Among policy makers, environmentalists, and the general public, the syllogism goes that if you care about climate change, then you support a carbon price. Environmental groups devote their time and resources to achieving a price for carbon, either in the form of a direct carbon tax, or through cap-and-trade legislation. Investing in emerging technologies is seen as prudent complementary policy at best, and an unnecessary distraction at worst.
Then there are those of us who think technology development ought to be at the center of climate change policy. We think this problem is too big for our current energy system to handle, and we will need to devote tremendous resources to creating a new energy infrastructure that can one day support the aspirations of nine billion inhabitants of the planet. We believe that a carbon price can play a role in an R&D-driven agenda, but on it’s own, it will not be near enough.
A slew of thoughtful articles this week questioned the central role cap-and-trade has played thus far in policy discussions. First there was Tony Blair, quoted in the New York Times, saying that he doubted cap-and-trade without a global carbon regime would work. Given that China and other developing nations have made perfectly clear that they’re not interested in joining the Kyoto bandwagon, Blair is implying that emissions trading doesn’t cut it as a solution to the carbon problem.
Then there was Monica Prasad’s op-ed in the Times yesterday describing the failure of Norway’s carbon tax, and the success of Denmark’s. Denmarks carbon tax was effective only because the revenue subsidized technology R&D, rather than being snatched up by programs like Sky Trust, which would divert the money to things like health care on consumer rebates. The carbon price’s raison d’etat, Prasad argues, is to fund clean energy so that we can phase out carbon-based energy. Some amount of investment in clean energy must come before carbon pricing, because only when we have cheap and effective clean energy will we gain the political leverage necessary to implement a carbon price.
Wind power in Denmark provides 18.5 % of the nation’s electricity.
Finally, Jeffrey Sachs hit the nail on the head with his short but powerful piece in Scientific American this week. He acknowledged what energy experts have been trying to tell us for years: a price for carbon isn’t enough. Even if we took advantage of every possible energy efficiency opportunity available to us, today’s level of technology cannot support the dual aspirations of reducing emissions and increasing prosperity. If we try to meet these new-world aspirations using old-world technologies, we will stifle economic growth for ourselves and for billions in the developing world — not to mention fail at curbing global warming.
To Sachs, global warming isn’t about cutting back, and it isn’t about each of us doing our own small part. Maximizing the efficiency of our outdated energy system won’t be enough. What we need now is a complete overhaul of our energy system — we need multiple breakthroughs at every level of development of a diverse array of alternative technologies.
Ask anyone from an environmentalist to an oil executive if they support clean energy, and you can bet the answer will be yes. But what we really need is support where it counts — technology R&D should be the number one item on our agenda, and the recipient of the majority of our resources. As Sachs puts it,
It is difficult to see how coal-based developing economies such as China and India will subscribe to tight targets on emissions until they know whether CCS actually works. It is difficult to set highly restrictive emissions goals for major industries, such as automobiles, without knowing more about which low-cost technologies will actually work and at what cost. Confidence in the low-emission technologies will feed back into political acceptance of tighter permit systems or higher emissions taxes.
Sachs frames a daunting task, achievable if we devote immense resources to developing cheap, clean energy technology. Contrast Sachs’ statement with what Grist’s Dave Roberts wrote yesterday:
Why not spend…to cushion the blow of higher energy prices on low-income and working families? Why not use it to reduce the (regressive) payroll tax? Why not use it to help train workers laid off in fading industries? Why not use it to fund weatherization and retrofitting of existing buildings, to reduce energy use? Why shouldn’t social and economic justice enter the picture?
Roberts misunderstands — or simply chooses not to respond to — the argument that a carbon price only makes sense if it is funding clean energy. If carbon price revenue goes to various worthy, but unrelated, causes, an incentive is created to keep the tax in place and keep funding those causes. This is backwards policy; the end game of the carbon price is to produce no revenue at all, because eventually there should be no carbon-based energy to tax.
A carbon price makes fine complementary policy to an investment-driven agenda, but it has its limits. The jury is still out on whether carbon trading will have any effect on emissions reductions in Europe, and there is a lot of reason to believe that it will not. But one thing it most definitely cannot do is to generate large-scale research, or develop, demonstrate, and deploy breakthrough technologies.
Let’s hope that 2008 will mark the end of the carbon price orthodoxy, and the beginning of getting down to the real business of investing in a new energy system.
Subscribe by Email!
Subscribe by RSS!
Share on Facebook
That’s an insightful post about what to do with a carbon tax. Using it to invest heavily in clean energy certainly seems to be the most sustainable strategy (ie. the most effective way to lower energy prices in the long-term). However, I would argue that many of the causes Roberts lists are not unrelated and should probably be considered as reasonable investments. Particularly, retraining workers in clean energy, improving energy efficiency, investing in education about energy reduction and retrofitting or redesigning infrastructure to reduce energy use are all investments that will help reduce energy costs in the long-term.
I don’t see why this has to be framed in such an either/or way. Anyone who’s paying attention knows that we are ridiculously underinvesting right now in clean energy R&D — and many are calling for a “new Apollo project” for clean energy. But carbon pricing is every bit as essential, bc without it, we won’t phase out fossil fuels fast enough, even with new technology.
Why assume that all revenues from carbon pricing must fund energy R&D? Why assume that only funds from carbon pricing can fund energy R&D? Don’t social equity concerns have a place at the table? Don’t issues of economic efficiency have a place (eg., reducing payroll taxes would likely benefit the economy enough to offset the effect of carbon pricing)?
Great post. Would love to see more coverage like this of opinion-leading thinkers. I, for one, would love to hear a counter-point to Prasad. Seems like the best idea I’ve heard yet.
Another point to mention on Denmark: they are connected to the German and Norweigen electric grids. This goes a long way towards allowing them to use more renewables (i.e., they are part of a larger conventional grid that provides the equivalent of energy storage and absorbs any fluctuations from their wind turbines).
Phil,
If carbon pricing worked the way it was intended to work — and the way it did work in past efforts like regulating CFCs — then yes, perhaps it could pull its weight in the policy mix on climate change. But when we used cap and trade for the ozone problem, alternatives to ozone depleting chemicals were cheap and readily available. That is not the case with clean energy alternatives, and so before carbon pricing can play an important role, getting the technology up to speed needs to be our number one concern.
I may not have been clear in my posting, but I do not believe that only funds from carbon pricing can fund energy R&D–quit the contrary. R&D should be primarily funded by direct government investment of at least $30 billion a year. If some portion of this can come from carbon pricing, then great.
Social equity concerns should absolutely have a place at the table, just not from carbon revenue. The tax is there as a penalty on carbon-producing industries. It makes perfect sense to have that penalty fee go towards transitioning to non-polluting alternatives. Why create an incentive to keep the tax around for longer when the whole idea is for it to be eventually self-defeating?
The United States already has a policy for helping people who lose their job. There’s not need to redirect revenue from a carbon tax or cap-and-trade system to retraining. They are separate issues.
The biggest issue is establishing a clear, long-term and predictable policy on which corporate America can begin to plan the transition. Wall Street and Fortune 500 desperately want clarity. An enormous amount of money will pour into renewable energy once that policy is established.
But no one wants to bet on a technology if falls out of favor of DC. Since there is no inherent demand for a carbon offset or renewable energy credit without regulation, this entire market is driven by regulation.
If politicians begin to pick winners to encourage investment (think biofuels) it will likely create unanticipated consequences on a huge scale (think soaring food costs).
A carbon price and its revenue can go a long way to creating the environment in which the transition will take place — but the price probably has to be set pretty high (the Stern report mentioned a carbon price well above $100 CO2 tonne). Politicians should create a market without picking winners and then focus on preparing voters for the painful years ahead.