Hansen to Obama Pt II – Carbon tax with 100% dividend

In Part II, Hansen looks at policy options required to drag us out of the Sustainability Emergency. It is self-explanatory, but I thought it worth adding some notes on a cap-and-trade versus a carbon tax. Which is better?

Cap-and-Trade. Pros: (i) Cap reductions ensure falling emissions – in theory; (ii) Reduces inefficiencies or overpricing; (iii) Creates both incentives and disincentives for abatement; (iv) Chance to profit from ‘doing the right thing’. Cons: (i) Enrich middle men / brokers; (ii) Requires army of bureaucrats / new system; (iii) Encourages rent seeking – pleading by special interest groups; (iv) Limited price certainty – requires projected ‘gateways’; (5) Easy to manipulate / distort to get perverse outcomes.

Carbon Tax. Pros: (i) Clear forward price projection = investment certainty, removes incentives for hedge funds, derivatives etc., and better allows for long-term business planning; (ii) Can use current tax system; (iii) Better handles emissions intensive trade exposed industries via carbon tariffs at the trade gate; (iv) Greater societal familiarity, understanding and acceptance. Cons: (i) Politicians or bureaucrats must set costs – can introduce inefficiencies, disincentives and pressure to adjust tax rate during tough economic times; (ii) No guarantee that emissions will fall; (iii) People may still be willing to pay more for old tech because it is familiar or because they have a large historical investment in capital infrastructure or related assests.

I need to do a post about the above and expand on these points (some time!), but at least the above is a taster to see where Hansen is coming from with his carbon tax + 100% dividend idea. Many economists favour a tax over cap-and-trade (Garnaut does not) – see, for instance, the recent comments of Jeffrey Sachs when speaking at ANU.

For a critique of Hansen’s proposal by Climate Progress’ Joe Romm, see here. Romm is of course somewhat right and at the same time totally wrong. He’s right that an honest appraisal of the current situation makes it apparent that it will be extraordinarily difficult to get back to 350 ppm CO2 for centuries or millennia. We need a truly transformational, system wide change across global society to achieve that, and plenty of new tech. But he’s also downright wrong, because the corollary argument he uses is that it is therefore better to advocate for the compromise goal of 450 ppm since is more resonable and feasible. Yet even if Romm’s solution were fully achieved, it would still end in failure, because successfuly meeting the 450 ppm goal would result in utterly unacceptable climate impacts and a transformed planet. This is a common theme – flaw – among environmental advocates – failing to recognise that the laws of physics and biology don’t compromise, and have no pity.

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Tell Barack Obama the Truth – The Whole Truth (Part II of IV)

Dr James E. Hansen

Outline of policy options. The imperative of near-term termination of coal emissions (but not necessarily coal use) requires fundamental advances in energy technologies. Such advances would be needed anyhow, as fossil fuel reserves dwindle, but the climate crisis demands that they be achieved rapidly. Fortunately, actions that solve the climate problem can be designed so as to also improve energy security and restore economic well-being. A workshop held in Washington, DC on 3 November 2008 outlined options (presentations are at http://www.mediafire.com/nov3workshop — we are writing a paper, which will be available soon). The workshop focused on electrical energy, because that is the principal use of coal. Also electricity is more and more the energy carrier of choice, because it is clean, much desired in developing countries, and a likely replacement or partial replacement for oil in transportation.

The workshop topics, in order of priority, were: (1) energy efficiency, (2) renewable energies, (3) electric grid improvements, (4) nuclear power, (5) carbon capture and sequestration. Presentations are available and a summary paper is in preparation. Energy efficiency improvements have the potential to obviate the need for additional electric power in all parts of the country during the next few decades and allow retirement of some existing coal plants. Achievement of the potential of efficiency requires a combination of regulations and a carbon tax. National building codes are needed, and higher standards for appliances, especially electronics, where standby power has become a large unnecessary drain of energy. Economic incentives for utilities must be changed so that profits increase with increased energy conservation, not in proportion to amount of energy sold.

Renewable energies are gaining in economic competition with fossil fuels, but in the absence of wise policies there is the danger that declining prices for fossil fuels, and continuation of fossil fuel subsidies, could cause a major setback. The most effective and efficient way to support renewable energy is via a carbon tax (see below). The national electric grid can be made more reliable and “smarter” in a number of ways. Priority will be needed for constructing a low-loss grid from regions with plentiful renewable energy to other parts of the nation, if renewable energies are to be a replacement for coal.

Energy efficiency, renewable energies, and an improved grid deserve priority and there is a hope that they could provide all of our electric power requirements. However, the greatest threat to the planet may be the potential gap between that presumption (100% “soft” energy) and reality, with the gap filled by continued use of coal-fired power. Therefore it is important to undertake urgent focused R&D programs in both next generation nuclear power and carbon capture and sequestration. These programs could be carried out most rapidly and effectively in full cooperation with China and/or India, and other countries.

Given appropriate priority and resources, the option of secure, low-waste 4th generation nuclear power (ED: More on this in the next post, with discussion) could be available within a decade. If, by then, wind, solar, other renewables, and an improved grid prove that they are capable of handling all of our electrical energy needs, then there may be no need to construct nuclear plants in the United States. Many energy experts consider an all-renewable scenario to be implausible in the time-frame when coal emissions must be phased out, but it is not necessary to debate that matter.

However, it would be exceedingly dangerous to make the presumption today that we will soon have all-renewable electric power. Also it would be inappropriate to impose a similar presumption on China and India. Both countries project large increases in their energy needs, both countries have highly polluted atmospheres primarily due to excessive coal use, and both countries stand to suffer inordinately if global climate change continues. The entire world stands to gain if China and India have options to reduce their CO2 emissions and air pollution. Mercury emissions from their coal plants, for example, are polluting the global atmosphere and ocean and affecting the safety of foods, especially fish, on a near-global scale. And there is little hope of stabilizing climate unless China and India have low- and no-CO2 energy options.

We should also urgently pursue R&D for carbon capture and sequestration. Here too this may be done most expeditiously and effectively via cooperation with China and India. Note that, even if it is decided that coal can be left in the ground, carbon capture and sequestration with other fuels still may be needed to draw down the amount of CO2 in the air. An effective way to achieve drawdown would be to burn biofuels in power plants and capture the CO2, with the biofuels derived from agricultural or urban wastes or grown on degraded lands using little or no fossil fuel inputs.

Opponents of nuclear power and carbon capture cannot be allowed to slow these projects. No commitment for large-scale deployment of either 4th generation nuclear power or carbon capture is needed at this time. If energy efficiency and renewable energies prove sufficient for energy needs, some countries may choose to use neither nuclear power nor coal. However, we must be certain that proven options for complete phase-out of coal emissions are available within a decade.

Tax and 100% dividend. A “carbon tax with 100 percent dividend” is required for reversing the growth of atmospheric CO2. The tax, applied to oil, gas and coal at the mine or port of entry, is the fairest and most effective way to reduce emissions and transition to the post fossil fuel era. It would assure that unconventional fossil fuels, such as tar shale and tar sands, stay in the ground, unless an economic method of capturing the CO2 is developed.

The entire tax should be returned to the public, equal shares on a per capita basis (half shares for children up to a maximum of two child-shares per family), deposited monthly in bank accounts. No bureaucracy is needed.

A tax should be called a tax. The public can understand this and will accept a tax if it is clearly explained and if 100 percent of the money is returned to the public. Not one dime should go to Washington for politicians to pick winners. No lobbyists need be employed. The public will take steps to reduce their emissions because they will continually be reminded of the matter by the monthly dividend and by rising fossil fuel costs. It must be clearly explained to the public that the tax rate will continue to increase in the future. When fuel prices decline, the tax should increase, to retain the incentive for transitioning to the post-fossil-fuel-era. The effect of reduced fossil fuel demand will be lower fossil fuel prices, making the tax a larger and larger portion of energy costs (for fossil fuels only). Thus the country will stop hemorrhaging its wealth to oil-producing states.

Tax and dividend is progressive. A person with several large cars and a large house will have a tax greatly exceeding the dividend. A family reducing its carbon footprint to less than average will make money. Everyone will have an incentive to reduce their carbon footprint. The dividend will stimulate the economy, spur innovation, and provide money that allows people to purchase low carbon products.

A carbon tax is honest, clear and effective. It will increase energy prices, but low and middle income people, especially, will find ways to reduce carbon emissions so as to come out ahead. The rate of infrastructure replacement, thus economic activity, can be modulated by how fast the carbon tax rate increases. Effects will permeate society. Food requiring lots of carbon emissions to produce and transport will become more expensive and vice versa, encouraging support of nearby farms as opposed to imports from half way around the world. Beware of alternative approaches, such as ‘percent emission reduction goals’ and ‘cap and trade’. These are subterfuges designed to allow business-as-usual to continue, under a pretense of action, a greenwashing. Hordes of lobbyists will argue for these approaches, which assure their continued employment. The ineffectiveness of ‘goals’ and ‘caps’ is made blatantly obvious by the fact that the countries promoting them are planning to build more coal-fired power plants.

If the United States accedes to the ineffectual ‘goals’ and ‘caps’ approach, in effect continuation of the Kyoto Protocol approach, it will practically guarantee disastrous climate change. Instead it should persuasively argue that other countries also adopt tax and dividend. The countries agreeing to this approach will also agree that imports from a country that does not apply a comparable carbon tax will be taxed at the port of entry. That tax, which should be added to the public’s dividend, will be a strong incentive for all countries to participate.

A carbon tax is necessary but not sufficient. By itself a carbon tax cannot solve the energy problem and allow rapid coal phase-out. There also must be better efficiency standards in building codes, for vehicles, and in appliances and electronics. Profit incentives for utilities must be changed, so as to encourage efficiency as opposed to selling as much energy as possible. These are only examples of the many things to be done. But all of these things will be done easier and more effectively in the presence of a carbon tax. Indeed, a carbon tax is essential. It is the tool that will impact people’s decisions and lifestyle choices for the short-term, middle-term and long-term, allowing the world to move as gracefully as possible to the post-fossil-fuel-era. In this way we will leave in the ground the hardest to extract fossil fuels as we move rapidly to clean energy sources of the future.

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Part III will talk about Nuclear Power – a very important topic and worth a bit of background comments by myself. So I haven’t dwelt on it in my preamble to this post.