Raymond Zhong, How Extreme Heat Kills, Sickens, Strains and Ages Us, New York Times, June 13.
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If Gov. Newsom is willing to just toss our emissions goals by rewarding car ownership and gas tax holidays for no reason other than to get re-elected in the safest blue state then it’s settled that California leaders were just virtue signaling about global warming the whole time.
— Darrell Owens (@IDoTheThinking) March 25, 2022
Of the myriad motorist giveaways now being rushed into place around the U.S., none sting like California’s. I share Darrell Owens’ tweeted dismay, not just because California is so reliably blue but because Gov. Gavin Newsom’s proposed car-cash payments point to a troubling fragility in the state’s clean-energy leadership.
The specifics of the so-called relief plan are still being worked on. But the basic shape is expected to hew to the contours posted by Newsom’s office this past week and shown further below: $9 billion in payments to households of $400 per registered car (limit of 2 per family) and just $2 billion to make transit cheaper.
While a per-vehicle stipend isn’t quite as environmentally loathsome as the gas and diesel tax “holidays” already rolled out in Georgia and Maryland and being readied elsewhere (NPR has a useful digest), California’s nearly 50-year record at the forefront of cleaner energy might have suggested other, greener approaches.
I know that record well. Not long ago, I did a study comparing California’s rate of decarbonizing its economy to the rest of the country’s. I found that from the mid-1970s to 2016, California drove down its use of fossil fuels per unit of economic activity nearly 20 percent faster than the other 49 states. Had those states matched California’s pace, I calculated, the country would now, each year, be eliminating 1,200 megatonnes of CO2, an amount equivalent to the carbon emissions from our entire fleet of passenger cars.
Those findings became the basis of a 2019 report for the Natural Resources Defense Council, California Stars: Lighting the Way to a Clean Energy Future. My NRDC co-authors and I credited a host of actors: Gov. Jerry Brown (1974-82, 2010-18), for imbuing an energy-efficiency ethic throughout the machinery of state government; Gov. Arnold Schwarzenegger (2003-10), who lent “Terminator” cred and financial support to solar power; and, above all, the thousands of resourceful and devoted state employees who developed and oversaw a kaleidoscope of performance standards that embedded energy efficiency into appliances, equipment and buildings.
Alas, California’s energy record also had an un-stellar part: automobiles. “Passenger vehicles continue to be a weak point,” we noted dryly in “California Stars,” as the state’s consumption of motor fuels grew faster than the rest of the country’s during 1975-2016 (albeit a tad more slowly per unit of GDP). We listed many factors but omitted the most fundamental: California’s vaunted green ethos didn’t include recognition of, and resistance to, car-dependent transportation.
Consider that the day before yesterday, in New York, a coalition of transit, environmental and economic-justice organizations declared their opposition to a possible statewide gas tax holiday “because it does little to help those New Yorkers most hurt by rising prices, takes revenue away from needed road and transit investments and completely contradicts New York’s climate goals.” The groups, who have long worked in concert for safe streets, congestion pricing and better transit, pointed to rising prices for energy (electricity and heating fuels, not just gasoline), food and housing and called for targeted state aid to lower-income households.
If similar noises are being made in Los Angeles or San Francisco, they aren’t yet audible in New York. Nor do we know what California’s iconically green ex-governors would have done in the face of $5 or $6 gasoline. (The state’s anti-smog rules and carbon cap-and-trade program lead to unusually pricey motor fuels.) I’d like to believe they would have used the gas-price “crisis” as an opportunity to speak inconvenient truths about driving, fossil fuels and climate stewardship. Perhaps Brown would have harkened back to his seventies self and encouraged Californians to voluntarily curtail the share of their driving that is particularly mindless and unnecessary. Schwarzenegger, who earlier this month made an extraordinarily empathic antiwar video appeal to Vladimir Putin’s subjects (“I love the Russian people. That is why I have to tell you the truth.”), might have connected less driving and fuel conservation to patriotism and manliness.
While Newsom lacks those predecessor’s strong personal stamps, he doesn’t lack for imaginative staff. Think of the good the state could do for economic justice and climate protection with the $9 billion he’s handing car-owners.
The most obvious scheme is to apply that money to reduce the state sales tax, a stunningly regressive tax. California’s 7.25% state sales tax brings in around $45 billion annually, according to Tax Foundation figures ($42.7 billion in FY 2020, the most recent figure available), suggesting that $9 billion worth of lower sales taxes would enable the state to cut the rate by one-fifth, to a little under 6%. That change would give relief to every Californian, and disproportionately to poor and working families, without rewarding automobile use and dependence. And it would align nicely with The Economist’s insistence yesterday that “Governments should support household incomes instead … of cutting fuel taxes.”
(Sales tax swaps aren’t exactly novel in environmental discourse. Washington state’s I-732 initiative would have used revenue from a $20/ton carbon tax to cut the state sales tax — the nation’s steepest — by one percent; it was defeated, in 2016, when some climate hawks derided it as, somehow, pro-corporate. Two decades earlier, I published an op-ed calling for a nickel-a-mile charge on driving in Long Island, NY, with the proceeds paying for a 3 percent cut in Nassau and Suffolk Counties’ sales tax.)
In a different vein, folks in the bicycling circles I inhabit are touting free e-bikes rather than car-based giveaways as a means to cushion the pain of high gas prices while helping spur people away from automobiles. The same $9 billion would allow Sacramento to issue e-bike rebates of $300 each to of the roughly 30 million Californians of bicycling age (say, 10 to 80). Making the rebates tradeable would bend to two realities: not everyone can or will use a bike — even one with electric assist — and supplies are constrained. The latter factor suggests that the rebates should remain valid for several years.
Doubtless, there are other productive ways California could distribute $9 billion in economic relief. What makes the planned automobile giveaway so dispiriting is that for half-a-century the state has done so much in green energy and electricity, outside of the transportation sector, that is pro-climate, pro-consumer and innovative. Gov. Newsom’s rush to invest $9 billion in a one-shot that pulls in the opposite direction is damaging in itself and also indicative of the fragility of California’s supposed green ethos.
Call me a neigh-sayer, but the pretty horses decorating yesterday’s NY Times story about Argo Blockchain, Inc.’s “Green Bitcoin” venture can’t hide the oxymoron that lies beneath: no matter how many wind turbines and solar panels Bitcoin miners build or buy to run their ravenous processors, crypto is fundamentally filthy.
The reason is straightforward: all the new green energy we can capture from the air and the sun needs to serve a higher purpose: replacing fossil fuels. Wind farms and photovoltaic arrays stop the combustion that’s causing climate change only when they take the place of coal- and gas-fired power plants. If they’re hooked up to Bitcoin computers, they can’t substitute for anything. The net gain for climate is zero.
To be sure, it’s better to run Bitcoin machines with renewables than with fossil fuels. But even 100%-renewable Bitcoin isn’t climate-positive, since the land supporting the new green stuff powering the Bitcoin mining is perforce unavailable to aid the climate. At some point — a year from now, five years on, ten — some other entrepreneur, one focused on renewables rather than crypto-currency, could have built the same arrays and dedicated their output to the grid. That would actually push out fossil fuel generation and achieve the carbon cuts the climate needs.
If it helps, think of the difference between the engineer’s perspective and the climate economist’s. The engineer counts X many kilowatt-hours of wind and solar feeding Bitcoin computers that draw the same X kWh’s and calls it a wash: “carbon-neutral.” The climate economist sees those figures but also debits the Bitcoin operation for the opportunity cost of its computer banks whose voracity renders the green kWh’s unable to take the place of fossil-fuel kWh’s. The “wash” that the engineer touts is actually the persistence of coal- and gas-fired electricity generation that will keep spewing carbon.
What I call the climate economist’s perspective is something I’ve cultivated lately, since I started rethinking the climate consequences of the closure of the Indian Point nuclear power plant, in New York City’s far-north suburbs. In 2020, in a post I called Drones With Hacksaws, I equated shutting a large source of essentially carbon-free electricity such as Indian Point to unleashing a swarm of hacksaw-wielding drones to lay waste to a hypothetical giant offshore wind farm by lopping off its thousand or more turbine blades. The climate consequences of the two acts were, I argued, identical, since both involved doing away with steadily-functioning zero-carbon power sources whose operation obviated the need to run carbon-fuel-burning power plants.
Applying this perspective to Argo Blockchain helps us see that from a climate perspective, its wind turbines (and promised solar arrays) add up to nada. The potential climate good from the company’s green power sources is squandered in powering an artificial and unnecessary service. From a climate standpoint, Argo’s wind and solar arrays at best break even, rather than provide a net benefit.
The Times story missed a lot of details: how much electricity Argo Blockchain’s Bitcoin mining facility outside Lubbock, in northwest Texas, will consume; how much of it will come from the row of wind turbines visible in the distance; how much of world Bitcoin “demand” the facility will satisfy. But it did include these helpful pointers:
Crypto mining does not involve any picks or shovels. Instead, the term refers to a verification and currency creation process that is essential to the Bitcoin ecosystem. Powerful computers race one another to process transactions, solving complex mathematical problems that require quintillions of numerical guesses a second. As a reward for this authentication service, miners receive new coins, providing a financial incentive to keep the computers running.
In Bitcoin’s early years, a crypto enthusiast could mine coins by running software on a laptop. But as digital assets have become more popular, the amount of power necessary to generate Bitcoin has soared. A single Bitcoin transaction now requires more than 2,000 kilowatt-hours of electricity, or enough energy to power the average American household for 73 days, researchers estimate.
Earlier this year, the New Yorker magazine writer David Owen used crypto mining as an object example in his Jan. 15 article, How The Refrigerator Became an Agent of Climate Catastrophe. After citing a 2011 U.S. Energy Department (D.O.E.) study touting massive carbon reductions from federal regulations upgrading refrigeration efficiency, Owen trenchantly pointed out that “In 2011, the D.O.E.’s forecasters presumably didn’t anticipate that improvements in energy efficiency would make it increasingly economical to power and cool the server farms that mine and manage cryptocurrencies.”
Owen’s article, which is well worth reading for its narrative power and climate relevance as well as its iconoclasm, was his latest exposition of Jevon’s Paradox, the phenomenon by which increases in energy efficiency lower the price of “energy services” and thus lead to more use, undercutting the efficiency gain. The antidote, of course, is to ensure the energy services — cooling, travel, lighting, and so forth — don’t plunge in price by raising the price of energy provision, as I pointed out a decade ago in a post in Grist, If efficiency hasn’t cut energy use, then what?
We could do that, of course, with a carbon tax.
When it comes specifically to blunting Bitcoin and other cryptocurrencies, there are three broad ways that carbon taxing could help.
Carbon taxing can at least nudge greenward the mix of power sources used by Bitcoin miners: less coal or gas firing, more wind and solar. That won’t make Bitcoin green, but it will lessen its climate-destructiveness.
Second, carbon taxing could cut into Bitcoin’s growth by increasing electricity distribution companies’ economic incentives to bid green power supplies away from cryptocurrency manufacturers, thus making Bitcoin mining cost more.
Last, carbon taxing could conceivably strengthen social-shaming of Bitcoin entrepreneurs and users by reframing crypto as a refuge for losers.
This notion, though admittedly speculative, would be the most enduring. There’s a range of consuming activities that need to be deemed off-limits on account of their unsustainability, destructiveness and uselessness: helicopter flights, driving giant SUV’s, monster-size homes. Crypto belongs on that list.
On Monday, The Nation magazine posted “Congestion Pricing Is New York’s Green New Deal,” a piece I co-authored with fellow transit advocate Jeff Blum, casting congestion pricing in New York City as an initial foray of the Green New Deal. Following is the text of the piece, with an addendum instructing Carbon Tax Center subscribers and allies what they can do between now and March 31 — congestion pricing’s legislative deadline — to push the proposal across the finish line in Albany. — C.K.
While the Green New Deal basks in the national spotlight, a different but parallel policy idea is advancing in New York. That is Gov. Andrew M. Cuomo’s plan for congestion pricing, which will charge motorists to drive in the most car-jammed (and transit-rich) part of the city, Manhattan south of 60th Street.
At first glance the two appear more opposite than related. The Green New Deal is national, congestion pricing is New York-specific. One is expansive, a solar and wind energy-based revitalization of our society and economy. The other seems punitive, making drivers pay for what is now free.
But we believe the two have a great deal in common, both practically and philosophically. Moreover, congestion pricing faces a March 31 legislative deadline to allow initial appropriations for the tolling apparatus to be included in the New York State budget due on that date.
And so we invite Green New Deal adherents — from Massachusetts Sen. Ed Markey and New York Congresswoman Alexandria Ocasio-Cortez to the legions of determined climate justice activists who have put the Green New Deal on the political map — to make congestion pricing in New York a stepping stone to the national fight.
To begin, any program to save the climate depends on having cities thrive. Urban residents use only a fraction as much fossil fuels as suburbanites or rural dwellers, not because they are virtuous but because cities, due to their compactness, are inherently lower-carbon. City residents drive less not just because they can take transit but because destinations are close by. Density also dictates that homes and offices use less power and heat. For cities to thrive and grow, automobile traffic must be tamed and restrained, which congestion pricing does with marvelous efficiency.
Congestion pricing shares DNA with the New Deal through emphasis on public investment. Federal spending in the 1930s strung electric wire and conserved the soil, and federally driven investment going forward can decarbonize our economy. In the same way, the congestion toll revenues in New York can pay to modernize the city’s buses and subways — as happened after London adopted congestion pricing in 2003. Thanks to massive transit investment and reappropriation of street space there, nearly 25% more people now enter the center of London daily, mostly on trains, buses and bikes, while car travel speeds have remained stable.
There’s more. Congestion pricing rests upon the Rooseveltian idea to care for the commons — rivers and forests and farmland. Streets and transit are cities’ commons, which America has allowed cars to plunder for a century.
After years of temporizing, transit advocates in New York have finally resolved that the antidote to broken subways and too many automobiles must include charging vehicles to drive in city centers. Both major transit coalitions, the more business-oriented Fix Our Transit and Fix the Subways, led by the impressive grassroots organizing group Riders Alliance, have put congestion pricing at the top of their political agendas. Before long, we predict, Green New Deal supporters will similarly acknowledge that fully unleashing green energy requires a robust carbon tax, not just as a source of funds but to re-set societal defaults, to re-orient incentives and to unlock innovation.
The Markey–Ocasio-Cortez Green New Deal resolution is adamant about labor rights and economic justice. So too is the movement for congestion pricing. New York City’s most venerable anti-poverty advocate, the Community Service Society, examined congestion pricing and found that for each low-wage New Yorker who regularly drives into Manhattan, nearly 40 will benefit from better trains and buses paid for with the congestion-toll revenues. In the same vein, the right-of-center Manhattan Institute concluded last year that extending New York’s decade-long jobs boom depends on massive and effective investment in mass transit to allow immigrant and other workers to access jobs.
These considerations appear to have finally pushed New York’s Mayor Bill de Blasio off the political fence last month to proclaim support for congestion pricing.
The iconic New York progressive centrist Daniel Patrick Moynihan understood this thirty years ago. As a powerful Senate Committee chairman, he found a way to use a portion of federal gas taxes to decouple urban mobility from automobiles, spurring a rise in transit and bicycling and making cities cleaner and more dynamic.
There is this difference, however. Unlike the Green New Deal, which is open-sourced by design, congestion pricing for New York is being finalized by the state’s governor, who seems intent on keeping the toll levels and other key plan details under wraps till the last minute.
Attempts to toll the entrances to Manhattan’s central core have come up short so many times that any leader worth his Machiavelli might rightly presume that iron-fisted control is the only way to get it done. But that approach is out of step with both the current political era and the enormous momentum to pass congestion pricing in the state budget this month and finally cure the dysfunction of the city’s streets and subways that daily afflicts millions.
A fifth of the way into our new century, awareness is spreading of the folly of giving away for free a finite resource, whether it’s the atmosphere’s capacity to remain temperate or Broadway’s five travel lanes through Times Square.
A Green New Deal, like its illustrious antecedent, can start in New York. Today, congestion pricing can revitalize and unsnarl New York’s subways and streets. Tomorrow, a nationwide mobilization can turn our carbon economy green.
Komanoff, an energy and transportation economist, was “re-founder” of the bicycle advocacy group Transportation Alternatives. Blum was founding executive director of USAction and leader of multiple state and national pro-transit campaigns.
Whether you live in NY State or somewhere else, please visit the Fix The Subway campaign to find out how you can donate time, money or both to pass congestion pricing for New York City now. Or, text DELAY to 52886. Remember, the vote for the budget bill that will include initial allocations for congestion pricing is expected between Friday March 29 and Sunday March 31. Thank you.
I set off a media firestorm in New York City last week.
It was Friday morning, the day after Trump repudiated the Paris Climate Agreement, and Mayor Bill de Blasio was using his weekly “ask the mayor” turn on the popular Brian Lehrer radio show (NPR) to tell New Yorkers “We’re going to step up our game” to address climate change. I called in and the screener put me through as “Charles from Manhattan.” Here’s what I said:
Mayor de Blasio, you spoke eloquently a moment ago about stepping up our game in light of Trump’s withdrawal from Paris. How about you stepping up your game, leading by example, getting out of your SUV armada, and if you need to go to the Park Slope “Y” five days a week, rather than a gym near you, why don’t you take mass transit? Or even once in awhile ride a bike, like the vast majority of your fellow New Yorkers, so you will know how we are suffering under a transit system — yes governed by the governor, not by the mayor — but you need to lead by example.
I finished with this:
One of the reasons we are in this climate crisis is because the average person sees elites not playing by the rules that elites seek to impose on everyone else. And you’re not going to be able to lead when you’re sitting in your SUV being chauffeured every day, twelve miles from Gracie Mansion to Park Slope just so that you can ride an exercise bike.
Then it was Mayor de Blasio’s turn. He defended his climate record and called my criticism “cheap symbolism,” as reported by Politico (abridged slightly here):
Charles, I understand the emotional appeal of what you’re saying but I’m just not going to take the bait, my friend.
I have instructed folks in my government to turn our fleet into electric cars. We are moving to renewables, we are retrofitting our buildings, that’s the real leadership — it’s not whether I go to the gym.
Whether I go to the gym does not affect the policies that affect millions of people. I’m going to keep going to the gym. I’m proud to say we have a hybrid. It’s a good car, it’s very fuel efficient. I use the subway when it makes sense to use the subway, and I do stay in touch with what people are going through and I knew it for years and years, because for many years I never had any car.
So it’s easy for you to say that, but it doesn’t really have anything to do with how we change the world. We change the world with policies that affect people and the policies of this city are going to lead to addressing climate change in a much more aggressive way than it’s ever been addressed in the history of New York City.
But again, the issue is not cheap symbolism here. The issue is, are we gonna take action. That’s really the motherlode of addressing emissions in this city. It comes from buildings. We’re going to be very very aggressive about that.
That was that, or so I thought. What I soon learned was that the City Hall media bullpen was going nuts. One of the reporters put my voice together with my first name, and the papers started calling for quotes. By nightfall, their stories were up, with front-page headlines in the Daily News and the NY Post branding the mayor a “green hypocrite” and even the staid New York Times putting my exchange with the mayor at the top of its Metro section.
I was able to go deeper in those interviews. My most-teachable moment came on Saturday. The NY Post was doing a follow-up and I said that transit riders “need a voice and we don’t have one,” when neither the mayor nor the governor rides a subway or bus.
There are levels galore, here. Let’s unpack them.
First, when we quantify the direct carbon consequence from the mayor’s mini-fleet of SUV’s from home to gym, we see it’s really small: just 24 pounds of CO2 per trip, which monetizes to a mere half-a-dollar’s worth of climate damage.
(Burning one gallon of gasoline releases 19.57 lb of CO2, we’ll call it 20 lb. Let’s assume two SUV’s, each averaging 20 mpg, though actual mileage is probably less. They’re going 12 miles, so we get 2 (vehicles) x 20 lb/gal x 1/20 gal/mile x 12 miles, which yields 24 pounds of CO2. In 2015 Pres. Obama directed federal agencies to use a “social cost of carbon” of $37 per ton of CO2, in 2007 dollars; that equates to $44/ton in 2017 dollars, which is just 2.2 cents per lb of CO2. So the mayor’s 24 lb per trip is imposing a direct climate cost of 53 cents (24 lb x 2.2 cents/lb).)
It’s true that the official U.S. cost of carbon (since rescinded by Trump) is a low-balled estimate, but even quadrupling it raises the direct climate cost of the mayor’s tailpipe CO2 to just two bucks — befitting the fact that global CO2 is the end-product of billions of actions that are individually insignificant but collectively fraught.
A second level of costs arises from the spatial impacts from driving in a dense city. These are experienced most acutely as traffic congestion and its attendant time cost. And here I mean not mayoral time lost to traffic (since de Blasio gets to read and talk by phone while being ferried to the gym) but the time his auto trip effectively takes from others on the roads, by virtue of occupying space and slowing them down.
As long-time subscribers to this blog may know, I’ve done a lot of analysis of traffic congestion costs in New York City, even to the point of quantifying the time costs from a single additional trip in or near the city’s Manhattan core. This analysis is embedded in the kaleidoscopic spreadsheet I maintain to model “congestion pricing” for New York (download here, Excel required; go to Delays and Delay-Costs tabs) but more conveniently summarized in Time Thieves, an article I wrote a half-dozen years ago with then-Princeton student Will Fisher.
The takeaway for our purposes is that a single mile driven by just one vehicle during ordinary congested conditions in or near Manhattan slows down other vehicles by a combined 8 or 9 minutes (think of it as hundreds of vehicles delayed by a few seconds each). Factoring that by the 24 miles in the mayor’s ride to the gym (12 miles by 2 vehicles), the cars, trucks, cabs and buses in the mayor’s “traffic field” are absorbing an aggregate slowdown of 3 to 4 hours. By any reasonable estimate of the average value of time of those vehicle users, the aggregate cost of the time taken from them by each mayoral ride from his residence to his gym is easily in excess of a hundred dollars.
That’s two orders of magnitude greater than the direct carbon cost per trip — indicative of the fact that traffic congestion manifests as an inefficiency problem far more than as a climate problem, at least directly. It also demonstrates that the mayor’s (or any other New York car user’s) promise to switch to an electric vehicles won’t put a dent in the societal costs of driving in a congested metropolis.
Yet even those several hours of extra congestion dissolve into insignificance in a city of 8.5 million people and 2 million registered vehicles. The crux of the matter — which I tried to telegraph in my radio remarks but didn’t really nail until that second NY Post interview the next day — is found in this syllogism:
- New York City is inherently green by virtue of its urban density. This idea was most lucidly distilled by the writer David Owen in his 2009 book, Green Metropolis. Density both facilitates and enforces shorter trips, non-automobile travel, and compact and contiguous living and working spaces, all of which translate directly into smaller carbon footprints.
- What makes this density possible is our mass transit (subway) system. But it is deterioriating from insufficient investment in equipment and maintenance. (The local press corps is all over this; see for example these vivid stories last month by The Times’ Emma Fitzsimmons, 1 and 2.)
- Politicians are ignoring this crisis. Neither NY State Gov. Andrew Cuomo, who controls the state-chartered Metropolitan Transportation Authority, nor Mayor de Blasio, who has a voice in running the MTA along with a bully pulpit to call out problems and demand solutions, has stepped up to take responsibility. Neither of them ever rides a subway or bus, except in a photo-op.
It’s safe to say that Mayor de Blasio isn’t steeped in this logical chain connecting density, transit and leadership. For evidence, look no further than the end of his radio rejoinder to my harangue, in which he called the city’s building stock the “motherlode” of emissions and, thus, his climate focus. While it’s true that heating and powering the city’s offices and apartments generates a good deal more CO2 than fueling our cars and trucks, that’s because extensive and efficient mass transit keeps down automobile use. Take that away — as the governor and mayor are effectively doing by turning their backs as the subways fall apart — and transportation emissions will surely rise.
But the stakes are higher still. Low-CO2 NYC can’t grow or even maintain its current population without reliable and humane transit. Businesses and families won’t suffer a city dependent on undependable transit and will locate in less inherently-green cities or suburbs instead. And while in theory leaders could care enough about transit to make it work even if they never stepped onto a train or bus, ours have shown no inclination to do so in their combined decade in office (6.5 for Gov. Cuomo, 3.5 for Mayor de Blasio).
Maybe the only way the situation gets turned around is if each of them is stuck on a jammed, sweltering, subway … or is forced to wait on a packed platform as the minutes tick and the tension mounts. And not just once, but again and again.
That, in a nutshell, is why I called up and berated the mayor. As I told The Times, I’d been pondering it for weeks. The combination of Trump’s craven Paris announcement and the mayor’s wrapping himself in the mantle of climate savior gave me an opening and also pushed me over the edge.
I’ll close with a bit of irony inspired by Nicole Gelinas, the trenchant urban affairs analyst at the Manhattan Institute and New York Post columnist. In her Monday column, Bill de Blasio is a climate change hypocrite, she noted:
People will use less carbon — eventually — not because they’re nice, but because it will be more expensive. The world’s governments could achieve this effect more quickly through a carbon tax. Why not get it over with now? Because it’s too hard, politically and practically, to change people’s behavior by making them pay the full purported cost of carbon — that is, asking you to pay for next decade’s hurricane with your gas purchase today. (emphasis added)
Yes and no. Enacting a carbon tax is hard, but not necessarily impossible. But in this case, as we’ve seen, even a stiff carbon tax wouldn’t impel de Blasio to switch to subway from SUV; and that’s probably true even if he were paying for the ride from his own pocket.
What’s needed are new social norms that will make my radio complaint so ordinary that it’s not news; and unnecessary besides, because the idea of being chauffeured 12 miles to a gym would be nearly extinct. That is where a carbon tax would help.
One of the best attributes of carbon taxes is that they’re fairly immune to the law of unintended consequences. No gaming or criminal mischief. No rebound effects. Just a classic downward-sloping demand curve: the fossil fuel provider pays the tax, the price of the petroleum product or coal-fired kilowatt-hour goes up, dirty energy’s market share goes down.
But there’s a lurking concern that surfaces from time to time in the literature of resource economics and “Pigovian” taxes: raising the prices of fossil fuels too rapidly might induce the owners of those resources to extract them faster in the near term, a phenomenon known as the “green paradox.” In this scenario, fossil fuel owners would flood the market to reap higher sales before the carbon tax got big enough to kill off business. This near-term fossil fuel binge would increase CO2 emissions, obviating the fuel-shifting and demand-busting that a carbon tax would otherwise induce.
The green paradox is a direct corollary of Hotelling’s rule, a bedrock principle of resource economics. It came to mind this week as we digested the new report from the 34-nation Organization for Economic Cooperation and Development, Climate and Carbon: Aligning Prices and Policies. The OECD report urges an “explicit price on carbon” as the key mechanism to reduce global CO2 emissions. The report points to the IPCC’s newly confirmed finding that atmospheric greenhouse gases must not exceed 450 parts per million CO2-equivalent. Adhering to the resulting global “carbon budget” will necessitate zeroing out net global emissions by the second half of this century, according to OECD.
Topping OECD’s list of necessary national policies are:
[e]xplicit carbon pricing mechanisms, such as carbon taxes and emissions trading systems, [which] are generally more cost-effective than most alternative policy options in creating the incentive for economies to transition towards zero carbon trajectories.
[U]se of these [pricing] mechanisms is expanding in developed, emerging and developing economies, but there is considerable scope for further uptake by governments. Overcoming political opposition to putting an explicit price on carbon will often require close attention to the distributional and competitiveness implications on the domestic economy.
OECD also stresses the need for governments to eliminate fossil fuel subsidies and to enact complementary policies such as energy efficiency standards for buildings, homes and automobiles.
If, as OECD suggests, explicit carbon pricing is to drive CO2 emissions to zero by mid-century, it will have to be aggressive enough so that fossil fuels become uneconomical and are overtaken by zero-carbon alternatives. The Carbon Tax Center and a number of economists have attempted to model the price trajectory needed. While such modeling is highly speculative — it’s almost impossible to explicitly model technological innovation, for example — we estimate that the CO2 price will need to surpass $300/ton by mid-century.
That’s a hard sell politically, of course, though we often point out that a carbon tax can replace other taxes so our total tax burden need not increase. But there’s also Hotelling’s rule to consider.
In a seminal paper published in 1931, Harold Hotelling posited that exhaustible resources are a form of capital available for extraction at any time at a known cost. He showed mathematically that in a dynamic, competitive equilibrium (where sellers compete and are free to respond to changes in supply and demand), prices of such resources rise at the rate of interest. Imposing a tax that raised the price of fossil fuels faster than the interest or “discount” rate would therefore make the resource more valuable now than in the future. Thus, the “green paradox”: a carbon tax rising too fast could induce more global warming by triggering a near-term rush to extract and market fossil fuels. (Note that an expectation of rapidly rising subsidies to renewable energy could induce a similar rush to extract fossil fuels.)
Nevertheless, a new paper by Prof. Robert D. Cairns of McGill University concludes that fears of the “green paradox” are overblown in the context of oil pricing. In The Green Paradox of the Economics of Exhaustible Resources, Cairns points out that oil and gas production is limited by the drilling activity in the previous period; production from wells tends to diminish along a predictable “decline curve” reflecting diminishing hydraulic pressure in the formation. Because producers can’t cost-effectively increase production very rapidly, the assumptions of Hotelling’s rule don’t apply. Similarly, capacity to drill new wells is limited in the short term by availability of drilling rigs and related equipment; investments in additional capacity don’t pay off immediately, they must be amortized over time by expected future activity.
Hotelling may reign but he does not rule. Models in his tradition assume free allocation of
resources over time. The rule is an arbitrage condition relating the values of net price over the
productive life of the reserve. Empirical evidence suggests that allocation is subtler than in the
Hotelling model. The operative constraint in oil industry is that allocation over time is capped in
one of a number of ways, so that arbitrage among periods is constrained. Calculations and comparisons are not simply of current costs at different time periods but of commitments, especially sunk costs, predicated on the entire future of operations.
Economic theory and empirical evidence suggest that Cairns’ conclusion isn’t limited to oil. Coal and gas extraction are also constrained by physical and capital factors that limit resource owners’ ability to accelerate production enough to overwhelm the benefits of a predictably-rising carbon price.
Like the vast majority of economists, we agree with OECD that a global carbon price is key to zeroing out global CO2 emissions. Prof. Cairns and a growing body of literature show that fears of the “green paradox” shouldn’t deter policy-makers from setting an aggressively-rising carbon tax trajectory that meets the goal of zero emissions by mid-century.
Photo: Flickr– photos of Rob
Just before Thanksgiving, Grist political blogger David Roberts posted a sharp challenge to carbon-tax advocates, contending that we were, in effect, ascribing “magical” properties to carbon taxes. Roberts spelled out 10 drawbacks to carbon taxes, with this bottom line: any carbon tax legislation that could make it through Congress would likely be feeble and regressive, and perhaps even counter-productive.
David is arguably the green community’s most prolific and astute blogger, particularly on environmental politics. His qualms about pushing for a U.S. carbon tax deserve to be taken seriously. We’ve reproduced his Grist post, below. Alongside it is our point-by-point response. Let us know what you think.
— Charles Komanoff & James Handley
10 reasons a carbon tax is trickier than you think
By David Roberts, Grist
House GOP leaders recently confirmed again what I wrote last week: There isn’t going to be a carbon tax in the next two years or, probably, for as long as the GOP controls the House. I’ve been asked by a few climate types, “Why not spend your time pushing for it rather than poo-pooing its chances?” It’s a reasonable question. The answer, I suppose, is that I do not regard it with the same reverence as many economists and climate hawks.
That’s not to say I wouldn’t welcome a substantial, well-designed carbon tax. But is it the sine qua non of climate policy, the standard against which all climate solutions are measured and for which any sacrifice is justified? No.
Those who support a carbon tax over cap-and-trade often tout its simplicity, but the fact is, there are plenty of ways to screw up a climate tax too. Not everything that goes under the name is worthy of support, especially if it’s achieved at the expense of other liberal or green priorities. And given the current political milieu, it’s likely that any carbon tax that did manage to pass would be a bum deal for America’s poor and middle class. (Actually, that’s probably true for anything that passes, period.)
Here are 10 reasons for a more tempered and realistic attitude toward a carbon tax.
To save climate, no other policy tool comes close to a carbon tax
By Charles Komanoff & James Handley, Carbon Tax Center
Thank you for elucidating your reservations about placing a carbon tax at the heart of U.S. climate policy.
Until now, your many Grist posts critiquing carbon taxes have focused on political infeasibility. Now you’ve presented your policy objections. Thanks for bringing your concerns out into the open.
No surprise: the Carbon Tax Center indeed views a U.S. carbon tax as the sine qua non of effective climate policy — provided it builds toward a substantial price that rises steadily and predictably over time. With a ramped-up tax, the initial carbon charge can be modest, giving businesses and families time to adapt, while still broadcasting a clear price signal to begin shifting millions of decisions toward less energy and emissions — big decisions that determine design of vehicles and transport and that set the pace and nature of investment in low- and non-carbon energy; as well as the full gamut of household-level decisions, many of which can’t and won’t be touched without a carbon tax. Almost as importantly, a robust carbon tax changes the culture by broadening the definition of pollution and valorizing conserving behaviors with monetary rewards.
Here are our counterpoints to David’s 10 points.
|1. It’s conservative.
There’s a reason so many conservative (and neoliberal) economists support carbon taxes: They fit comfortably in a worldview that says problems are most effectively solved by markets, with minimal government intervention.Current markets have a flaw: They do not reflect the external costs associated with carbon dioxide emissions (namely, the impacts of a heating planet). The answer, economists argue, is to determine the “social cost of carbon” and to integrate that cost into markets via a carbon price, tax, or fee. With an economy-wide, technology-agnostic carbon tax in place, the market will eliminate carbon wherever it is cheapest to do so, insuring that we don’t “overpay” for carbon reductions.
Implicit (and often explicit) in this view is the notion that other attempts to tackle carbon — say, EPA power plant rules, or fuel-economy standards, or clean-energy tax credits — are merely backdoor, inefficient ways of pricing carbon. If you get the social cost of carbon right and levy an economy-wide tax that prices all tons of carbon equally, then you have optimized the market, carbon-wise. All other regulations and subsidies will only serve to disrupt market efficiency. They are sand in the gears, as it were.
The problems with this worldview are too many to list here, much less to litigate. Economists James Galbraith and Dean Baker argue that free markets are a myth; all markets everywhere are already designed, shaped, and regulated, usually to the benefit of the wealthy. Economist Dani Rodrick argues that industrial policy — “picking winners and losers” — is ubiquitous, a feature of all advanced economies, whether acknowledged or not. Sociologist Fred Block argues that virtually every industrial success story (e.g., fracking) can be traced to government-supported innovation.
Anyone familiar with the U.S. electricity sector knows that there is little resembling a market in that Rube Goldberg hodgepodge of overlapping jurisdictions and quasi-monopolies. The entire U.S. coal sector depends on supply from the Powder River basin, which is public land administered by the government. Internal-combustion vehicles are heavily favored by a century of road-building and sprawling land use.
And so on. There is no pristine “free market” for regulations and subsidies to besmirch. The game is always rigged, and right now it’s rigged in favor of the fossil-fueled status quo. The notion that a problem like climate change, with its century-spanning effects and potentially existential risks, will be solved exclusively or even primarily with “market mechanisms” is a religious doctrine, not a realistic appraisal.
What government proactively plans, encourages, and accomplishes is just as important to the climate struggle as what the market penalizes. Put more bluntly: the spending matters as much as the taxing. Which implies that …
|1. A carbon tax is conservative and progressive.
We don’t think of a carbon tax as a market mechanism; there’s no need to create a new market. It’s a price mechanism. Call it a market corrective if you wish, but the term “market” is both a misnomer and a turnoff for carbon tax adherents (actual and potential) who don’t identify with market ideology.
A carbon tax would correct existing markets that systematically under-reward virtually every action, every device, every innovation that reduces fossil fuel use because the prices of those fuels omit the costs of climate damage (not to mention most of the other harms from mining and burning coal, oil and gas).
We don’t accept your suggestion that economists and policy-makers need to “get the social cost of carbon right” in order to set a carbon tax. For one thing, no two economists will ever agree on that number. More importantly, every climate-aware person already lives with the knowledge that the social cost of carbon is enormous: the likely descent of human civilization into chaos in the face of wholesale climate disruption. Our job as advocates isn’t to fix the “right” price of carbon but to maximize the internalization of carbon’s societal costs into the prices of fossil fuels. (Could any politically viable carbon tax capture the entire social cost?)
And we emphatically reject the insinuation that we’re beholden to a purist belief that complementary measures to control and reduce carbon are irrelevant or harmful. Like you, we’re painfully aware of the multitude of ways in which market barriers like split incentives, inadequate information and path-dependence impede innovation and buy-in for energy efficiency and renewables. Therefore, like you, we strongly support regulatory standards, especially those that address inefficiency in product and building design. Still, let’s be realistic about their limits:
As you note, David, there is no pristine “free market” in energy or anything else. But so what? By itself a carbon tax won’t level the playing field, but it will lower the tilt. And as the tax rises, the tilt will diminish, allowing clean energy and a conservation ethic to compete with dirty energy and an ethic of waste.
|2. It’s the revenue, stupid.
Brookings notes that …… a carbon tax starting at $20 per ton and rising at 4 percent annually per year in real terms would raise on average $150 billion a year over a 10-year period while reducing carbon dioxide emissions 14 percent below 2006 levels by 2020 and 20 percent below 2006 levels by 2050.$150 billion a year — pretty soon you’re talking about real money! That could be used to support cleantech R&D or deploy renewable energy or build green infrastructure … or it could be used for none of those. Point is, what happens to the revenue should be at the center of climate hawks’ negotiating strategy; it’s not some peripheral bargaining chip.
|2. “Revenue recycle” will help the tax to rise.
We think you’ve got the revenue matter backwards. Revenue treatment is important, of course, as befits any new tax that puts hundreds of billions a year in play. But rather than fund cleantech R&D and green infrastructure, we need to direct the revenue to support productive economic activity and offset the hit to poor and middle-income families’ disposable incomes. Doing so will help win the political buy-in to legislate periodic renewal of the annual rises in the tax that will drive the needed changes in behavior, infrastructure and R&D far better than subsidies.
This is why we frame carbon tax revenue treatment in macro-economic rather than energy-policy terms. (We say more about this at #3, next.)
|3. “Revenue-neutral” means foregoing any money for climate solutions.
A “revenue neutral” carbon tax is one in which all of the revenue raised is returned automatically to taxpayers. Most of the carbon tax proposals floating around today are revenue neutral, mainly, as far as I can tell, because conservatives demand it. (Conservatives don’t trust government with revenue.) There are three ways to achieve revenue neutrality, which I will list from most to least desirable:
Note what all these uses of carbon revenue have in common: They do nothing to reduce carbon emissions or encourage clean energy. And to boot, they wouldn’t even reduce taxes much.
|3. “Revenue-neutral” helps keep the carbon tax rising.
Like many carbon tax advocates, though not all, we (Charles & James) personally have progressive perspectives. Outside the Carbon Tax Center we advocate for robust government investment in education, public transportation, health protection, housing, and a broad spectrum of social services and support nets. Yet we ardently want carbon taxes to be close to 100% revenue-neutral (with minor and transitory exceptions for assistance for displaced workers and communities), for two reasons:
First, as you have detailed in many posts over the years, it’s next to impossible politically to direct carbon tax revenues to “good things” (e.g., green tech, mass transit) without also opening the floodgates for bads like “clean” coal, next-generation reactor loan guarantees, and biofuel boondoggles. Better to hold the line and continue to fund R&D from established pots of money.
Second, the carbon tax is going to have to rise steeply and steadily over a long time period to provide strong, ongoing incentives to phase out and finish off fossil fuels. Returning essentially all of the revenues to American households — whether through reductions in taxes like payroll taxes that discourage hiring and are distributionally regressive, or monthly electronic ”dividends,” or a combination — is essential to winning support for the rising carbon tax. Indeed, we want Americans to find these revenue return mechanisms so appealing that they will welcome ongoing rises in the carbon tax level so as to expand their size (and, ultimately, sustain them in the face of the declining carbon tax base as fossil fuel use dwindles, as we discuss in #6, below).
|4. Carbon money should fund clean energy.
There are two distinct tasks for climate policy. One is to reduce carbon emissions at lowest cost. The other is to develop and deploy a new energy system. The evidence shows that a carbon tax is good at the first, but not great at the second. That’s where the revenue comes in.I was going to gather together the research on this, but then I discovered that Mark Muro of Brookings has done it for me. Bless you, Mark Muro of Brookings. (Pardon the long excerpt — all the emphases are mine.) [Ed. note: We’ve put the long Muro excerpt in italics. — Komanoff]
“The sticking point here is that while the conventional wisdom among carbon pricers holds that higher dirty energy prices will provide the right market signals to entrepreneurs, who will then develop and deploy clean new technologies, a ton of evidence suggests that pricing alone won’t generate enough deployment to get us where we need to go. Instead, it is becoming increasingly obvious that along with pricing we need a direct technology deployment push.
“One hint of this comes from the modelers. Under neither of their respective carbon tax proposals do the Brookings or MIT groups forecast that emissions will drop enough to even come close to the 80 percent cut in emissions below 1990 levels that is the nation’s long-term carbon emissions goal. Yes, fossil fuel use would go down, oil imports would shrink slightly, and emissions would decline, but much more work would need to be done to tackle global warming. Similarly, an interesting analysis by the Breakthrough Institute concluded that a $20 per ton carbon tax would offer just one-half to one-fifth the incentive of today’s subsidies for the deployment of solar, wind, and other zero-carbon technologies.
“These results reflect the growing body of literature that has begun to suggest—and document—that broad economy-wide pricing strategies alone induce only modest technology change and deployment. Last year, Matt Hourihan and Rob Atkinson of the Information Technology and Innovation Foundation ran through some of the literature pertaining to a wide range of industries, while at the same time, scholarship specifically on energy has been accumulating.
“Ackerman argued a few years ago that getting the price right is necessary but far from sufficient to mitigate climate change and that direct public sector initiatives are required to disrupt path-dependencies and accelerate learning. Acemoglu and others more recently demonstrated that the optimal carbon policy is not one-sided but involves both carbon taxes and direct research subsidies. They urge immediate action.
“Turning to empirical evidence, Calel and Dechezleprêtre looked at company patenting patterns under the EU emissions trading system (a cap-and-trade pricing scheme) and concluded that the system has had very little impact on low-carbon technology change. And then, earlier this year, a Swiss-German team found that the EU system has stimulated only limited adoption of low-emissions technology and that research, development, and deployment (RD&D) technology ‘push’ measures induced more action. This group concluded that none of the first three phases of the trading system were ‘capable of triggering increased non-emitting technology adoption’ and that ‘only renewable-technology pull policies had this effect.’
“And so we arrive back at the revenue: The accumulating evidence and the appropriate fit of the tax to its use argue heavily for at least a portion of the revenue of any carbon pollution fee to be applied to direct investment in energy system clean-up, whether through R&D or later-stage deployment supports.”
In short, the tax side is not enough. Effective climate policy also requires spending.
This is commensurate with some of the revenue being rebated to low-income taxpayers, or used to reduce taxes, or wasted on the fake long-term deficit problems. Public investment in clean energy is not the only legitimate use of the revenue. But it is the use for which climate hawks should be advocating most strongly.
|4. A strong enough carbon tax will indeed drive investment to clean energy.
We don’t dispute Mark Muro’s assertion in his “Carbon Tax Dreams” post that we’ll never usher in massive cleantech investment or otherwise shrink fossil fuel use and carbon emissions to near zero with just the price signals from a carbon tax that starts at a mere $15 to $20/ton and rises only 4% a year faster than inflation. The Carbon Tax Center’s carbon tax spreadsheet model yields the same conclusion. So does a pocket calculator: assuming 3% annual inflation, a tax rising 4% a year faster than inflation would take a decade to double in nominal terms, and almost two decades to double in real terms. That’s way too slow a ramp-up, considering that a carbon price of $40/ton of CO2 would add a mere 36 cents to a gallon of gasoline and 1.5 cents/kWh to the average U.S. retail electricity price.
We need a carbon tax that quickly gets to much higher rates than that. It doesn’t have to start like gangbusters; indeed, it shouldn’t, since families, businesses and institutions all need (and deserve) time to adapt to the new reality of higher fuel and energy prices. A steady and steep ramp-up rate is far more important and beneficial than a high starting point.
These considerations make the ideal carbon tax close to that embodied in legislation introduced in 2009 by Representative John Larson (D-CT). Rep. Larson’s carbon tax starts at $15/ton and rises each year by $10-$15, with the actual increment depending on whether emissions are being driven down fast enough. In the tenth year of a carbon tax, the CO2 price would be between $100 and $145 per ton of CO2 under the Larson bill, vs. $28-$37 per ton for Muro’s scenarios.
That 3-fold to 4-fold difference in the respective tenth-year carbon price would start to narrow eventually, though not until the start of the fourth decade, in absolute terms — indicating how fundamentally different the Larson tax scenario is from Mark Muro’s. The corollary, David, is that while your boldfaced assertions that “pricing alone won’t generate enough [clean-energy] deployment to get us where we need to go” and “broad economy-wide pricing strategies alone induce only modest technology change and deployment” may well hold for the undersized and only gradually rising tax levels you cited in your post, they don’t necessarily apply to the kind of robust tax presented in Rep. Larson’s bill.
We do take seriously Frank Ackerman’s caveat in the paper you cited, that “Price incentives alone cannot be relied on to spark the creation of new low-carbon technologies.” But recall that Ackerman, writing in 2008, was in part responding to an IMF report published earlier that year whose year-2100 climate “targets” could have come from the Koch Brothers playbook: a CO2 concentration of 550 ppm, annual declines in emissions of only 0.6% till then, and a carbon tax starting at around $1/ton of CO2 and rising by just 67 cents a year. We suspect Dr. Ackerman might have a more sanguine view of the “market pull” of a carbon tax whose rate, like Rep. Larson’s, is a full order of magnitude greater than what the IMF envisioned.
Our bottom line, then, is that we don’t believe that a small carbon tax used for subsidies and/or RD&D would provide anything close to the sustained broad market pull toward innovation that is required to address the climate crisis, and that could result from a substantial and briskly rising carbon tax. In our view, starting with as close to 100% revenue return as possible is the best way to build growing political will for a robust and effective carbon tax, i.e., one with sustained, predictable and sizeable increases from each year to the next. There, the market pull (including long-term price expectations) should suffice to elicit clean-tech innovation and revolution. In that case, however, “revenue return” is mandatory — ethically, to offset households’ higher energy costs, and politically, to forge and maintain the constituency to keep the tax level rising.
|5. Carbon taxes are regressive.
I mentioned this is passing already, but it’s worth emphasizing. On their own, carbon taxes hit the poor harder because the poor spend a larger proportion of their income on energy. It isn’t difficult to solve that problem. Using the revenue to reduce payroll taxes would do it. Setting aside some revenue for direct rebates to low-income taxpayers would do it. (By the way, the Waxman-Markey bill did exactly that.)But swapping a carbon tax for the income tax wouldn’t. Using carbon tax revenue to reduce the deficit wouldn’t. If climate hawks want progressivity — and they should, if they hope for broad grassroots support — they’ll have to fight for it.
|5. Tax regressivity is an anathema . . . but curable.
No argument here, David, though we spin this issue a bit differently. We agree that (i) putting revenue use aside, a carbon tax has a greater proportional impact as household income declines, and (ii) progressive revenue treatment such as a revenue swap on payroll taxes, or pro rata dividends, or low-income support, can mitigate and eliminate the regressivity.
The Carbon Tax Center insists on such progressive treatment, though we concede that a final bill may be less than scrupulous on this score. (We also question the extent to which Waxman-Markey would have solved this problem, but we’ll save that discussion for another time.)
|6. Carbon tax revenue is supposed to decline.
Remember, the goal of a carbon tax is to decarbonize the economy. As carbon declines, carbon tax revenues will decline, unless the tax is almost continuously ramped up. This wouldn’t matter so much for revenue earmarked for clean energy or direct rebates. There will be less need for that revenue as the economy decarbonizes.
But what if carbon taxes have replaced payroll taxes, which fund Social Security? As revenue declines, so will funding for Social Security. Not good. Or what if carbon taxes have replaced income taxes? As revenue declines, individual tax burdens will decline, which will delight conservatives, but should be a source of concern for liberals in favor of active government. The fact that a carbon tax is intended to phase itself out over time cannot have escaped the attention of its conservative supporters.
|6. The eventual decline in revenue is a non-problem.
“The fact that a carbon tax is intended to phase itself out over time,” as you put it well, David, belongs in the class of problems that at this juncture should matter only to extreme policy wonks. The Larson Bill, which we discussed under Point #4 above, and which certainly falls on the “aggressive” end of the carbon tax rate spectrum of, doesn’t reach max revenue until Year 18, when the annual intake is projected to plateau at just under $800 billion. (Note: that figure, which is drawn from our modeling of the Larson bill assuming annual rises of $12.50/ton, may change with revisions to the model now underway.) Long before then, there should be ongoing discussions about how to replace that revenue stream as it slowly and predictably shrinks. Indeed, given the amounts in question, we would expect those discussions to be a central feature of public policy in future decades.
|7. The carbon lobby will want to axe EPA regulations in exchange.
Exxon has been supporting a carbon tax (notionally) for several years, but it’s made clear that it sees such a tax as “an alternative to costly regulation.” This is what everyone’s favorite dirty-energy lobbyist Frank Maisano recently wrote (behind a paywall):No carbon tax should be considered before serious regulatory reform is undertaken. The U.S. EPA is moving forward on an approach that regulates carbon, which is akin to fitting a square peg in a round hole. Not only is it legally dubious, but it is not likely not work in practice, either.
Suffice to say, the fossil fuel lobby would never give a carbon tax their OK unless EPA regulations on carbon (and possibly other pollution regs) were scrapped. We saw this fight play out once already, around the cap-and-trade bill.
Unless it was for a high-and-rising tax (which is unlikely), that would be a terrible trade for greens. The implicit carbon price in EPA regs is higher than an explicit tax would likely be. In developing regulations, EPA uses the government’s official “social cost of carbon,” which is around $26/ton. There’s good reason to think that figure is dramatically too low. But it is already higher than a politically realistic carbon tax.
|7. EPA regulation of climate pollution may not measure up to its regulation of public-health pollution.
This issue should be straightforward. Greens should hold the line on health-and-safety rules pertaining to the energy sector — emission limits governing pollutants like NOx and mercury (e.g., Mercury and Air Toxics Standards); mining and combustion waste (a/k/a Coal Combustion Residuals); fugitive emissions like methane; and “macro” regs like the Cross-State Air Pollution Rule. But prospective EPA rules directed at CO2 emissions may be another matter.
Based on the authoritative 2011 paper by Burtraw et al. for Resources for the Future, new EPA regs will at best reduce greenhouse gas emissions (GHG’s) in 2020 by only 13% (vs. 2005). Further reductions would be harder to come by, given that “a regulatory approach is likely to lead to less innovation … than would occur under a flexible incentive-based program” such as a carbon tax. Moreover, unlike a carbon tax, GHG regulations would generate zero revenue.
Symbols matter, and EPA authority on public-health pollution is vital. But EPA regulation of CO2 may be less valuable than you presume, David. (That EPA uses a $26/ton social cost of carbon in its analyses doesn’t mean that its regulations would bring the same reductions as would result from a $26/ton price.)
|8. The carbon lobby will want to axe clean-energy support programs in exchange.
The same argument goes for clean-energy subsidies: the implicit cost of carbon in those subsidies is far higher — two to five times higher — than a $20/ton carbon price. Trading subsidies for a tax would, especially in early years, represent far less direct support for clean energy.
|8. A robust carbon tax will do far more for clean energy than direct subsidies.
See #4, above, for our argument that a strongly rising carbon tax will drive investment to clean energy. In the limited space available here, we add that phasing out clean-energy subsidies would build political momentum to get rid of subsidies for fossil fuels and other forms of dirty energy.
[Addendum: We nailed this issue in our Jan. 2014 formal comments to the Senate Finance Committee. Details, and link to those comments, are here. — Komanoff]
|9. The environmental benefits are uncertain.
The great benefit of a carbon cap over a carbon tax is that a cap ensures a particular level of emissions reductions (yes, yes, depending on how carbon offsets are used). The thing with a tax is, no one can be sure in advance how much it will reduce emissions. The history of environmental policy is one of overestimating costs, so chances are good that the initial tax level will be set conservatively.
That’s what typically happens with cap-and-trade systems — compliance costs are overestimated, there are too many emission permits issued, permit prices plunge, and there’s little financial incentive to reduce emissions. But a cap-and-trade program has a built-in protective measure: the cap. Emissions are either falling or they aren’t, and if they aren’t, the cap provides a statutory basis for further action. It’s not perfect, but it’s something.What happens if a tax isn’t reducing emissions enough? It means Congress has to raise it. How much does Congress like raising taxes? How much do American voters like it when Congress raises taxes? Now imagine raising a tax repeatedly, on an ad hoc basis. Unless taxes take on a very different political valence in U.S. politics, that looks like a nightmare. The carbon tax could end up limping along at hopelessly low levels for ages, like the U.S. gasoline tax.
Now, theoretically, the tax could be programmed to rise a certain percentage each year, like the one Brookings modeled. Or there could be a “look back” provision that periodically assesses the tax’s performance and adjusts it accordingly. But …
|9. Certainty in emission reductions is overrated.
That “no one can be sure in advance how much [a carbon tax] will reduce emissions” may well be the number one canard about carbon taxes. After all, what’s the use of knowing now how fast emissions will shrink, when we know that they have to shrink as fast as possible, which means faster than any carbon tax and/or other possible measures can deliver?
The climate calamity is many orders of magnitude more dire and global than the acid rain problem. So can we please stop grafting the acid rain model onto climate? The declining sulfur cap in the 1990 Clean Air Act Amendments was intelligently tailored to estimates by limnologists of Northeast U.S. lakes’ remaining capacity to withstand acid rain emissions. But we’ve already overshot the 350 ppm target for climate sustainability; atmospheric CO2 is at 390 ppm and rising. There’s no safe level for CO2 emissions now or in the foreseeable future. Any target ― 17% less by 2020, 40% less by 2030, 80% less by 2050 ― is no more than a talisman.
What happens, you ask, if the carbon tax isn’t reducing emissions enough? In some proposals, the tax would rise automatically, in others Congress would have to raise it. But either way it’s crucial to structure revenue return so that a majority of Americans come out ahead and will back increases in the carbon tax rate. (See Points #2 and #3, above.) Built-in, recurring increases will not only obviate the need to return to Congress constantly; they will instill transformative price signals in America’s energy systems, infrastructure, land use and culture that, collectively, will move us from fossil fuels to clean energy.
|10. All political incentives push toward a poorly designed tax.
It’s true that a carbon tax can be well-designed. For economists, that means using the revenue to reduce distortionary taxes. For clean-energy hawks, it means using the revenue to spark cleantech growth. For both, it means provisions that automatically boost the tax if emission reductions are not on track. (And there are other considerations too: how far upstream to levy the tax, how to deal with cross-border “leakage,” etc. This post could have been even longer, trust me.)
The worst possible thing to do from both perspectives would be to set the tax at a static, low level and use a bunch of the revenue to carve out special deals for various industries. Then you’d get the economic hit from the tax and malign distributional issues.And yet … that is exactly where all the incentives point. There are many financial interests involved. Every one of them will be leaning on legislators to a) keep the tax as low as possible and b) secure them favorable treatment.
This same rent-seeking spectacle took place around the climate bill. But another benefit of a cap-and-trade system is that no matter how distributional issues are settled (i.e., no matter how the permits are allocated), the cap remains the same and the environmental benefits are guaranteed. When it comes to a tax, however, loopholes and kickbacks reduce environmental benefits. Securing those benefits will be a constant, running battle. Environmentalists will be “those people who are constantly fighting to raise taxes.” That is unlikely to endear them to the public or generate support for other green initiatives.
To sum up
A well-designed carbon tax would be a fantastic thing. In my dream world, it would start at $50/ton and rise 5 percent a year. Twenty-five percent of the revenue would go to rebates for low-income taxpayers; 25 percent would go to reducing payroll taxes; the rest would go to public investments in clean energy RD&D and infrastructure. Whee!
Even a tax considerably smaller than that, done right, could enable Obama to meet the emission reduction goals he pledged in Copenhagen. It might also inspire other countries to follow suit, or at least convince other countries that the U.S. is finally in the climate game. It would be a big deal.
But a carbon tax is not magic. If climate hawks go into negotiations accepting that carbon pricing must be revenue neutral, that market incentives can solve climate change on their own, that government spending and regulatory actions merely inhibit proper market functioning, that the overall tax burden needs to be reduced, that deficit reduction is an overriding short-term priority … well, even if they come out of that negotiation with a carbon tax (which, as noted earlier, they won’t), it will be low, regressive, and ineffective. And they will have worked themselves into an ideological corner that will be difficult to escape.
Worse yet, what if they make all those concessions and come out of it with nothing? The concessions will remain on the record forever, serving as the baseline to future negotiations. (That’s pretty much how the cap-and-trade battle worked out.)
What’s needed on climate change, ultimately, is a wholesale, society-wide commitment to remaking energy, agricultural, and land-use systems along low-carbon lines. “Market mechanisms” like a carbon tax are a crucial part of that effort, especially as a source of funding, but they are in no way a substitute for that effort. We won’t get out of this that easily.
|10. & Summation. Climate advocates’ job is to maximize political incentives for a robust carbon tax.
All political incentives push toward climate inaction, period, and not just toward a poorly designed carbon tax. We can either give up . . . or we can keep working to break the impasse — primarily by building support from below, but also by choosing policy strategically. Since giving up isn’t an option, let’s start by reviewing what we’ve established about carbon taxing thus far:
To these assertions, let’s add this:
Unlike revenue from selling tradeable emission permits, which would be subject to the extreme price volatility that has characterized every carbon cap-and-trade system, the revenue from a carbon tax is sufficiently predictable to serve as a building block for tax overhaul. (Lags in responding to the price signal make this particularly true in the tax’s initial years, which happen to be the most politically germane.)
Earlier, under Point #4, we referenced the carbon tax proposed by Rep. John Larson, which our modeling suggests would reduce U.S. emissions by 30% within a decade while stimulating employment and economic activity. The Larson bill also includes border tax adjustments to protect domestic energy-intensive industries and to nudge U.S. trading partners to enact their own carbon taxes, leading to a global carbon price.
The Larson bill could be said to be patterned on the British Columbia carbon tax, which went into effect in 2008 at a rate of roughly $9 per ton of CO2 and was incremented annually to its current (2012) level of approximately $27. On every criterion — climate, macro-economic, distributional, political — the tax appears thus far to be a resounding success. Consider:
To be sure, there are big differences between British Columbia and the 50 U.S. states, including hydro-rich BC’s effective exemption of electricity from its tax. Nevertheless, these lessons are ours for the taking: first, it may be better to square up to the political pain of raising the carbon price than to hide it; and second, a tax with transparent and ironclad revenue recycling can build the political appetite for raising the tax level to the point where deep carbon cuts actually take place.
In sum: a carbon tax isn’t the whole answer, yet a transparent, briskly rising carbon tax will spur the development of many answers large and small that add up to a cultural transformation. Taxing carbon aligns everyone on the side of reducing emissions as fast and as far as possible. In reach, transparency and affordability, no other policy tool comes close.
On Tuesday, a unanimous three-judge panel of the DC Circuit Court of Appeals declined to block the U.S. Environmental Protection Agency’s process of regulating greenhouse gases under the Clean Air Act. The 81-page decision upheld EPA’s 2009 endangerment finding that “anthropogenically induced climate change threatens both public health and public welfare,” and concluded that having made that finding, EPA is “unequivocally” compelled by the Supreme Court’s decision in Massachusetts v. EPA (2007) to regulate greenhouse gases as pollutants under the Clean Air Act.
The panel also held that the parties challenging EPA’s action were not harmed by (and thus had no legal “standing” to challenge) the Agency’s decision, via the “tailoring rule,” to regulate only the largest sources of greenhouse gases. The court thus swept away the last remaining obstacle to broad regulation of the largest category of greenhouse gas polluters, existing stationary sources.
The ruling came the day after a report in Bloomberg News that owners are selling off, at deep discounts, coal-fired power plants that have been under EPA mandates to install emission controls on “conventional” (non-climate) pollutants such as sulfur dioxide and mercury. The fire sale occurs as cheap natural gas has been displacing coal as the main fuel for electricity generation in many parts of the U.S. Calculations by the Carbon Tax Center’s Charles Komanoff show a 14% drop in coal-powered electricity last year vs. the 2007 peak, with nearly half of the decline filled by gas (with the rest from increased wind and hydro-electricity). Behind the coal-to-gas trend, which is accelerating thus far in 2012, are 10-year low natural gas prices stemming from the controversial fracking boom.
The spectacle noted in the Bloomberg article of billions of dollars left “stranded” in uncompetitive coal-fired power plants points to a serious limitation in using the regulatory process to constrain emissions of greenhouse gases. If regulation, rather than carbon pollution taxes, is to drive the 80% or greater reduction in emissions that scientists say is needed in the next several decades, then emissions standards for coal plants will need to be tightened again and again, rendering many of those investments obsolete long before the end of their assumed economic life.
Indeed, “stranded capital” looms as a huge problem in any inflexible regulatory system to cut down on sources of greenhouse gases that have long lives. Adding costly capital equipment to those dinosaurs is likely to waste utility ratepayers’ money while driving up the financial stakes of owners who have invested in retrofits that may never get to pay for themselves. Because stabilizing the climate will be a long-term and very capital-intensive process, the cost of inefficiencies built into regulations will be enormous and cumulative.
In contrast to this regulatory lock-in, a predictable, gradually-increasing carbon pollution tax would reward long-term investment and innovation in the lowest-carbon technologies while reducing demand. Even too much investment in gas-fired power plants might be ill-advised under a briskly-rising carbon price.
As things now stand, the renewables industries must make regular pilgrimages to Congress to continue their life-support “production tax credits.” A long-term, rising carbon tax would make long-term investments in renewables safer while spurring innovation (and obviating the need for those pilgrimages). And a rising carbon tax will also signal when to efficiently retire old, coal fired power plants — dirtiest first.
Economist and former Undersecretary of Commerce Robert Shapiro was asked about climate policy at a recent National Journal panel. Shapiro said that as EPA moves ahead with greenhouse gas regulations in the next year, he hopes complaints from industry will spur Congress to replace those cumbersome regulations with a more effective, broad-based carbon pollution tax.
That prospect gives a new dimension to yesterday’s DC Circuit decision to uphold EPA regulations. The decision is indeed a victory — not because EPA regulation of existing stationary sources can be effective long-term climate policy, but because the threat of their cost could help prod Congress to take the most efficient (and least bureaucratic) step to reduce carbon emissions: enact a substantial, gradually-rising carbon pollution tax.
Photo: Flickr — arbyreed
Shortly after posting this commentary on June 27, I received e-mail comments from three well-known analysts of climate policy ― two resource and environmental economists and an attorney who has analyzed ways to regulate greenhouse gases under the Clean Air Act. We share some of that exchange below. ― James Handley, June 30.
Commenter 1: James – a nice piece, lots of important issues here. But I think you are mis-stating the stranded costs problem, and overstating the merits of a carbon tax.
You have compared myopic regulation – this year’s regulation can be treated as permanent until, oops, we have to change it again – with a long-term, gradually and predictably rising carbon tax. One could equally well have long-term, gradually and predictably tightening regulations, or a myopic carbon tax (it will never go above $21/ton until, oops, etc.).
James Handley: True; there are no guarantees that a carbon tax would keep rising. But a revenue stream (especially if committed to an important purpose in advance) seems to offer additional incentives to stay on course.
C-1: Stranded costs result from making long-term investments under the myopic approach to taxes OR regulation, not from regulation per se. A “read my lips – no carbon tax increase above today’s level” tax policy could induce large investments in incremental technologies, which would then be stranded when taxes were raised. (Or would lead to overwhelming political pressure not to raise the tax, in practice.)
JH: I agree.
C-1: A long-term schedule of predictably tightening future regulations would have the same salutary effect as a long-term schedule of predictably rising carbon taxes (and would be almost equally difficult to achieve, in realistic political terms).
JH : Yes, Joe Aldy [former Obama White House climate economist, now at Harvard Kennedy School] suggests a carbon intensity standard declining on a pre-announced schedule.
Richardson & Burtraw (Resources for the Future) have expressed doubt about whether the Clean Air Act offers such flexibility or allows more flexible options like utility-wide carbon intensity standards. (See Greenhouse Gas Regulation under the Clean Air Act: Structure, Effects, and Implications of a Knowable Pathway.) EPA said in a Notice of Proposed Rulemaking that it is not mandating fuel switching and does not contemplate it as a compliance option — which I think also means they’re contemplating rules that can be met without switching to renewables. So the “knowable pathway” probably comes down to plant-specific technology standards. And those are hard to ratchet down, especially predictably and smoothly. In practice, EPA tends to look at the technology available and set standards that can be met.
And technology mandates for coal power plants, especially existing ones, can only go so far. Retrofitted plants would be a lot more energy intensive. The thermodynamic minimum energy penalty (independent of process) for capturing and sequestering CO2 is roughly 1/3 of the energy output of a power plant. (I’ve read of research to use the vast waste heat from power plants to do the work of capturing, but nobody’s done it.)
So I don’t expect EPA technology mandates to offer anything like the flexibility and predictability of a tax. Nor do they offer revenue, create broad incentives to reduce energy demand or offer monetary incentives for innovation.
C-1: I think a carbon tax along the lines you propose would be great. But so would a well-planned, progressively tightening system of command-and-control regulation. The real advantages of a carbon tax, in terms of administrative simplicity, are important for many purposes, but it isn’t right for every situation and it shouldn’t be oversold.
JH: Having worked to prosecute polluters for 14 years at EPA, I have doubts about the Agency’s ability to effectively enforce declining technology-based emissions standards. I feel more confident that IRS can collect a carbon pollution tax.
Commenter 2: Excellent dialogue that inspires many thoughts, and two comments.
Despite many virtues, I am not convinced a carbon tax is administratively simpler. It could/should be, but won’t necessarily be simpler. Various exemptions and especially border tax adjustments or rebating revenues to energy intensive trade exposed industries could get complicated.
JH: Compared to the voluminous EPA Clean Air Act regs?
We like the Border Tax Adjustment (BTA) in Rep Stark’s bill, the Save Our Climate Act. It’s short, not complicated. And BTA’s strike me as vastly superior to rebates of carbon taxes to the Energy Intensive Trade-Exposed Industries. Rebates would enshrine dirty, inefficient practices and sacrifice revenue; BTA’s would protect domestic industry while offering a rising bounty for trading partners to enact their own carbon taxes.
I’m surprised by all the worry about World Trade Organization rules. WTO’s trade-harmonization provisions were written to accommodate a consumption tax — the EU’s VAT. Why wouldn’t a simple, non-discriminatory carbon tax be similarly consistent with WTO? I wonder if the EU is blundering by asserting that its aviation tax is an environmental measure. That’s a harder standard in WTO. Taxing authority is clear. (As Chief Justice Roberts just said about the constitutionality of the health care mandate.)
C-2: I think a BTA will become more complicated when offended parties claim things like their renewable support programs or smooth roadway surfaces or color of roofing shingles contribute to mitigation efforts, and hence must be considered as part of a border tax adjustment calculation that is tied specifically to a carbon tax.
JH: Yikes. Metcalf & Weisbach proposed setting BTA’s using a default carbon intensity for five energy intensive commodities (steel, aluminum, chemicals, paper, cement) derived from average U.S. production practices. (See [Design of a Carbon Tax, Harvard Env’tl L. Rev, 2009, p. 540, et seq.) Carbon content for each imported (or exported) good would be calculated by summing the “carbon content” of those five. An importer (or exporter) asserting that their goods’ carbon content is lower (or their competitors’ is higher) would have the burden of proof. (Is that when they’d point out their white roof, smooth road, etc?)
C-2: My other comment is that although EPA cannot raise revenue for the national government, I understand it could raise revenues for state governments. That is, a plausible scenario is that states administer implementation plans under the Clean Air Act that raise revenues through taxes or auctioned allowances. There are a lot of possible obstacles to that happening, especially political, but no single legal obstacle…so I understand. A real conservative might like that state’s rights aspect of CAA regulation.
JH: That’s interesting. States enacting carbon taxes as their State Implementation Plans to meet their Clean Air Act requirements. Does that assume EPA chooses to set a National Ambient Air Quality Standard for CO2? In various Federal Register notices they’ve shown no stomach for NAAQs, despite Bill Snape’s (Center for Biological Diversity) efforts.
And 50 separate State Implementation Plans? What about the law of one price? All kinds of arbitrage and distortions there? And wouldn’t the international trade harmonization problems come up then, too?
C-2: 50 SIPs, not. For instance, the northeast states will try to submit a coordinated SIP around a strengthened RGGI [Regional Greenhouse Gas Initiative], with one price in that region. Given the flexibility of it, Pennsylvania might opt in, compared to less flexible options.
In sum, I would walk to Chicago to get a carbon tax in place, but I am increasingly dubious of the Faustian bargain some have suggested of sacrificing the Clean Air Act in exchange. I really agree with [C-1] about the virtues of the CAA. Let the CAA go slack or lag behind if the tax is doing the work. But I would be glad it is there as a backup. Nonetheless, I will walk with you to Chicago.
JH: I imagine we’d have a good time. Maybe Jim Hansen and Bill McKibben would join us.
C-2: I’ll carry a copy of the CAA as ballast in my backpack.
JH: It’s ~ 300 pages [the Clean Air Act statute]. But I meant the implementing regulations (in the Code of Federal Regulations) ~ 10x. I knew EPA lawyers who enforced just one part of the CAA regs (e.g. mobile source rules) for decades.
I much appreciate this discussion, your solidarity “walk to Chicago”… CAA as a backup to a carbon tax might be point where some bargaining could happen. It might also help address the concern about a carbon tax not rising or not rising fast enough.
Commenter 3: I agree 99% with [C-2]. However, the 1% is that it’s not so easy to let the CAA “go slack”. It grants a lot of discretion to EPA about how to act but not over whether to do so. Mass v. EPA and the recent DC circuit ruling illustrate that EPA can be compelled to start the regulatory process, and that it is hard to stop it w/o legislation. I understand that summary elides over a political shift in the middle. I also agree strongly with the result in both cases (though I think the tailoring rule should go down if a plaintiff with standing can be found).
The CAA isn’t written as a menu option. It’s a powerful statute that’s hard to stop. Usually that’s a good thing. But not always, especially when you have a better tool in place. The best solution would be a carbon price with a CAA tweaked to serve specifically as a backstop tool. But that’s a big political ask.
JH: I take your word on the difficulty of letting CAA go slack… yes, a fall-back would be terrific. Would industry prefer a carbon tax (because of flexibility and lower cost) even with EPA as a fall-back?
(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.
When we resolved late last year to create the Carbon Tax Center, we thought our big battles would be fought with climate-crisis deniers, plus occasional skirmishes with doctrinaire leftists decrying attempts to graft carbon taxes onto an unjust social and economic structure. Little did we dream that our most contentious disputes would be with fellow environmentalists who had made up their minds that carbon taxing is a political no-sale and that cap-and-trade is the only feasible way to put a price on carbon emissions. (For background on carbon tax v. cap-and-trade see our issue paper on the subject.)
So it’s with some surprise and dismay that we find ourselves debating “tax vs. cap” with the most outspoken Big-Green member of the U.S. Climate Action Partnership, Environmental Defense. The latest round, in May, has played out in the electronic pages of Gristmill. Here in chronological order are
- CTC’s Gristmill post of May 22, 2007 (also posted on Common Dreams)
- ED’s Response on Gristmill, also dated May 22, 2007
- CTC’s Riposte to ED.
We welcome your comments.
— Charles Komanoff, Dan Rosenblum
Strange Bedfellows in Climate Politics
Did lefty pundit Alexander Cockburn and corporate behemoth General Motors secretly agree to swap climate positions?
It looks that way. GM, swallowing hard, recently joined the U.S. Climate Action Partnership, the elite enviro-business coalition pushing cap-and-trade — a so-called “market-based system” for controlling carbon dioxide emissions. Meanwhile, the famously acidic Cockburn lacerated global warming orthodoxy in his column in the Nation magazine, deriding it as a “fearmongers’ catechism [of] crackpot theories” ginned up by “grant-guzzling climate careerists” and opportunistic politicians looking to ride the greenhouse “threatosphere” all the way to the White House. (Whew!)
But there’s less here than meets the eye. For as the inconvenient details of cap-and-trade schemes start to surface, USCAP is looking less and less like a CO2 control lobby and more like a corporate club seeking to cash in on the rising clamor against free carbon spewing. And Cockburn, it turns out, has been raining on the climate crisis parade for years.
Let’s dispense with Cockburn first. His Nation column is infested with nakedly inverted syllogisms, such as: Al Gore is alarmed by global warming, but Al Gore backed nuclear power as a congressman, ergo alarm over global warming is a ruse to push nukes. Or, The New York Times is alarmed by global warming, but The New York Times whitewashed the Bush Administration’s Iraq WMD lies, ergo alarm over global warming is a lie.
But Gore and the Times are easy targets. The heavyweight in the room is the international climate-science community. To take them down, Cockburn disingenuously recycled a charge by Science magazine’s global warming reporter, Richard Kerr, that “climate modelers have been ‘cheating’ for so long it’s almost become respectable.” It’s yet more illogic: Climate modelers cheat, which makes climate models part and parcel of the “reflexive squawk of the greenhouse fearmongers,” which makes global warming a hoax.
Worse, in the time scale of climate modeling, that “cheating” remark Cockburn lifted is positively ancient. It’s the lead from a May 16, 1997 Science article by Kerr heralding the first climate model to replicate actual climate records without fudge factors, developed at the National Center for Atmospheric Research. And much as the first four-minute mile back in the 1950s unleashed a torrent of sub-four-minute miles, NCAR’s breakthrough triggered a tidal wave of modeling progress that has largely done away with the fudge factors, along with the yawning error bars that surrounded the old forecasts. Twenty-three different models, all unfudged, support the terrifying new finding from the Intergovernmental Panel on Climate Change that the current trajectory toward doubled CO2 levels will raise the mean global temperature above the pre-industrial level by six-and-a-half degrees Fahrenheit, give or take a mere degree.
No doubt Cockburn would deride this forecast as “hysteria” propounded by IPCC “functionaries and grant farmers.” But perhaps it’s time for Alex to take playwright Harold Pinter’s advice to Bush to “look in the mirror chum.” After all, this is the same Cockburn who, in a nutty 2005 paean to his “aging fleet of 50s and 60s era Chryslers” provocatively titled “The Virtues of Gas Guzzling,” proclaimed: “I don’t believe in any effective role of man-made CO2 in global warming, a natural cyclical trend.” Cockburn then dug his hole deeper, writing that oil itself “doesn’t come from dead dinosaurs and kindred organic matter [but] is a renewable, primordial soup continually manufactured by the Earth under ultrahot conditions and tremendous pressures.” Earth to Alex: where does contrarianism end and madness begin?
But if Cockburn pretty much begs to be dismissed, the boys at the U.S. Climate Action Partnership are sober as pinstripes. From Shell to DuPont, from GE and now GM to the Natural Resources Defense Council and Environmental Defense, the 27-member USCAP is mustering a high-octane campaign (some would call it a stampede) to re-fashion the holy grail of climate protection — attaching a stiff price to carbon pollution — as an emissions-trading poker table with a billion-dollar minimum. Thanks in large part to USCAP, a half-dozen carbon cap-and-trade bills are circulating in Congress, and the A-list of Washington carbon-trading acolytes includes House Speaker Pelosi and Senators (and presidential contenders) McCain, Obama, and Clinton.
Yet cap-and-trade seems a curiously unpromising way to put a price on carbon. Making fossil fuels cost more portends a radical overhaul of the American way of life: people will drive and fly less, industries will rise and fall, cities will redevelop and suburbs will stop sprawling. To make that transition requires a pricing mechanism that’s simple, transparent, and equitable. A straightforward, ecumenical carbon tax meets that standard; devilishly complex cap-and-trade does not. The old Hollywood maxim that a story line can’t exceed 25 words should disqualify cap-and-trade systems from the get-go. And as Americans get wind of the legions of legal and financial functionaries swarming around carbon trading, they’ll likely feel disillusioned if not hoodwinked — and ripe for a reversion to unfettered carbon-burning.
There’s no mystery to General Electric’s and General Motors’ embrace of cap-and-trade. Daily, the climate handwriting on the wall grows clearer, and corporate America knows it’s only a matter of time before it is made to pay for using — and making products that require consumers to use — climate-altering fossil fuels. And unlike a carbon tax, which would resist gaming and could be started quickly, a cap-and-trade system would take years to formulate as powerful interests carved up the revenue pie.
Moreover, that revenue pie — a concomitant of “putting a price on carbon” — will eventually total hundreds of billions of dollars a year. Yes, the carbon price has to be high to internalize the costs of climate damage and for renewable solar and wind power and energy efficiency to be in position to displace and ultimately eliminate fossil fuels. Under a carbon tax, those revenues would be known in advance and could be dedicated to public purposes such as progressive tax-shifting and transition support for affected communities. In contrast, the costs of cap-and-trade systems are likely to become a hidden (and regressive) tax as dollars flow to market participants.
The more interesting question is why some big environmental groups are pushing carbon cap-and-trade. One reason is precedent: Environmental Defense conceived emissions trading in the 1980s and spent years convincing utilities and Congress to make it the vehicle for cutting acid rain pollutants (though in truth that “market” bears as much resemblance to a carbon market as did a French mud hut to the Palace of Versailles). In addition, at the time the green groups were laying the groundwork for USCAP — before Gore’s movie and before the Republicans lost their hold on Congress — the more politically dicey carbon tax alternative may have appeared out of reach. Settling for cap-and-trade may have seemed more sensible than vying for a carbon tax and coming away empty-handed.
Of course, there’s nothing to stop the “green” members of USCAP from pointing to the new facts on the ground and throwing in with the smaller but fast-growing carbon tax forces. No one should hold their breath, however. NRDC, ED, and their partners have invested too much institutional capital in building bridges to big business.
Dig deeper, moreover, and a harder truth emerges. NRDC and ED have gotten very skilled — and grown very prosperous — at cutting deals. What began benignly 20 years ago, with the groups persuading utility regulators to fund innovative energy-efficiency programs, appears to have mushroomed into a perceived entitlement to speak for environmentally concerned citizens, meaning most of us, while being accountable only to their own trustees.
This top-down style, in which “the ways that work,” to borrow ED’s slogan, are formulated in private and presented to the community as a fait accompli, won’t do with something as momentous as putting a price on U.S. carbon emissions. The stakes are too high in both dollars and lives for the environmental position to be decided by a handful of green groups, no matter how accomplished or well-meaning. The path to carbon pricing must be debated and ratified in the open, not negotiated in certified-green offices.
Cockburn knows this. Hell, it was Counterpunch’s reporting on those backroom utility deregulation deals in the 1990s that helped alert advocates like me to Big Enviro’s aversion to the democratic process. C’mon Alex, dump the ‘59 Imperial and the climate crisis conspiracy theorizing. You needn’t enlist with the Carbon Tax Center, but the members-only push for cap-and-trade is a worthy target. Load up and let ‘er rip.
Charles Komanoff, an economist and environmental activist, co-founded the Carbon Tax Center earlier this year.
Response from Environmental Defense: Top-down or bottom-up, the goal is cutting carbon
Charles Komanoff’s post is entertaining, but a lot of what he says is wrong. His main proposition is that unlike “devilishly complex” cap-and-trade, a carbon tax is straightforward approach that will resist gaming by special interests. That raises a few questions: is there anything straightforward about the U.S. tax code? Has anyone ever gamed that system? Are there “no legal and financial functionaries” swarming around taxpayers?
Those questions aside, the fact is that a cap is the only way to guarantee the emissions cuts scientists say we need to avert the worst impacts of climate change. No one knows what level of carbon tax will produce what level of emissions cuts — and the science is pretty clear that we need to cut emissions by 80% from current levels by mid-century or we’re in trouble. Guess wrong on a tax and we’re all co-starring in a big-budget disaster movie.
Finally, a carbon cap can pass Congress and a tax can’t, so if we agree climate change is extremely urgent, we don’t have time to waste. Which brings us to the big corporations in USCAP. I’m sure they’ve all got a mix of reasons for pushing strong action on climate, but their motivations aren’t important — getting something passed into law is. There’s little doubt that the USCAP companies can help us get something passed.
Komanoff is worried about the process; we’re worried about cutting carbon emissions enough to avert a real environmental, economic, and human disaster. Top-down, side-to-side, stand-on-our-heads-till-we’re-blue — however it happens, the important thing is getting it done.
Rejoinder to Environmental Defense: Cap-and-Trade Is Looking Like Duck-and-Cover
Can any of ED’s three main points
stand up to scrutiny?
ED: A carbon tax can be gamed as easily as a carbon trading scheme.
CTC: A carbon tax may be subject to gaming, but cap-and-trade positively invites it. USCAP concedes that some allowances will be given out (not auctioned) at the outset, which means protracted, high-stakes negotiations (“a giant food fight,” a leading utility executive called it) over the free allowances that will be worth billions. How will these be allocated? What baseline year? Watch Earth burn as the polluters jockey for the baseline giving them the most allowances! With a carbon tax, by contrast, any tax preferences or exemptions will at least be visible and locked in, and thus potentially removable. This difference is part of why former Commerce Undersecretary Robert Shapiro wrote recently that carbon taxes, compared to cap-and-trade “are much less vulnerable to evasion and market manipulation, providing a more stable and transparent system for consumers and industry alike.”
ED: “A cap is the only way to guarantee the emissions cuts scientists say we need to avert the worst impacts of climate change. No one knows what level of carbon tax will produce what level of emissions cuts … Guess wrong on a tax and we’re all co-starring in a big-budget disaster movie.”
CTC: Thanks guys, but the movie has already started. Here’s what The Financial Times said about it last month: “Getting the amount of emissions a little bit wrong in any year would hardly upset the global climate. But excessive volatility or unduly high prices of quotas on carbon emissions might disrupt the economy severely. [Carbon] taxes create needed certainty about prices, while markets in emission quotas [i.e., cap-and-trade systems] create unnecessary certainty about the short-term quantity of emissions.” And how confident is ED that cap-and-trade won’t come without the dreaded “safety valve” (lift cap if price too high) that will blow its vaunted emissions certainty to smithereens?
ED: “A carbon cap can pass Congress and a tax can’t.”
CTC: A carbon tax may be the turtle, but as sure as the hare lost its lead, a cap will be sidelined for years as the financiers, lawyers and consultants work out the details — which they’ve been doing for four years and counting for the much-touted RGGI compact for capping Northeast U.S. utility emissions. That aside, the climate issue is moving very fast. We have a rare confluence of events that may actually make it possible to go the right route. It would be tragic to lock in an ineffectual approach that would block more effective action. A revenue-neutral carbon tax is no longer anathema, and it’s past time for ED and its brethren to give it the consideration it deserves.