By Paul Homewood
Ambrose is away with the fairies again!
In deference to Christmas optimism, here is a beautifully simple answer to global climate change, backed by 27 Nobel economists and the United States policy firmament from Keynesian Left to Monetarist Right.
It is guided by market principles. It reduces the role of the state. It does not shaft the poor. It is easy to enforce. It is oven-ready, to borrow the phrase du jour.
This initiative by the Citizens Climate Lobby has the support of Democrats and Republicans in Congress. It has been endorsed by Alan Greenspan, the late Paul Volcker, and Nobel laureate Myron Scholes in the free market camp, and Janet Yellen, Amartya Sen, and Larry Summers on the interventionist side.
It is on the table as HR 763, the Energy Innovation and Carbon Dividend Act, with 73 sponsors (and rising) in the House, led by the Florida bloc smack in the path of surging seas and category five hurricanes.
The sad spectacle of the COP25 summit in Madrid – a step backwards from Paris, even as the science tightens – marks the end of the road for amicable co-operation by powers. The COP process is not up to the task.
HR 763 proposes a carbon tax with a twist. The revenue is recycled back to households on a per capita basis to spend as they wish. The redistribution is mildly progressive since the poor have a lower carbon footprint. Most emerge net winners. Agriculture is for now exempted.
This structure addresses the gilets jaunes syndrome in France: Emmanuel Macron’s fuel tax blew up in his face because he neglected the political asymmetry for forgotten provincial France. “What happened with the yellow vests was a failure of policy design,” says Devra Davis, a Nobel scientist and veteran of the Intergovernmental Panel on Climate Change.
The carbon tax starts at $15 (£12.60) a tonne and ratchets up $10 every year until the annual target is met, ending once US carbon emissions are 90pc below their 2016 level. In theory the levy could hit $115 within a decade, but I doubt that such a level is necessary.
The price signal of such legislation would transform behaviour. Market forces would take charge and accelerate the pace. Relative equity and debt costs for fossil companies would rise (they already have). More investment would flow into renewable energy or carbon capture. The UK’s carbon floor, combined with EU emission contracts, killed coal at under $30.
Carbon Tracker, the London-based think tank, says the scissor effect of a rising carbon tax versus plummeting costs for solar, wind, electric vehicles, or energy storage, is already slashing the putative cross-over point to nearer $40. Green hydrogen from electrolysis for uses such as heating and transport will take longer, but even that promises to be competitive by 2030…….
In order to level the playing field in global trade, the US would impose a “carbon border fee adjustment” on the embedded CO2 in imports from high-emitting states, as well as a refund for US exporters. It is arguably compatible with WTO rules under an Article 20 exemption for human and animal life.
This closely resembles a parallel plan in the EU under the new zero-tolerance policy of Ursula von der Leyen, who is pushing a green new deal as the signature theme of her tenure as president of the European Commission. A strategy document circulating in Brussels proposes a carbon border tax, to be rolled out initially to protect the steel, cement, and aluminium industry from “carbon leakage”.
The flaws are so obvious that I should not have to explain them again, but here goes:
1) The only logical reason for a carbon tax is to reduce emissions. Such a tax might help to reduce energy consumption, but only at punitive levels, because energy demand is so inelastic.
Therefore the real intention is to make fossil fuels so expensive that renewables can eventually become competitive, along with CCS, hydrogen heating etc.
But when that happens, there are less emissions, and consequently less carbon tax revenue to redistribute. Meanwhile energy consumers will still have to face the extra cost of expensive renewables.
AEP’s idea that carbon tax revenues will simply be distributed, and the fiscal effect neutral, is therefore complete bunkum.
2) It is well established that once governments get their hands on a new source of tax revenue, they don’t give it back. And that’s even before counting the cost of collecting and administering it.
3) AEP claims in this same article that the cost of renewables is already plunging. In that case why do wind and solar power still need subsidies, guarantees, and now apparently punitive carbon taxes to be able to compete?
4) His case for carbon taxes assumes that the world can run on predominantly unreliable renewable energy. So far, coal power has been squeezed out in Europe and the US through a combination of carbon pricing, air quality rules etc. But it has been largely replaced by extra gas fired generation.
There is no evidence that gas and oil can in turn be replaced by wind and solar, and certainly not in the short time scales he has in mind.
5) In the UK at least, the power sector only accounts for about a tenth of emissions. Most arise from heating, transport and industry. A carbon tax would have little effect on, for instance, domestic gas usage or car travel. (We do after all already have a punitive carbon tax on cars, called fuel duty – it has not encouraged us to buy EVs).
AEP’s colleague Jeremy Warner wrote about carbon taxes a few weeks ago. He reckoned that a $75 carbon tax would raise natural gas prices by 70%. Does he really believe this is acceptable to millions of people up and down the country who are already struggling to make ends meet?
As the Committee on Climate Change accept, to switch domestic heating from gas to heat pumps or hydrogen will cost hundreds of billions, money which neither householders or government has.
6) If a punitive level of carbon tax really was introduced in Europe, the consequences would be earth shattering. The Gilets Jaune would look like a tea party in comparison with the riots such a policy would cause.
As the squeeze took effect, people’s cost of living would be badly affected. At the same time, the economy would quickly tank, with companies contracting, shutting down or simply offshoring.
AEP talks about a “border carbon tax”, but this would make matters even worse. For a start it would put up prices for consumers even more. Secondly it would set off a highly damaging trade war, as China and the rest of Asia would not sit back and take it. There would be only one loser in such a war, and it would not be Asia.
In any event, an EU carbon tax and border tax would never get off the ground, as the East bloc would reject it out of hand. Why, after all, should their economies, which rely heavily on coal, be hamstrung to suit German and French Greens?
7) Of course, the bottom line with all of this is that a carbon tax would need to be truly global to have any real effect.
Would anybody trust China, for instance, to institute a proper system, rather than some fake one which merely shuffled bits of paper around. Many other developing countries would be in the same position.
They won’t stop using fossil fuels, because they know that they work and renewables don’t. No amount of creative accounting will change that.
Maybe he thinks the UN could ultimately administer a carbon tax, collecting and redistributing the revenue itself. If so, heaven help us all!
via NOT A LOT OF PEOPLE KNOW THAT
December 27, 2019 at 12:57PM
Iowa Climate Science Education 
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