E&E Daily reports ($ub. req’d) today on efforts in the House to try and determine how to minimize the economic pain of CO2 pricing.
They note:
Government studies conclude that for a new U.S. climate law to work, it must stem the demand for carbon-based energy by increasing prices—not exactly the most politically popular thing to do during an economic crisis that is being compared to the Great Depression.
All the logical failing of our CO2 policy discussion is nested in this paragraph.
For climate law to work, it must put a price on CO2 emissions. But there is no logical reason why that must imply an increase in energy costs, for the simple reason that energy is not CO2.
A price on CO2 emissions, done right, will facilitate a wealth transfer away from CO2-intensive forms of energy, but to assume that this must lead to higher energy costs is to assume that low costs and high carbon go hand in hand. And no matter how many hearings we hold and policies we develop that implicitly or explicitly make this linkage, it ain’t there. Coal is freakin’ expensive. Efficiency is cheap. Even solar PV is cheap if you ignore the capital costs (just like coal!).
The idea that charging for CO2 will increase energy costs makes as much sense as assuming that charging for mercury will increase tuna costs.
This persistent idea is both inane and dangerous. Inane because it’s wrong. Dangerous because it leads to one of two places:
- Do nothing. For the last decade, we’ve spent so much time talking about the bogeyman under our bed that we’ve actually come to believe it. And so we stay in bed, per legislative mandate.
- Do something economically dangerous. As I’ve noted before, this framing biases us towards economically disastrous CO2 policies, effectively giving us what we fear.
In other words, we have the power to make that economic bogeyman real. It is entirely within our power to pass economically disastrous CO2 policies that will drive up the cost of energy. But that is a policy failure, and in no way innate to good climate policy.
We need to send a clear message to D.C.: Grow up. Get over your bogeyman fears. We can’t afford to wait for you any longer.
‘Copenhagen Diagnosis’ offers a grim update to the IPCC’s climate science
Comments
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Ted Clayton Posted 7:48 am
09 Mar 2009
The key to getting a fee on carbon without committing political suicide, is to let the economy continue to crumble.
That way, demand for combustion-based electricity will (continue to) fall, exerting downward pressure on energy-prices. Then, there can be a new levy on CO2, without causing consumer prices to climb.
Obama says his plan will turn the economy around, and you're free to believe that if you like ... bearing in mind that Obama is saying a bunch of things...
So ... bad economy causes energy price to fall, which is compensate by a carbon-fee without an apparant cost-hike. The rub is, the economy has stay down for ... well, for sure longer than Obama says it's going to be ... but then, I was never overwhelmed by the evidence that his plan would revive the economy, anyway. ;-)
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Sam Wells Posted 7:51 am
09 Mar 2009
Not a big deal you say? Global shipping has an amazing 11-14 percent contribution to man-made CO2 inputs into the atmosphere - and that doesn't count all the locomotives, tugboats, and highway trucks. At least those are some numbers I've seen and can document.
Of course, carbon pricing was really meant for stationary industries such as electric power generating stations, so maybe I am arguing a moot point. But it's a big deal for my clients who are "under the gun" to find any reductions. So far, a 10 percent reduction in global shipping CO2 due to the depression has been seen, although I'd hate to "claim" that as a true reduction - the economy could bounce back. -sammie
Onward through the fog
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Sean Casten Posted 9:06 am
09 Mar 2009
Your point (I think) is that within the shipping sector, this constraint probably holds, but within the power sector it doesn't. I think I agree.
But as to whether that leads to economic pain at a macro level, you have to look across all sectors (and have a full understanding of all the sources and sinks in each which requires a level of omniscience that I'm quite certain no one has, even though I'm confident that we all universally underestimate the way that markets respond to a price signal - and therefore are prone to understating sinks to a much greater degree than sources, since our passed experience is so heavily biased towards the latter).
So even if shipping does get higher costs - a very real possibility, to be sure - I don't think you can a priori conclude that the delivered costs of goods to customers without understanding the full economic value chain.
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davedenali Posted 10:34 am
09 Mar 2009
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Max8806 Posted 10:49 am
09 Mar 2009
"Even solar PV is cheap if you ignore the capital costs (just like coal!)."
True, except that we have a ton of coal already built, so the cost of coal electricity for most plants now is basically just variable costs plus profit margin. It may not be fair that coal got to build up with a head start, but its just the way it is.
"Efficiency is cheap."
No argument here. But therein lies the problem. Its so cheap in fact that its its own proof that it can't be relied on to be deployed whenever its the cost-effective option. Because we already see it bypassed all the time. I've seen no evidence that a carbon price would suddenly solve all the institutional and even psychological/empirical-economic reasons why efficiency is underutilized. So while we should strive to harness this cheap resource, we can't really assure people prices won't rise because its available. Most of the measures we're talking here are already available.
A final point. If we pass a cap/trade bill, presumably you agree that it raises the price of "carbon intensive goods." After all, it is "carbon-pricing." 5 years into a cap/trade, will kwh's from the grid really no longer be a "carbon-intensive good?" Will the marginal fuel in each electricity market at most hours (save for NW w/ its crazy hydro resources) not still be fossil based, raising clearing prices in accordance with the carbon price? (And I know you're not one to argue we should ditch organized wholesale markets). In the Long Run, sure we retire sufficient carbon sources. But I don't see how you explain the next 10 years.
Max Epstein
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Sean Casten Posted 10:53 am
09 Mar 2009
But to conclude that wealth transfers and capital investments are economically painful is essentially to argue that the engines of growth that have long created economic wealth are actually contrary to economic interest. Did the invention of the automobile create economic pain?
The basic framing is nonsense, it's ubiquitous-ness notwithstanding.
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