A conversation with Cullenward & Victor, part one.
It's remarkable how little people are willing to pay for gas, which moves thousands of pounds of steel much farther and faster than they could by foot. Considering that burning fifty gallons of gas produces a ton of CO2 and moves an average 2017 model car 1250 miles (25 MPG), it's especially difficult to process that a carbon tax might add pennies per mile traveled. And when gas prices came down from the '08-'14 levels, people just got bigger, less efficient cars with the savings rather than pocketing it. It's maddening!
Canada's carbon tax is beyond a proposal or a plan. The initial implementation has shown durability and equity. It started April 2019 with a "dividend" (unfortunately through a tax credit rather than a monthly check) at the same time as the $20/ton broad-based (not sector-based) carbon tax took effect. For each Province they published the estimated dividend and the increased household costs. The carbon tax was the major Conservative opposition talking point in the 2019 elections and Trudeau and the carbon tax prevailed. In April 2020 in the midst of the pandemic, Trudeau issued the carbon dividend/tax credit and implemented the annual $10/ton increase to $30/ton. Trudeau's comment: “Our plan on pricing pollution puts more money upfront into people’s pockets than they would pay with the new price on pollution. We’re going to continue to focus on putting more money in people’s pockets to support them right across the country.” (Citing the response to Ontario's cap and trade and conflating it with the carbon tax policy is not sound. The lessons learned from cap and trade problems are generally not relevant to a discussion of carbon tax policy, e.g., fluctuating prices, regulatory programs undermining cap and trade and resource shuffling, cap forecasting.)
[Related note: Thanks for your assessment of offsets. It would be of high value if you both took on the issue of documenting the fundamental flaws and assessing alternatives to offsets. The big corporates/banks/Big Green are gearing up to push it hard. Trading desks have not had such an opportunity since the 2008 mortgage meltdown.]
The authors describe the Cap and Trade carbon pricing policies (since that is what is out there) and are basically correct about its problems. But a Fee and Dividend (F&D) carbon policy does not have the problems they describe and is specifically designed to get public support (by returning 100% of the fees collected to every legal resident on an equal basis). Yes, we need leadership to get any serious climate policies enacted but F&D is doable and and will help align financial incentives with climate realities. See the paper by James Hansen and me on why F&D is the best carbon pricing policy: https://www.ourenergypolicy.org/resources/why-fee-and-dividend-will-reduce-emissions-faster-than-other-carbon-pricing-policy-options/
instead of arguing about the feasibility, Citizens Climate Lobby, with thousands of volunteers in US, Canada, and abroad, has been spending untold precious time and energy talking with legislators, businesses, municipalities, mayors, faith leaders. CCL believes it is politically possible. It looks at climate change as a global issue and works diligently with other countries. Turning anxiety into action seems like a good thing. If you listen to Michael Gerrard, Michael Mann, and others, we need to try all actions possible--market based (carbon fee & dividend) and others.
Hello, good people of the mighty Volts community! I'll be dropping in and out over the next few days to answer your questions and receive your pointed criticisms with as much dignity as I can muster in defeat. Who knows, we might even convince my co-author and his lordship of social media obscurity, David Victor, to join us for a spell. He may be physically grounded like the rest of us during the pandemic, but that's not to say he isn't living on European time when not otherwise surfing the San Diego waves. You think I am kidding, but I am not.
Thank you so much for this analysis! You have confirmed my feeling that carbon pricing called Cap & Trade (C&T) is complicated and just not working as promised, and also my suspicions of carbon offsets. And I agree, strong sectoral policy is still required.
I’m excited about the new generation of carbon pricing, “CARBON CASH-BACK” (aka Carbon Fee and Dividend). This is the policy the 4000+ economists are supporting which quickly reduces emission! It pays for itself so doesn’t grow government. The fees collected are returned to Americans monthly as cash to spend as we see fit. And, it’s your choice to lower your carbon footprint and come out even more ahead.
As you recommended, we need carbon pricing that can operate more smoothly in the presence of strong regulation. Carbon Cash-back fits that requirement! It complements sectoral regulation. Take gasoline, for example. Carbon pricing does not cause much change to gasoline prices. This is where effective CAFÉ standards are still strongly needed.
Lastly, I think carbon cash-back applied to our borders, (border carbon adjustment), as the EU is considering, will make us a powerful world influence for decarbonizing.
I hope your next research effort will take a look into Carbon Cash-back its SUCCESS in CANADA! I think a bipartisan federal Carbon Cash-back solution is an excellent first step for tackling climate change and something we can put in place quickly as we work to hone the regulations.
Lisa, I would share your indignation if the facts you present were correct. But they're not. Let's take just a couple:
-- You say, HR 763 doesn't cover methane. This is mostly true. But it never purported to. That's a bit like faulting breakfast for not being dinner. HR 763 isn't put forward as a "silver bullet," which is a common straw-man attack on it. By design, HR 763 doesn't apply to upstream wellhead or mine mouth leaks at all, because it's implementation depends on existing metering to calculate the carbon content, for simplicity. It would cover methane leaks downstream of the point of measurement, although it treats them as if the methane were combusted, so doesn't account for the difference in GWP. Methane leakage, upstream and downstream, is for other legislation to address.
-- You say, The fee is assessed at the point of use. That's mistaken. One of HR 763's great strengths is that is avoids that point-of-use problem seen in cap-and-trade which, I agree, lets the FF cos skate, and puts the burden almost entirely on the mid-market (e.g., utilities) and on consumers, to find alternatives to FFs. Under HR 763, the fee is applied in the field at the coal consolidation yard or the processing plant/refinery, where the energy content of the fuels (and by implication their carbon content) are measured as a matter of normal commerce. That isn't the point of use--that's the point where the wholesale product enters the system for delivery to retail distributors. The FF cos pay the fee. This is explicit in the bill. If HR 763 had been in place, Exxon's payment to the Treasury (to be returned back to taxpayers in equal shares) in 2019 would have been $5.4 billion, which was 27% of their 2019 profit.
For more, see: https://marinccl.files.wordpress.com/2020/10/what-if-fossil-fuel-companies-paid-us-to-stop-using-their-products-1.pdf (Note that this link is my opinion, not an official position of CCL.)
Thank you for the analysis. One question: Europe is considering imposing carbon tax on imports. Of course, still a long shot, but if successful, don't you think it could force the issue, similar to the potential impact of the just revealed Digital Market Act
nice information post
Any idea why their book is $52 for the Kindle version. That's insane.
This is great, but I've always thought that the ability to (theoretically) pass a carbon tax through the Senate in a budget bill--thus avoiding the filibuster--is way more important than the aspects discussed here. The filibuster is and always will be the biggest hurdle to passing any kind of comprehensive climate legislation and I don't see a pro-climate 60 vote majority happening anytime soon.
“There are two reasons. One is that the politics in each sector are different. In the transportation sector, for example, voters are super-sensitive to anything that visibly raises the cost of transportation fuels. Policies in that sector that have a visible impact on cost are politically toxic.”
Yes, but you’re assuming that the politics are an intrinsic property of the issue like the number of gallons of gasoline refined from a barrel of oil. In similar situations in the past, i.e. the oft cited CFC allowance system, one major party was not reflexively trying to hold the country back on almost every issue. Now it appears that that party’s political power might be waning as it cleaves itself into merely contrarian and animated crackpot wings, leaving the political center in charge. Politics can change. (And once insurance companies start refusing to insure expensive Miami real estate, the pressure to change will only increase). The key to political acceptance is to tell people what’s in it for them. Cue the Green New Deal.
As for transportation specifically, the size of price increases due to, for example, the Transportation Climate Initiative, will be unnoticeable and in the noise of normal fluctuations.
“Any effort to increase the ambition of the overall system means that your opponents can run attack ads saying you’re trying to raise the price of gasoline, which is one of the things politicians hate to be seen doing the most. Everyone can fight you.”
As the number of EV’s increase and more and more people “cut the nozzle”, this will become less of an issue. We’ve been driving EV’s since 2012, so the price of gasoline doesn’t really interest me. It’s like the price of cigarettes for a non-smoker.
F&D is a shill game. https://patrell-lisa.medium.com/hr763-energy-innovation-is-wolf-in-sheeps-rags-what-corporate-lobbyists-have-done-to-a-formerly-df1be6103e46
I expect further conversation and the underlying work address some of this, but: coordination of effort across multiple sectors is important and hard. Not just ‘to reduce costs’ (though efficiency matters!) but to manage perverse consequences of unaligned policies. Like policies to support energy storage can easily extend the life / output of less flexible fossil generation. I accept that truly economy-wide pricing is dead or at least far far off, but the problem still needs solutions.
Also: De-linking policies doesn’t really allow ‘taking on one sector at a time’. All the opportunities across all the sectors still need policies! But now they’re more technical policies, more subject to specific expertise, intense sectoral interest and diffuse public benefit.
One part of the political logic of carbon pricing that I’ve never seen articulated is that policy makers don’t need to take responsibility for specific negative outcomes - “my local power plant closed” eg - in the way that they would if they regulated the outcome. We’re used to accepting stuff that is driven by ‘the market’, even though big underlying policy choices are important. Most carbon pricing schemes haven’t got to the point of maturity where such outcomes have the sense of natural inevitability, however.
1. Is the Cullenward & Victor argument specific to US politics? If not, what are their thoughts on the recent news on the Canadian carbon tax? https://www.cbc.ca/news/politics/carbon-tax-hike-new-climate-plan-1.5837709
2. If carbon pricing is politically untenable, where's the best place a Joe-Schmo climate activist like me, living in a red district in a red state, can spend his time and energy?
Great arguments around the politics of carbon pricing - we put together similar arguments in a recent paper, questioning i) problem framing (market vs. system problem), ii) policy priority (efficiency vs. effectiveness, iii) innovation orientation (optimization vs. radical change), iv) context (universal vs. sector specific approach) and v) politics. Transformation oriented climate policy mixes - we call it transition policy - could be an alternative.