The U.S. Department of Energy’s official estimate of the “Social Cost of Carbon” (SCC) is $21/ton of CO2, which amounts t0 $0.21/gallon of gasoline.  That’s the weighting factor (set by DOE rule) used to decide how much importance to give to the future damage from global warming in a panoply of decisions both inside and outside government.  The SCC can be viewed as an estimate of the “true” cost of fossil fuels — the cost of doing nothing about global warming.  In economic theory it’s the “optimal” Pigouvian carbon price or tax — it would tell us how much effort to make to reduce our CO2 emissions to minimize economic harm from global warming.  But if the SCC estimate is too small, we won’t do enough to avert disaster; if it’s too large we’ll over-react.  Setting the SCC is a bit like deciding how much to spend on fire insurance– except that in this instance, we know that if we do nothing, there’s a “fire” coming, we just don’t have a good handle on how bad it will be or when it will get really bad.  According to “Revising the Social Cost of Carbon,” by economists Frank Ackerman and Elizabeth Stanton (E3 Network), the government’s SCC estimate is far too low because of three crucial assumptions:

1) Climate Sensitivity. How warm will Earth’s climate get if we double CO2 levels from the historic 270 ppm to 540 ppm?  The working consensus among climate scientists is that CS is about 3 degrees Celsius (5 degrees Fahrenheit).  But four years ago, the IPCC concluded that there’s at least a 5% chance that CS is 7 degrees C.  For a sense of that magnitude, the difference between our climate and that of the last ice age (when North America was covered by glaciers) was about 8 degrees C.  Recent data and weather events suggest that CS will need to be revised upward– scientists have  almost certainly overlooked some important feedback mechanisms that will make the Earth get hotter as CO2 levels rise.

2) Severity of Damage from global warming. How much harm will a given amount of warming cause and how soon? Ackerman and Stanton critique the DOE estimates which are based in part on work by economist William Nordhaus which assumes that half of world economic activity would continue even when Earth’s temperature had risen 19 degrees C.  In contrast, economist Martin Weitzman estimates that 6 degrees C would wipe out half of world economic activity.  Credible estimates suggest that a 12 degrees C rise would result in large parts of the world experiencing temperatures at least once a year too high for humans to survive, suggesting that Nordhaus’ (and DOE’s) estimate is far too low.

3) Discount Rate. Discounting reduces the importance of the future by making it seem farther off.  A high discount rate represents an assumption that future well-being is less important than a low discount rate which weighs the future more heavily in our present-day decisions.  If we assume that the future will be prosperous, maybe it’s not so bad to lose half of whatever we value in life to the ravages of global warming.  But if the future looks like a long stretch of hard times, losing half might really be painful, especially if we lose half of our food production.  DOE uses a discount rate of 3%; Ackerman and Stanton point to the Stern review which used 1.5%.  In some ways, the discount rate is a value judgment, somewhat like the question of how much to save for your child’s education when she’s only 2 years old.  But like the decision to start saving early, the discount rate affects results later very strongly, especially when the potential for larger future damages is also factored in.

Ackerman and Stanton argue that low damage assumptions and over-discounting mean that the official $21 figure is far too low.  Using a range of more realistic assumptions, they calculate SCC values ranging from $56 to $893.  But they point out that when the SCC — essentially the present value of the future damage if we do nothing about climate — becomes large enough, standard cost-benefit analysis stops making sense.   In that situation, any effective action we can take will cost less than the discounted present value of the damage.  Translated into pricing policy, that means that if a carbon tax is meant to internalize the social cost of carbon, it needs to aim high.  There may be little advantage in setting the carbon tax very high initially, but it needs to rise and be expected to rise briskly enough to induce as much reduction in CO2 emissions as fast as our economy can deliver.

In short, the message of “Revising the Social Cost of Carbon” sounds like parental advice:  Start modestly, don’t delay, and aim high.   Ironically, it’s Generation Hot who will need to deliver that message to its elders.

Last Wednesday, the Brookings Institution hosted “America’s Energy Future: New Solutions to Fuel Economic Growth and Prosperity.” The first panel, “New Policies for a Cleaner Economy,” featured heavy-hitters: John Deutch (MIT “Institute” professor, former CIA Director…), Joseph Aldy (former Obama assistant on climate & energy), as well as Brookings Senior Fellows Ted Gayer and Michael Greenstone, who moderated.

Greenstone opened by noting how closely-linked energy consumption is to our well-being, but strongly cautioned about very serious un-priced side effects, especially from fossil fuels. Gayer recommended reforming government cost-benefit analysis to focus more on those un-priced externalities, especially since consumer benefits, he noted, are already efficiently priced into markets. Deutch advocated creation of a national energy technology research corporation to harness private sector investment free of a Department of Energy that “is mostly about bombs.” Aldy proposed a technology-neutral “National Clean Electricity Standard” to tax carbon-intense electricity generation and credit low- and zero-carbon electricity,  while providing federal revenue.

Greenstone asked the panel if their proposals wouldn’t be better replaced by a “grand bargain” to provide more of what we like: income, and less of what we dislike: carbon pollution. “[T]he giant prize standing in front of us is the realization that one could raise revenue instead of raising income taxes… through a carbon tax or some kind of carbon charge.” Aldy enthusiastically agreed, claiming “evidence of bipartisan support” and pointing out that he and Brookings economist Adele Morris proposed a carbon tax to the Obama deficit commission.

Deutch chimed in, “I couldn’t agree more with a proposal to do a comprehensive greenhouse gas tax. It depends, of course, on how it’s designed… and how you allocate the revenue. So if you put onto a tax proposal like you say a revenue proposal, then you have at least some chance of selling it.” Deutch urged return of some revenue to taxpayers as “walking around money.” “We’ve got to get the legislation passed,” he concluded.

(co-authored with Charles Komanoff)

From a climate standpoint, natural gas appears to have two huge advantages over coal. First, gas combustion releases 40% less carbon dioxide per Btu produced than does coal. Second, gas-fired power plants using “combined cycle technology” require 40% fewer Btu’s to produce each kilowatt-hour than coal-fired plants. Chain those advantages, and you find that new gas-fired power plants can produce 2.7 – 2.8 times as much electricity as a typical coal-fired generator while emitting the same CO2. No wonder gas is touted as a “bridge fuel” to renewables from coal, which accounts for 45% of U.S. electricity generation and a third of U.S. carbon dioxide emissions.

Of late, however, scrutiny of “fugitive” emissions from gas extraction and transmission is calling into question the assumption that gas is more benign for Earth’s climate than coal. The new wrinkle isn’t CO2 but methane itself, a potent greenhouse gas in its own right which can escape into the atmosphere at almost every step of the natural gas “fuel cycle.”

Natural gas (or simply “gas”) is 99% methane (CH4). Viewed over a 100-year time horizon (as the 2008 IPCC Fourth Assessment report did), methane’s greenhouse potency — its heat-trapping capacity, per pound of gas in the atmosphere — is roughly 25 times that of CO2. And if a 20-year timeframe is used, the greenhouse potency of a pound of methane becomes 72 times that of a pound of carbon dioxide. (The difference between the ratios arises because methane in the atmosphere breaks down about ten times as fast as CO2 — roughly a decade on average vs. a century for CO2.)

What’s bringing the issue of fugitive methane emissions to a boil is “hydrofracking” (or “fracking”). A highly invasive drilling process that releases gas by subjecting underground shale rock to hydraulic fracturing, fracking is being touted as a global-energy game changer. (“How Shale Gas Is Going To Rock The World” was the title of a May 2010 Wall Street Journal “special report.”)  But fracking is also an emerging source of massive air, soil and water pollution in states such as Pennsylvania that are the epicenter of the fracking boom.

In a recently-published peer-reviewed article, Prof. Robert Howarth and colleagues at Cornell University calculated methane releases from fracking and combined them with EPA data on gas pipeline leak rates to estimate methane losses across the gas fuel cycle. Their findings are sobering.  For every 100 cubic feet (the standard volume measurement) of natural gas “gathered” at the well and transferred to the transmission system:

• 0.6 – 3.2 cubic feet are released to the atmosphere in the frack drilling process, and
• 1.4 – 3.6 cubic feet of gas leaks into the atmosphere from the distribution system.

(EPA is expected to revise these estimates upward in view of more complete reporting showing greater leak rates, according to Howarth.)

Howarth et al. caution that their figures are based on very limited data, and are calling for further study. Nevertheless, their preliminary conclusion is that due to fugitive emissions in both the fracking process and gas pipelines, frack gas is causing as much global warming and climate change, per unit of energy output, as is coal. While that result is calculated for a 20-year timeframe, which understates the overall impact of carbon dioxide and, therefore, of coal, even over a 100-year timeframe fugitive emissions appear to take a huge bite out of any climate advantages that might otherwise be ascribed to natural gas.

It’s important to note that the Howarth analysis doesn’t take into account the second of the two “40% advantages” that we noted at the beginning of this post — the one reflecting the greater electric-generation efficiency of combined cycle gas turbines over conventional coal-fired steam turbines. This omission is significant in light of the fact that this efficiency edge has made combined cycle technology the overwhelming choice for recently-completed and proposed new gas-fired power plants. But regardless of the exact quantitative comparison between coal and frack gas, Howarth et al. are focusing much-needed attention on what now appears to have been the even starker omission (by most analysts) of substantial fugitive methane emissions in the natural gas fuel cycle.

Furthermore, as a frack gas drilling boom sweeps over the Marcellus Shale region of southwestern New York and huge swaths of Pennsylvania and West Virginia, residents are learning the hard way that fracking leaves vast amounts of dangerous chemicals in groundwater while also dumping polluted water, some of it radioactive, into rivers and streams. Congress is barely beginning to consider measures to close loopholes that exempt fracking from the Safe Drinking Water Act and the Clean Air Act, and these defensive initiatives are far behind the “NAT GAS” bill pushed by billionaire hydrocarbon mogul T. Boone Pickens to jumpstart a huge market for natural gas vehicles by subsidizing conversion of fleet vehicles and heavy trucks to gas.

Is there a way to legislate a clampdown on fugitive emissions of methane? Regulation requiring capture of gas, especially during the flow-back phase of gas drilling, should certainly be considered. But economic incentives are also worth a close look. Several carbon tax proposals would tax other greenhouse gases, including methane because, after CO2, it’s the top greenhouse gas driving Earth’s climate into instability. If, as Howarth and his colleagues have documented, fugitive methane emissions are a serious threat to Earth’s climate, could a tax on those methane emissions at their CO2-equivalent price correct the apparent market failure that leaves drillers willing to vent valuable and very climate-damaging methane?

We think so. Because methane is (at least) 25 times as potent a greenhouse gas as CO2, let’s consider a fugitive methane tax of 25 times the carbon tax rate, to reflect that potency. We calculate that a tax of $25 per ton of CO2 — to pick a modest, but not insignificant level — would imply a tax on fugitive gas of $13 per thousand cubic feet.* Since natural gas currently sells in wholesale markets for around $4 per thousand cubic feet (down from as much as $12 before the onset of the financial crisis), this tax would more than quadruple the incentive to capture methane provided by its current market price. That would appear to be a lot of leverage to capture fugitive methane, even from a fee pegged to a relatively modest carbon tax.

Howarth et al. report a huge range of fugitive methane emissions over the life of different frack wells — from a low of 140,000 cu ft to a high of 6,800,000.  At $13 / 1000 cu ft, the tax on those fugitive emissions would range from only around $60,000 per well to as much as several million dollars. (This enormous range is partly an artifact of the limited data available to Howarth.) While the low end is just peanuts to frack drillers, the high end is a significant fraction of the $2 to $10 million or more cost to drill a well (see p 25 of linked document).  It seems reasonable to expect that this tax, along with the market price of gas and the expectation of a rising CO2 (and equivalent fugitive gas) charge, would encourage deployment of equipment to capture, compress and store gas, at least at larger wells.

As both Howarth et al. and a recent report by the Post Carbon Institute point out, gas pipelines generally aren’t built and connected until wells are completed. Thus, well drillers who aren’t typically in the business of selling gas (and may not even own the rights to it) may not have ready access to gas pipelines and markets. This “split incentive,” along with the rush to establish and maintain drilling rights before leases expire, may help explain the reckless, wasteful discharge of climate-damaging methane into the atmosphere from frack wells. But gas can be compressed and transported by truck, so we’d expect that the price incentives of a rising greenhouse gas tax on fugitive methane would push well drillers to find ways to capture more of their emissions. Similarly, a substantial price signal should induce pipeline companies to repair and monitor leaking distribution systems. In this way, more of the lifecycle combustion advantages of natural gas as a true transition fuel could be realized.

As for fracking’s often-horrific “other” emissions: tough and comprehensive regulations are sorely needed. Congress should start with the “FRAC Act” H.R. 1084/S. 587 introduced by Rep. DeGette (D-CO) and Sen. Casey (D-PA), which would eliminate fracking’s exemption from the Safe Drinking Water Act; and the “BREATHE Act,” H.R. 1204 by Rep. Polis (D-CO.), which would bring fracking under the Clean Air Act.

* Authors’ calculation:

A $25/ton CO2 tax x 25x GHG potential  = $625/ton CH4.

$625/2000 lb x 44 lb/1000 cu ft  x  1000 cu ft/ 1.02 MM Btu = $13.5 /MM Btu

Flickr Photo:  Frack Well in Dimock, PA.  Brandi Lynn.

Guest Post By Michelle Chan, Economic Policy Project Director, Friends of the Earth

It’s been a bad month for carbon trading. The European Union Emissions Trading System (ETS), the world’s largest carbon market, barely crept back into operation after a four-week closure. Around the same time, California’s proposed cap and trade system went on hold after a Superior Court judge ruled that the rules creating a cap-and-trade system were adopted without proper analysis of alternatives. Adding insult to injury, Pike Research released a study which found that in a survey of 1000 Americans and their reactions to a variety of climate-related issues, offsets and cap-and-trade elicited the highest rates of “strongly unfavorable” or “somewhat unfavorable” impressions.

Some have blamed cap-and-trade’s woes on anti-climate propaganda and retrograde politicians.  Actually, the fault is in cap-and-trade itself; while the concept may appear elegant in an Econ 101 textbook, it is spectacularly unsuited for its supposed purpose of capping and reducing carbon emissions.

To see why, look no further than the troubles besetting the ETS. Only six of the thirty European carbon registries have been permitted to re-open after the EU halted trading in the wake of the theft of millions of euros worth of allowances from national registries. This scandal occurred on the heels of several others. In November, Swiss cement maker Holcim reported that 1.6 million euro of allowances were stolen from its account; only a fraction of them have been tracked down and returned. Last year, Europol reported that fraudulent carbon traders had shortchanged several national governments to the tune of 5 billion euro. In fact, Europol estimated that for a time 90% of trading volume on the Paris-based BlueNext carbon exchange was tied to fraudulent activities.

These are not a new market’s “growing pains”; rather, these scandals were (and are still) all too predictable. Today’s scandals involve opportunists exploiting immature trading structures, systems and rules. Tomorrow’s scandals are likely to involve more sophisticated gaming around complex and unwieldy trading programs, with offsets posing the most risk for fraud and corruption. And as the global carbon market expands further and Wall Street gets fully involved, it will surely suffer from the distorting impacts of unnecessary speculation and excessive financialization.

The root of the problem is that carbon trading entrenches the interests of those who profit from the selling and trading of credits and allowances, at the expense of actually reducing emissions. This dynamic inevitably exacerbates conflicts of interest and heightens corruption risks. It also intensifies regulatory capture — the process by which regulators end up advancing interests of the sector they are supposed to oversee, rather than protecting the public interest.

One poster child for regulatory capture in carbon markets is Christiana Figueres, who is both executive secretary of the UN Framework Convention on Climate Change and an advisor at C-Quest Capital, an offset developer. The larger problem is the revolving door between regulators and industry, a classic way in which corporations wield influence over regulators; and the outsized resources of corporate lobbyists. Already, associations such as the International Emissions Trading Association (whose members were among those charged by the UK police for conspiracy to commit tax fraud) have lobbied against stricter derivatives regulations and have blasted UN officials for not approving offsets fast enough.

While mainstream green groups appear largely unconcerned about the pitfalls of carbon trading, the environmental justice community is finely attuned to the downsides. The Superior Court judge ruling in California, which for the time being has stopped the California Air Resources Board from implementing California’s proposed carbon trading system, was the result of a suit brought not by Big Oil  but by environmental justice organizations which oppose carbon trading because of its likely localized health impacts. For example, under a carbon trading system, a refinery in Wilmington, CA, near Long Beach, could keep emitting carbon along with the associated toxic co-pollutants by purchasing carbon permits or offsets, instead of cleaning up its operations. “Fenceline” communities, which are almost always lower-income communities of color, already suffer from cumulative environmental health hazards, and carbon trading could exacerbate pollution hotspots as companies delay upgrading their dirtiest operations.

Indeed, the “efficient markets” theory behind cap-and-trade, and carbon taxes for that matter, posits that pricing carbon will help allocate financial resources in ways that most efficiently reduce carbon — meaning the cheapest emissions cuts will be made first.  But if carbon pricing isn’t accompanied by stringent regulation of local emissions (which after 40 years aren’t well-implemented in practice – just ask the folks in Wilmington), it leaves fenceline communities suffering the brunt of continually spewing toxic pollutants.

While advocates may differ over whether pricing carbon should be the centerpiece of greenhouse gas reduction policies, it has an important role to play in complementing other foundational strategies such as performance standards, regulations, urban planning and public infrastructure investments like mass transit. And when it comes to carbon pricing, carbon fees or taxes, rather than cap-and-trade, are the vastly superior option. One look at the malfeasance that has plagued carbon trading in Europe, the gaming and excessive speculation of derivatives traders, or the lack of environmental integrity in the offsets markets, and it’s easy to understand why so many people – from Nobel Laureate Joseph Stiglitz, to fenceline communities, to ordinary Americans — are skeptical of cap-and-trade.

The drawbacks of the cap-and-trade approach for pricing and reducing carbon emissions are legion. They include complexity, volatility, lack of price predictability, vulnerability to financial speculation, and impossibility of harmonizing across borders.  Now there’s another, courtesy of a 2010 report by an economist at the World Bank: Institution of a cap-based emissions program by oil-importing countries works to increase oil exporters’ market power, revenue and profits; whereas a carbon tax would have the opposite effect.

That’s the conclusion we draw from Jon Strand’s “Taxes and Caps as Climate Policy Instruments with Domestic and Imported Fuels.” As Dr. Strand, who chairs the economics department at the University of Oslo and has served as a senior economist at the World Bank since 2008, wrote:

[A] c-a-t [cap-and-trade] solution … leaves [oil importing countries] more vulnerable to adverse strategic manipulation of fuel prices by monopolistic exporters.[ [Conversely,] a tax is more efficient than a cap at extracting rent from fuel (oil) exporters. [Abstract and p. 32]

For his paper, Strand modeled a simple situation: Region A consumes two classes of fuels: imported oil and domestically-produced energy. Region B (interpreted as OPEC, plus Russia) exports fuel (oil) to Region A. Each region seeks to maximize revenue in response to the strategy of the other region. Strand concluded that the consuming region would be strategically weaker vis-à-vis the producing region under a carbon emissions cap than under an equivalent carbon tax.

Here’s why: Micro-economic theory teaches that a monopolist sets an optimum price to maximize revenue. Set the price too high, and sales volume falls, more than offsetting the increased revenue generated by a higher price. Set the price too low, and increased sales don’t overcome the lost revenue. Now picture a carbon emissions cap legislated by the importer, Region A. Because the cap constrains sales volume, the monopolist exporter can shift its (optimal) price upward without cutting sales volume. In contrast, were the importer to implement a carbon tax, this would reduce the exporter’s optimal (revenue-maximizing), price because the higher, tax-including price would reduce sales.

As Strand puts it, under cap-and-trade,

[T]he exporter strategically adjusts its tax [or export price] so as to extract maximum rent from the importer, at the given (exogenous) cap, leading to a zero equilibrium value for tradeable emissions quotas in the importer region.

Strand’s analysis points to a fundamental issue that cap-and-trade promoters tend to play down. A cap is an indirect way to set a price by limiting supply. But if someone upstream — the fuel exporter or its government — raises the price (or tax), the allowance price will fall. In the extreme, the exporter could raise the price enough to achieve the emissions reductions mandated by a cap and drive the allowance price down to zero. In other words, the importing nation’s cap enables the fuel exporter to reap a windfall by raising prices without sacrificing sales because falling allowance prices under the cap will tend to “absorb” the exporter’s price increase. In contrast, with a fixed (or gradually-rising) carbon tax, the exporter will be pressed to reduce prices to compensate for the tax in order to maintain sales volume at the revenue-maximizing point.

Strand isn’t the first economist to suggest this advantage of a carbon tax. In 2009, economists at the University of Ontario concluded that in addition to reducing CO2 pollution and providing revenue with which to reduce other taxes, carbon taxes offer a third important benefit: transferring revenue from OPEC to oil-importing countries, reducing OPEC’s monopoly power. Similarly, in an earlier (2002) paper, “Can Carbon Tax Eat Opec’s Rents?,” economists from MIT and the Helsinki School of Economics concluded that a “carbon tax can be used to reduce the producer price of fossil fuels and thereby to shift resource rents from the resource-exporting countries.”

The European Union’s cap-and-trade experience during the current steep recession offers insight into caps’ perverse interaction with “exogenous” (outside) forces. The recession curbed economic activity, and at the same time oil prices rose. In response, energy demand fell, driving down the price of CO2 allowances needed to burn fossil fuels. The EU’s emissions have declined during recent years, not because the cap is doing much to constrain emissions, but because those exogenous factors have reduced demand. Indeed, in the “uncapped” U.S., the trend of falling emissions very closely matches the downward emissions trend in the EU. In effect, a slow economy cut demand, and higher exporter oil prices captured “rent” from under the cap, holding allowance prices down and making it less effective at “putting a price on CO2” that would induce long term investment in alternative energy.

As we learned last week from a diplomatic cable written by U.S. Secretary of State Hillary Clinton, released by Wikileaks, “[D]onors in Saudi Arabia constitute the most significant source of funding to Sunni terrorist groups worldwide.” (NYT, Dec. 5.) Saudi Arabia, of course, is the world’s largest petroleum exporter and the second largest crude oil producer (after Russia). The Saudi economy is utterly dependent on oil and petroleum-related industries, including petrochemicals and petroleum refining, with oil export revenues accounting for 90 percent of total Saudi state revenues and more than 40 percent of the country’s GDP.

It thus may not be much of a stretch to ask if a U.S. carbon cap (especially when added to an EU cap) could wind up helping funnel money to Islamic fundamentalists with terrorist inclinations. Obviously, Strand’s analysis oversimplifies the situation — oil exporters are not a strict monopoly, they do compete somewhat, and energy technology or consumption patterns could change the dynamic. But it’s worth noting that economic analysis suggests that a carbon tax would tend to work against the interests of the oil cartel, while cap-and-trade would tend to reinforce the cartel’s price-setting leverage.

Photos: Flickr–foreclosurepro, digitaltrends.

P.S. This Just In:

Ecuador Asks OPEC to Support Oil Tax on Importers (Bloomberg, 12/11/10).

“With the first global tax on carbon emissions OPEC would achieve the most efficient and just way to do what Kyoto has failed to: make carbon emitters internalize the effects of their actions and pay for the pollution they create,” Ecuador’s President Rafael Correa said.    

Author’s note, Dec. 22, 2010: Video and Powerpoints of Hansen, McKibben, the Congressmembers, the carbon-pricing “debate” and other sessions are now available at this page of the Pricing Carbon conference Web site.

Forgive us if this post is a bit breathless. We’re still reeling from the energy we experienced at the Pricing Carbon conference this past weekend at Wesleyan University.

Over 500 people participated in the panels, workshops and strategy meetings, which began Friday evening and continued into Sunday afternoon. A majority were students, including 175 members of Students For a Just and Stable Future, a dynamic activist organization that began in Massachusetts and has spread across New England. Non-students were well represented too, with activists, policy professionals and concerned citizens from two dozen states and Canada. Opinion was unanimous — among presenters and participants alike — that the conference was a vital and worthwhile experience. And as of Sunday morning, Wesleyan’s IT staff had counted 33,000 hits to their site streaming conference video.

We’re sifting through videos, photos and notes from presentations which featured four members of Congress, renowned climate scientist James Hansen, author-advocates Bill McKibben and Peter Barnes, activists including Cecil Corbin-Mark, Tim DeChristopher and Bill Shireman, Wesleyan professors Gary Yohe and Barry Chernoff (director of Wesleyan’s new College of the Environment, the conference host and co-sponsor), and CTC’s own James Handley and Charles Komanoff.

Here’s a handful of quotes from the Congressmembers:

I’m the proud author of that bill, America’s Energy Security Trust Fund Act, and I will be proud to introduce it again in the next Congress. — Rep. John Larson (D-CT)

I’m a carbon tax person. — Rep. Jim McDermott (D-WA)

Biblical Law says, “You keep your stuff on your property.” We need to say to coal and oil, “Keep your stuff on your property.” — Rep. Bob Inglis (R-SC)

The Republicans have done us a favor — they’ve given us two years to think, two years to build a movement.” — Rep. Bob Filner (D-CA)

I didn’t need to come up here. There are no votes for me here. I came up here and you gave me faith. Now you need to be thinking about how you’re going to get meetings like this in every part of the country. — Rep. Jim McDermott (D-WA)

Veteran activist Ted Glick, policy director of the Chesapeake Climate Action Network, summed it up neatly:

There was a positive and energetic spirit throughout the conference. One reason for this was the conscious structuring of the conference to maximize opportunities for participation by all of those in attendance; e.g., by limiting the amount of time for speakers in plenaries and workshops, to allow for more time for questions and dialogue.

It was also because the co-sponsoring groups and many of the people who participated believe that the demise of the cap and trade model for comprehensive climate legislation opens up the possibility that a much better approach to pricing carbon and reducing greenhouse gas emissions can now become the preferred national approach. And it was due to the positive combination of a cross-section of older activists, scholars, political leaders and heads of organizations interacting with large numbers of students and youth seriously interested in and passionate about the climate issue.

Click here for the Wesleyan Statement of Carbon Pricing Principles. Come back to this page shortly after Thanksgiving for a sign-on page; links to conference Powerpoint presentations, photos and videos; and, for conference participants, a Google news-group to help us stay connected and strengthen the movement to price carbon emissions efficiently, equitably and transparently.

Dear Friend —

A carbon tax was always going against the grain — against the presumption that the most straightforward and effective approach to carbon emissions pricing couldn’t prevail over America’s special-interest politics and tax aversion — and against the smart money that insisted on hiding the price and buying off the opposition.

Well, the insiders’ cap-and-trade strategy has crashed and burned, but we carbon tax advocates are still standing and still facing a headwind. But we see a shift on the horizon: we’re convening a national conference next month at Wesleyan University in Connecticut designed to rally public and political support for effective and fair carbon taxing. And we’re asking you to help us make the Nov. 19-21 Pricing Carbon Conference a turning point at which a growing coalition of U.S. climate advocates unites under the banner of a revenue-neutral carbon tax.

It’s true that support for climate action is polling at near-record lows. But while part of that is due to the economy along with the highly orchestrated campaign of climate denialism, the spectacle of polluter giveaways under cap-and-trade has also convinced many that there’s no equitable way to price carbon emissions. We aim to turn that sentiment around, and show Americans that a national carbon tax with the revenues returned equally to U.S. households via “green checks” — carbon “fee-and-dividend,” as James Hansen terms it — can arrest the climate crisis while enhancing most families’ financial well-being. (Coupling those green checks with strategic “tax shifting” would be equally fair and effective.)

We’ve lined up an impressive and diverse roster of speakers for the conference, including Jim, Bill McKibben, Juliet Schor, Brent Blackwelder, Peter Barnes, Bill Shireman, two nationally known leaders from the environmental justice community, Cecil Corbin-Mark and Angela Johnson Meszaros, and members of Congress from both sides of the aisle. (A more complete list with links to speaker bios is here.)

As co-host of the conference, Wesleyan’s College of the Environment is providing additional experts including economist Gary Yohe along with world-class facilities for the conference presentations and discussion forums.

Now we need your help: to pay for speakers’ travel and lodging; for buses to bring delegates from New York, Boston and Washington; and for advertising and publicity to ensure that the halls are packed and the proceedings are communicated far and wide. We’re also eager to assist a growing number of young climate activists seeking “scholarship” assistance with travel and lodging. These are the people whom we will be counting on to take our mission forward. And they are also the people who will likely be most inspired by participating in the conference.

Your check, made out to “Wesleyan University” and mailed to The Price Carbon Campaign, P.O. Box 125, South Lee, MA 01260, will go entirely for conference organizing and will be tax-deductible. To contribute on-line, go to www.citizensclimatelobby.org.  On the right, select the lower donate button (tax-deductible donation).  Please fill out the form in its entirety.  In the second address line, enter: pricing carbon, then hit continue. (Citizens Climate Lobby is a conference sponsor.) As always, you can contribute to the Carbon Tax Center via the “Donate Now” button elsewhere on this Web site.

Every successful revolution — in policy as well as politics — has begun with a small band of people who nurtured a new idea that went against the grain. A carbon tax that transparently and unmistakably builds the costs of climate damage into the price of fossil fuels is no different. This is our moment, and the Wesleyan “Pricing Carbon” conference is our vehicle for seizing it. Please write your check today and be as generous as you can.

Best wishes … and thanks!

Charles Komanoff (director, Carbon Tax Center)

PS: Of course, we’d love to have you join us at the conference. To register, click here: www.pricingcarbon.org or click the REGISTER NOW button higher up on this page. You can also call (413) 243-5665.

Photo: Flickr / Carlos Gotay Martínez

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.

Last week’s NY Times Sunday Magazine featured Nobel prize-winning economist Paul Krugman’s take on climate economics.  Krugman notes that climate modelers have gained “enormous credibility” by successfully predicting the past 20 years of global warming.  He concludes that climate trends over decades (which wash out short-term weather fluctuations), show that “the planet is indeed warming” which will lead to “massively disruptive events, like the transformation of the Southwestern United States into a permanent dust bowl over the next few decades.”

Krugman calls for the use of economic tools to curb the climate threat.  He deftly articulates how (“Pigovian”) taxes discourage pollution by placing some of the “externalized” cost of pollution back on polluters, without the inefficiency and intrusiveness of regulations.  He notes that a “cap-and-trade system produces the same incentives to reduce pollution… with the price of licenses effectively serving as a tax on pollution.”  He explains:

A pollution tax… imposes costs on the private sector while generating revenue for the government. Cap and trade with auctioning… is just like a tax.  [But current legislative proposals] involve[s] handing out licenses to existing players, so the potential revenue goes to industry instead of the government… as a way to partly compensate some of the groups whose interests would suffer if a serious climate-change policy were adopted.  This can make passing legislation more feasible.

Krugman also acknowledges Dr. Hansen’s (and our) point that cap/trade punishes individual initiative to reduce GHG emissions.  But Krugman never mentions the possibility of a carbon tax with revenue returned directly to the public, which should do even more to make passing legislation feasible and would avoid the volatility, manipulation and the need for “offsets” that effectively eviscerate the “emissions certainty” of a cap. Moreover, returning revenue to consumers rather than supporting “incumbent technologies” would encourage consumers to make the choices needed to speed our transition to a green economy.

Krugman confronts the problem of discounting the cost of future climate damage. Normal discounting (typically applied to business investments) drastically reduces the present value of future gains or losses; such discounting thus supports only small investments and low carbon taxes to avoid future climate damage. Siding with Sir Nicolas Stern, Krugman concludes that such large discounting is unfair to future generations; it effectively assumes away the potential for global catastrophe.  Thus, despite his political judgment about cap-and-trade, Krugman’s reasoning supports the view that a substantial carbon price with a serious ramp-up is needed.

The growing movement for transparent carbon pricing to combat global warming reached a major milestone this week: Progressive Democrats of America, the nationwide grassroots voice for progressive values founded in 2004, has strongly endorsed direct carbon pricing to create incentives for a transition to renewable, low-carbon energy. PDA also advocates “recycling” substantial carbon revenues to households to counteract the potentially regressive effects of carbon pricing and to build long-term public support for carbon pricing

PDA played a key role in the Democratic Party’s surge in the 2006 mid-term elections, as well as in the Democrats’ 2008 victories. Its board includes prominent members of the Progressive Caucus as well as peace, labor and civil rights advocates. PDA says that it seeks to reclaim the Democratic Party as a voice for the people by educating, organizing, and lobbying within as well as outside the Party. Its statement follows:

Global Warming Policy Statement, adopted Oct. 19, 2009. (Footnotes omitted.)

No issue is more of a threat to civilization than the accelerating menace of catastrophic climate destabilization.  To avert this disaster, we must make a collective, long-term investment in a new energy infrastructure in order to protect the welfare of future generations.

Focus group research shows that the “…public has come to view clean energy as an immediate and long lasting economic driver,…something that is vitally important to the health of our economy.”  Scientists call for urgent action: “Continued growth of greenhouse gas emissions, for just another decade, practically eliminates the possibility of near-term return of atmospheric composition beneath the tipping level for catastrophic effects.”

PDA calls on the President and Congress to lead boldly in reducing our country’s oil dependence and use of fossil fuels by investing in walkable, bikeable communities, efficient public transportation, energy conservation technologies and alternative energy development, which all create good-paying and dependable jobs.

PDA supported 2008’s “climate principles letter” circulated in the House of Representatives.  To repeat and expand upon its goals, we agree that climate/energy legislation should meet these criteria:

1. Reduce greenhouse gas emissions on a long-term trajectory that will avoid the worst effects of global warming;

2. Transition the United States to an efficient, clean energy economy by putting a price on carbon that will guide investment and personal decisions on every level and lead the world with both incentives and example;

3. Recognize and minimize any adverse economic impacts from global warming legislation and build political support for a price on carbon pollution by “recycling” carbon pricing revenues directly to households; and

4. Aid communities and ecosystems vulnerable to harm from global warming.

To help achieve these goals, PDA supports revenue-neutral direct carbon pricing over carbon trading.

Direct carbon pricing:

1. Can push America toward an efficient, clean energy economy, and reduce greenhouse gas emissions on a long-term trajectory, by providing a gradually-increasing price on carbon pollution;
2. Can minimize adverse economic impacts of legislation by “recycling” a substantial portion of carbon revenue to households through a direct “carbon dividend” or a payroll tax reduction;
3. Can provide revenue to aid communities and ecosystems vulnerable to harm from global warming;
4. Reduces the need for complex and difficult-to-verify regulations and cannot be gamed in a multi-trillion dollar unregulated secondary energy trading market;
5. Eliminates offsets, which are difficult to measure and substantiate;
6. With WTO-sanctioned border tax adjustments would create immediate incentives for international implementation, as all countries have a taxing mechanism in place but few (if any) can manage a complex carbon trading system;
7. Can be set at levels to form the basis for international cooperation and treaties to reduce greenhouse gases to levels consistent with the findings of the IPCC; and
8. Would maintain the EPA’s authority to regulate carbon emissions.

The Carbon Tax Center welcomes PDA to the movement for a clear, simple, effective and fair carbon-pricing system as a key component of climate policy.