With apologies to Little Milton.
Good news: With the incoming Obama administration, we are finally going to get some sort of a greenhouse gas (GHG) bill.
Bad news: We are still having an inane, economically uninformed conversation about GHG policy.
Many of the ideas that pass for Serious GHG Policy are silly, not because they aren't serious but because they are based on economic theories that are as widely believed as they are at odds with the way all of us (economists included) actually behave.
The crux of the problem lies in the fact that policymakers, economists, and, yeah, some bloggers completely misunderstand the link between costs and prices.
There are a host of GHG models based on upstream carbon pricing, wherein GHG emissions are priced not at the point of GHG release (i.e., where the fire is), but at the point of fuel purchase. This was innate to Lieberman-Warner and is still found in many current cap & somethin' and carbon tax proposals. The theory is that if you put a cost somewhere in the upstream end of the system, it will cascade downstream to affect point-of-use decisions. The idea is nonsense, worthy of Wolfgang Pauli's famous put-down: it's so bad it's "not even wrong."
The crazy thing is that outside of idle economic theorizing, no one really believes the idea. When gasoline prices go up, do you expect trucking companies profits to stay the same? When health insurance costs rise, does your boss give you a raise so that your take home pay will be unaffected? When your local phone company outsources directory assistance to some dude in Bangladesh, do their rates fall to reflect their lower cost structure?
Of course not. Yet we assume that if we put a price on carbon at the point of fuel purchase, it will diffuse perfectly through the system, affecting everyone downstream who burns fuel and release GHGs. It won't. And to the degree that it doesn't, an upstream GHG price is an economically flawed GHG price, disproportionately shifting the burden of GHG abatement away from those actually releasing GHGs into the atmosphere -- and, therefore, failing to provide an effective incentive to reduce GHG emissions.
Obvious as it may be, it bears noting that companies set prices based on a wide number of variables, only one of which is cost:
- Some customers are more profitable than others, reflecting the reality that it is easier to pass costs along to some customers than others. For example, fuel providers commonly make more profit on small businesses than large businesses, because the small guys have a harder time changing suppliers. Should those fuel providers have to pay carbon taxes on their fuel, they may well decide to "stick it to the little guys," leaving the biggest users agnostic on GHG emissions.
- While economics tends to assume that all prices are variable (e.g., $X per widget), many pricing schemes have much more complicated structures, with set-up fees, membership fees, and use fees all combining to (intentionally) hide the full cost of service and make the decision to incrementally use a product appear relatively cheap. (Think of your gym, or your ATM.) In the energy sector, many gas and electric rates have a fixed monthly fee for the contract plus a low variable cost for use. If the cost of upstream GHG emissions is borne in the fixed cost, it will have no more effect on the decision to reduce fossil fuel use than your gym's initiation fee does on your decision to work out tomorrow.
- In many cases, much or all of the impact of a change in cost is not borne at all by a company's customers, but by their owners. When oil prices fall, refinery profits tend to rise, as falling costs boost their profitability. Conversely, when fuel costs rise, airline profits tend to fall, for the opposite reason. It is quite reasonable to assume that a world with upstream GHG pricing will lead to lower profits for fossil fuel producers and distributors (many in the environmental community would very much like to see this). But if it does, that necessarily means that fossil fuel users are not seeing the full price signal. Corporate profits would fall, but day-to-day emission-causing behavior would not change.
None of this is complicated. But it is far too frequently glossed over with grossly simplistic economic theory utterly at odds with the reality of price-setting. And to the extent we base GHG policy on these flawed theories, there is a very real danger that we will craft a GHG policy that won't work. The stakes are too high to get this wrong.
Top 25 reasons to give a damn about climate change
New nukes? A fair shot, not a free ride
Comments
View as Flat
Matt G Posted 6:15 am
17 Nov 2008
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JMG Posted 6:25 am
17 Nov 2008
Also, this is a non-sequitor:
In the energy sector, many gas and electric rates have a fixed monthly fee for the contract plus a low variable cost for use. If the cost of upstream GHG emissions is borne in the fixed cost, it will have no more effect on the decision to reduce fossil fuel use than your gym's initiation fee does on your decision to work out tomorrow.
If we're talking about regulated utilities, there's no way that the rising cost of fuel shows up in the fixed charge. No one would write a contract incorporating fuel costs into the fixed charge because the logic of a carbon tax upstream is that, if we're not seeing the reductions needed, the tax keeps climbing, with the revenue being cycled back into carbon-reducing technologies and to buffer the poor from the regressivity of the thing. (Such as giving everybody access to health care, paid for by carbon taxes.)
Besides, the corollary to your point 3 is that investors would flee those industries with declining profit rates -- the carbon intensive ones. Good! They can make a lot more money investing in solar and other non-carbon technologies. See Adam Browning's post.
Feel free to carbon taxes at the consumption end TOO -- as in, in addition to the taxes levied on the extraction -- in order to rectify what you see as wrinkles in transmitting the price signal to the point of use. But, recognize also, that you have then immensely magnified the complexity of the issue and introduced substantial opportunities for gaming (Mohair subsidies).
Once you start trying to fine tune carbon taxes at the point of use, you are making fine-grained regulatory decisions (Should we exempt energy use by those making solar power panels? What about energy used by hospitals? What if it's just a medical clinic for elective plastic surgery? What about day care providers?)
There will always be advantages and disadvantages to size -- small guys always have a problem with suppliers, whereas big customers can pretty much run their suppliers (see, e.g., Wal-Mart). Carbon taxation doesn't create that problem or propose to solve it.
We are not going to get a grip on climate while preserving all existing economic arrangements and habits. The sooner everyone gets it that change means CHANGE, the better.
The 5% Project
Let's live on the planet as if we intend to stay.
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Pangolin Posted 7:04 am
17 Nov 2008
Try to trade in a late-model SUV down at your Toyota dealer for a Prius and see how far you get. People are changing their habits. If central utilities try and hide increased carbon pricing in sham user fees then they may face voters running referendums to take over private utilities and remake them in the model of publicly owned municipal utilities like SMUD.
People respond to price changes as soon as they are able to. Carbon taxes will knock down GHG emissions. The recent price related demand destruction in the oil markets proves that.
Put the Carbon Back
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anotherID Posted 7:21 am
17 Nov 2008
Nothing wrong with that as long as it is disclosed.
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Greenhouse Neutral Foundation Posted 7:31 am
17 Nov 2008
Emmissions start at the mine. Remember the canary.
in http://www.strategicbookpublishing.com/ZEROGreenhouseEmissions.html
this sham is exposed. The IEA 'World Energy Outlook 2008' is scary, but as they say, removing the $310 billion pa subsidies on energy consumption - Oil - could make a big contibution to keep us from getting to 6 degrees.
www.strategicbookpublishing.com/ZEROGreenhouseEmissions.html
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Max8806 Posted 9:32 am
17 Nov 2008
"The theory is that if you put a cost somewhere in the upstream end of the system, it will cascade downstream to affect point-of-use decisions. The idea is nonsense."
But that's not the theory. The mechanism by which a cap/trade (or any upstream carbon pricing) decreases aggregate emissions is not strictly by the price increase, but the --cost-- increase. That cost increase is either passed along to the consumer (stimulating conservation) or eaten in the form of less profit by the producer. Decreasing the profits of the producer decreases investment dollars flowing into producing that product with that production process in the future.
Take coal electricity. Even if an independent power plant in a competitive market can't pass along the cost of carbon in their wholesale electricity market supply bids, the fact that their profits go down encourage future power plant investors to invest in something other than coal. Either way aggregate emissions go down. Its all in the theory.
-Max Epstein
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Sean Casten Posted 10:44 am
17 Nov 2008
Ultimately, both of these bear out my point. Low cost production fields do not cause oil majors to sell oil for anything cheaper than the market rate. And the costs of gasoline production are only one of many variables that affects the price at the pump. Combine both, and it becomes fairly obvious that changing the price of crude oil has only the most indirect and indeterminate impact on the cost of gasoline. And therefore only the most indirect and indeterminate impact on consumer behavior.
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Sean Casten Posted 10:49 am
17 Nov 2008
It is nonsensical to suggest that as you move upstream the signal doesn't get distorted. So yes, by all means, put a price on CO2-emissions from coal. But don't do it by taxing coal - do it by taxing coal combustion.
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Sean Casten Posted 10:55 am
17 Nov 2008
Clearly, the price of gasoline has impacted people's demand for gasoline and gasoline-hungry vehicles. That's because the individual who is affected by the price of gasoline is also the individual who can choose to buy a more fuel efficient car. But if we put a price upstream in the system, there is no direct or precise way that costs will ripple through to the consumer - after all, even if we wanted to use pension costs as a tool to kill demand for GM products, we'd be picking a sloppy tool since GM is essentially compromising their profit margin to cover those costs rather than passing this along to consumers.
Take this to a different sector now. Should we raise the cost of coal or raise the cost of coal-fired electricity? The latter makes it harder for those who burn coal to be cost competitive in electric markets, while the former only forces those who burn coal to try and find ways to hide that cost in other structures. My point about pricing downstream is that you need to price at the point where the CO2 is actually being released, rather than where it theoretically could later be released.
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Gar Lipow Posted 11:59 am
17 Nov 2008
Economic Letters: http://www.sciencedirect.com/science/article/B6V84-4B9K84 ...
And since that is behind a paywall, here is free pdf of the same article:
http://web.uccs.edu/daphne/TAX%20INCIDENCE.pdf
Bottom line - Federal gasoline taxes appear to be split 50/50 between consumers and producers.
This is the closest thing to a carbon tax we have, and may be taken as not too bad a guide.
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Max8806 Posted 12:50 pm
17 Nov 2008
Either way the market efficiently incorporates the cost of carbon
-Max Epstein
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amazingdrx Posted 1:31 pm
17 Nov 2008
War production ended the great depression, only green production will end this potentially great depression.
Forget the economist religious argumentation, they'll never get the message. The preisthood is cloistered now, trying to cope with the reality of "free" market deregulation theory destroying the world economy.
We are better off with them out of the conversation. this is a simple problem with a simple solution. A crisis of confidence needs production. Period.
http://amazngdrx.blogharbor.com/blog John Schneider, Northern Wisconsin
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Sean Casten Posted 11:20 am
18 Nov 2008
This is really not that complicated, and I am frankly baffled by your opposition. Can you give me any good reason why it would be more economically desirable to tax upstream than at the point of CO2 release? Since the thing we're seeking to stop is CO2 release, I sure can't. And if you can, can you cite any example in any other industry where putting a price on an externality upstream of the point at which the externality is created led to a clean, unfettered economic signal to change behavior? I sure can't.
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David Roberts Posted 12:11 pm
18 Nov 2008
Well, I think the idea is that there are bazillions of points of CO2 release, and taxing them would be a wildly complex undertaking with enormous transaction costs. I'm swayed by your anti-upstream arguments, but do you have an answer to the anti-downstream arguments?
grist.org
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Max8806 Posted 12:49 pm
18 Nov 2008
I am similarly a bit baffled at our disagreement, because your position seems to fundamentally reject the notion that current profits in an industry are what induce others to join. And that losses encourage others not to join. I didn't think that was controversial. Similarly, investment dollars flow to highest returns.
You write:
" (To wit: suppose the coal company is making 30% margins, and clean fuel provider Z is making 10% margins - such as one would expect given new technologies competing against an old, established one with amortized capital. If coal company X decides to eat the cost increase and their margins fall by 50% to 15%, they still return more $ to shareholders than the other guy, and no efficiency has been wrought - we've simply created an economic drag with no social gain.)"
This is interesting because it cuts against the point you usually make, about encouraging efficiency and not judging results strictly by what particular source goes up (a means not an end). If a coal plant has 30% margins and can cover their carbon cost to remain at 15% margins, and a clean alternative could only get 10%, then it is more efficient to leave the coal plant up for now. At the moment that coal plant would cost so much less than the competition in terms of labor and materials (which would include under a cap carbon pollution from steel/concrete, etc) that its more efficient to leave it up for the moment and allow the economy to find a cheaper reduction elsewhere (incidentally likely from just a different coal plant where there's better wind or sun for competition to displace it).
As the cap hunkers down it will be harder and harder for that coal plant to keep margins above all clean competition. If you're working from the presumption that all coal must be made economically inferior to all clean power why not just ban coal? Why bother with the cap?
(Also, I'm not maintaining that coal will be perfectly priced under a cap, it still wouldn't cover MTR, added healthcare costs for its miners, etc. But this is sorta outside the scope of our discussion).
-Max Epstein
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JMG Posted 1:51 pm
18 Nov 2008
Once the coal has been mined, it WILL be used. That's the commitment point, not the point of combustion.
We need for the decision point to be at the buried carbon/biospheric boundary whenever possible.
That's on top of all the efficiency arguments for taxing the fewest entities with the least opportunity for system gaming and rent-seeking.
The 5% Project
Let's live on the planet as if we intend to stay.
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vakibs Posted 7:47 pm
18 Nov 2008
I am sorry to say you are clueless about the problem. All the analogies that you make (quite creative BTW) are meaningless to the current situation.
You are fixated on "reducing emissions" which are just a means to an end. By doing so, you lose track of the real goal : which is to eliminate fossil fuel usage.
To the atmosphere, it doesn't matter when the CO2 is emitted : whether it is done today, 10 years from now or 100 years from now. It is all the same. This CO2 stays hanging there for 10000 years.
Let's say we have emitted X tons of CO2 in 10 years. If we reduce our emissions by 50%, (a) we will emit the same X tons of of CO2 in 20 years. (b) we will emit the same X tons of CO2 in 10 years, with double the economic activity (a distinct possibility due to rapid economic growth in the developing world).
By reducing emissions, we are just postponing the solution : which is the total elimination of fossil fuel usage. That, and only that, can ensure that CO2 levels in the atmosphere will not rise. Only after we have an alternative energy infrastructure, we can safely say "problem solved" (and start worrying about bringing down CO2 levels).
Particularly important in this task is bringing a global moratorium on coal, as elucidated by JMG. This cannot be ensured by pricing carbon emissions at the tailpipe. The only way to do it is keeping the carbon underneath. There are a fixed finite number of places where carbon is drilled / mined : imposing a carbon-penalty on these places will gradually bring about the moratorium that we seek.
( I like the word carbon-penalty more than carbon-tax )
What this exercise will not ensure is the installation of energy efficiency systems. These systems are beneficial irrespective of the nature of energy that we use. The best way to promote these is neither by a carbon-tax, nor by cap&trade. It is by direct subsidies to the consumers / industries who install these type of systems. How much of subsidy should the government provide ? We all agree that government should not be choosing winners amongst these type of technologies. So we should provide a subsidy based on exactly the amount of energy that each of these technologies conserve. These are hard numbers, and can be worked out. The subsidies can be set proportional to these numbers. No point of dragging down carbon-pricing into this business.
These are two different problems, and thus, be attacked independently.
Let's think in terms of eco-dollars.
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Sean Casten Posted 9:44 pm
18 Nov 2008
That leaves transportation as a wild card, but for a variety of reasons that we have discussed elsewhere, the low capacity factor of transportation sources likely argues for a different regulatory model in that sector, likely not imposed directly on the variable costs (upstream or downstream.) Even in that case though, non-passenger cars are more readily handled than others.
You miss my point about coal company margins. The goal of CO2 policy is to lower CO2 emissions. If the pricing structure does not induce any change in CO2 release - as it would not in my model above - it has failed it's goal. By contrast, take that same facility and put the price at the point of CO2 release and you have created a signal to reduce CO2. (Note in that example that "coal company" referred to a mining business. So when we say that the downstream activities are unchanged, we are saying that coal-fired power plants still run at full capacity with no penalty for their CO2 release. That is a very real possibility of an upstream model, and hardly desirable.)
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Sean Casten Posted 9:54 pm
18 Nov 2008
At a larger level though, it bears keeping in mind that in many ways, CO2 is much easier to monitor than other pollutants. We have complicated monitoring technology for NOx, SOx, particulate, CO and other criteria pollutants primarily because those products are essentially products of combustion (SOx is something of a separate category, but my larger point holds). Ergo, we must design sensors to monitor concentrations in the exhaust and determine whether or not compliance has been achieved. CO2 is vastly easier because you don't have to measure it at the exhaust. Everyone who converts fuel into CO2 has a very strong, present interest in knowing exactly how much CO2 they are burning, even if they don't quite express it that way... because they measure how much fuel they put in. Coal plants, gas plants, oil burners and yeah, even your car keeps very close tabs on how much fuel you put in per unit time. From those numbers, it is fairly simple math to calculate how much CO2 went out, and simply an audit question to address compliance with any standard.
I understand the intellectual difficulty thinking through "how do I possibly relate my tailpipe to an EPA standard?" But that's looking at the problem backwards, analagous to deciding not to encourage charitable giving because you can't figure out how to monitor selfless, non-monetary charities done one stranger-to-another every day. It is not the majority of the issue, even if it is the one that most people have direct familiarity with.
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amazingdrx Posted 11:37 pm
18 Nov 2008
Then proceeded to show a clean coal pure oxygen CCS plant in Germany where the liquid CO2 is trucked to a cap rock sequestration well. "It could raise the cost of coal electricity 50%", was the tagline.
Better that government chooses technology to support with subsidies and mass production orders than let industry pursue full scale boondoggles like this. Separating oxygen for combustion, extracting pollutants, then compressing CO2 into a liquid state, trucking it in a tanker truck and pumping it underground, only increasing the cost by 50%?
In what strange universe is this possible? In the same corporate alternate reality where fuel farming, tar sands, and nuclear power are safe and cost effective?
Cap n/ trade, auctioned GHG permits, and carbon taxes will produce more capital/time wasting projects like this.
Mass production orders from government of renewable energy and conservation devices that can actually work are necessary to revive this economy. government has to lead, just as it did during WW2 war production. The last 3 decades have been wasted on "free" marketeerian wrangling based on nonsensical economic dogma.
Stop the dithering, fire the board room mates and execs, and get on with it.
http://amazngdrx.blogharbor.com/blog John Schneider, Northern Wisconsin
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Max8806 Posted 2:29 pm
19 Nov 2008
"(Note in that example that "coal company" referred to a mining business. So when we say that the downstream activities are unchanged, we are saying that coal-fired power plants still run at full capacity with no penalty for their CO2 release. That is a very real possibility of an upstream model, and hardly desirable.)"
My point still holds. If coal mining productivity improves without violating laws, or it is so wildly profitable now that they can eat a substantial increased cost and still supply very low-cost fuel, you have to allow that to reflect the fact that coal-electricity would thus be so low cost that it might conceivably continue until clean competition's cost comes down. Its the same point as before.
I'm not saying this is what will happen, a nontrivial price on carbon will indeed raise the price of coal. But I'm just pointing out that your scenario relies on some increase in productivity, or a level of productivity currently high enough to produce such high profits (that such a cost can be eaten and remain profitable), without acknowledging that the immediate consequence of that assumption is that that product would be very cost-efficient.
Incidentally, a price on carbon raises the cost of coal whether its statutory incidence is on miner or burner. If its on the miner, certainly they will struggle to cut other costs, and/or be forced to take less profits to some extent. But likewise if the incidence is on the burner directly, the fact that the purchaser now faces a higher cost will force the supplier to still try and cut costs and eat profits to move back towards a price that the consumer (burner/plant) can still afford.
Its essentially the issue of sales tax incidence. Its an accepted fact that the economic incidence of a sales tax (who actually pays) does not depend on whether its levied on producer (excise tax) or consumer (sales tax). Almost invariably each will pay some, and who pays how much depends on the elasticities of supply and demand. If demand is more inelastic, consumers pay more of the economic incidence even if its legally charged to the producer, and if supply is more inelastic, the producer eats more profit even if the cost is on consumer. (Here the producer/consumer is the mining company and coal plant itself).
-Max Epstein
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Sean Casten Posted 9:17 pm
19 Nov 2008
At this point, you know all my reasons for wanting the price at the point of CO2 release. Setting aside your theory that this is economically identical to putting it elsewhere, why would you want to put it elsewhere? What is to be gained by the risk?
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Biodiversivist Posted 1:49 am
20 Nov 2008
Taxing the coal mine instead of the user creates a level playing field for all coal users. Because they all pay an extra $100/ton for their coal they can all safely pass the cost on to the consumer because their competitors will. There is no competitive advantage imparted. Taxing the coal mine just takes money out of the pockets of consumers via higher energy costs for no gain.
Government charges coal mine--coal mine charges coal users--coal users charge energy consumers--consumers are stuck with higher energy bills and no reduction in CO2 emissions. This is essentially a tax on consumers and the only entity putting money in the bank is the government and all of that money came out of the pockets of people using electricity.
In the end, it all comes down to biodiversity. Poison Darts--Protecting the biodiversity of our world
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Max8806 Posted 5:41 am
20 Nov 2008
You also write that there are "no good reasons to gamble that if you put it elsewhere [charge upstream], the transmutation of costs into prices will be perfect." But that's irrelevant. The efficiency of an upstream requirement does not depend on perfect transfer of cost to price increases, as I outlined earlier. I wish I could claim the tax incidence point as 'my' theory as you describe it (would make grad school applications a lot easier!) but its actually been around, and is pretty noncontroversial.
-Max Epstein
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Max8806 Posted 5:46 am
20 Nov 2008
You're right that there will be price increases, and those price increases will further the viability of clean production. I'll just state here without explaining in depth (I did earlier) that the price increases don't have to be 100% of the cost increases, but they will be positive.
-Max Epstein
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Sean Casten Posted 5:59 am
20 Nov 2008
There is a larger point here though, which I keep coming back to. The goal of GHG policy is not to eliminate coal sales, natural gas imports or petroleum exploration. It is to reduce atmospheric GHG concentrations. Making it more expensive to mine coal, drill oil or import gas will certainly have adverse economic effects on companies engaged in those activities, but will only indirectly affect the combustion of those fuels, since the combustion itself is not directly penalized. Shift the point of regulation to the point of combustion, and you not only achieve greater economic efficiency, but also put the regulatory signal at the point where the universe of responses is not limited to those that are economically painful. A coal miner faced with coal taxes can't choose to pay the tax themselves, pass it along to their customers or go out of business. By contrast, a coal burner faced with a cost to release CO2 can choose to switch to less carbon-intensive fuels, boost their efficiency or simply pay the cost and try to pass it along to their customers where possible. Might they take the same actions in an upstream model? Yes - but only to the degree that those costs borne by their upstream suppliers are passed along downstream.
Put it at the point of release and that problem gets solved. Put it anywhere else and we are gambling with the environment. If administrative costs are the price of certainty, so be it. Do you disagree?
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Sean Casten Posted 6:11 am
20 Nov 2008
So if CO2 gets priced at $100/ton - about the upper end of anyone's expectation of the future - that would raise the price of coal by $4/MMBtu ($100 x 0.04). Current coal prices are ~$2/MMBtu while current gas prices are ~$7/MMBtu (having come way down off their highs several months ago), so a $4 swing still gives a price advantage to coal... and that's under the pretty aggressive assumptions on CO2 prices above.
Clearly, we're talking about very volatile prices here, and what's true today will not necessarily be true tomorrow. But the larger point is that it is possible, even in a carbon-constrained world for coal still to have a cost advantage against lower carbon fuels, in which case you wouldn't see a shift in market share and BioDs example does still hold.
(And yes, all of this assumes an all-else-equal comparison setting aside differential capital costs and conversion efficiencies for different fuel types which isn't quite right, but the directionality of the math still holds.)
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Max8806 Posted 6:27 am
20 Nov 2008
"The goal of GHG policy is not to eliminate coal sales, natural gas imports or petroleum exploration. It is to reduce atmospheric GHG concentrations." This is the point I'm trying to make, because it also isn't specifically about eliminating coal combustion. Its about reducing atmospheric GHG concentrations, like you say. Thus, coal combustion should be allowed to remain, to the extent that it covers the full cost of its fuel, including greenhouse gas emissions. Whether those costs are passed along as price increases or not is irrelevant to that central point.
"Shift the point of regulation to the point of combustion, and you not only achieve greater economic efficiency, but also put the regulatory signal at the point where the universe of responses is not limited to those that are economically painful."
First, obviously, I continue to dispute your claim to greater efficiency. Secondly, your point about incidence where responses aren't economically painful is also flawed. The coal miner is economically disadvantaged whether his coal is taxed on a per-ton-CO2 basis, or whether his purchaser is now incentivized not to buy his product (if the coal-plant, or at-source like you want, is taxed for carbon combustion).
Responding to your second post Sean:
Since the only difference environmentally between coal and natural gas for the purpose of this discussion (since we're not getting into the other externalities) is CO2 content, then obviously the economically efficient solution is for coal to continue to enjoy a cost-advantage over natural gas until the cost of carbon is deemed to be (by an ever-more stringent cap) more than enough to offset the non-carbon cost advantages of coal over gas. I don't see how this is disputable from an economic efficiency framework, and I'm puzzled making this point to you because I could've sworn I see you making it to others all the time.
-Max Epstein
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vakibs Posted 7:32 pm
20 Nov 2008
Most of the coal emissions are from the power sector. Other industries which use coal account for only a marginal share of CO2 emissions. The imperative is to shut down coal plants. That is to have zero-emissions power plants.
We need a market incentive that explicitly encourages the world to do so.
For the end users, it is immaterial where the electricity comes from - whether from a coal plant or a non-fossil-fuel plant. They don't need to adjust their behavior. Requiring the consumers to adjust the behavior is an unnecessary assumption to solve the global warming problem. It will introduce costly delays.
But of course, consuming less energy and energy efficiency are desirable things. But the way to look at them is not through a GHG framework. We should consume less energy even if the energy is coming from wind or solar power. Energy efficiency should be encouraged through a different route.
We will be shooting ourselves in the foot if we keep relying on coal and natural gas power plants, albeith with a higher energy efficiency.This is NOT a solution to global warming.
I would not want to dream of a fossil-fuel powered future. Neither would you, I hope :)
Let's think in terms of eco-dollars.
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Biodiversivist Posted 12:27 am
21 Nov 2008
You made a good point. I ignored natural gas to keep my example as simple as possible but that simplification also made my example inaccurate.
Sean came to my rescue with the cost comparison. Natural gas may tend to go up in price faster than coal if supply continues to lag demand. As solar takes over more of our electricity generation, the grid will have to be redesigned and part of that may be more load following and peaking power plants using natural gas (which, unlike coal, can be turned on and off quickly). This demand will probably keep gas prices high.
However, your point about renewables eventually winning out over both coal and gas is still valid.
Your earlier point about higher prices to consumers decreasing use is also valid. Higher prices to consumers will drive demand for more efficient homes and appliances. Poor people, as always will be hosed. There should be a sliding scale for energy costs based on tax returns.
The most efficient way to do this is to force energy providers to bear some of the burden of innovation. Taxing the coal coming out of the ground won't force them to innovate, they will just increase the price charged to consumers, putting the entire burden on them. Penalizing power providers at the smokestack will force the less efficient (CO2 wise) producers to explore cheaper ways (CO2 wise) to make power or they will lose business to competitors (assuming we find ways to make utilities compete amongst themselves).
I agree Vakibs,
Asking consumers to live in colder houses and take shorter showers will not work. We have to give them efficient appliances and homes. Changing what is considered cool will help tremendously, as the Prius has done. Smaller, zero energy homes are for the cool kids. Friedman's 11,400 square foot palace is about as cool as powdered wigs and hoop skirts.
I suspect that natural gas can safely be used as a relatively low CO2 bridge for peak power and load following as we transition to solar and wind and increase efficiency.
In the end, it all comes down to biodiversity. Poison Darts--Protecting the biodiversity of our world
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vakibs Posted 1:16 am
21 Nov 2008
I don't consider Prius, or zero energy homes as a global warming solution. They are sidekicks.
Please don't get me wrong. I am a big fan of electric transport and also zero energy housing (One of my best friends is doing a PhD on energy efficient house design). I think we need these efforts, even if there was no global warming ever happening. Encouraging people to use energy efficiency is a different problem from solving global warming, and it has to be tackled differently. We have good models of how to increase energy efficiency : California has been doing it for a long time. It has great benefits, both environmentally and also economically.
But this has nothing to do with the nature of the global warming problem. The task is to eliminate (not reduce) fossil-fuel use. We need economic incentives to bring about that desired moratorium on fossil fuel usage, particularly of coal. Sean has several good points, but his plan has holes which permit continued coal/natural-gas usage just to make way for energy efficiency to be included in the GHG prevention umbrella. This is not a smart thing to do.
Let's solve global warming, and let's also bring about energy efficieny. Let's do them separately.
Let's think in terms of eco-dollars.
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Max8806 Posted 5:31 am
21 Nov 2008
The key in evaluating the cost of reducing an emission is the availability of alternative methods of producing a product. So the arguments given, first from Sean, and now yours-- like 'well what if demand for natural gas outstrips supply,' or 'wind and solar will need backup power (e.g. not resolve storage issue)'-- is essentially asking 'well, what if reducing an emission from a coal plant is not in fact so economic, due to the lack of alternatives, and so reducing an emission elsewhere would be cheaper?' In which case the obvious answer is of course the cap wouldn't reduce coal emissions first, because it would be inefficient to do so. However, its worth noting this isn't how it will work out in reality, all the econometric analyses indicate reducing coal emissions are some of the first-picked low-lying fruit.
-Max Epstein
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Max8806 Posted 6:33 am
21 Nov 2008
-Max Epstein
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Pangolin Posted 5:15 pm
21 Nov 2008
To further minimize political impact 80% of taxes raised should be returned to citizens aka Alaska Permanent fund style. That should be 90% if funds are committed to conservation measures like ground-loop heat pumps, solar panels and insulation.
Companies would know that coal was going to be a dead loser and reposition their generation portfolios to compensate. The poor get protected and the wealthy get reamed unless the wealthy become early adopters of energy saving strategies on their homes and businesses. Fools with money get the usual treatment.
Since we just gave Wall Street $1 trillion in play money I would suggest that cries of socialism could fall on deaf ears. The ultimate goal is to shut the coal business down entirely. Make sure the stuff will be too expensive to burn in twenty years.
Put the Carbon Back
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JMG Posted 6:35 pm
21 Nov 2008
All CO2 is not the same--you only get one kWh of juice for a kg of CO2 is you use coal, you three kWh of juice for that same kg of CO2 if you burn natural gas to get it. So if you're trying to make a transition, you get a lot further by selectively restricting your worst offenders first.
There's not some dial somewhere that lets us make smooth continual switches, dialing back coal and dialing up natural gas and renewables in precisely equal gradients.
Instead, power plants are lumps of capacity, particularly coal plants which are giant lumps of capacity, lumps that like to run at base load.
Given that, once we decide to go off coal, we'll burn all the natural gas and oil we can pull out of the ground, and given that carbon stays in the atmosphere for, essentially for the problem, ever, the critical variable is how much coal we burn. That's it.
Every day that passes while we burn ever more coal is another day of swimming further and further from shore, expecting that if we just do the right economic incantations while we swim, we'll be able to conjure up a genie who will keep us from drowning.
Sorry, too late. We don't have time for anything but a fast, hard cap on coal, with a steep decline slope. Everything else is gameplaying.
The 5% Project
Let's live on the planet as if we intend to stay.
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Pangolin Posted 7:47 pm
21 Nov 2008
Short of a dictatorship we have to deal with mitigations that can pass congress. That's why I like tax and rebate; it's a free-money gimmick with benefits where we want them.
Without putting the carbon in the atmosphere back into mineral form the human race is FUBAR'd. Simply stopping emissions isn't going to cut it anymore.
Gotta try anyway.
Put the Carbon Back
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