Ross Douthat’s case against cap-and-trade

I prefer to call it a carbon tax, while admitting the two are sometimes equivalent.  Here is Ross's key passage:

Spending 1 percent of our G.D.P. as a hedge against catastrophe might make sense; spending the same amount without any prospect of actually getting that insurance policy seems like idealistic folly. And so far, when it comes to actual mechanisms whereby Waxman-Markey becomes a model for the developing world, all I’ve heard from the left are neoconservative-style arguments about how “if the world’s leading power leads, everyone else will follow,” and visions of a carbon trade war between the West and China. Neither seems persuasive.

That's a strong argument, but the case for a carbon tax remains threefold:

1. Even if we cut government spending a lot, some taxes will have to go up.  This seems like the least bad tax to raise or create, since it has some chance of producing a better outcome.  It's hard to say that about most of the other potential tax boosts.  I'd also cut the tax deduction for mortgage interest, of course.  That too could improve the quality of outcomes.

2. Given that American policies are contributing to a (probabilistic) climate-based "attack" on Bangladesh and numerous other countries, there is a deontological case for trying to stop that attack.  It is a libertarian rights violation issue, driven by all of us in our role as consumers.   

It is a practical response — but to me a morally weak one — to argue "We Americans are the wealthiest country in the world but we're not competent enough to stop our contribution to the problem, so we're not going to try."  I get the logic, and I even agree with the predictive pessimism, but I'm not comfortable staying put with that as my final position.

3. A carbon tax might lead to a new green technology, with high upfront costs and low marginal costs.  Some of the rest of the world might then adopt the technology, even if those countries don't ever adopt a carbon tax.  In the short run this seems a little pie-in-the-sky, but in the longer run is it so crazy?  Haven't the Chinese adopted most of our other technological innovations?

That all said, I still don't like Waxman-Markey and in that regard I agree with Ross.  The bill seems to bureaucratize the energy sector, forgo most of the revenue opportunities, produce massive time consistency problems (postpone real adjustment and then give out more permits over time), and all without getting public buy-in to the idea of higher carbon prices. 

I'll also stress — again — that a carbon tax needs to be combined with the strong deregulation of the energy sector, and the weakening of NIMBY, in particular for wind power.

p.s. I hear less often these days about the "global cooling trend."

Comments

"p.s. I hear less often these days about the "global cooling trend.""

I honestly, until recently, did not realize you were so fickle and swayed by changes over narrow timeframes.

Yes yes yes!

p.s. I hear less often these days about the "global cooling trend."

You are not reading enough. With the lower solar activity and the PDO and AMO going into their negative phases we will be seeing the cooling trend continue.

It may also make sense to read some more about the meaning of average temperature. While 1998 was the hottest year since 1934 the value came from an earlier spring and later fall thanks to the positive ENSO conditions. For a hot year 1998 had few record highs because in absolute terms it was not very hot. If you think about it, rather than act out of emotion, such record high years are welcome because they produce longer growing seasons and milder temperatures. By reducing the seasonal differences such years are very beneficial to humanity.

Of course, the fact that you have not been hearing much about cooling tells us something else. Your reading most likely concentrates on Europe, North America and the northern hemisphere. Had you paid attention you would have noticed a very cold winter in the SH that has killed many people and destroyed some crop production. You also would have noticed that Antarctic ice cover is two standard deviations higher than the mean.

If you read carefully you would find that the AGW movement is losing credibility because it does not have good science behind it. The IPCC has been disgraced and the statistical methods used to produce most of the warming literature have been shown to be improperly applied to cherry picked data that has not been used properly. I notice that the dendro people no longer talk about Polar Ural proxies, fully updating the Yamal data series, etc.

As usual, this issue is primarily about politics, power, and money. The far greater danger to human society and the biosphere comes form cooling trends and destroying real economies on the basis of ideology is not a good idea.

You talk about a carbon tax, but carbon credits aren't a carbon tax. They are a huge lobbyist giveaway to vested interest an Wall Street.

As such they must be opposed. Using climate change fear to push it through because we must "do something" is the same attitude taken when people questioned the "right of every American to own their home" during the housing bubble.

Ok, so I am not an economist, but....

How does replacing one energy source with another less efficient, more costly energy source increase our wealth?

In the past 150 years, all major technological changes have added a capability that did not exist before (electricity, antibiotics, internet) or replaced an existing capability with a much improved capability (props->jets, analog->digital)

Not so green energy. When such a conversion is complete, we would have a much more bizarre infrastructure that, hopefully, delivered power out of the plug in your house when you turned on your lamp.

Lets imagine similar projects.

We decide that its been horrible idea to use wood in building our houses so we rip down all our houses and rebuild them using steel.

We decide that all the Intel and ARM processors in computers are "bad" and mandate that they all be replaced with ExCPU (a processor designed by Experts!). So we replaced all the hardware and rewrite all our software and...

We decide that asphalt is a bad paving material (its poisoning our children!) and mandate that all roads be converted to concrete.

All of the projects could be done, but at the end we would have spent immense amounts of resources and ended up back were we started.

Green energy is like these projects. Economists should be honest about it.

One huge disappointment in all of these discussions is that I remember a time when we imagined a future where power was too cheap to meter, where having cheap power would mean that we could use electricity in ways that are cost-prohibitive today (ex: desalinization) and bring the benefits of electricity to the world. Today we seem stuck in a hair-shirt mentality that insists that power should always be increasingly expensive.

NormD is forgetting about all the asbestos that we had to (very carefully) rip out and replace once it was found to be toxic. Or the lead in petrol.

A short story of a carbon tax. In 2008 the British Columbia government introduced a carbon tax. The first increment was 2.4c per litre of gasoline. The tax was applied July 1 2008. To offset the cost, every adult received $100.

This was when fuel was very high in 2008. The decrease in vehicle traffic was noticeable before the tax introduction. We were paying around $1.20 per litre.

Everyone got a $100 check in the last week of June 2008. The gas stations had record weekend sales as people used the money to fill their gas tanks.

The tax is too small to affect purchasing decisions. The rebate and timing arguably increased fuel consumption.

Has any cap and trade system actually decreased carbon emissions? Or is that the wrong question to ask?

Derek

As per your first reason, it's difficult to trust this government with any more of my money. I'll believe the government will cut spending when I actually see it. Show me that money. Then we can talk about taxes.

As readers of my textbook or my Cato Journal article (http://www.cato.org/pubs/journal/cj26n3/cj26n3-3.pdf)will know, I have in the past had good things to say about the cap-and-trade concept. The Waxman-Markey episode has changed my mind. I used to think the strong point of cap-and-trade, compared with a straight tax, was the ability to give out some of the credits for free to build a coalition to secure passage of a strong and effective control system. In W-M this logic did not work. First, not just some but virtually all of the credits were given away free. (Remember, Obama's campaign plank on cap-and-trade advocated auctioning all of them.) Second, some of the distributed credits were used in a bizarre attempt to protect consumers against any rise in energy prices. I thought a price increase was the whole point of the exercise! Third, even all of these concessions failed to build the needed coalition. In short, the political argument in favor of cap-and-trade all fell to the ground. It is no longer possible to argue that a straight carbon tax would be better in economic terms, but that cap-and-trade is more feasible politically. Better for those of us who continue to be concerned about climate change to regroup and focus on a pure carbon tax. Conditions are not favorable now, but as budget problems continue to accumulate and as the climate science community recovers from its self-inflicted setback, there will be another chance.

Bill,

You left out one thing we need to charge the true cost for using- public transportation. I am sure this was just an oversight on your part.

I do agree with you about removing subsidies first.

"Has any cap and trade system actually decreased carbon emissions?"

Seems to have done okay with S02 emissions

Why would you prefer to call it a "carbon tax" when it's not? Part, anyway, of the argument over cap and trade in this context is it's relative inefficiency compared with a carbon tax. Cap and trade regarding carbon dioxide seems to me to be insane when such a large part of carbon dioxide omitted comes from cars. In this case I would think that it's better to tax the input (and rebate the tax money to the US taxpayers).

The arguments for an abortion tax are threefold:

1 -- Some taxes have to go up. This one seems like it has a chance to produce a good outcome.

2 -- As the wealthiest country in the world, our children have the greatest chance to grow up to be doctors or engineers or other people who can help out third-world countries. The abortion of our children is contributing to a (probabilistic) attack on the well-being of Bangladesh. There is a deontological case for trying to stop that attack.

3 -- An abortion tax MIGHT lead to greater support networks for mothers and their children, as well as for communities as a whole. Who knows, other nations might even follow suit. This could be pie-in-the-sky in the short term, but long-term, is it so crazy?

[Your homework: try to find ANY tax that can not be supported by the three kinds of arguments Tyler just made.]

Interesting that no one did mention nuclear power yet.

I'd start with the abortion tax, Jim.

Particularly (2). There's a world of difference between actively depriving other people of their existing property and some incoherent claim that Bengalis have a claim on the production of Americans 30 years in the future.

Also, there's no evidence that the marginal aborted child is equivalent to the marginal added doctor 28 years into the future. There is, however, plenty of evidence that increases the price on something, ceteris paribus, reduces the consumption of that item.

Carbon taxes are about incorporating the large externalities of CO2 production into property rights, so that markets can properly function and spontaneously generate the optimal solution. That's the core case for them, and any other tax that actually fits that argument is likely a good tax. Similar property regimes have proven exceptionally successful (see sulfur emissions), and there's no reason to think this one would be any worse.

P.S. Some people have suggested buying a new house for the Bengali instead of stopping what amounts to shitting in his backyard, because it's too expensive for us to build a toilet (in fairness the argument here is that the toilet costs more than the house). That's stupid--what you're suggesting is that courts (when Bangladesh places a multi trillion dollar lawsuit) are a better way of organizing our economy than property rights. If you can't see the obvious reasons political economy won't allow that, then you're not worth arguing with.

Do we just get to shove them around so we don't have to pay more for gasoline?

No, we -- "we" being the world -- simply offer them the option. Some people have suggested it's a good idea to cripple the world economy because CO2 is shit or something. Now that IS stupid, and certainly not worth arguing with.

For everyone else, there's the simple point that the uncertainties surrounding the proposed tax, cap and trade, or other global attempt at economic/climate engineering are simply too great at present. Those uncertainties, apart from the lingering ones over the reality of AGW in the first place, involve whether such engineering is feasible globally; whether, even if it were feasible and done, it would actually make a dent in the climate; whether, even if it could make a significant impact, the costs of doing so would outweigh the benefits; and finally, as I'd earlier indicated -- and the greatest uncertainty of all -- whether even present carbon capture and sequestration technologies would not be a far cheaper and better solution than complex, politically shaky experiments with national and global economies that have dubious outcomes at best.

Of course, as I implied, no rational argument is going to have any impact on the types who believe their every exhalation is excrement, but that's why we have therapists.

It should also be said that, regardless of what we do, a massive re-engineering of the climate is happening. The only question is whether we want that re-engineering based on markets and property or based on a feudal fief to pump whatever you want into the atmosphere without taking into account the rights of others.

@Yancy, Yes. I suspect that if we remove all the subsidies for auto, we are looking at very expensive auto costs. Not just roads, but publicly financed parking lots. And, while we're at it, let's not forget the airport. We put the thumb on the scale subsidizing carbon--its producers, its users, and we do not, even with removal of subsidies, address externalities. Add externalities to the costs as well, and public transportation sounds like mitigation.

Bill,

Ok, I missed the period after your "Yes", but I really don't understand your last part about "mitigation". Is this an attempt to bring the subsidies back for public transportation?

What is magnitude of the externality of automobiles? I have a problem with just assuming a magnitude and just assuming, as most do, that there is no positive externalities whatsoever. Also, if you do manage to price the net negative externality in this case, the funds will largely accrue back to car owners and their dependents anyway since they are a majority in the US. In other words, I think you are vastly overestimating the net additional costs on auto/truck drivers. If I read your penultimate comment correctly, you seem to be arguing for a subsidy for public transport as a mitigation strategy. A mitigation for what?

Bill,

You don't seem to know much about transportation subsidies. Mass transit is subsidized more than seventy cents on the dollar in direct subsidies alone. Road subsidies, in contrast, are just a small fraction of the total costs of driving. If we were to eliminate transportation subsidies, the cost of driving would increase modestly, but the cost of using public transportation would increase enormously. Bus and train rares would need to be tripled or quadrupled to compensate for the lost subsidies.

We are focused on outcomes, not process.

If that were true, you'd expect at least some attention to carbon capture, wouldn't you? You might expect some attention to the possibility of positive outcomes of AGW offsetting negative ones. You might expect some attention to adaptation over the generations involved in the assumed warming period. But we don't see any of that -- instead, we just get an obsession with "tougher CAFE standards", etc., etc. in one country. Somehow, I don't think this is really that pragmatic focus on outcomes it claims to be.

@Miller, Re costs of mass transit, costs, and externalities. Here is some research which contradicts your statement from the National Research Council: http://onlinepubs.trb.org/onlinepubs/tcrp/tcrp_rpt_49.pdf. There is a difference between rural and urban effects, however, so if you are from a rural state your opinion may be different because of benefit distribution.

@Miller, In dealing with the issue of mass transit subsidies, you also have to separate out deliberate wealth transfer decisions (some of which I oppose, but others which you or I might favor) from subsidies to overcome the externalities of auto transport (congestion, air pollution, highway expansion, road repair, etc.). As to the former, I would not subsidize, for example, east coast intercity rail transportation or urban/suburban transportation to wealthy suburbs. There is an argument for subsidy for inner city residents without cars to jobs, and you might oppose, but I might favor (weakly, however, since employers might have to raise wages to attract workers if transport subsidies restrict the supply of inner city workers). As to subsidies to overcome externalities of autos, we sort of have an interaction problem, don't we: if we subsidize mass transport to reduce congestion, we build less highways or have less highway expansion. Maybe you have done the trade offs; I haven't, but don't assume a subsidy for one product is not in reality a subsidy for another.

@Miller See comment above re wealth transfer issue and National Research Council report.

Didn't Reagan use cap and trade methodology to get lead out of gasoline?

No, that was an ultimatum in agreement with automakers on gas stations put in place by Nixon with the planned introduction of catalytic converters. Gasoline also needed to be desulferized for them as well.

What you are thinking of is the acid rain emissions controls for power plants. A modification of the Clean Air Act in 1990 specified c&t phased in beginning in 1995. March 10, 2005, EPA issued the Clean Air Interstate Rule (CAIR), but SCOTUS has ruled it in violation of the Clean Air Act, ruling on a case filed by States against the EPA that c&t doesn't limit the pollution into a State sufficient for the State to comply with the Clean Air Act.

One might argue this (CAIR) is just the global green house gas c&t problem in miniature.

"That's a strong argument, but the case for a carbon tax remains threefold"

There is no case for a carbon tax. Not unless you've suddenly found out that LOWER CO2 levels will mean MORE agricultural growth and therefore LESS starvation. In defiance of all scientific evidence which conclusively demonstrates the opposite.

Since when has it been okay to tax a "positive externality"?
Get a grip and try at least to be more careful with your wording. I just got a message on my blog saying.....

"The free market economists at Marginal Revolution have come out for a carbon tax. Isn’t it time to revise your opinion?†

..... Naturally this has put me in a very nasty mood. Because it is bad enough when these leftists start selling us out. When its out side of the street it reminds you of why treason always used to lead to harsher penalties, by and large, then any other crime.

Bird, leave these poor folk alone!

Bill,

As I suspected all along, you are not really against subsidies, just some subsidies.

But cap and trade was an attempt to deal with political realities (which have now collapsed).

The cap and trade legislation was a perfect example of the Bootleggers and Baptists political model. What we had was a marriage of the environmental movement and business interests in which both were hoping to pass legislation that would benefit both sides by harming the consumer.

If the legislation were passed the Chicago Climate Exchange, Kleiner-Perkins, Generation Investment Management hedge fund, Goldman Sachs, GE, Franklin Raines, Al Gore, WWF, etc., would clean up. Utilities would get their emissions credits, and subsidies for 'green energy' projects. The green energy companies would get guarantees that would allow them to stay in business even though their products are not competitive with other sources of energy that consumers prefer. Consumers would be forced to buy more expensive energy, do energy audits for their homes, purchase more expensive cars and appliances, etc. Sadly, the temperature trends will not change and we would still go through the solar and PDO/AMO driven cycles that have been responsible for what we have observed so far.

@Yancey, You still haven't explained why you want me to subsidize the creation of negative externalities. Or, why you oppose mitigation.

The Subsidyscope study you cite is deeply misleading. First, it ignores the fact that a substantial share of the gas taxes paid by drivers are diverted to mass transit and other nonhighway purposes instead of being used to build and maintain roads. This is a huge subsidy of mass transit users by drivers. But more importantly, the cost of building and maintaining roads is just a small fraction of the total cost of driving. Most of the costs of driving consist of the costs of acquiring and operating motor vehicles - buying or leasing a car, buying gas, insurance, maintenance, etc. And those costs are directly paid by drivers themselves. To the extent that drivers are subsidized at all, those subsidies amount to something like 1 cent per vehicle-mile, which is about 2% of the total cost of driving. Mass transit users, in contrast, are subsidized more than 70% of their total costs. It's not even close. Mass transit users are making out like bandits.

@Miller, Had to leave to go outside with my wife so I could not fully respond, but here goes.
1. Pew Foundation, sponsor of Subsidyscope, hardly qualifies as a misleading source.
2. Claim that "a substantial share of gas taxes being diverted to mass transit" is untrue. About 2cents of 18c fed tax is sent to mass transit.
3. Treating payments to mass transit can be viewed as a subsidy to automobiles, or a subsidy to mass transit: think of it this way, if people take mass transit, there is less highway congestion. Transportation is a network product.
4. I agree there are subsidies to mass transit I do not support, Amtrack being one of them.
5. Your subsidy figure of 70% for mass transit--where do you get that--Subsidyscope and Wiki at Public Transportation have much lower numbers, and some of the sources say it balances out....follow the Wiki Sources, including National Council Study referred to earlier.
6. As I mentioned earlier, some of the mass transit subsidy is wealth transfer to inner city residents--I suppose you could give them a car to get to work, but maybe a bus is cheaper--and if they have no transit, or work in just the neighborhood, income will be lower or out of center city employers will have to pay more...and you as the taxpayer will ultimately pay more. But, hey, its your choice of society.

Finally, you do not seem to have any factual citations to what you are saying whereas the materials I have provided you can read but choose to dispute as being biased.

"Second, let's charge for the true costs of highways and streets and other car infrastructure in our gasoline taxes.... "

Putting aside the bait and switch nature, of so many proposals made by modern alleged-Pigouvians, we would need to look at how things pan out from a technical economic point of view. To do this we must differentiate from the original Pigouvian economic proposal and the modern alleged-Pigouvian mindset.

We will call this modern mindset The "Sado-Pigouvian Mindset." Or Sado-Pigthinking. We might call a less lunatic approach, "Technical-Pigouvian" or variants of this phraseology, not likely to be misunderstood.

Now the above proposal is not the most offensive outright. Nor is it the most offensive from the Tech-Pig-perspective. But its still gravely wrong, and unnecessarily so, and the proposal screams out "bait and switch." It could not be more obvious that the tech-pig-valid approach (in this regard) is to advocate a CONGESTION-tax. And no other major tax. Once you start deviating from what you've learnt and what you understand, its either a race to the bottom, or its the actual full-blown madness, of the advocacy of taxing a POSTIVE-EXTERNALITY.

Now at least the higher gasoline tax proposal is only one step removed from tech-pig-correctness. But where does this utter madness of the "carbon tax" fit in?

"Second, let's charge for the true costs of highways and streets and other car infrastructure in our gasoline taxes...."

Why does this not have CONGESTION-TAX written all over it? Being as we already have gasoline tax, the obvious approach is to replace all or most of it with congestion tax. Even the mean-spirited amongst us, who lack human feeling, and who are after a higher tax take, would have to agree that the problem implies only the addition of a congestion tax, to the already existing gasoline tax.

Its not up to economists to try and nuance policy. Thats getting above your station and you only make fools of yourselves when you try it on.

Stop trying to anticipate the politics of matters. You are economists. Tell people what you think you know. They are relying on you to be economists. They deserve better from tax-eaters than this idiocy of advocating the taxing of a positive-externality.

This anti-CO2-scam is merely showing up who is the weak-minded amongst us. The feeble minded who can be TURNED by a lot of leftist nagging and nashing of teeth.

I love Metamorf's argument: "Cap and Trade or a carbon tax are too complicated. Instead, let's find everyone negatively effected by GW and calculate how much compensation they are owed."
Presumably, this can be partially financed by finding those who are positively effected and taxing them.

Well you see how pernicious an idea this business of externalities is!! Clearly its a dangerous idea, since we've seen people so irresponsible in the application. No matter how sensible the Pigouvian idea seems, it does no good, if its going to awaken a bloodlust to vandalize the biosphere (and the economy) in support of a brazen racket, like the anti-CO2 campaign.

One potential guide for the Americans, (when it comes to Pigou) is the equal protection clause. If you followed that clause, and interpreted the-clause to mean; that alleged negative externalities had to be taxed on the local or state level, (or the tax be declared unconstitutional), then a lot of this madness would be impossible. Then some sort of nuance might prevail over the lust to tax other people.

Thereafter perhaps, the concept of taxing externalities might be applied and discussed, in a level-headed way.

Congestion tax is user-pays anyway. It can be justified on non-Pigouvian grounds. Likewise higher royalties can be justified on non-Pigouvian grounds, as the price paid to establish property rights. Royalties could be seen as a pretty close match to a non-renewable resources tax, should Club-Of-Rome fears get the better of people.

What I'm perplexed about is the endless sloppiness with which these Pigouvian advocates wish to recommend actually applying their ideas.

For the moment a sort of "market socialism" may well be the best way to run the roads, until such time as the economists want to get their act together, on matters to do with non-free-hold property titles. Until they have developed the best rules for dealing with trans-spatial goods investment. Raising money via congestion tax would seem to be a very close match here.

Raising money via gasoline tax is a far more indirect "solution", and has to be seen as on-the-nose.

But then using the costs of roads, as an excuse for a carbon-tax, is just so astonishingly indirect ..... well it has to be judged clearly, for the Sado-Pigouvian-lunacy, that it most surely is.

Bill,

You seem to have a serious problem with reading comprehension. I didn't claim that taxes fully cover the cost of roads. My point, which you have offered absolutely nothing to rebut, is that mass transit users receive VASTLY higher subsidies per passenger-mile than drivers. Government incentives overwhelmingly favor using mass transit over driving. The fact that mass transit has such a tiny share of the transportation market despite the enormous subsidies it receives illustrates the enormous superiority of automobiles over buses and trains.

@Miller, I have reading comprehension problems with persons who make up "facts" and then shift the subject when confronted with facts in their own sources which totally contradict their statements.

As to subsidies for mass transit, please look again at the National Research Councils report and look at the citations in the Wiki Post on "Public Transportation" There is a section on subsidies, citing that were in my earlier comments.

Finally, I am not denying, and have stated earlier elsewhere, that 2cents of 18 fed gas tax goes to mass transit. You can look at that as a subsidy to mass transit, or as avoided costs for highway construction. In addition, if you look further, you will see on the funding side that local governments--cities and suburbs--create taxing districts to fund (or in your word, subsidize) mass transit. No one is forcing them to do this, and they must be making the judgment that the benefits outweigh the costs.

At one time, when I lived on the east coast, I was not a fan of mass transit. We lived in DC and they built this new Metro. Thirty years later, you would not be able to travel by car if the Metro had not been built. Even today, you cannot get into or out of DC on the hyways to Virginia.

Ask the residents of that region what they think of mass transit, and whether they thought the investment saved their region.

No, gasoline taxes do not cover the costs of roads and other infrastructure....

In 2006 the US took in approximately $70 billion from the sale of gasoline and a further $20 billion from the sale of diesel. That is $90 billion in total, which is far more than is being spent in a typical year. Keep in mind that I am not counting money received from license fees, tolls, refinery taxes, motor vehicle taxes, parking fees, fines, etc. When you add everything together is is very clear that motorists pay far more to governments than governments spend on the infrastructure that those motorists use.

Although American law makes it clear that fuel tax revenuse should be held by the Highway Trust Fund and used for transportation related uses, a big chunk of that revenue goes to other purposes. Even if we don't count the large percentage of funds that are diverted towards subsidizing public transit not being used by the drivers who pay those taxes, we still see money siphoned off for purely politically motivated projects like graffiti removal, films about state highway systems, the funding of automobile museums, etc. The data does not support the claims made by activists at the Pew Trust.

The bottom line is that when we no longer use the fuel taxes to pay for the upkeep and construction of transportation infrastructure the taxes become very regressive and hurt the poorest segment of society the most.

http://tinyurl.com/2dyo29n

I will not repeat myself. The previous posts speak for themselves and anyone is free to read the materials as they were presented and responded to.

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