Harvard Economist Charts Escape From Kyoto

[T]he quantity-based Kyoto-type approach [to UN climate negotiations] has pretty much broken down, leaving the world with a highly non-optimal patchwork of sporadic regional volunteerism that does not address centrally how to correct the critical externality of global warming.  — Harvard economist Martin Weitzman.

Which is simpler: negotiating one price, or 190 emissions caps?

The Kyoto Protocol is broken. What can replace it? Professor Weitzman, considered one of the world’s most influential economists, proposes a game change: Instead of squabbling over the quantity of fossil fuels each nation may burn, negotiate a single carbon price all can adhere to.

Weitzman is best known for modelling the economics of catastrophic climate change. In a ground-breaking 2009 paper, he demonstrated that conventional cost-benefit analysis under-weights the risk of catastrophic scenarios. In two new papers, he scrutinizes the Kyoto Protocol’s quantity-based structure through the lens of game theory. He calls Kyoto’s attempt to set and divvy up a global emissions cap “the ultimate… top-down worldwide treaty.” That’s not a compliment. Observing that Kyoto hasn’t come close to its goal of “an internationally harmonized binding system of emissions caps,” Weitzman shows why: the Kyoto framework induces each nation to game the system by attempting to maximize the efforts required of others while minimizing its own.

Weitzman lays out three criteria for an effective global emissions reduction system:

1. It should induce cost-effective emissions reductions.

2. It should allow negotiators to focus on negotiating one central and highly salient parameter.

3. It should align negotiators’ incentives toward internalizing climate costs.

On the first criterion, Weitzman points out that while a carbon tax is more easily administered and more transparent than a cap-and-trade system, a carbon cap or a tax can both achieve cost-effective emissions reductions.

On the second, Weitzman builds on Nobel-laureate Thomas Schelling’s pioneering game theory analysis establishing the importance of a clear focal point in negotiations. Kyoto’s quantity-based approach assigning different binding emissions quotas to each nation has no focal point. In contrast, a price-based negotiation offers a single focal point for all parties.

And building on the seminal work of Ronald Coase, Weitzman stresses the importance of minimizing transactions costs. Coase showed that parties that might otherwise negotiate an agreement can be deterred by the high costs of getting to yes. Weitzman points out that any quantity-based structure such as Kyoto necessarily multiplies transaction costs: “It is easier to negotiate one price than n quantities — especially when the one price can be interpreted as ‘fair’ in terms of equality of effort,” he writes.

The bulk of Weitzman’s analysis focuses on his third and most important criterion: the need to negotiate a structure that counteracts parties’ national self-interests and aligns their incentives toward reducing emissions. [Read more…]

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Last modified: May 27, 2015

A Carbon Tax Can Carry Earth Day’s Legacy

In 1970 I was teaching math in a New York City suburb. On Earth Day I stood at a highway off-ramp with members of the high school ecology club. One of their signs read, “The Earth is a Closed Garage.” Another said, “Make Polluters Pay.”

There’s been some progress since then. Breathing New York’s air, once equated to smoking two packs of cigarettes a day, is many times safer. Wind turbines now provide five percent of the nation’s power, and electricity produced with solar cells rose ten-fold in the past three years. Driving has flatlined nationwide over the past decade, partly because Americans are strapped but also because the intoxication with cars is wearing off.

That’s great news for the environment, but it’s not nearly enough for climate. CO2 levels are still rising inexorably. Ditto global temperatures, polar ice melting and extreme weather. Emissions need to be cut radically even as seven-and-a-half billion people strive for prosperity.

For that to happen, prices of fossil fuels have to reflect the climate costs of carbon pollution. The way to do this, of course, is with carbon taxes:

To demystify carbon taxes and showcase their appeal, we’re rolling out the Carbon Tax Center’s first video. It explains how a carbon tax will transform investment, re-shape consumption and sharply reduce carbon emissions. As the video shows, no other policy can match its reach or simplicity. No other policy can be replicated globally, from China to Chile to Chad.

A carbon tax is no mere “technical fix.” It’s both a symbol and a means for us to respect nature and each other.

The central messages on Earth Day 1970 were to abide by nature’s limits and make polluters pay. On this Earth Day, let’s spread the word about a carbon tax. Let’s educate and organize so that the U.S. and other nations make taxing carbon the central policy to combat catastrophic climate change and sustain the Earth we love.

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Last modified: April 22, 2015

Carbon Tax Polling Milestone: 2/3 Support if Revenue-Neutral

For more years than I care to count, the Carbon Tax Center beseeched pollsters to take Americans’ temperature on revenue-neutral carbon taxes. Time and again we explained that polling about carbon taxes had to incorporate the option of returning revenues to households ― as most carbon tax bills would do. Otherwise, the tax came off as all stick and no carrot, and about as appealing to most folks as a cold shower.

Finally, a Stanford University-Resources for the Future poll asked that question. The results, released today, show that two-thirds of Americans support making corporations pay a price for carbon pollution, provided the revenues are redistributed, i.e., made revenue-neutral. The poll’s finding is the most powerful indication yet that the public is warming to carbon taxation as the premier policy for combating climate change.

Poll-Graphic-Pie-Chart-AltStanford and RFF commissioned the polling firm SSRS to interview 1,023 U.S. adults on climate-related issues in January. Two findings from the poll — that Americans of Hispanic descent are particularly climate-concerned, and that half of Republicans would favor a presidential candidate who supports fighting climate change — led to front-page New York Times stories. (Click here for the story on Hispanics and here for the story on Republicans.) The full poll was made publicly available today at a briefing at the National Press Club in Washington.

The poll was supervised by RFF university fellow Jon Krosnick, who has been polling Americans on climate change for two decades as head of Stanford’s Political Psychology Research Group. Its section on carbon taxation included these two questions: [Read more…]

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Last modified: April 30, 2015

Climate Idealism Can’t Hold a Candle to Collective Action

Why do Copenhageners ride bicycles? The key reason, says Yale economist and best-selling author (“Irrational Exuberance”) Robert J. Shiller, is that Danes are idealists who resolved, after the oil crisis of the 1970s, “to make a personal commitment to ride bicycles rather than drive, out of moral principle, even if that was inconvenient for them.”

“The sight of so many others riding bikes motivated the city’s inhabitants and appears to have improved the moral atmosphere enough,” Shiller wrote in yesterday’s New York Times, that the share of working inhabitants of Copenhagen who bike has reached 50 percent.

From “Copenhagen: City of Cyclists” (2010), a report by the City of Copenhagen.

From “Copenhagen: City of Cyclists” (2010), a report by the City of Copenhagen.

In much the same way, Shiller argues, “asking people to volunteer to save our climate by taking many small, individual actions” may be a more effective way to bring down carbon emissions than trying to enact overarching national or global policies such as carbon emission caps or taxes.

Goodness. Rarely do smart people so badly mangle both the historical record and basic economics. I say “people” because Shiller attributes his column’s main points to a new book, “Climate Shock: The Economic Consequences of a Hotter Planet” by Gernot Wagner of the Environmental Defense Fund and Martin L. Weitzman, a Harvard economist. And I say “smart” because the three stand at the top of their profession. Shiller won the Economics Nobel in 2013, Weitzman is a leading light in the economics of climate change, and Wagner is highly regarded young economist.

But mangle they have (I haven’t seen the Wagner-Weitzman book but assume that Shiller represents it fairly).

Let’s start with the history, which is fairly well known to anyone versed in cycling advocacy, as I’ve been since the 1980s, when I spearheaded the revival of New York City’s bike-advocacy group Transportation Alternatives (as recounted here.) Copenhagen’s 40-year bicycle upsurge, and indeed much of the uptake of cycling across Denmark, Germany and the Netherlands, came about not through mass idealism but from deliberate public policies to help cities avoid the damages of pervasive automobile use while reducing oil dependence.

If idealism played a part at the outset it was a social idealism that instructed government to undertake integrated policies ­― stiff gas taxes and car ownership fees; generously funded public transit; elimination of free curbside parking; provision of safe and abundant bicycle routes ― that enabled Copenhageners to do what they evidently desired all along: to use bikes safely and naturally.

The telltale is in the graphic. Only one in eleven Copenhageners who cycle have environment and climate in mind. The majority do it because it’s faster than other ways to travel, and around a third of cyclists say they ride because it’s healthy, inexpensive and convenient ― belying Shiller’s meme of Danes idealistically choosing bikes despite their inconvenience vis-à-vis cars. [Read more…]

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Last modified: April 15, 2015

For Bioenergy, Mandates and Subsidies Trump even Carbon Taxes

The Carbon Tax Center is often asked why a carbon tax is needed; wouldn’t removing tax subsidies be sufficient to let efficiency and renewables compete on even terms with fossil fuels?

Our stock answer is that the subsidies the tax code confers on fossil fuels (as well as on some other extractive industries) are peanuts compared to their environmental subsidies, especially free dumping of CO2 into the atmosphere. The needed market corrective is huge and can come about only via a significant tax on carbon pollution.

Ethanol refinery

Ethanol production has always been energy-intensive

But bioenergy presents a starkly different picture. As recently as a decade ago, bioenergy sources — biofuels for transportation and biomass for electricity — seemed to have gained full-fledged membership in the “renewable energy club” along with wind, solar, small hydro and geothermal energy. To boost bioenergy production, Congress endowed biofuels with subsidies that now amount to about $1 per gallon of ethanol and $2 per gallon of biodiesel.

Congress also enacted mandates that, if left in place, will compel a tripling of U.S. biofuel output by 2022. Biomass for electricity generation is also poised to gain a huge boost if the final version of EPA’s Clean Power Plan carries over a longstanding but highly questionable assumption that biomass burning is “carbon-neutral.”

Since that honeymoon, closer scrutiny of bioenergy’s lifecycle emissions has been revealing a complicated and far less promising picture. Biofuel production typically involves substantial fossil fuel inputs. Moreover, biofuel mandates and subsidies tend to push land out of other carbon-sequestering uses including food production. And closer study of biomass burning is calling into question the “carbon-neutral” assumption: that growing wood or other biomass captures the same amount of CO2 that subsequent burning for electricity generation releases.

We discuss these issues in detail — and with abundant links to the key literature — in our new “Carbon-Taxing Biofuels” page. While our views are still evolving, we think it’s clear that removing bioenergy subsidies and mandates and preventing EPA from letting electricity generators claim credit for biomass as carbon-neutral would do more to internalize the climate costs of bioenergy than even a hefty carbon tax.

It’s a thorny issue that will only grow more important. Take a look at our new page and let us know what you think.

Photo: Iowa State University Extension Service

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Last modified: March 26, 2015

One Cheer for the Guardian’s Divestment Campaign

The worldwide fossil fuel divestment campaign got a huge boost this week when Guardian editor Alan Rusbridger boldly thrust his paper into the fray. Britain’s most respected newspaper is urging readers to sign a petition by 350.org demanding that the Gates Foundation and the Wellcome Charitable Trust divest from the world’s top 200 fossil fuel companies within five years.

Divestment can’t loosen the fossil fuel stranglehold without a carbon tax.

Combined, the two charities manage over $70 billion in assets. Both say they consider climate change a  serious threat. But last year the Gates Foundation invested at least $1 billion of its holdings in 35 of the top 200 carbon reserve companies, while the Wellcome Trust invested $834 million in fuel-industry mainstays Shell, BP, Schlumberger, Rio Tinto and BHP Billiton.

We’re both elated and concerned by Rusbridger’s audacious move. Elated that this distinguished and brave journalist has thrown down the gauntlet to the global fossil fuel industry. But concerned that this divestment campaign may raise false hopes.

As Matthew Yglesias articulated last year in a thoughtful piece on Slate, divestment by socially responsible investors, universities and even governments won’t starve capital flows to fossil fuel corporations anytime soon. That’s because in a global market, every share of stock we activists dutifully unload will be snatched up in milliseconds by some trader who can bank on humanity’s continued dependence on fossil fuels to continue generating profits.

South Africa’s historic divestment campaign — the one that helped topple Apartheid and enshrined divestment as a tool against oppression  — was paired with a UN-sponsored boycott of South African goods. Not just aiming at the supply of capital but destroying the demand for goods sheared the Apartheid regime’s economic lifeline to the rest of the world more than either policy could have done alone.

No, we’re not suggesting a global boycott of fossil fuels. Rather, we point to the Guardian’s campaign to reiterate that the best and maybe only broadly effective way to reduce fossil fuel demand (which is the point of a boycott) is with a carbon tax. Economists agree on that policy prescription just as strongly as climate scientists agree on the diagnosis. And national-level carbon taxes can be designed to draw our or any nation’s global trading partners into carbon taxing, which means that a move by a big economy to impose a carbon tax will trigger a wave of followers.

So by all means, divest. The cultural and perhaps political opprobrium that divestment can spark is long overdue for the fossil fuels industry. But let’s not assume that divestment alone will break the chains of fossil fuel dependence. Even with the Guardian’s welcome campaign, the world still needs a transparent price on carbon pollution to strangle demand for fossil fuels by replacing them with non-carbon alternatives.

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Last modified: March 19, 2015

Last modified: April 23, 2015

Last modified: April 7, 2015

British Columbia’s Carbon Tax Architects Speak

A new report from a British Columbia think tank reveals the inside story behind B.C.’s successful tax on CO2 pollution. “How to Adopt a Winning Carbon Price, Top Ten Takeaways from Interviews with the Architects of British Columbia’s Carbon Tax,” published by Clean Energy Canada, draws on extensive interviews with senior government officials, elected representatives and a broad range of experts who helped shape or respond to this groundbreaking policy.

BC C-TX RPT CVRBritish Columbia inaugurated its carbon tax on July 1, 2008 at a rate of $10 (Canadian) per metric ton (“tonne”) of carbon dioxide released from coal, oil and natural gas burned in the province. The tax incremented by $5/tonne annually, reaching its current level of $30 per tonne of CO2 in July 2012. At the current U.S.-Canadian dollar exchange rate (1.00/0.80), and converting from tonnes to short tons, the B.C. tax now equates to around $22 (U.S.) per ton of CO2.

In the tax’s initial four years (2008 to 2012), CO2 emissions from fuel combustion in British Columbia fell 5% — or 9% per capita, considering the province’s 4.5% population growth over that span. [NB: These figures are revised downward from the original version of this post; see editor’s note at end.] During the same period, emissions from the rest of Canada increased slightly. Revenue from the tax has funded more than a billion dollars worth of cuts in individual and business taxes annually, while a tax credit protects low-income households who might not benefit from the tax cuts. [Read more…]

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Last modified: March 18, 2015

Why is Naomi Klein So Cool on a Carbon Tax?

(Daniel Lazare is a writer living in New York City; his books include The Frozen Republic, The Velvet Coup, and America’s Undeclared War.)

Naomi Klein is not exactly bubbling over with enthusiasm about a carbon tax, and since she has emerged as a leading voice on climate change, it’s worth exploring why. She barely mentions the topic in This Changes Everything: Capitalism vs. The Climate, her magnum opus on global warming, and was oddly dismissive in a recent interview with Grist. “I don’t think a carbon tax is a silver bullet,” she said, “but I think a progressively designed carbon tax is part of a slate of policies that we need to make this transition … [to] rapid renewables.” But then she went on to disparage the analysis that is at the core of the carbon-tax argument:

You know, I’ve been making these arguments around economics, but there is nothing more powerful than a values-based argument. We’re not going to win this as bean counters. We can’t beat the bean counters at their own game. We’re going to win this because this is an issue of values, human rights, right and wrong. We just have this brief period where we also have to have some nice stats that we can wield, but we shouldn’t lose sight of the fact that what actually moves people’s hearts are the arguments based on the value of life.

So on one hand we have economics, the stuff of “bean counters” and other bloodless sorts, while on the other we have values and morality. A carbon tax would be beneficial, but since we will never beat the economic analysts on their own turf, there’s no point even trying. Instead, we should concentrate on things that stir the soul, such as human rights.

Naomi Klein: Why is she so cool on taxing carbon pollution?

Naomi Klein: Why is she so cool on taxing carbon pollution?

Or so Klein maintains. But there’s something off-putting about such arguments. The distinction between economic analysis and morality, for instance, smacks of anti-intellectualism. Not only are head and heart separate and distinct in Klein’s world, but there’s no question as to which is on top. But her view of a carbon tax is also incorrect. It’s not for bean counters only. Like any real-world phenomenon, a carbon tax is multi-dimensional, which means that it has not only an economic component but a political and moral aspect as well.

How so? Everyone knows what the purpose of a carbon tax is. It’s to internalize the externalities, to take the growing costs associated with fossil fuels and bundle them into the price of such fuels so that the individuals using them have a more accurate idea of how much a specific activity truly costs. When drivers understand how expensive gasoline really is when all the attendant costs are taken into account, then they’ll treat it with the respect it deserves.

This is the sort of economic wonkery that no doubt leaves Klein cold. But it is not only an economic argument. Externalities include not only environmental and congestion costs and the like, but such items as the cost of insuring an uninterrupted flow of oil from the Persian Gulf. Expenditures like these aren’t trivial, needless to say. Indeed, one study published in Energy Policy puts them at a stunning $7 trillion for the years 1976-2007, not including the Iraq War, which, according to Joseph Stiglitz and Linda Bilmes, may wind up costing $3 trillion more. [Read more…]

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Last modified: March 18, 2015