was due to carbon pricing—not to a recession. See graph.

August 9, 2009  The Waxman Bill explicitly states that it will reduce the emissions from "capped sources" by 83% in 2050. EPA says, by only 29%. Waxman counts foreign offsets, which no one caps. Even counting these, emissions in 2050 will be double what Waxman claims.  See the full graph.

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Electricity markets have had their problems: price spikes, market power, overbuilding, under-investment—all caused by attempts to use spot markets with flawed demand to solve the adequate-capacity problem. Electricity "experts" are fond of saying:

1. "Competitive spot markets induce optimal capacity." (economists)

This is meant as a reply to engineers and regulators who say

2. "Electricity markets need help building optimal (adequate) capacity."

But the word "optimal," in result #1, has nothing to do with "optimal" in concern #2. Result #1 is actually true only under the strict assumption that capacity is more than adequate and provides 100% protection from supply shortfalls. Then, result #1 tells us, the spot market will build capacity not for reliability, but to the point where long- and short-run marginal costs are equal—that is economically efficient (optimal). This confusion has lasted 10 years.

When economists say "optimal" they mean economically optimal assuming there is always a market-clearing price. When engineers say "optimal" they mean the optimal level of involuntary load shedding (1-day-in-ten-years), in other words, the optimal frequency of market breakdowns—times when there is no market clearing price. The economic concept has nothing to do with the engineering concept. There is no economic theory stating that a market can optimize the amount of time during which the market will fail to clear. This idea is pure nonsense.

It's time for some "experts" to take a peak at an undergrad econ text.  Markets can help...

China and India have nixed caps. Without these caps, Kyoto fails. What can be done?

Carbonomics explains "wrecking" the economy, "peak oil," caps, carbon taxes, and Kyoto.