Category: The Deal We Need

The end of the world is free!

Why should emitting greenhouse gases be free, when it contributes to the destruction of so much we care about?

In the New York Times, David Leonhardt ponders,

The Problem With Putting a Price on the End of the World

Economists have workable policy ideas for addressing
climate change. But what if they’re politically impossible?

I wrote about this exact situation nearly ten years ago, when the Breakthrough Institute (and others) proposed energy R&D as an alternative to politically-infeasible carbon taxes. What has R&D accomplished since then? All kinds of wonderful things, but the implications for climate are … diddly squat.

The emerging climate technology delusion

Leonhardt observes that emissions pricing programs have already failed to win approval several times, which is true. However, I think the diagnosis is partly incorrect. Cap and trade programs like Waxman Markey failed not because they imposed prices, but because they were incredibly complex and involved big property rights giveaways. Anyone who even understands the details of the program is right to wonder if anyone other than traders will profit from it.

In other cases, like the Washington carbon tax initiatives, I think the problem may be that potential backers required that it solve not only climate, but also environmental justice and income inequality more broadly. That’s an impossible task for a single policy.

Leonhardt proposes performance standards and a variety of other economically “second best” measures as alternatives.

The better bet seems to be an “all of the above” approach: Organize a climate movement around meaningful policies with a reasonable chance of near-term success, but don’t abandon the hope of carbon pricing.

At first blush, this seems reasonable to me. Performance standards and information policies have accomplished a lot over the years. Energy R&D is a good investment.

On second thought, these alternatives have already failed. The sum total of all such policies over the last few decades has been to reduce CO2 emissions intensity by 2% per year.

That’s slower than GDP growth, so emissions have actually risen. That’s far short of what we need to accomplish, and it’s not all attributable to policy. Even with twice the political will, and twice the progress, it wouldn’t be nearly enough.

All of the above have some role to play, but without prices as a keystone economic signal, they’re fighting the tide. Moreover, together they have a large cost in administrative complexity, which gives opponents a legitimate reason to whine about bureaucracy and promotes regulatory capture. This makes it hard to innovate and helps large incumbents contribute to worsening inequality.

Adapted from Tax Time

So, I think we need to do a lot more than not “abandon the hope” of carbon pricing. Every time we push a stopgap, second-best policy, we must also be building the basis for implementation of emissions prices. This means we have to get smarter about carbon pricing, and address the cognitive and educational gaps that explain failure so far. Leonhardt identifies one key point:

‘If we’re going to succeed on climate policy, it will be by giving people a vision of what’s in it for them.’

I think that vision has several parts.

  • One is multisolving – recognizing that clever climate policy can improve welfare now as well as in the future through health and equity cobenefits. This is tricky, because a practical policy can’t do everything directly; it just has to be compatible with doing everything.
  • Another is decentralization. The climate-economy system is too big to permit monolithic solution designs. We have to preserve diversity and put signals in place that allow it to evolve in beneficial directions.

Finally, emissions pricing has to be more than a vision – it has to be designed so that it’s actually good for the median voter:

As Nordhaus acknowledged in his speech, curbing dirty energy by raising its price “may be good for nature, but it’s not actually all that attractive to voters to reduce their income.”

Emissions pricing doesn’t have to be harmful to most voters, even neglecting cobenefits, as long as green taxes include equitable rebates, revenue finances good projects, and green sectors have high labor intensity. (The median voter has to understand this as well.)

Personally, I’m frustrated by decades of excuses for ineffective, complicated, inequitable policies. I don’t know how to put it in terms that don’t trigger cognitive dissonance, but I think there’s a question that needs to be asked over and over, until it sinks in:

Why should emitting greenhouse gases be free, when it contributes to the destruction of so much we care about?

Why should emitting greenhouse gases be free, when it contributes to the destruction of so much we care about?

Why should emitting greenhouse gases be free, when it contributes to the destruction of so much we care about?

Why should emitting greenhouse gases be free, when it contributes to the destruction of so much we care about?

Why should emitting greenhouse gases be free, when it contributes to the destruction of so much we care about?

Dimensions of The Deal

In the Tällberg event we talked a lot about the deal we need, without really defining what was meant by that. I think it has at least four dimensions:

Technical

What science drives the goal? Is it 350ppm? 450ppm? 550ppm? 2C?

Social

What regions or sectors will move first, and what transfers will the rich or the winners use to induce the poor or the losers to play along? Do transfers consist of money, intellectual property, or both?

Implementation

What form will commitments take, who will make them, and how will they be implemented? Will the mechanism favor taxes or trading, for example? Will standards be expressed as intensities or absolute emissions or … ? How will goals and mechanisms adapt as we learn about uncertainties?

Coalition

We don’t have a deal now because we don’t have the coalition needed to make it happen. Some combination of the public, politicians, media, religion, education, etc. needs to come together to create critical mass behind a policy. We have fragments (the EU, California) but not a whole. I rather doubt that there is a quick, transformative solution (unless catastrophe drives us to one, which I’d rather not contemplate).

I say “critical mass” deliberately, because what we’re all implicitly searching for is a reinforcing feedback that will grow policy out of its current dysfunctional state. The question is, what is that loop? My guess is that it involves starting gradually. Don’t shoot for the moon and fail. Instead, take a little medicine at first. Impose a modest carbon tax. Observe that the economy doesn’t collapse, and efficiency is cheap or even profitable. Greentech gets a little more profitable, and the more numerous low-carbon voters grow to enjoy their tax rebates. Enlisting their support allows the tax to be ratcheted up further, and soon you’re rolling toward real emissions controls. But is the gain on that loop high enough to yield emissions reductions in time to avoid catastrophe?

Hansen on The Deal

Jim Hansen kicked off the Tällberg panel with a succinct summary of the argument for a 350ppm target in Hansen et al. (a short version is here). As I heard it,

  • The dangerous level of GHGs in the atmosphere is lower than we thought.
  • 3C climate sensitivity from fast feedbacks is confirmed; the risk is slow feedbacks, which are not as slow as we thought.
  • There is enough warming in pipeline to lose arctic ice, glaciers, reefs.
  • Good news: we need to go back to the stable Holocene climate.
  • The problem is solvable because conventional oil and gas are limited; we just need the will to not burn coal, oil shale, etc., except with CCS.
  • Among other things, that requires a price on carbon; for which a tax is the preferred mechanism.
  • The only loser is the fossil fuel industry; we simply need to bring them to heel.

Hansen was a little impatient with our bit of the forum, and argued that our focus on regions (and the challenges in reaching a regional accord) was too pessimistic. Instead, a focus on fuels (e.g., phasing out coal) provides clarity of purpose.

My counterargument, which I only partially articulated during the session, for fear of driving the conversation off on a tangent, is as follows:

As a technical solution, phasing out coal and letting peak oil run its course probably works. However, phasing out coal by 2030 implies a time constant of seven years or a rate of decline in coal utilization of about 10%/year (by the 3-tau rule of thumb). Coal-fired power plants have a long lifetime, so the natural rate of decline, assuming no new coal investment, is more like 2.5% or 3%/year. Phasing out coal at 10% per year implies not only halting construction, but also abandoning many plants before their natural economic lifetime is up. Age structure complicates things a bit, perhaps making it easier in the US (where plants are disproportionately old) and harder in China (where they’re new). Closing plants ahead of schedule is going to make the fossil fuel interests that Hansen proposes to control rather vocally upset. Also, eliminating coal emissions that fast requires some combination of rapid deployment of efficiency, noncarbon energy sources, and CCS above natural rates of capital turnover, and lifestyle change to pick up the slack. That in itself is a significant challenge.

That would be doable for a coalition with enough political power to either overpower or buy off the owners of stranded assets. But that coalition doesn’t now exist, and therein lies the reason that this is a political problem more than a technical one.

Random Reflections on The Deal

The following are some stream-of-consciousness insights that struck me from other presentations and audience comments during the Tällberg event. Apologies to Bo Ekman, Bob Corell, Christine Loh, Johan Rockström, and other unattributed sources of these thoughts – my notes just aren’t that good.

There’s much tearing of hair and gnashing of teeth in attempts to interpret the UNFCC objective, “stabilization of greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system.” But the convention actually provides a useful definition in the very next sentence, “Such a level should be achieved within a time-frame sufficient to allow ecosystems to adapt naturally to climate change, to ensure that food production is not threatened and to enable economic development to proceed in a sustainable manner.” That’s already a fairly stringent and specific requirement.

    The mood of the Club of Rome, and of statements about the state of ecological and social systems in general, is gloomy, i.e. that issues raised 40 years ago regrettably are now more acute and immediate.

      Climate is not a future problem, it’s happening now.
      It’s not a gradual process; it could happen drastically.
      It’s not globally uniform; regional variations are large.
      It’s not an environmental problem; it’s connected to an array of issues in many domains (oil security, ecosystems, water, refugees, the real and money economies). Developments in the money economy rely on the underlying real economy, which in turn relies on resources, yet finance ministers routinely trump environmental decisions and few environmental agreements are honored.

        Sovereignty is one of the notions that stands in the way of agreements; such fundamental principles need to be rethought. The philosophical problem leads to practical problems. For example, enthusiasm for cap & trade, at least in some quarters, stems from the idea that it could be used as a mechanism for transfers from rich to poor nations, for example via allocation of emissions permits on a per capita basis. An ideal system would have to operate person to person though. If governments receive allowances, the system risks becoming a mechanism for the elites of the poor world to fleece the rich world, with limited benefit to the poor.

          As soon as one accepts the framing of climate change as, how to sustain GDP growth, or as a cost-benefit problem, half the battle is lost. The ‘economy as means’ is confused with ‘economy as end’. The solution needs to connect to well being. This is difficult, because of role confusion – so many of the interests involved in creating a solution are also dependent on the creation of consumer demand. Seen in that light, there might be a silver lining to the financial crisis. It is distracting, but it might also be the storm of creative destruction that provides fertile ground for growth of new interpretations of well being and new economic goals.

            The world of climate negotiation is closed. Negotiations are driven by diplomats who’ve been at it for years, and resist information sources and constraints representing reality. Environment ministers complain that they have no influence over the outcome. Nature needs to be brought into the room (exactly what we’re trying to do).

              The Deal We Ain't Got

              Today, Drew Jones and I presented a simple model as part of the Tällberg Forum’s Washington Conversation, ‘The climate deal we need.’ Our goal was to build from some simple points about the bathtub dynamics of the carbon cycle and climate to yield some insights about what’s needed. Our aspirational list of insights to get across included,

              • stabilizing emissions near current levels fails to stabilize atmospheric concentrations any time soon (because emissions now exceed uptake of carbon; stabilization continues that condition, and the residual accumulates in the atmosphere)
              • achieving stabilization of atmospheric CO2 at low levels (Hansen et al.’s 350 ppm) requires very aggressive cuts (for the same reason; if carbon cycle feedbacks from temperature kick in, negative emissions could be needed)
              • current policies are not on track to meaningful reductions (duh)
              • nevertheless, there is a path (Hansen et al.’s “where should humanity aim” paper lays out one option, and there are others)
              • starting soon is essential (the bathtub continues to fill while we delay – a costly gamble)
              • international negotiation dynamics are tricky due to diversity of interests, coupled problem spaces, and difficulty of transfers (simulations shadow this)
              • but everyone has to be on board or little happens (any one major region or sector, uncontrolled, can blow the deal by emitting above natural uptake)

              A good moment came when someone asked, “Why should we care about staying below some temperature threshold?” (I think a scenario with about 3.5C was on the screen at the time). Jim Hansen answered, “because that would be a different planet.”

              The conversation didn’t lead to specification of “the deal we need” but it explored a number of interesting facets, which I’ll relate in a few follow-on posts.