Sunday, January 03, 2010

Danish Pays Trees

A “Danish” is a sweet, flaky, layered pastry with fruit, nuts, jam, cheese, or custard in the middle. It is not of Danish origin, but was brought to Denmark by cooks from Austria during a bakers’ strike in 1850. In Denmark it is called “wienerbrod,” or “Viennese bread.” In Vienna they call it “Golatschen.” The ultimate origin may be the Turkish baklava, which is also sweet and flaky.

The outcome of the Copenhagen Climate Conference of December 2009 is much like a Danish Pastry. It may taste good, but it is not a healthy way to start your day, since it is made with sugar and white flour and fat from milk, eggs, and butter.

Just as a Danish pastry is not really Danish, the Climate Conference will not really reduce climate change. The outcome of the conference can be boiled down to this: the developing countries are extorting $100 billion from the wealthier developed countries to prevent them from chopping down what remains of their rain forests.

Billions of dollars will go to the chiefs of the less developed economies, with little benefit to the people of these economies, while much deforestation will continue anyway. The extreme corruption of these governments will prevent effective measures against climate change. There will just be token forest parks that cannot sustain much wildlife. The conference agreement set a goal of limiting global warming, but has no compliance provisions.

In Brazil, for example, there are many economic interests that are destroying the rain forest. The miners are using chemicals that poison the waters and soil; they accuse the ranchers of using up much more land. The ranchers say that they are feeding people with their cattle, and sometimes they save a few trees, so they aren’t so bad. The native Indians preserve their trees, but they complain that the ranchers are going to be paid to stop chopping down more trees, while Indians, who have not destroyed the forest, will get nothing. To get the payments, the Indians say they too will have to chop down trees. So the scheme may end up destroying more trees than it saves. Moreover, the budget to enforce environmental protection has been minuscule.

Many newspaper editorials have described the outcome of the Copenhagen Climate Conference as a failure, even a disaster. Something was rotten in the conference in Denmark. The rot is the refusal to implement the most effective way to minimize pollution: a “green tax shift.”

A “green tax” is payment made by polluters to compensate society for the damage. The green tax shift is a revenue-neutral implementation of the polluter-pays principle. The tax revenue from the polluters is used to reduce taxes on income, sales, goods, and value added. A complete green tax shift would replace all other taxes with levies on pollution and land value. The land-value tax would complement the pollution tax, as it would promote an efficient use of land. Moreover, a pollution tax is a land tax in levying a fine for dumping pollution into air, water, and soil land.

The burning and chopping down of forests in Brazil, Indonesia, Africa, and other places is contributing more to global air pollution than cars. But the chiefs of developing countries can rightly accuse the chiefs of developed economies of failing to set a good example.

The U.S. government chiefs seek to implement a pollution permit system, in which permits would trade in a global market. A company that is producing goods and holds permits to pollute could make a big profit from shutting down, as it would then be able to sell its permits.

We have just gone through a financial boom and bust, in which derivatives causes colossal losses for financial firms. Now they want to set up a permit trading scheme that will be subject to the same bubbles and crashes. Pollution permits will spark options, futures contracts, and other derivatives which will be a speculator’s delight. Traders will buy up options and futures contracts to drive up the price of permits, making them costly for those who actually want to produce stuff. Permits will be owned by mutual funds as an “investment.” Meanwhile, brokers will get commissions and “investment” bankers will get fat bonuses for their financial creativity.

The green tax shift avoids these gyrations, and simply charges polluters in proportion to the damage. There is no long-term economic cost to a green tax shift, and indeed there is an economic gain, since the reduction in taxes on low-pollution industries reduces the excess burden of taxation. Any country can implement this on its own, but the U.S. administration has rejected environmental taxes, since industry prefers the permits, which become for them a profitable asset that can be manipulated to reduce competition from new firms.

The same failure doomed the earlier Tokyo Protocol, which failed to apply equal environmental rules to developing countries. Environmentalists should also accept responsibility, because they have not sufficiently focused on pollution charges. The green tax shift will resonate with the public. They will see the triple-win benefit from the green tax shift: a more productive economy, more liberty, and less pollution.

The Justice Party of Denmark had some success in shifting the country’s public revenues to land value. Denmark also has a carbon tax, which has reduced per-capita emissions by reducing the use of coal. A more complete green tax shift in Denmark would set a great example and would make “Danish” a term for saving the planet in addition to the flaky pastry.


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