09/1/2010 by Charles Komanoff
(Note: NYT DotEarth blogger Andy Revkin linked to this post today in a piece that has more from Bill Gates on carbon pricing. Click here. – C.K., Sept 2.)
Last week, Bill Gates. This week, Bjorn Lomborg. With the world’s #1 software magnate and the man whom the Guardian labeled “the world’s most high-profile climate change skeptic” both endorsing a carbon tax, is the tide of influential opinion on climate policy and carbon pricing turning?
Yes and no.
- Bill Gates. Photo: Steve Jurvetson (flickr).
Let’s look at Lomborg first. The Danish policy analyst built a lucrative career lambasting climate-change advocates as scaremongers who would consign millions to early death by devoting resources to decarbonizing the world economy rather than fighting killer diseases like malaria. But in a new book to be published next month, the self-styled “skeptical environmentalist” reportedly will call global warming “one of the chief concerns facing the world today” and “a challenge humanity must confront.” According to the Guardian, Lomborg will urge investing tens of billions of dollars a year to tackle climate change, with the funds to be raised through a carbon tax.
In somewhat overheated prose, the Guardian called Lomborg’s new-found resolve to combat global warming “an apparent U-turn that will give a huge boost to the embattled environmental lobby.”
Gates, on the other hand, has long worried about climate change. But in an interview in Technology Review last week, he added a new wrinkle: criticism of cap-and-trade:
TR: [A]lmost everyone agrees that there needs to be a price on carbon–whether a Pigovian tax or a cap-and-trade system. Without a price, there’s going be very little incentive to do the kinds of research, or create the kinds of technologies, or build out the kind of infrastructure, that we need.
Gates: No, that’s not right. It’s ideal to have a carbon tax, not just a price on carbon, which is this fuzzy term that includes cap-and-trade.
TR: Well, ideally, you’d do a Pigovian tax –
Gates: No, not a Pigovian tax. A Pigovian tax is where you pay for the damage. Here, you’re not paying for the damage — you can’t pay for the damage. You’re using the tax to create a mode shift to a different form of energy generation.
TR: That sounds very rational, pragmatically feasible, and humane. It also sounds politically unlikely.
Gates: Which is more likely: a [hidden] carbon tax [Gates’ way of describing cap-and-trade] with all sorts of markets and options and uncertainties about prices, and traders in the middle, and confusion about who initially gets the most advantage? Or a regulatory thing that says you mark every coal plant in the country with when it has to be retired, and a 2 percent tax to fund the R&D so that utilities know they can buy a plant that’s emitting hardly any CO2?
Gates’ disparagement of cap-and-trade is striking. But neither his 2% carbon tax nor Lomborg’s, which appears to resemble Gates’ in magnitude and function ─ funding energy R&D ─ is going to end the reign of fossil fuels in the foreseeable future.
Bjorn Lomborg. Photo: Emil Jupin (Lomborg.com).
The notion of an R&D solution is alluring. Who doesn’t want there to be global warming antidotes lurking in garages and labs, waiting for funding to unlock them? But it’s a chimera. Even with unlimited research funding, no technological breakthroughs can dislodge carbon-based fuels from dominion over the world’s energy economy. Fossil fuels’ energy density is too great, and their positional advantages of infrastructure and institutions too powerful.
Yes, subsidies can help push renewables past the “hump” in the S-curve to where scale economies can kick in and take a few bites out of the fossil fuel pie. But as New Republic blogger Brad Plumer pointed out recently, “Government subsidies just don’t pack the same punch as a market price on carbon pollution.” When a commodity or activity causes harm, the surest way to reduce it isn’t to subsidize a thousand and one alternatives but to directly discourage the thing by internalizing the cost of the harm into its price.
Ironically, Barack Obama appeared to grasp this during his run for the presidency. In a February 2008 interview with the San Antonio Express he enthused over the idea of a carbon tax:
Q. Have you considered … taxing emerging energy forms, for example, say a penny per kilowatt hour on wind energy?
A. Well, that’s clean energy, and we want to drive down the cost of that, not raise it. We need to give them subsidies so they can start developing that. What we ought to tax is dirty energy, like coal and, to a lesser extent, natural gas. (emphasis added)
How big a carbon tax is needed? A lot more than 2%. Raising electricity prices by 2%, if that’s what Gates envisions, would reduce electricity usage by an estimated 1.4% over the long run. Assuming, as modeling at the Carbon Tax Center suggests (xls), that fuel substitution (gas and nuclear for coal, wind and solar for gas, etc.) contributes roughly two units of carbon reduction for each unit gained from demand destruction, the total impact of the Gates tax on carbon emissions from the electricity sector would be just 4-5%. Since other sectors are less price-elastic, the average economy-wide reduction would be even less, probably just a few percent.
Contrast this with the bill introduced by Rep. John Larson (America’s Energy Security Trust Fund Act of 2009, H.R. 1337), which has a first-year carbon tax of $15 per ton of CO2 increasing steadily and predictably at $10-$15/ton each year, that would cut (xls) U.S. carbon emissions by approximately 30% by 2020, or an order of magnitude more than Gates-Lomborg carbon taxes. And Larson would return the vast bulk of carbon revenues to workers’ paychecks while setting aside a fund for the sort of clean energy R&D that Gates and Lomborg espouse.
Why the 10-fold difference in impact? A large carbon tax like Rep. Larson’s would create profound incentives: on the demand side to use less energy (via billions of decisions at household and social levels), and on the supply side to shift fuels and power to low- and zero-carbon sources (via thousands of decisions by entrepreneurs, utilities and energy companies). A mere 2% carbon tax, even one with revenues allocated to R&D, would not.
In his Technololgy Review interview, Gates at least coupled his carbon tax with a notion of ordering utilities to shut down CO2-intensive plants at such and such a time:
And then you just take all the carbon-emitting plants, you look at their lifetime, and you say on a certain date this one has to be shut down, and when a new one is put in place, it has to be low-CO2-emitting.
But how this would come to pass in the absence of price signals and corrections justifying it financially is, to be charitable, unclear.
Both Gates and Lomborg deserve plaudits for their disavowals: of cap-and-trade by Gates, of climate-change denialism by Lomborg; and for embracing the idea of a carbon tax. They now need to see the next light: to have the necessary impact, a carbon tax can start modestly but must keep rising predictably. Fortunately, we have the example of British Columbia to show that an upward-trending carbon tax of the needed size can be politically popular if the revenue is returned to the public.
06/23/2010 by James Handley
On Monday, Dr. Laurie Geller, director of the National Academy of Sciences’ new blue-ribbon climate change report, briefed the Citizens’ Climate Lobby’s National Conference, kicking off CCL’s Washington lobby week. Part I of NAS’s report stresses the strong evidence and broad scientific consensus that Earth’s surface is warming due to human-caused fossil fuel burning. NAS recommends further research on managing impacts on ecosystems, food production, public health and climate policy.
Part II, “Limiting the Magnitude of Future Climate Change” calls for immediate, urgent action; its top recommendation is to “Adopt an economy-wide carbon pricing system.” It also urges additional clean energy R&D, research into how behavior and technology interact and incentives for low greenhouse gas energy technologies. Part III, on adaptation, suggests responses to the inevitable consequences of climate change already in motion. Recommendations include: “develop hot weather early warning systems” as Philadelphia has done, and “Alaska: Retreat from the Coast” beginning the process of relocation from areas where thawing and erosion are rendering present settlements untenable.
Lester Brown, whose book “Plan B 4.0” is an inspiring blueprint for a sustainable, low-carbon future, also addressed the CCL conference. Brown reminded listeners that the Japanese attack on Pearl Harbor sparked President Roosevelt to call on industrialists to convert automobile and steel manufacturing into wartime production, leading to victory in WWII. Brown sketched a similarly broad transformation away from fossil fuels and toward efficiency and renewables that is now urgently needed to avert climate disaster — a far more profound threat to our security than Japanese invasion was in 1942. Brown stressed that a gradually and predictably-rising carbon tax is a key policy needed to drive the energy transformation required for climate stability essential to human civilization.
06/14/2010 by Charles Komanoff
In an Oval Office interview last Friday with Politico columnist Roger Simon, President Obama likened the Gulf oil disaster’s impact on the national psyche to that of 9/11:
In the same way that our view of our vulnerabilities and our foreign policy was shaped profoundly by 9/11, I think this disaster is going to shape how we think about the environment and energy for many years to come.
Unfortunately, judging from the portions of the interview published by Politico over the weekend, we shouldn’t expect this reshaping to include a carbon fee or similar tax on dirty energy.
Obama did stress the environmental costs:
I have no idea what new energy sources are going to be available, what technologies might drive down the price of renewable energies. What we can predict is that the availability of fossil fuel is going to be diminishing; that it’s going to get more expensive to recover; that there are going to be environmental costs that our children, … our grandchildren and our great-grandchildren are going to have to bear.
Yet there was nothing in the Politico interview to match the seeming commitment to legislating a carbon emissions price that the President made in his June 2 energy speech in Pittsburgh, as reported in the New York Times:
If we refuse to take into account the full cost of our fossil fuel addiction — if we don’t factor in the environmental costs and national security costs and true economic costs — we will have missed our best chance to seize a clean energy future. The votes may not be there right now, but I intend to find them in the coming months.
Needless to say, it’s a long shot that renewable technologies will ever be able to undercut fossil fuels in price unless at least some of those environmental and security costs are factored into coal and oil prices, as the Christian Science Monitor noted in an editorial published the same day that Politico interviewed the President.
06/3/2010 by James Handley
An inter-agency panel estimated this week that each additional (metric) tonne of CO2 emitted into Earth’s atmosphere inflicts at least $21 in damage to agricultural productivity, human health, property damage from flooding, and the value of ecosystem services lost due to climate change. (According to EPA, the U.S. emitted 5.6 billion tons of CO2 in 2008.) The panel, representing the consensus of 12 federal agencies, provided its climate damage analysis for use in cost/benefit calculations assessing major federal actions, including regulatory changes.
The panel applied “conservative” assumptions: a relatively high (3%) discount rate which tends to downplay the present value of future damage, they excluded large categories of costs such as military intervention or humanitarian assistance to failed states, and gave only minimal consideration to potential catastrophic climate tipping points. Even with those assumptions holding damage figures down, their mid-range assessment supports a $21/t initial CO2 price rising by 2050 to $45 in low-risk scenarios and to $136 in their high-risk scenario. The analysis can be seen as a low-end “benchmark” that will only go up as we learn more about (and can better quantify) climate damage. And it clearly underlines the need for a carbon tax of at least $21/t and rising, to reflect more of the true cost of CO2 pollution and create economy-wide incentives to minimize climate damage.
04/26/2010 by James Handley
Earth Day weekend’s headlines set the stage: “Sen. Graham Walks Away from Climate and Energy Bill” and “Climate consensus collapses in Senate.”
Speaking at the Earth Day rally, Friends of the Earth President Erich Pica called for everyone to “use less stuff,” looked to a future beyond fossil fuels and urged Congress to “get serious” about climate. In turn, Dr. Hansen pointed to our “false economy of cheap fossil fuels” and proposed a “People’s Climate Stewardship Act” — a steadily-rising carbon fee with revenue returned to Americans. Rep. Chris Van Hollen (D-Md.) spoke immediately following Dr. Hansen. Afterwards, Dr. Hansen and I congratulated Van Hollen for his “dividend” proposal to return carbon revenue to Americans. Van Hollen thanked Dr. Hansen and agreed: a price on carbon is essential; a fee with revenue return is the “cleanest” way. He said, “I will work with you” and encouraged us to continue educating the public and pressing for bipartisan support.
Here’s Dr. Hansen’s report: Earth Day on the Mall.
04/18/2010 by James Handley
Wall Street banking firm Goldman Sachs intentionally sold “toxic” mortgage-backed assets to clients to generate fees and bonuses, according to fraud charges filed by the Securities and Exchange Commission Friday. (Washington Post, 4/17.) SEC’s suit alleges that Goldman vice president Fabrice Tourre wrote: “The whole building is about to collapse anytime now,” in an e-mail months before creating and marketing the mortgage-backed investment. (Goldman denies that they “bet against… clients.”)
And, earlier this week, police in Spain arrested nine people for alleged fraud involving trading of carbon credits.
Carbon “offsets,” like mortgages underlying the investments Goldman marketed, vary tremendously in quality and value. GAO has reported that verification of offsets in the EU’s carbon trading system has been spotty; many have little or no value. The incentives that apparently led Goldman to oversell repackaged subprime mortgages would also prevail in a cap-and-trade carbon market, setting the stage for another bubble and collapse. The SEC’s case is a loud, clear warning to Congress: Skip the markets, traders, volatility, offsets and fraud; set a predictable, rising carbon price directly.
