Paris climate negotiators wrangling over global temperature goals might want to spend a moment pondering cheap gasoline.

Fact: after years of steady gains, average gas mileage of new vehicle purchases in the U.S. is down almost a mile per gallon this year, according to data from the University of Michigan’s Transportation Research Institute.

Fact: Through September, total miles driven in the U.S. this year are up 3.5 percent ― the largest increase in decades.

One thing is driving both trends: cheap gasoline. The average price of gas sold in the U.S. over the past ten months is 25 percent below last year’s price — the steepest drop in at least 70 years. Americans are responding by driving more and dumping sedans for SUV’s and pickups.

Gasoline consumption is on track to rise nearly 3 percent this year. The additional carbon dioxide will be the equivalent of a full year’s emissions from nine coal-fired power plants. (My yardstick is 600 megawatts per plant, operating at 70% capacity factor. See note at end of post for link to calculations.) And that doesn’t count the substantial “upstream” emissions from refining crude oil into gasoline.

Or, if you prefer, the likely 2015 increase in U.S. CO2 emissions caused by cheap gasoline, an estimated 30-35 million metric tons, will equal the entire annual emissions from burning all fossil fuels for all purposes from Ecuador . . . or Denmark . . . or Ireland . . . or Switzerland (take your pick). [Figures are here; multiply by 44/12 to convert from C to CO2.]

Can we be sure this year’s increase in gasoline use is entirely due to the drop in price? Not completely. But the inference is strong.

First, gasoline usage is at least mildly price-sensitive. Based on gasoline’s long-run price-elasticity, a 25 percent drop in price would touch off a roughly 10 percent increase in usage. The entire jump in demand wouldn’t be seen overnight, of course; it would take a decade or so for the lower price to work its way through car buyers’ purchase decisions (as well as manufacturers’ design choices). The 3 percent uptick this year is in line with what one would expect in the initial year.

Second, U.S. gasoline consumption stayed within a fairly narrow band from 2008 to 2014. Prices at the pump held steady as well, except during the worst of the great recession. What’s different this year is the plunge in price.

This year’s jump in CO2 emissions is bad enough. What’s really worrisome is that cheap oil — hence, cheap gasoline — is going to be with us for awhile. So say the experts who prepare the government’s Annual Energy Outlook forecast. I recently compared the 2025 forecast gasoline price between the 2012 AEO, which preceded the price collapse, and the 2015 AEO, which reflects it. Correcting for inflation, the government is projecting a 29 percent lower price of gas in 2025 than it projected three years ago.

When you run the lower price forecast through the price-elasticity for gasoline, you get this startling projection: in 2025, U.S. motorists will buy — and burn — nearly 13 percent more gasoline than would have been expected under the earlier (higher) price forecast. The associated increase in U.S. CO2 emissions in 2025 because gas will be cheaper is going to be huge: it equates to the annual output of 36 coal-fired power plants.

But let’s not stop there. Cheaper crude oil is bringing not just cheaper gas but cheaper diesel and cheaper jet fuel. I’ve run the reduced 2025 AEO price forecasts for all petroleum products through their respective price-elasticities, and the result is truly scary: Compared to projected 2025 emissions with the pre-plunge price trajectory, lower petroleum prices will result in 450 million metric tons of additional U.S. CO2 emissions in that year.

The increase will equal 8-9 percent of today’s U.S. CO2 emissions from all fossil-fuel burning. It will undo nearly all of the vaunted reductions in U.S. emissions since 2005. It will be the emissions equivalent of 100 additional coal-fired power plants. And that’s just for the U.S.

The antidote, of course, is a carbon tax — either a straight-up carbon tax or a hybrid one that surcharges petroleum products. A surcharge would reflect non-climate harms from oil consumption like traffic congestion, also place a charge on oil revenues’ corruption of governance in the U.S. and the Middle East.

Former U.S. Treasury Secretary Larry Summers wrote last January that cheap oil created a political opportunity for a carbon tax. We followed that here with First Tax Oil, Then Carbon. But to our knowledge no one has quantified how dire the need is — until now.

Cheap oil will make a mockery of just about every scenario to move the U.S. and other countries decisively off carbon fuels. Except scenarios based on carbon taxes.

Note: Calculations of increased oil consumption, resulting increase in CO2 emissions, and coal-plant equivalents, may be found in CTC’s carbon-tax spreadsheet model (Excel file).

On Sunday, November 29, the eve of the UN climate summit in Paris, the Carbon Tax Center released a letter signed by 32 notable individuals urging Paris climate negotiators to focus on national carbon taxes, both for their intrinsic value and as a gateway to a global carbon price.

The group includes four Nobel Laureates, three former U.S. cabinet secretaries who served under four Presidents (from both major political parties), two former vice-chairs of the Federal Reserve System’s board of governors, and three distinguished faculty members from Harvard University’s economics department. It also includes leading carbon tax advocates from across the political spectrum: Jerry Taylor of the Niskanen Center, Mark Reynolds of Citizens Climate Lobby, and Charles Komanoff of CTC.

The text of the letter is directly below, followed by a complete listing of the signatories. (The identical text and listing are in this pdf.)

Released in Paris and New York, Sunday, November 29, 2015

Taxing carbon pollution will spur everyone ― businesses, consumers and policymakers ― to reduce climate-damaging emissions, invest in efficient energy systems and develop low-carbon energy sources.

This single policy change — explicitly using prices within existing markets to shift investment and behavior across all sectors — offers greater potential to combat global warming than any other policy, with minimal regulatory and enforcement costs.

We urge negotiators at the upcoming UN Climate Conference in Paris to pursue widespread implementation of national taxes on climate-damaging emissions.

We endorse these four principles for taxing carbon to fight climate change without undermining economic prosperity:

1. Carbon emissions should be taxed across fossil fuels in proportion to carbon content, with the tax imposed “upstream” in the distribution chain.

2. Carbon taxes should start low so individuals and institutions have time to adjust, but then rise substantially and briskly on a pre-set trajectory that imparts stable expectations to investors, consumers and governments.

3. Some carbon tax revenue should be used to offset unfair burdens to lower-income households.

4. Subsidies that reward extraction and use of carbon-intensive energy sources should be eliminated.

Signed,

Frank Ackerman Kenneth J. Arrow Jim Barrett Alan S. Blinder Dallas Burtraw Steven Chu Richard N. Cooper Robert H. Frank Shi-Ling Hsu Charles Komanoff N. Gregory Mankiw

Donald B. Marron Jr. Aparna Mathur Warwick McKibbin Gilbert Metcalf Adele C. Morris Robert Reich John Reilly Mark Reynolds Alice M. Rivlin James Rydge Thomas C. Schelling

Robert J. Shapiro George P. Shultz Joseph Stiglitz Steven Stoft Chad Stone Jerry Taylor Richard Thaler Eric Toder Martin Weitzman Gary Yohe

(Institutional affiliations are for identification purposes only, and do not connote any organizational approval.)

Frank Ackerman, PhD
Principal Economist, Synapse Energy Economics

Kenneth J. Arrow, PhD
Nobel Prize in Economics, 1972
Joan Kenney Professor of Economics and Professor of Operations Research, Emeritus, Stanford University
Convening Lead Author, Intergovernmental Panel on Climate Change

Jim Barrett, PhD
Chief Economist, American Council for an Energy-Efficient Economy
Former Senior Economist, Joint Economic Committee

Alan S. Blinder, PhD
Gordon S. Rentschler Memorial Professor of Economics and Public Affairs, Princeton University
Vice Chairman, Board of Governors, Federal Reserve System, 1994-1996
Member, President’s Council of Economic Advisers, 1993-1994

Dallas Burtraw, PhD
Darius Gaskins Senior Fellow, Resources for the Future

Steven Chu, PhD
Nobel Prize in Physics, 1997
U.S. Secretary of Energy, 2009-2013
Elected to Royal Society, 2014
William R. Keenan, Jr. Professor of Physics, Professor of Molecular and Cellular Physiology, Stanford University

Richard N. Cooper, PhD
Maurits C. Boas Professor of International Economics, Harvard University
Deputy Assistant Secretary of State, 1977-1981
Former Senior Staff Economist, Council of Economic Advisers

Robert H. Frank, PhD
Henrietta Johnson Louis Professor of Management, Cornell University
Professor of Economics, Samuel Curtis Johnson Graduate School of Management, Cornell University

Shi-Ling Hsu, PhD
John W. Larson Professor of Law and Associate Dean, Florida State University College of Law

Charles Komanoff
Director, Carbon Tax Center

Gregory Mankiw, PhD
Robert M. Beren Professor of Economics, Harvard University
Chair, President’s Council of Economic Advisers, 2003-2005

Donald B. Marron Jr., PhD
Director of Economic Policy Initiatives, Urban Institute
Member, President’s Council of Economic Advisers, 2008-2009
Congressional Budget Office, Deputy Director 2005-2007, Acting Director 2006

Aparna Mathur, PhD
Resident Scholar in Economic Policy Studies, American Enterprise Institute

Warwick McKibbin, PhD
Non-resident Senior Fellow, The Brookings Institution
Professor of Economics, Australian National University and Centre for Applied Macroeconomic Analysis

Gilbert Metcalf, PhD
Professor of Economics, Tufts University
Deputy Assistant Treasury Secretary for Environment and Energy, 2011-2012

Adele C. Morris, PhD
Senior Fellow and Policy Director, Climate and Energy Economics, The Brookings Institution

Robert Reich, PhD
U.S. Secretary of Labor, 1993-1997
Chancellor’s Professor of Public Policy, Goldman School of Public Policy, University of California, Berkeley

John Reilly, PhD
Co-Director, MIT Joint Program on Science and Policy of Global Change
Senior Lecturer, MIT Sloan School of Management

Mark Reynolds
Executive Director, Citizens Climate Lobby

Alice M. Rivlin, PhD
Senior Fellow, The Brookings Institution
Visiting Professor, Georgetown University
Vice Chair, Board of Governors, Federal Reserve System, 1996-1999
Director, White House Office of Management and Budget, 1994-1996
Founding Director, Congressional Budget Office, 1975-1983

James Rydge, PhD
Lead Economist, Global Commission on Economy and Climate, New Climate Economy

Thomas C. Schelling, PhD
Nobel Prize in Economics, 2005
Lucius N. Littauer Professor of Political Economy, Harvard University (Emeritus)
Professor of Foreign Policy, National Security, Nuclear Strategy and Arms Control, School of Public Policy, University of Maryland

Robert J. Shapiro, PhD
Chairman, Sonecon
Under Secretary of Commerce for Economic Affairs 1997-2001
Senior Fellow, Georgetown University School of Business

George P. Shultz, PhD
Thomas W. and Susan B. Ford Distinguished Fellow at the Hoover Institution, Stanford University
Secretary of State, 1982-1989
Secretary of the Treasury, 1972-1974
Director, White House Office of Management and Budget, 1970-1972
Secretary of Labor, 1969-1970

Joseph Stiglitz, PhD
Nobel Prize in Economics, 2001
Elected to Royal Society, 2001
John Bates Clark Medal, 1979
Professor of Economics, Columbia University
Former Senior Vice President and Chief Economist, World Bank
Chair, President’s Council of Economic Advisers, 1995-1997

Steven Stoft, PhD
Convenor, Global Carbon Pricing Symposium, Economics of Energy & Environmental Policy
Founder and Director, Global Energy Policy Center

Chad Stone, PhD
Chief Economist, Center on Budget and Policy Priorities
Council of Economic Advisers, Chief Economist 1999-2000, Senior Economist 1996-1998

Jerry Taylor
President and Founder, Niskanen Center
Vice President, Emeritus, Cato Institute
Task Force Director Emeritus for Energy, Environment and Natural Resources, American Legislative Exchange Council

Richard Thaler, PhD
Ralph and Dorothy Keller Distinguished Service Professor of Behavioral Science and Economics, Booth School of Business, University of Chicago

Eric Toder, PhD
Institute Fellow, Urban Institute
Co-director, Urban-Brookings Tax Policy Center

Martin Weitzman, PhD
Ernest E. Monrad Professor of Economics, Harvard University

Gary Yohe, PhD
Huffington Professor of Economics and Environmental Studies, Wesleyan University
Senior Member, UN Intergovernmental Panel on Climate Change

(Institutional affiliations are for identification purposes only, and do not connote any organizational approval.)

Fantastic news! This morning President Obama rejected the Keystone XL pipeline, capping a seven-year uprising against the project, which would have carried 800,000 barrels of extreme oil from Canada to the Gulf Coast every day.

All of us concerned with climate have reason to celebrate. This victory was hard fought, and it shows the growing power of the climate movement.

But as I read the New York Times front page story about the big news, a buried quote caught my attention. Energy market analyst Christine Tezak told the Times, “From a market perspective, the industry can find a different way to move that oil … How long it takes is just a result of oil prices. If prices go up, companies will get the oil out.”

I don’t often find myself agreeing with energy market analysts, but Ms. Tezak’s comments underscore the reality that a carbon tax that builds fossil fuels’ true costs into their price is the only lasting way to address climate change and keep those fuels in the ground.

The climate movement has scored a huge win today, and we tip our hat to Bill McKibben and 350.org for helping build the movement around stopping Keystone. It was a gutsy choice against huge odds, and they stuck to it. But we need the victory to be more than symbolic, and more than a show of force. We need it to be a stepping-stone to permanence.

We at CTC will be continuing to offer hard-hitting news and analysis to educate leaders in the climate movement about the urgent need to prioritize a carbon tax in their — and our — campaigning.

If you agree, please take a moment to retweet this image and help spread the word.

“Arguably negligible.” That’s the Congressional Research Service’s bleak assessment of the direct impact on emissions of the Regional Greenhouse Gas Initiative (RGGI), six years on. RGGI, launched in January 2009 by nine northeastern states, is the first greenhouse gas cap-and-trade system in the U.S. It covers CO2 emissions from the 168 electric power plants 25 MW or greater in those states.

CRS’s report, “The Regional Greenhouse Gas Initiative: Lessons Learned and Issues for Congress” (July 2015), updates its comprehensive 2013 study of RGGI and offers a cautionary tale to federal policymakers and states considering cap-and-trade systems. The report could hardly be more timely, issued just a month before EPA finalized its Clean Power Plan which some analysts suggest opens the door to a national network of linked state cap-and-trade systems. As if fulfilling that prophesy, last Friday Governor Cuomo announced that New York State will “explore the possibility” of linking RGGI with California’s cap-and-trade system, envisioning a “North American market” where emissions allowances are bought and sold across the United States as well as in Canada.

Yet RGGI hasn’t induced a robust enough carbon price to drive down emissions, primarily because the initial emissions “cap” was set 45% higher than actual emissions by the covered power plants and wasn’t tightened enough to actually “bind” until four years later. Fortunately, RGGI’s design built in a “price floor,” a minimum price for each “allowance” (or pollution permit), which made the system function like a very low carbon tax of $2 per ton of CO2 until 2013.

Allowance auctions (mostly at the floor price) have generated about $2.2 billion in cumulative revenue, two thirds of which has been allocated to energy efficiency, greenhouse gas abatement, renewable energy support and electricity bill assistance. While RGGI didn’t induce enough of a price signal to directly reduce emissions at the covered power plants, the activities funded by auction revenue did offer benefits including “emission reduction, consumer savings via lower electricity bills, and job creation,” according to CRS. The report did not quantify or even verify those benefits, however.

RGGI currently limits offsets to 3.3% of a pollution source’s allowances ― less than California’s cap-and-trade program. This limits potential damage to the integrity of the emissions cap from illegitimate offsets. At any rate, CRS found that no offset projects had yet been funded under RGGI, presumably because they have been uneconomical at RGGI’s low allowance prices.

Anticipating EPA’s finalized Clean Power Plan rule, CRS concluded by raising serious doubts about whether RGGI is stringent enough that states could count their participation as compliance with EPA’s emission reduction requirements.

If RGGI is the “pilot” project for linked cap-and-trade systems, the lessons are clear: build in a substantial price floor, limit and scrutinize offsets, and carefully manage the auction revenue. And here’s a lesson CRS didn’t articulate: a simple, predictably-rising carbon tax could accomplish more with far fewer administrative hassles than linked cap-and-trade systems.

“It is just the right moment to introduce carbon taxes,” declared IMF director Christine Lagarde yesterday at the joint annual meeting of the International Monetary Fund and World Bank in Lima, Peru. In a panel discussion that included World Bank President Jim Yong Kim and the celebrated climate economist Nicholas Stern, Lagarde urged governments to directly tax carbon emissions instead of relying on indirect measures such as emissions trading. “A lot of people would rather do emissions trading systems, but we believe that carbon taxation would be a lot better,” she said.

Lagarde pointed out that in addition to their primary purpose of discouraging pollution, taxes on greenhouse gas emissions boost revenues ― a key consideration when many governments have depleted their reserves to weather the long weakness in the global economy. She explained,

Finance ministers are looking for revenues. That’s the fate of finance ministers. But it’s particularly the case at the moment because many have already used a lot of their fiscal buffers … and are always in need of some fiscal buffers in order to fight the next crisis.

Lagarde’s remarks came one day after another carbon tax proponent assumed the reins of the world’s most important climate body. Dr. Hoesung Lee, the new chair of the UN Intergovermental Panel on Climate Change (IPCC), has stressed the the need to price the “externalities” of carbon pollution. In an interview last month (published yesterday), Lee explained:

[When] my action affects other persons’ welfare, but I do not pay for these disadvantages… those are externalities. Climate change is a typical example … [T]he way to correct the externality problem is to have a price on certain activities that cause those externalities … a carbon tax.

Lee ranks a carbon tax as his ― and now, perhaps, the IPCC’s ― highest priority:

[I]f you ask me to choose the most important work in climate change issues, then I’ll choose carbon price. That’s because it is the driver to put us into the right track.

With their unequivocal endorsement of carbon taxes, Legarde and Lee add to the pressure on UN climate negotiators to end two decades of fruitless haggling over national level emissions limits and to focus explicitly on pricing carbon pollution instead.

“[W]e’re seeing once-in-a-thousand year flooding along the South Carolina coastline as a consequence of the extreme supply of moisture streaming in from Hurricane Joaquin,” climate scientist Michael Mann told the Washington Post. “There is an exponential relationship between sea surface temperature and the amount of moisture in the atmosphere above it. So record warm temperatures means record amounts of moisture.”

This is hardly the first time this pattern has been identified. Identifying the cause isn’t enough. The economic and human consequences of superstorms like the one devastating South Carolina this week are deadly serious. It’s time for an equally serious strategy to arrest and subdue runaway climate change that’s driving them.

Ironically, it was a South Carolinian — Congressman Bob Inglis — who courageously championed the most effective response a half-dozen years ago. Inglis’s “Raise Wages, Cut Carbon Act of 2009” proposed a rising tax on carbon pollution. Consistent with conservative thinking, Inglis’s carbon tax was revenue-neutral, with all revenue dedicated to cutting payroll taxes. Nevertheless, he lost his seat in the 2010 anti-tax and anti-science “wave” election that brought the Tea Party stranglehold to the House.

The economics behind Inglis’ proposal are rock solid. Fossil fuels are far more costly than their “sticker” price when the full consequences — like flood damage — are counted. That message got shouted down in 2010.

Inglis, who now runs RepublicEN, may be too modest and politic to say “I told you so” to the voters who spurned him. But we can.

Photo: The Weather Channel

China’s announcement last month that it will begin implementing a national cap-and-trade system for greenhouse gas emissions in 2017 is welcome news. Not only because it signals (again) that the world’s largest emitter may be starting to tackle global warming (and conventional air pollution), but because it tosses another shovelful of dirt on a longtime U.S. excuse for inaction.

Reports on China’s announcement nevertheless raised concern about whether China (or any government) can implement and enforce such a complex, opaque system. A decade in, the European Union’s Emissions Trading Scheme has proven only weakly effective. The EU has struggled to remedy numerous design and implementation flaws including a too-loose cap that has failed to induce a significant, persistent and rising carbon price, as well as international offsets that hold down carbon prices and whose environmental benefits remain maddeningly difficult to monitor and verify.

Moreover, the opacity of permit-based trading systems appears well-suited to China’s particularly corrupt form of “crony capitalism.” And another possible motivation for China’s choice of cap-and-trade over a transparent and easier-to-administer carbon tax is Beijing’s history of profiteering from questionable carbon offsets; these could expand if China can link with lucrative carbon markets in the west.

If China does proceed with cap-and-trade, it would be wise to build in a price floor to assure a clear minimum carbon price ― a “patch” that the EU has thus far failed to enact.

The Yale climate economist William Nordhaus goes after Pope Francis in the current New York Review of Books on the question of how best to prevent global warming. But after landing a few solid punches, he collapses in a muddle all his own by obscuring the difference between carbon taxes and cap-and-trade.

Nordhaus zeroes in a number of passages in “On Care for Our Common Home,” the recent papal encyclical dealing with global warming, that, to his mind, show remarkable ignorance about the workings of modern economics. One passage calls on society “to reject a magical conception of the market, which would suggest that problems can be solved simply by an increase in the profits of companies or individuals,”while another takes aim at the profit motive:

The principle of the maximization of profits, frequently isolated from other considerations, reflects a misunderstanding of the very concept of the economy. As long as production is increased, little concern is given to whether it is the cost of future resources or the health of the environment; as long as the clearing of a forest increases production, no one calculates the losses entailed in the desertification of the land, the harm done to biodiversity or the increased pollution. In a word, businesses profit by calculating and paying only a fraction of the costs involved. ¶195.

To be sure, resource losses are chronically under-estimated. But Nordhaus maintains that the pope misses an important point, which is that the problem is not markets per se, but markets that are poorly designed and hence encourage the wrong kinds of activity.

“Markets can work miracles when they work properly,”Nordhaus writes, “but that power can be subverted and do the economic equivalent of the devil’s work when price signals are distorted.” The best way to correct such distortions is to see to it that social costs, or “externalities,” are incorporated in the price of a particular commodity or action. Only when economic actors are required to bear the full burden will they then find it profitable to seek out alternatives that are cheaper and cleaner. Otherwise, society finds itself in the strange position of subsidizing waste by allowing manufacturers to emit greenhouse gases and the like for free. As Nordhaus puts it:

Putting a low price on valuable environmental resources is a phenomenon that pervades modern society. Agricultural water is not scarce in California; it is underpriced. Flights are stacked up on runways because takeoffs and landings are underpriced. People wait for hours in traffic jams because road use is underpriced. People die premature deaths from small sulfur particles in the air because air pollution is underpriced. And the most perilous of all environmental problems, climate change, is taking place because virtually every country puts a price of zero on carbon dioxide emissions.

Nordhaus might have mentioned the entrenched political structures that foster such under-pricing in the first place. But let’s not quibble: his logic thus far is impeccable. He then goes off the rails, however, over a passage in the encyclical dealing with carbon-emission permits. According to the pope:

The strategy of buying and selling “carbon credits” can lead to a new form of speculation which would not help reduce the emission of polluting gases worldwide. This system seems to provide a quick and easy solution under the guise of a certain commitment to the environment, but in no way does it allow for the radical change which present circumstances require. Rather, it may simply become a ploy which permits maintaining the excessive consumption of some countries and sectors. ¶171.

Although Francis is probably talking about cap-and-trade, Nordhaus is not so sure since “carbon credits” is not a term that practitioners usually employ with regard to the trade in carbon emissions. So he argues that “this part of the encyclical is clearly a critique of market-based environmental approaches”— all such approaches, that is — a category that in his view includes both cap-and-trade and carbon taxes.

This leads to a fatal error: defending both without delineating the differences between the two. Nordhaus has argued in favor of carbon taxes in the past, and he concedes in his NYR article that such an approach “is simpler and avoids any of the potential corruption, market volatility, and distributional issues that might arise with cap-and-trade systems.” But since carbon taxing also fiddles with markets, he concludes: “It is unfortunate that he [the pope] does not endorse a market-based solution, particularly carbon pricing, as the only practical policy tool we have to bend down the dangerous curves of climate change and the damages they cause.”

Wrong. Cap-and-trade clearly is a market-based solution because it creates new arenas for the buying and selling of emission permits, complete with futures markets and financial derivatives. But a carbon tax is not. Instead of creating new ways of buying and selling, taxing carbon is a form of direct behavior modification not unlike a traffic fine or a golf-course fee. Instead of encouraging speculation, it does the opposite by making it crystal clear that economic actors will have to pay a set premium for every unit of carbon dioxide they emit.

So while the pope may have gotten a good deal wrong, this is one thing he gets right. Not only does cap-and-trade promote speculation, but Francis is correct in pointing out that, in practice, it has done little to reduce emissions or encourage fundamental technological change. Setting a strict limit on greenhouse gases and then allowing investors to bid on emissions rights up to a certain level is music to the ears of neo-liberal economists for whom there can never be enough markets. But implementing such a program has proved a nightmare.

Due to heavy lobbying by corporations and politicians, the EU’s Emissions Trading System, the largest carbon market in the world, exempts 55 percent of greenhouse gas emissions, according to the Greek economist Andriana Vlachou. Since the system leaves it to individual member states to estimate their emissions, over-reporting has been rife. Offsets, the practice of allowing member states to reap credits by sponsoring carbon-capture projects such as new forests, have been especially problematic. As the Carbon Tax Center’s James Handley has pointed out, estimating savings from such projects is difficult, while verifying that developers are telling the truth about the benefits is even worse. Volatility is another problem. After the EU allocated too many permits, prices plunged so low in 2013 that officials had to take 900 million permits off the market. Since trading is electronic, hackers have meanwhile made off with millions.

It’s the sort of system that only a free-market Chicago economist could love – and, given the opportunities for corruption, maybe an old-school Chicago politician as well. By comparison, a carbon tax is the essence of simplicity. Administrative costs, which involve little more than calculating the carbon content of a given fossil fuel and then levying a charge “upstream,” are minimal. So are enforcement costs. There are no offsets, no complicated negotiations to determine each nation’s emissions quota, no wrestling with entrenched political interests to determine which industries are covered and which are not. While Vlachou reports the EU’s cap-and-trade program weighs especially heavily on poor electricity users, such consequences can be easily mitigated in the case of a carbon tax by earmarking revenues for social programs, investment in poor neighborhoods, or reducing income taxes for lower earners.

Nordhaus is not the only one to blur the difference between a carbon tax and tax-and-trade. Cass R. Sunstein, the Harvard law professor and recent Obama operative, recently made the same blunder in a column defending not only markets but consumerism and economists in general, who, he assures us, are “excellent technicians” and “pretty decent moralists” as well. The pope is not the only one who finds this difficult to swallow. Suspicion of market-based solutions may not be so unjustified after all.

The following passages, transmitted by the New York Times via Twitter (@nytimes), capture Pope Francis’s call this morning to world leaders and humanity to place ourselves within, not above, the natural world; to care for Earth rather than destroy it; and to recognize for all living things a “Right of the Environment.”

 

 

“Happy solar voters.” That was the picture caption for the smiling solar-powered family that led David Roberts’ post yesterday, “How inefficient climate policies can build support for efficient ones.”

Roberts, who blogged on energy and climate politics for Grist before moving over to Vox this year, counsels carbon-tax advocates to put “Green Industrial Policy” first. That way, solar and wind assemblers and installers and their happy consumers can develop into constituencies strong enough to prevail over the influence and inertia that will otherwise throttle carbon taxes.

Roberts’ post is of a piece with his long-standing disdain for carbon tax campaigners, and he lectures us here as well, insisting we “get over [our] obsession with carbon pricing.” But it also builds on a new article in Science (subscription required) by researchers at U-C Berkeley who surveyed worldwide progress, or lack thereof, in adopting carbon taxes or cap-and-trade permit schemes. “Of the 54 countries and subnational entities that adopted a carbon pricing scheme by 2013,” they report, “nearly two-thirds installed a Feed-in Tariff or Renewable Portfolio Standard before setting up the pricing scheme.”

That’s good to know, if a bit skeletal. The fact that FIT’s or RPS’s preceded the pricing measures doesn’t prove they had to, though they surely helped lay the foundations. Moreover, if advocates and policymakers chose to start with clean-energy subsidies, it might have been because they hoped positive incentives would be enough to move quickly from carbon fuels.

The more pertinent question, though, is whether the U.S. is now at the political take-off point where carbon-pricing can make it into policy. Wind turbines will account for 5 percent of U.S. electricity this year (and more than 15% in seven states last year), and solar-photovoltaic power is growing like gangbusters, thanks largely to Green Industrial Policy galore: state Renewable Portfolio Standards and federal production tax credits (for wind) and accelerated depreciation (for solar). Are the “demonstration” effect and jobs base from renewables strong enough to make the “winning coalition for climate policy” (that’s the Science article title) the U-C Berkeley authors are calling for?

Let’s hope so. Without a robust carbon tax, zillions of electrons in millions of backyard PV arrays are going to be consumed in-house instead of helping the grid back out fossil-fuel electricity. Without a carbon tax, gas-guzzlers and long commutes will keep “extreme” fossil fuels in business, along with their emissions. Granted, a carbon tax isn’t visually arresting like backyard panels. But the innovation and system changes it will catalyze will be at least as instrumental in getting us off carbon.

Photo: Shutterstock, via Vox.