Climate Change

 

Putting a Price on Carbon

01.11.2018

 

By guest columnist Mike Shatzkin

 

About eighteen months ago, I shifted my life around so that I could spend less time on my lifetime activities in the publishing business and dedicate more time to addressing climate change.

I started out concerned about global warming; that was the catalyst. I quickly learned that the CO2 humans are putting into the atmosphere, primarily by burning fossil fuels, is the biggest cause of the problem and that effectively taxing fossil fuels, making them less commercially attractive compared to energy sources that don’t add to the CO2 load, was the first most obvious solution.

 

CO2 WILL DESTROY CIVILIZATION AS WE KNOW IT

 

The first thing to take on board is the unique nature of the CO2 problem among all our environmental challenges. The CO2 load we’ve already created will inexorably warm the planet. That will melt ice and raise sea levels and it will also increase disruption of normal weather patterns and foster more frequent extreme weather events. It could eventually (or even shortly) result in an uncontrolled methane release which will make things get hotter even faster. But, long before that, the sea level rise and the weather disruption will create climate refugees and food shortages that will overwhelm civil society.

So Fact Number One is: CO2 has the unique capability — even the likelihood — of killing enough of us and disrupting weather patterns sufficiently to destroy civilization. Plastic in the ocean won’t do that. Six Fukshimas — or even ten or twelve — wouldn’t do that. But CO2 will. It is Enemy Number One.

 

PUTTING A PRICE ON CARBON IS THEREFORE ESSENTIAL

 

The challenges of both curtailing the deposits of new CO2 and somehow removing existing CO2 from the ecosystem absolutely require that we “put a price on carbon”. The economists’ framing for this is that the negative effects of CO2 are “externalities” — costs we bear from burning carbon that are not “priced in” to the fuel itself. There are market-dedicated Republicans who recognize this as a “market distortion”; the “costs” of the CO2 are not accounted for so the market doesn’t “work”. Somehow or other, although we have never done it, we now have to put the societal cost of CO2 into the price of the carbon we burn.  Virtually everybody who is aware of the CO2 load problem and the need to reduce fossil fuel consumption accepts the simple principle: “we have to put a price on carbon”.

 

 

CARBON TAX

 

Under a carbon tax, a fee is paid by the originator of the carbon to the government based on the amount of CO2 burning the fossil fuel will put into the ecosystem. The tax on coal, oil, or gas is assessed when the fossil fuel enters the economy: at the mine or wellhead for domestic production and at the border for imported fossil fuels. That tax is then passed along as an additional cost of raw material as the coal, oil, or gas is processed (if it is) and distributed.

In a nutshell, the tax puts a predictable additional and constant price on the fossil fuel but we can’t know how much of a reduction in CO2 will result.

 

WHAT HAPPENS WITH THE MONEY: REVENUE-POSITIVE AND REVENUE-NEUTRAL APPROACHES

 

 A carbon tax  generates revenue. Perhaps it should be no surprise that how the money is used becomes the most contentious element of “putting a price on carbon”. The options are between the government spending all or some of the money that is raised (revenue-positive) or returning it completely to the people (revenue-neutral).

 

It is probably fair to say that a revenue-positive approach is favored by most climate activist organizations. They want to see the money used both to develop and promote alternative energy technologies and to address the inequities of prior pollution, such as dangerous air near where fuels are burned or polluted water such as we see in Flint. (Addressing these inequities come under the heading of promoting “environmental justice”.)

 

The revenue-neutral approach has been touted as a way to get conservatives who resist putting more money in the government’s hands to accept the price on carbon. There are proposals from two activist organizations (one non-partisan made up of climate activists and one partisan Republican driven by a market-based approach) with a similar approach to achieve revenue-neutrality. Both propose simply paying all the money back to people as a “dividend”, by household or social security number, for example. (The alternative for revenue-neutral is to cut other taxes to compensate for the revenue raised by taxing carbon. That is the approach used with the carbon tax in British Columbia.)

 

The full dividend approach appealed to me immediately. Not only is it simple and easy to understand, it is effectively income redistributive. Poor people usually burn less carbon than rich people. They will tend to get more money back than the tax costs them. People who fly a lot, heat or cool large spaces, or who own multiple dwellings are almost certain to pay more than they get as a dividend. Plus everybody individually is divvying up the money paid by corporations and governments in their carbon taxes.

 

Most “put a price on it” advocates accept that poor people have to be protected from a tax that will raise the cost of essential heating and transportation. This simple solution accomplishes that.

 

But it sticks in the craw of some very thoughtful and socially-conscious people that the money is not used to accelerate the development of renewables. The renewables industry and the climate advocates are natural and perpetual allies. It is not hard to understand why they’d be aligned on the notion that a chunk of carbon pricing revenues should be invested in the things they care about.

 

 

THE MOSTLY-UNDISCUSSED DYNAMIC OF A FULL DIVIDEND

 

If money is raised by taxing from the energy used by businesses, governments, and people, but all the money is returned only to people, most calculations reckon that two-thirds or more of people will get more from the dividend than the tax costs them. The income-redistributive aspect of this is often noted, as is the direct impact that will make people supportive of the idea.

 

What is seldom mentioned is an effect I call the “flywheel”. If we pass a tax that has the result of delivering more than it costs to 2/3 of the people, then we can expect a positive reaction from a big majority to any suggestion that the tax be raised.

 

This effect is not mentioned by either of the two biggest boosters of full dividend — the non-partisan Citizens’ Climate Lobby (with which I am an enthusiastic volunteer) and the avowedly Republican Climate Leadership Council. Each of them has a “forever” plan for carbon pricing that includes how the carbon tax would rise in the future. CCL’s starts lower and ramps up aggressively. CLC’s starts higher and only rises with inflation.

 

But both of them restrain their advocacy to carefully ignore — almost certainly intentionally — what seems to be an obvious dynamic. No big proposal remains untouched over time. If either proposal were enacted, after a year or two we’d have a new political environment with 2/3 of the people “profiting” from the tax. Certainly in that case the political circumstances for raising the tax would be far more favorable for a higher price on carbon than it is now!

 

Since I have encountered experts who have told me that we need to add at least $200 a ton to the price of carbon, using an approach which will foster support for further increases as we learn more (and experience more expensive climate-disruption events like we have in 2017) is very appealing. We don’t actually know for sure what price for carbon will force the consumption shifts we need. So it will be helpful to have political support if we find it needs to go higher. More people actually “profiting” from the tax creates a foundation for that future support.

 

FINALLY, A FEW NUMBERS FOR CONTEXT

 

One of the leading organizations sounding the alarm for CO2 management is called 350.org, headed by Bill McKibben. The organization is named for the number of parts per million of CO2 (which we have been measuring since 1950) that is our upper limit for safety, according to a calculation done some years ago when McKibben was naming his organization and asked James Hansen what that number should be. Hansen is the former NASA scientist who deserves singular credit for putting the whole global warming problem prominently into the public sphere with testimony he gave before Congress in the late 1980s. When Hansen gave McKibben the number, the carbon load already stood at 385 parts per million.

 

And it has continued rising since. The most current estimates I’ve seen suggest that we’re now at about 410. This is a level of CO2 saturation that has never been seen in human history. And it somewhat understates the perilous position we’re in because most of the excess carbon is being stored in the warming oceans, which are also more acidic (a separate-but-related dire problem) because they’ve absorbed so much CO2.

 

When thinking about the economic impact of carbon taxes, it provides helpful context to know that a dollar of carbon tax raises gasoline prices approximately a penny a gallon. The Climate Leadership Council’s $40 starting point amounts to about 40 cents a gallon.

 

AND NOW YOU’RE READY TO REALLY PARTICIPATE IN THE DISCUSSION

 

Everything in this piece was not really known by me — or certainly was not clear to me — 18 months ago when I became a climate activist. It is my hope that putting these basic facts into context will help others join the fight that we desperately need to win if humanity is going to avoid catastrophes so dire we don’t even want to contemplate them. These consequences are already evident but will hit with brutal, undeniable, and highly disruptive force within the lifetime of most people alive today.

 

Mike Shatzkin is a book publishing lifer and for the past three decades has been a recognized thought leader on the industry’s digital change. He comments on that topic regularly on a blog called The Shatzkin Files. He has recently immersed himself in the challenge of climate change, and with Lena Tabori, another book publishing lifer, is organizing an educational and networking hub that will live at  ClimateChangeResources.org when it goes live, to use their publishing, curation, and communication skills and networks on behalf of mankind’s existential challenge.

 

 


1 comment

 

One response to “Putting a Price on Carbon”

  1. Anonymous says:

    Excellent discussion of the options for a carbon tax.

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