Western governments are pretending to take actions that alleviate climate change. But their “cap-and-trade” approach is a minuscule tweak to business-as-usual. Cap-and-trade is a Temple of Doom for life on our planet, worshipped by lawmakers who are afraid to confront fossil special interests. What is needed is a gradually rising fee on the carbon content of oil, gas and coal, with proceeds distributed fully to the public. This will spur innovation in efficiency and carbon-free energy, while providing the public the funds needed to transition toward the clean energy world of the future.
“Cap-and-trade” is supposed to answer climate change by setting targets for emission or capping it by issuing permits to emitting industries. To begin with, cap and trade is a misnomer. A “cap” increases the price of energy, as a tax does. It is wrong and disingenuous to try to hide the fact that a cap is a tax. Other characteristics of the “cap” approach is that because of unpredictable price volatility it makes millionaires on Wall Street and other trading floors but offers the public little. Offsets are usually allowed and often poorly substantiated and verified, creating more uncertainty. The case in point is the European experience: they spent $50 billion on carbon trading, their CO2 emissions actually increased, and the largest payment went to a German coal-burning utility! Cap-and-trade is fraught with opportunities for special interests, political trading, obfuscation from public scrutiny, accounting errors, and outright fraud.
As with any law, caps can and will be changed, many times, before 2050. The fact is that national caps have been set and are widely rejected. When caps are accepted, they are often set too high - as happened with Russia. If a complete set of tight caps were achieved, global permit trading would likely result in a Gresham’s Law effect - “bad money drives out good.” Some countries will issue too many permits or fail to enforce requirements. These permits, being cheapest, will find their way into the world market and undermine the world cap. Caps are also extremely hard to enforce, as demonstrated by the Kyoto Protocol. In some cases, even with highly respected countries such as Canada, the extent of failure to meet commitments was enormous. The biggest problem with a cap tax is that it will not solve the problem. The public will soon learn that it is a tax. And because there is no dividend, the public will revolt before the cap tax is large enough to transform society.
For these reasons, and because they believe a cap-and-trade approach will continue to stymie international negotiations, many of the top American economists from across the political spectrum vigorously oppose cap and trade. Notable among these are William D. Nordhaus, Joseph E. Stiglitz (Making Globalization Work, Chap. 6), and N. Gregory Mankiw.
A successful plan must recognise geophysical constraints and economic reality. The geophysical fact is that most of the remaining fossil fuels must either be left in the ground or be used only where the CO2 is captured and put back underground. The economic reality is that we will not move to an era beyond fossil fuel emissions until a substantially higher price is applied across-the-board to all carbon fuels, such that efficiency and carbon-free energies rapidly increase. In addition, I will contend, public acceptance of the needed rising carbon price demands complete transparency and fairness.
It is easy to speak of a planet in peril. It is quite another to level with the public about what is needed, even if the actions are in everybody’s long-term interest. It seems they would not dream of being honest and admit that an increased price for fossil fuels is essential to drive us to the world beyond fossil fuels.
How can emissions be reduced? With policies similar to those being promoted elsewhere: mileage efficiency standards for vehicles; power-usage standards for appliances and electronics; retrofitting of residential and commercial buildings for efficient heating and cooling; urban revitalisation promoting walkable and bikeable communities; land-use policies encouraging proximity over sprawl; and wholesale conversion of the electricity energy source from fossil fuels to carbon-free solar and wind resources.
A higher carbon price is needed to transform consumer and life style choices, to make zero-carbon energy and energy efficiency cheaper than fossil fuels, to spur business investment, innovation and associated economic activity, and to move the nation to the cleaner environment beyond the fossil fuel era. The carbon price will need to be significant, and the public and businesses must understand that it will increase in the future. It should be applied to all fossil fuels - oil, gas and coal - uniformly at the source (the first sale at the mine or port of entry).
A price on emissions that cause harm is essential. Yes, a carbon tax. A carbon tax with a 100 per cent dividend is needed to wean us off fossil fuel addiction. A tax and dividend mechanism would allow the marketplace, not politicians, to make investment decisions.
Coal is not only the largest fossil fuel reservoir of carbon dioxide, it is the dirtiest fuel.
Coal is polluting the world’s oceans and streams with mercury, arsenic and other dangerous chemicals. The dirtiest trick that governments play on their citizens is the pretence that they are working on “clean coal” or that they will build power plants that are “capture ready” in case technology is ever developed to capture all pollutants.
A carbon tax on coal, oil and gas is simple, applied at the first point of sale or port of entry. The entire tax must be returned to the public, an equal amount to each adult, a half-share for children. This dividend can be deposited monthly in an individual’s bank account. A carbon tax with a 100 per cent dividend is non-regressive. On the contrary, you can bet that low and middle income people will find ways to limit their carbon tax and come out ahead. Profligate energy users will have to pay for their excesses.
Jim Hansen’s Congressional testimony where he presents his carbon tax proposal can be found here. Reprinted with permission from YaleGlobal Online (www.yaleglobal.yale.edu). Copyright © 2009, Yale Center for the Study of Globalization, Yale University.