Wednesday, December 25, 2019

Top Down Won't Do It

I have been perusing the web sites of the leading Democratic Presidential candidates, examining their climate plans. 

Senator Sanders plan runs over 14,000 words. Just the Cliff Notes version of Warren’s plan is over 3,000 words. In contrast, I have to keep my columns down to about 750 words, which, I have to tell you, ain’t easy.

Both of them favor a top-down completely government-managed transition to push the US to a green economy inside of a decade. The plans laid out by the Sanders and Warren campaigns are especially impressive in their scope, ambition, detail and yes, cost.  I cannot fault them for any of this, given the nature of the existential threat that climate change represents. Doesn’t mean I agree with their approach either. 

One thing neither of them mention is putting a price on carbon.

What does “a price on carbon” even mean?

Basically, the concept is that the price of producing and using fossil fuels does not include the environmental and societal costs caused by the pollution these energy sources generate. We ALL pay for the health problems from fossil fuel pollution through higher health costs and lost wages. Then there is the environmental damage, which now includes climate change, reflected in the higher insurance rates; higher food costs; repair of damage from more frequent flooding and more powerful hurricanes; rising sea levels, ad infinitum.

The International Monetary Fund estimates that worldwide, the fossil fuel industry gets an indirect subsidy of about $5.3 TRILLION annually because the impact of their products isn’t reflected in the price we pay, especially from climate change.

There are a lot of ways to put a price on carbon. We could tax it. The money would then go into government coffers and lord only knows what Congress would do with that new funding stream.

A second approach is a cap and trade program which sets a limit on the amount of pollution that can be emitted per year. Polluters buy permits and get taxed if they emit more than permitted. Permits are traded if the emitter doesn’t use them. Gradually, the cap decreases and thus provides incentive to figure out how to decrease emissions. Government interference is minimized.

The Cap and trade system was used successfully to drive down sulfur dioxide pollution from power plants back in the 80s. Despite worries that it would harm the economy, the cost to utilities was only $3 billion annually and the benefits to society about $122 billion in avoided health, economic and ecological impacts. SO2 pollution is almost a thing of the past.
All the New England States and several mid-Atlantic states are now participating in the Regional Greenhouse Gas Initiative to limit and decrease power plant emissions. It is working. Carbon emissions have dropped 50% and generated $2.9 billion in economic benefit since 2005, not including public health improvements or avoided climate impacts.

Cap and trade works for large emitters, but the rest of us who use gasoline, fuel oil and natural gas – not so much.

Another approach is called fee and dividend. Charge an ever-increasing fee on fossil fuels at the point of production or point of entry. Turn right around and send that money back to each tax payer as a dividend. The government doesn’t keep the money, period.

Will this plan increase the cost of fuel? Absolutely. Will this cause an economic hardship on people? Yes, it will. As gas, fuel oil and electricity get more expensive over time, so will the incentive to switch to other forms of energy.

Think about it. If everyone got the same “dividend” back every year, who will it benefit the most? The least among us. Who will benefit the least? The most well off, who are probably the people who generate the most greenhouse gases. Lower income people will put that money right back into the economy. 

It’s sort of like candidate Andrew Yang’s universal basic income (which I despise) but with the benefit of incentivizing the innovation needed to transition to greener energy. Let the markets do the work.

The idea has been around for quite a while and I happen to like it – a lot. Various versions are now being debated in Congress. The concept has the backing of many conservative economists and think tanks as well as climate activists like retired NASA climatologist James Hansen.

Putting a price on carbon, then letting the market determine a path forward is a component of a reasonable middle path between doing nothing and expecting Washington to do everything. 

Above all, it’s likely to work. 

Published in the Village News November 22nd, 2019