Great topic, thanks! First of all, definition, for people who don’t know: “A monopoly is a market with one seller, while a MONOPSONY is a market with one buyer.”
This article conflates carbon offsets with carbon pricing. They are each a separate fallacy. The carbon offsets and carbon-trading schemes are like dumping paper money into a washing machine - it just goes around and around with no meaningful outcome. Carbon pricing initiates a flow of money to government, you know, those guys that keep subsidizing fossil fuels. This artificial distortion of cost of goods is supposed to encourage the transition to other forms of energy, essentially confiscating part of the finance needed for said transition. This is the stick applied to the consumers, where instead a carrot could be used by transferring fossil-fuel subsidies to alternative energy suppliers. Actually, there should be a tax on ALL energy consumption, it must be wound down not continuously increased. In some countries, carbon-pricing funds are (supposedly) refunded to the citizens which is a short-circuit, nothing has been accomplished and the funds should have gone to the UN fund for mitigation, adaptation and reparation. A better alternative to carbon pricing is oxygen pricing, which would directly fund peoples with intact forests without the complexities of trading mechanisms. https://kathleenmccroskey.substack.com/p/can-oxygen-pricing-help-save-the
Why is it a problem that obligated emitters under the EU ETS pass the costs on to consumers? That is surly the point. Full carbon price internalisation raises the marginal cost of production, puts upward pressure on prices, and thereby creates efficient emission mitigation incentives along the value chain. Pigou defined the socially optimal situation as suppliers passing on 100% of the cost of the carbon price onto their consumers. Indeed, there is strong evidence that fuel taxes have high levels of cost-pass-through, approaching 100%.
Thanks for this, Peter. The myth that this post is addressing is that putting a price on carbon "makes polluters pay". If the polluters pass the costs on to consumers, then the consumers are paying and not the polluters.
Of course, Big Oil loves the idea of passing on costs to consumers - it's similar in a way to the whole idea of carbon footprints (which, as you know, were dreamed up by the PR firm Ogilvy & Mather, working for BP).
I agree with you there, at least in the short term. But of course when polluters pass the costs onto consumers the impact it has is to change the relative price of carbon intensive products vs low carbon intensive ones. In the short term demand is price inelastic and consumers have little say, but in the long run it incentivises a switch to lower carbon alternatives OR to a producer who can supply at a lower carbon intensity.
Or we get more yellow vest protests, as we saw in France a few years ago. Economic theories don't operate in a political vacuum. Many people rely on their cars to get to work. An increase in petrol costs means they take home less money. Buying an EV on a low or medium salary is not an option. Public transport is often inadequate or expensive.
Meanwhile the billionaires (who often avoid paying tax) can pay the increase in the price of fuel for their private jets without even noticing.
It so aligns with what I wrote following my own readings.. The whole Carbon Market is just a capitalist facade to continue their dominance. https://open.substack.com/chat/posts/09a755e1-f3f9-4dbd-b68b-9991397f2a60?utm_source=share
Great topic, thanks! First of all, definition, for people who don’t know: “A monopoly is a market with one seller, while a MONOPSONY is a market with one buyer.”
This article conflates carbon offsets with carbon pricing. They are each a separate fallacy. The carbon offsets and carbon-trading schemes are like dumping paper money into a washing machine - it just goes around and around with no meaningful outcome. Carbon pricing initiates a flow of money to government, you know, those guys that keep subsidizing fossil fuels. This artificial distortion of cost of goods is supposed to encourage the transition to other forms of energy, essentially confiscating part of the finance needed for said transition. This is the stick applied to the consumers, where instead a carrot could be used by transferring fossil-fuel subsidies to alternative energy suppliers. Actually, there should be a tax on ALL energy consumption, it must be wound down not continuously increased. In some countries, carbon-pricing funds are (supposedly) refunded to the citizens which is a short-circuit, nothing has been accomplished and the funds should have gone to the UN fund for mitigation, adaptation and reparation. A better alternative to carbon pricing is oxygen pricing, which would directly fund peoples with intact forests without the complexities of trading mechanisms. https://kathleenmccroskey.substack.com/p/can-oxygen-pricing-help-save-the
You're right. There are two main types of carbon pricing: carbon tax and emissions trading systems (https://www.visualcapitalist.com/sp/visualized-the-price-of-carbon-around-the-world-in-2024/). It's true, this post focuses on emissions trading systems - including carbon offsets. I should probably do another post on carbon tax.
Meanwhile, this is a pretty good overview from DW: https://www.youtube.com/watch?v=e0LWiDdvFEk
Why is it a problem that obligated emitters under the EU ETS pass the costs on to consumers? That is surly the point. Full carbon price internalisation raises the marginal cost of production, puts upward pressure on prices, and thereby creates efficient emission mitigation incentives along the value chain. Pigou defined the socially optimal situation as suppliers passing on 100% of the cost of the carbon price onto their consumers. Indeed, there is strong evidence that fuel taxes have high levels of cost-pass-through, approaching 100%.
Thanks for this, Peter. The myth that this post is addressing is that putting a price on carbon "makes polluters pay". If the polluters pass the costs on to consumers, then the consumers are paying and not the polluters.
Of course, Big Oil loves the idea of passing on costs to consumers - it's similar in a way to the whole idea of carbon footprints (which, as you know, were dreamed up by the PR firm Ogilvy & Mather, working for BP).
I agree with you there, at least in the short term. But of course when polluters pass the costs onto consumers the impact it has is to change the relative price of carbon intensive products vs low carbon intensive ones. In the short term demand is price inelastic and consumers have little say, but in the long run it incentivises a switch to lower carbon alternatives OR to a producer who can supply at a lower carbon intensity.
Or we get more yellow vest protests, as we saw in France a few years ago. Economic theories don't operate in a political vacuum. Many people rely on their cars to get to work. An increase in petrol costs means they take home less money. Buying an EV on a low or medium salary is not an option. Public transport is often inadequate or expensive.
Meanwhile the billionaires (who often avoid paying tax) can pay the increase in the price of fuel for their private jets without even noticing.