[Graeme]

Economist Says Best Climate Fix A Tough Sell, But Worth It

We often talk about climate change as a matter of science. But the biggest questions are really about money. How much would it cost to fix the problem — and what price will we pay if we don't?

The man who invented the field of climate economics 40 years ago says there's actually a straightforward way to solve the problem. William Nordhaus has written a book that lays it out in simple terms.

Nordhaus has been at Yale University since 1967. Now 72 years old, he has silver hair and a warm demeanor. His ideas about climate change, he says, date back to 1974, when he was a research scholar in Austria doing energy research, and happened to share an office with a climatologist, who told him, " 'This is where energy research is going to be going,' " Nordhaus remembers. "I said, 'Well, OK, tell me about it.' And that's how it started."

Despite some scientific interest in climate change at the time, the topic "was zero on the intellectual Kelvin scale in economics," Nordhaus says. "There was nothing at that point."

He started to grapple with the basic problem: Climate change was looming because people were burning cheap fossil fuels.

Carbon dioxide is now building up in the atmosphere faster than ever, and each extra ton increases the risk of sea level rise, shifting climate and other changes that are likely to cost a huge amount of money to address in the future.

Right now, nobody pays for that, and it wasn't even clear what the price should be until Nordhaus started running the numbers.

"When we did our first calculations, they actually spun out these 'shadow prices,' " he says. "And I remember looking at them and trying to think ... what in the world does that mean?"

The shadow prices, he realized, actually represented the cost of putting carbon dioxide into the atmosphere. And with that, climate change suddenly became a problem that could be attacked with the tools of economics.

"Actually from an economic point of view, it's a pretty simple problem," he says.

If people would simply pay the cost of using the atmosphere as a dump for carbon dioxide, that would create a powerful incentive to dump less and invest in cleaner ways to generate energy. But how do you do that?

"We need to put a price on carbon, so that when anyone, anywhere, anytime does something that puts carbon dioxide in the atmosphere, there's a price tag on that," he says.

His colleagues say that inspiration — now taken for granted — makes Nordhaus a prime candidate for a Nobel Prize. A lot of his work has been figuring out how big a price we should pay, and what form it should take.

npr

[Plantagenet]

"We need to put a price on carbon, so that when anyone, anywhere, anytime does something that puts carbon dioxide in the atmosphere, there's a price tag on that," he says.

His colleagues say that inspiration — now taken for granted — makes Nordhaus a prime candidate for a Nobel Prize. A lot of his work has been figuring out how big a price we should pay, and what form it should take.

[/quote]

A wonderful idea. But now that Australia and Canada and Germany and the EU are all backing away from earlier commitments to cut their CO2 emissons its more apparent then ever that we need a GLOBAL treaty to enforce CO2 reductions on a global basis.

Prof. Nordhaus's work can form the basis of the carbon pricing scheme. Now all we need is politicans brave enough and smart enough to actually produce the post-Kyoto treaty the world needs.

[careinke]

"We need to put a price on carbon, so that when anyone, anywhere, anytime does something that puts carbon dioxide in the atmosphere, there's a price tag on that," he says.

A wonderful idea. But now that Australia and Canada and Germany and the EU are all backing away from earlier commitments to cut their CO2 emissons its more apparent then ever that we need a GLOBAL treaty to enforce CO2 reductions on a global basis.

Prof. Nordhaus's work can form the basis of the carbon pricing scheme. Now all we need is politicans brave enough and smart enough to actually produce the post-Kyoto treaty the world needs.

As you know I'm all for consumption taxes over income taxes, especially carbon taxes.

I'm curious Plant, under your vision of a world taxation plan, who gets the money?

[yellowcanoe]

I support the concept of a carbon tax, but I am skeptical about the ability of such a tax to reduce oil consumption. The jump in oil prices over a relatively short period of time from $40 to $100 per barrel did reduce consumption in many western countries but the world as a whole consumed every barrel of oil that could be produced. Oil derived fuels which have the benefit of a high energy density and liquid form are still highly desired even at such a high price. I would expect a carbon tax to work more effectively on other fossil fuels such as coal and natural gas.

[GHung]

Getting people all over the world to pay for something they've been getting for free since they discovered fire? Not sure how that's going to fly.

[Plantagenet]

I'm curious Plant, under your vision of a world taxation plan, who gets the money?

I don't have a vision of a world taxation plan.

I have a vision of world climate change treaty.

The idea for a binding post-Kyoto UN climate change treaty is that carbon emissions would be taxed. The people doing the taxing would the governments that signed up and then ratified the UN treaty. One of the reasons such a treaty is so hard to negotiate is that we have a lot of incompetent political leaders on the scene right now. Another reason is that some countries want the rich countries to transfer the carbon tax money to the poor countries.

Meanwhile more and more carbon gets pumped into the atmosphere and the planet gets hotter and hotter.

[ralfy]

Unfortunately, the revenues earned from a carbon tax are reinvested, which means consumption still has to rise. Meanwhile, the business elite will still want their profits and returns on investment, and most people worldwide who want both basic needs and middle class conveniences will not support governments that will not allow for such.

[Loki]

I'm curious Plant, under your vision of a world taxation plan, who gets the money?

I'd vote for energy conservation, mass transit, and climate change mitigation (environmental and agricultural especially). Distributed renewables, too, but not so sure about big centralized plants.

[rollin]

I like the solution, simple. The execution? Near impossible in a world that cannot get along under the best of times.

I have seen estimates on the environmental cost of a gallon of gas at anywhere from $18 to $80. The variation does not come so much from differing viewpoints but from how much damage is included In the calculation. Reality is probably near the higher end. Of course much of the damage cannot be corrected with money.

So the most realistic program might entail a small but increasing tax on carbon at the source and on imports. This tax would be used to insulate buildings, subsidize highly efficient cars and trucks, promote solar and wind, fund conservation programs, etc. Speed limits need to be lowered, long term tree growth subsidized, ride sharing subsidized. The ethanol mandate needs to be dropped as well as any subsidies (tax breaks) to fossil fuel producers. As far as the power grid, both solar and wind farms need to be subsidized, home and business installation of PV and heat collectors should be given direct subsidies and tax breaks. Electric car research and design should be given grants and funding as well as hydraulic hybrid research and design.

Industry uses a lot of natural gas, they should be rewarded for finding methods to use less. Incentives work better than taxes. Industries should be carefully analyzed for energy use and recommendations made with an incentive program for permanent reductions.
Forget Olympic medals, those who solve energy problems and reduce carbon use should be honored and given further grants.
In other words, a broad based system with some taxes and incentives to move away from carbon use. That might work.

[kuidaskassikaeb]

The taxes proposed essentially just send the money back. Tax carbon and then send a check back to everybody. High carbon users pay, low carbon users would actually gain.

The idea has the advantage of being potentially very popular, and the disadvantage of being very redistributive. But it would free up saving for carbon reduction.

Most mitigation schemes done by economists simply price carbon and a typical price seems to be about less than $100/ton.

[ralfy]

Or reinvested in solar technologies to ultimately reduce CO2 emissions. It is not written in stone or our genes that people have to buy crap or support business elites.

I think it's safe to assume that when people invest in a particular product, they do so not to reduce CO2 emissions but because they get a better return on their investment than they would in another. And a better return ultimately means selling more of that product each time.

[rollin]

The taxes proposed essentially just send the money back. Tax carbon and then send a check back to everybody. High carbon users pay, low carbon users would actually gain.

The idea has the advantage of being potentially very popular, and the disadvantage of being very redistributive. But it would free up saving for carbon reduction.

Most mitigation schemes done by economists simply price carbon and a typical price seems to be about less than $100/ton.

Unless handled very carefully, a carbon tax would destabilize the energy sector and cause coal mines to shutter as natural gas would be at a huge price advantage. Next, since it takes years to develop more supply (not sure that is really possible) natural gas would rise dramatically in price with shortages being the norm.
Destabilizing the energy sector and increasing prices could have a very dramatic yet unwelcome effect.

[Timo]

The taxes proposed essentially just send the money back. Tax carbon and then send a check back to everybody. High carbon users pay, low carbon users would actually gain.

The idea has the advantage of being potentially very popular, and the disadvantage of being very redistributive. But it would free up saving for carbon reduction.

Most mitigation schemes done by economists simply price carbon and a typical price seems to be about less than $100/ton.

Unless handled very carefully, a carbon tax would destabilize the energy sector and cause coal mines to shutter as natural gas would be at a huge price advantage. Next, since it takes years to develop more supply (not sure that is really possible) natural gas would rise dramatically in price with shortages being the norm.
Destabilizing the energy sector and increasing prices could have a very dramatic yet unwelcome effect.

Short-term, yes. There would be noticeable instability in the energy production trade. This could be mitigated substantially, though, if there was an amortization time-frame created that would delay full tax-enforcement for a period of maybe 5 to 10 years. Give the energy producers time to absorb the end of BAU before the tax kicks in. Perhaps even more important, however, is that a carbon tax would REALLY kick the use of alternatives into high gear. Even the energy monopolies would start converting their production infrastructure to renewables in very short order in order to maintain their status as the dominant supplier for the public consumer.

As far as where the revenues of this tax should go, well, i hate to say this, but the revenues should go directly back to the energy producers ONLY to offset their costs in converting to alternative energies. Tax credits could be offered to producers and homeowners alike for the installation of alternative energy production infrastructure. The tax creates a disincentive to continue BAU, while simultaneously offering the proper incentives to make the transition to post FF technologies.

But, as great as the initial idea is, it will never happen, at least on any meaningful scale. Too little, too late, with no universal system of enforcement.

[AndyA]

As you know I'm all for consumption taxes over income taxes, especially carbon taxes.

Consumption taxes are the most regressive form of taxation, the more of your net income you spend on consumption the higher your effective tax rate. It's most notable impact will be to make the poor even poorer. "Everybody knows, that's how it goes"

The 'Science' of Economics has one primary goal, to protect the privileges of the rich. Show me it isn't so. Even a carbon tax will hurt the poor disproportionaly to the rich. Maybe that's a price worth paying, though I think the rich have enough as it is.

Without FF our economy is dead, so for most people climate change is a price worth paying.

[davep]

Without FF our economy is dead, so for most people climate change is a price worth paying.

Most people? Says who? Our economy depends on growth due to the current mechanics of money creation. And that benefits a select few bankers over states and citizens. I think most people would prefer a decent world for their children over this system.

[ROCKMAN]

Despite the apparent logic and the good intentions does anyone here believe the POTUS or political leadership in China and India would send any money to anyone on the planet to pay for our share of carbon entering the atmosphere? And if anyone of those folks ever seriously discusses such a scheme would they have any chance of holding their seat of power? What-ifs can be fun mental exercises. Just good to keep it mind what could and couldn't happen.

If any industrialized economy wanted to force their population to reduce its carbon footprint why wouldn't that govt tax their citizens and keep the money for thein own govt. That would still not likely be accept by the voting public but a lot better chance then a plan to send the monies to someone else IMHO. So again how does an such plan work unless the major producers of atmospheric carbon agree to it?

[kuidaskassikaeb]

kuidaskassikaeb wrote:
The taxes proposed essentially just send the money back. Tax carbon and then send a check back to everybody. High carbon users pay, low carbon users would actually gain.

The idea has the advantage of being potentially very popular, and the disadvantage of being very redistributive. But it would free up saving for carbon reduction.

Most mitigation schemes done by economists simply price carbon and a typical price seems to be about less than $100/ton.

Unless handled very carefully, a carbon tax would destabilize the energy sector and cause coal mines to shutter as natural gas would be at a huge price advantage. Next, since it takes years to develop more supply (not sure that is really possible) natural gas would rise dramatically in price with shortages being the norm.
Destabilizing the energy sector and increasing prices could have a very dramatic yet unwelcome effect.

I don't know how to say this, but that's the idea. Coal needs to stay in the ground, and there isn't any way to do that without shuttering mines. Most of the plans phase in the taxes over a period of years, like twenty. As long as people know the price is going up they will react. The future of Natural gas, I don't know about, but it's pretty clear they could ramp up fast if the price was right. As far as jobs, it may ruin the economy, but it will create a lot of jobs.