Carbon pricing: Not Archimedes' lever

Putting a price on carbon is only the first step in energy policy

Posted by David Roberts at 5:45 AM on 10 Jun 2008

Read more about: climate | carbon tax | carbon trading | energy

There's certainly a great deal of logic to what Ezra says here -- it would be nice if an upstream price on carbon would automatically rejigger the price of everything, right down to chips and candy bars. What could be a more gratifying solution than moving the behavior of every single consumer in a rational direction by applying pressure to a single policy lever?

I hope it's that easy. I suspect carbon prices will not be like dye in water, diffusing equally everywhere. It's going to be a lumpier process than that. Some costs will be shirked, hidden, or offshored; there will be special pleading from politically favored industries. There are all kind of nooks and crannies in the economy for carbon prices to get lost, diverted, or distorted before they reach Joe Consumer.

Even when carbon prices make it all the way down, the effect will often be small relative to other factors. A penny or two won't make the difference between candy bars. A dime or two won't make the difference between light bulbs. A few hundred dollars won't make the difference between cars. It's a price signal, but not as big at the consumer level as people seem to think. Unless of course you jack the price of carbon up to a few hundred bucks a ton on a political kamikaze run.

The thing is, carbon pricing is a necessary but not sufficient condition of good energy policy. It's not a silver bullet. You still need sector-specific performance standards, serious, long-term public investment in clean infrastructure, and a sea change in public engagement.

It would be nice if we could cap it and forget it, even if it put me out of work. But driving down carbon as much as we need to as fast as we need to is a gigantic undertaking and we're going to need ongoing focus and initiative.

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13 Comments | Post a Comment

You're spot on

And this is exactly why cap & dividend is such a lousy carbon policy. Because the price doesn't ripple all the way through in predictable, consistent ways. And because it doesn't, it doesn't stimulate investments in CO2-reducing technologies. Which means that there is a very real possibility that it simply causes a wealth transfer, rather than actually reducing emissions. (I get that it has a cap, and so theoretically it stops the growth in emissions, but without a carrot to actually incentivize reductions, it's a half-assed route to GHG mitigation.)

by Sean Casten at 5:57 AM on 10 Jun 2008

"Virtue won't work"

Well no, and it is not supposed to, at least not in the way that is so short-sightedly assumed. It nevertheless remains desirable to practise it, and to encourage it when we witness it in others.

The name "Ezra," by the way, out of context, all by itself, would usually refer, not to Ezra Klein, but to his namesake/ancestor, who lived circa 2,500 years ago.

Aside from those quibbles, the rest sounds sensible.

Chickens deserve our true friendship! So do fish! So do other sentient beings! Let us learn to be kind.

by caniscandida at 6:10 AM on 10 Jun 2008

Well put

Good analogies.

In the end, it all comes down to biodiversity. Poison Darts--Protecting the biodiversity of our world

by biodiversivist at 6:57 AM on 10 Jun 2008

Wealth transfer

Or redistribution, won't do the job. The cry of "no new taxes" or even "commie, commie traitor to our country" will tar the whole effort.

We all know that the wealth will eventually end up offshore, safely stashed in bank accounts in countries that don't extradite the cash back to the original owners. That would be a violation of corporate property rights! (Special extradition, "rendition" of actual people though? no problem.)

It is still happening with the subprime mortgage crisis.

Will any of the carbon emission permit money make it into the supply chain for renewable/conservation energy devices? Where there is a 2 year wait for wind machines.

How long is the backlog for large solar PV orders? Refined silicon? Hi tech batteries for plugin hybrids? Geo heat exchange heating/cooling systems?

Will carbon pricing solve this supply side problem? No, instead it will soak up capital and put it into a trading system, where it will mainly end up in the offshore accounts of hedge funds.

Would any other national/international crisis, like WW2, have been resolved by government instituting a wealth redistribution scheme and stepping out of the way?

http://amazngdrx.blogharbor.com/blog John Schneider, Northern Wisconsin

by amazingdrx at 7:51 AM on 10 Jun 2008

Cap & Dividend

>And this is exactly why cap & dividend is such a lousy carbon policy.

No, this is why Cap & Dividend is such an insufficient policy - just like your own proposal to incentivize the type of efficiency you are most familiar with (the type you sell) and ignore all the others. We are not going to solve this with one silver bullet, but a lot of silver bbs. This applies to policies as well as to technologies.

by Gar Lipow at 8:25 AM on 10 Jun 2008

Gar - not about picking winners

It's about making sure that a GHG policy actually incentivizes investments that reduce GHG emissions. I don't have any technology or specific GHG reduction that I'm pushing - I simply have a mission to profitably reduce CO2 emissions. If you or anyone thinks that you've got a great technology for me to use (or someone else in this space), that's great. But do not frame a carbon policy such that it serves only to penalize emissions without also providing an incentive to reduce them, because if you don't, you will encourage GHG reductions only to the degree that the tenuous link between penalties and incentives holds up.

For that matter, if you can come up with a way to provide carrots that you think is better than my output-based standard proposal, I'm all ears. Make it better. But we have to get away from the goofy idea that a stick-only GHG policy is in our economic or environmental best interest.

At core, you and I want the same thing: rapid reductions in GHG emissions. I don't know how to possibly do that without investing massive amounts of capital overhauling our energy infrastructure. And in that context, the fact that cap & dividend provides no clear incentive for that investment is as harsh a critique as one can possibly make of a proposed GHG policy.

by Sean Casten at 8:51 AM on 10 Jun 2008

A Carbon Price is Still the Sine Qua Non

David --

Your post disappoints on several levels.

First is the false straw man. No serious advocate says carbon pricing alone is sufficient. At the Carbon Tax Center we say that clearly: "A carbon tax won't stop global climate change by itself -- other, synergistic actions are required as well."

We do add, however: "But without a carbon tax, even the most aggressive regulatory regime (e.g., high-mileage cars) and 'enlightened' subsidies (e.g., tax credits for efficiency and renewables) will fall woefully short of the necessary reductions in carbon burning and emissions." Do you disagree?

You then confuse the issue:

"A penny or two won't make the difference between candy bars. A dime or two won't make the difference between light bulbs. A few hundred dollars won't make the difference between cars."

OK about the Mars Bar, but so what? The point of carbon pricing is not to distinguish between two CFL's but to lead people to distinguish between CFL's and incandescents; between a 15 mpg car and a 40 mpg car; between driving 20,000 miles a year vs. 5,000. Not to mention providing farsighted price signals to decision-makers at the top of the carbon chain (like airframe manufacturers and other product designers).

I couldn't agree more that we need "a sea change in public engagement." I've pushed, prodded and poked for that for almost 40 years. I wish it weren't true, but nothing engages the public more than rising energy prices.

Charles www.komanoff.net

by Charles Komanoff at 12:14 PM on 10 Jun 2008

There does seem to be some push for price only

McCain is pushing for price only. Peter Barnes, whose cap n divend strikes me as a sensible combination of carbon tax and cap & trade, seems to be pushing it as something that can be the primary, and close to the only policy. So the point that carbon pricing is one policy among many does need to be made.

by Gar Lipow at 12:18 PM on 10 Jun 2008

Charles --

Perhaps the Carbon Tax Center could be a little more explicit about what else would be required? I think that would definitely help. I tried an attempt here, in which I argued that pairing carbon pricing with a program of public investment that would be the result of revenues raised from carbon pricing would be an easier sell to the public, because they would see where the money goes, and second, it would help move us in the direction we want to go.

The classic example of the problem with carbon pricing is public transit and constructing other nonautomobile forms of transit infrastructure -- in other words, Charles, the sorts of efforts you've been making for years. All the carbon pricing in the world is not going to lead to building bike paths and upgrading subways. So we need both carbon pricing and public investment, and I think that it helps to be explicit. As Dave says in his post, we need "long-term public investment in clean infrastructure"

by Jon Rynn at 12:56 PM on 10 Jun 2008

Responses

Charlie,

Says David in the post above, "carbon pricing is a necessary but not sufficient condition of good energy policy." "Necessary" is your giveaway there.

The post was mainly meant to push back against a growing meme in the progressive-but-non-enviro blogosphere, that carbon pricing will magically substitute for any further policy or personal efforts by infusing carbon price signals seamlessly throughout the economy. But price signals are not as frictionless or as significant as that notion would have it. There's still lots of policy and personal work to be done.

Sean,

(I get that it has a cap, and so theoretically it stops the growth in emissions, but without a carrot to actually incentivize reductions, it's a half-assed route to GHG mitigation.)

You're sneaking an awful lot into that parenthetical. C&D has a declining cap, so it will reduce GHG emissions. That's built in. And because it lays out a long-term schedule of mandated reductions, it will incentivize them, by definition. Your objection is that it is "half-assed," i.e., that it will incentivize them in a roundabout, inefficient way, and that the overall process will cost more than your output-based system. And that may well be true. I think there's plenty we can do outside of C&D to (further) incentivize reductions and to increase the efficiency of the overall process. But as I argued ad nauseum before, I'm willing to let the overall process be a little lumpier and less efficient in the name of fairness and political buy-in.

grist.org

by David Roberts at 1:10 PM on 10 Jun 2008

Invitation Accepted

Jon, you asked what steps I and the Carbon Tax Center think are required to supplement revenue-neutral carbon pricing. Here's 10 for starters, off the top of my head:

A Traffic Justice Project to banish danger from walking and cycling.
Renewal of the Production Tax Credit for wind and solar, for more than just two years.
Road pricing, both cordon and area-wide.
Cashing-out parking, per-mile insurance and other revenue-neutral market-correcting pricing reforms.
Continuation of ACEEE/NRDC/LBL's heroic appliance-efficiency work, moved even further upstream in the design process if possible.
Shunning of motorized recreation.
Phase-out of the tax-deductibility of mortgage interest on large homes (as Rep. Dingell proposed but no Big Green groups endorsed).
Makeover of public transport, extending from reduced-fare or free local bus service to national high-speed rail.
Nationwide biophilia and love of wild nature, per E.O. Wilson, David R. Brower, Rachel Carson.
Return to the high top-bracket income tax rates of the forties and fifties.

As you generously acknowledge, I have worked for many of these and still do so. They are all vitally important. Yet I would trade any handful of them for a steep, revenue-neutral carbon tax.

Charles www.komanoff.net

by Charles Komanoff at 1:35 PM on 10 Jun 2008
[ Parent ]

Sounds good Charles...

...I'd add a few more, like bring corporate tax rates from the current 7% of federal revenue to the 22% they were in the 1950s, and cutting the military budget, and subsidies for middle class housing in cities and town centers, and....but a good beginning, put it on the website!

by Jon Rynn at 2:48 PM on 10 Jun 2008

Too many MCs, not enough Mikes

Folks,

As Charles pointed out, carbon taxes are meant to help people differentiate between good and bad choices by taxing "bad" choices. We all know that SUVs sales are dropping like a rock. Taxes would make them drop twice as fast.

I am in favor of tax and dividend, since the government is not-so-hot at picking technologies (remember the semi-conductor alliance? how about hydrogen car? etc.) If rebates are per capita they are progressive.

Further, taxes will not just "drip through cracks" -- they will be even easier to collect than sales taxes.

"Shunning of motorized recreation."? Are you kidding me? Stop tell people what to do and just charge them for being stupid. We will never "command and control" our way to negative carbon flows...

by davidzet at 6:07 AM on 11 Jun 2008

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