On a Carbon Tax
Those of you who caught Dr. James Hansen’s interview yesterday on “Democracy Now!” noted how unimpressed he was with the climate change proceedings in Paris. In brief, he has low regard for the basic concept emerging from the talks (putting it kindly—he called it “a fraud”), i.e., the notion that each country should volunteer to meet whatever emissions reduction target they feel they can.
He suggests a revenue-neutral carbon tax, i.e., one whose proceeds are distrubted 100% back to the people. What he didn’t clarify, however, is how this tax can be imposed uniformly across all nations. For example, to the degree that it applies to the U.S. but not to China only means that more manufacturing will migrate from the U.S. to China, where costs are lower. Worse, the energy is dirtier over there, and will only worsen as the demand for energy increases, concomitant with the new tax.
Without international cooperation here, we’re in deep trouble.
Great post Craig.
I would add that the commitments of the U.S. and China – already cemented and sort of a fulcrum for the Paris treaty – are aggressive to a point that I cannot see nor imagine how they will be met. Several of the other countries seem to be putting forward similarly aggressive commitments.
To try to diminish the successes that are unfolding here is just petty. Yes it’s not enough. Yes later COP summits will have to push further. But this is honest, solid success. We didn’t create this mess in a day, and it won’t go away in a day either. But real progress is a really good thing.
🙂
That’s a terrific perspective on this, Glenn. Thanks very much.
To a group of low-carbon activists discussing a carbon tax like the one proposed by James Hansen, I wrote: There are important aspects of this that most people, somehow, fail to understand. Please see: http://2greenenergy.com/2015/12/05/on-a-carbon-tax/, and see comments.
Here’s a response I received:
Yes, there are important aspects of carbon fee and dividend that a superficial look may miss.
If you want to understand it in depth, go here:
http://citizensclimatelobby.org/carbon-fee-and-dividend/
A key feature is border adjustments — to keep the fee (carbon tax) from sending jobs and business opportunities overseas to countries without a carbon pricing system. Read this:
The CCL legislative proposal calls for placing a border adjustment levy on all imports from countries that do not price carbon similarly, giving no company an incentive to move production to a country that allows them to pollute more at lower cost [2]. Because the US consumer economy is so much more valuable than any other in the world, foreign countries that export heavily to the US will likely choose to institute a similar carbon price, to avoid sending huge amounts of capital to the US. Either way, US and foreign manufacturers will lose no ground economically for producing products with a lower carbon footprint.
Additionally, the legislative proposal calls for rebating the border adjustment fee to American companies exporting to countries without similar carbon pricing, leveling the playing field for our companies and complying with the World Trade Organization (WTO).
Craig,
That kind of thinking is a little naive (the quoted excerpt).
(I say this as a person who loudly advocated for a carbon/dividend with an import levy to adjust for the difference in the “embodied carbon” for the imported goods in the late 90’s and early 00’s… when I was younger and more naive. It’s entirely possible that I might have been one of the origins of the idea – it was new to me when I first started playing with it).
We are in a global economy. We can’t unwind the clock on globalism very easily. What is discussed above is a poorly veiled tariff. We would be quickly and soundly sued in the WTO for implementing such a tariff, and in so doing we could rapidly provoke a backlash that would result in very real shortages. U.S. mining and manufacturing couldn’t possibly retool overnight, so any backlash could harm us… badly.
A trade war is too big a risk, and the fallout from such trade sanctions would quickly turn public opinion against the climate effort at large, killing off the effort in the U.S. before manufacturing could adjust – resulting in numerous failed investments – and perhaps costing a decade or more of more positive action.
I’ve since abandoned that as a bad plan and have flipped the script on what I advocate: Instead of pricing carbon and penalizing emitters for emitting carbon; you calculate a cost to society of harmful emissions and offer a grant to any project that would reduce those emissions based on the abated emissions for the first 5 years of the project’s operation.
So instead of taxing the natural gas and coal power plants, you offer a wind farm or solar field emission abatement credits… Let’s say you’re contemplating a 50 MW wind farm that would – after assumptions of capacity factor and curtailment schedules, pumped hydropower storage losses and efficiency losses from greater variability in peaker plant output, etc.. – offset 95 GWh of coal and 30 GWh of NG per year.
If you state that GHG’s cost society ~$20/T-CO2e, and SO2, NoX, and other emissions cost society ~$400/t… and heavy metals cost society ~$5000/T for Pb, Cd, and As; while Hg costs ~$50,000/t, and PAH’s cost ~$100,000/t… Then you’d just add up all of the costs from the coal and NG plants that share the grid with the proposed wind farm. Let’s say it works out to ~$180/MW for coal and ~$65/MWh for NG… So the investor group building the wind farm submits their papers and collects a total grant allotment of $95 million (the total value of emissions offsets over the first 5 years) upon the first full day of operation of the wind farm.
In so doing, society would openly acknowledge that it is SAVING money. The wind farm would operate for ~40 years or more – in which society is avoiding all of those harmful emissions, reducing respiratory problems, corrosion, agricultural damages, cancer, heavy metal poisoning, and of course climate change… and they only have to pay for the first 5 years or so of reduced emissions.
Meanwhile, the investor group putting up the wind gets to make a profit on the first day of operations, so there will be many more wind farms built until the curtailment schedules start getting quite crazy.
Obviously, all other subsidies would have to be eliminated in order for this to make sense… but it works well because anyone could get in on the fun: I’d like to re-insulate my attic and upgrade my windows and put in a new fireplace insert. All told, this might save me ~3 MWh/year, and 50% of that would be coal and the other 50% NG, but the nearby coal plant is very dirty, so I’d save ~$220/MWh of coal, and ~$60/MWh from NG. That means I’d save the community ~$2100. So, I’d fill out paperwork, get an inspection, and get $2100 as soon as a subcontractor either finishes the work or inspects the work and signs off on it…
Everyone can play – including coal power companies, who could get rebates for putting up massive smokestack scrubbers. This would then reduce the financial efficacy of putting up renewable energy, but it would result in sharply decreased emissions from a lot of very toxic stuff that is currently being dumped into the atmosphere (and hence our breathing air, our drinking water, and our food) at the rate of millions of tons per day.
THAT is the smarter play, it would encourage massive multi-pronged market-driven investments from residential, commercial, industrial, and power industries all at the same time.
Everyone would be racing one another to put their investments in first – as the renewable and efficiency investments would get less of a projected return after the power plants clean up their smokestacks or upgrade their turbines, and the power plants would get less of a projected return after all the renewable energy and efficiency upgrades start reducing their sales…. You’d see massive investment on some power plant upgrades and some consolidation efforts to close down the least efficient and highest emitting, while the rest of society starts pouring investment money into renewable energy and efficiency investments.