Mechanisms For Change - economics

To-Do Date: May 12 at 9:30am

As you've seen, the solutions to climate change exist.  What we've lacked is the political will to implement these solutions. How do we break through and begin to adopt these solutions at the scale necessary to confront the challenge?  

 

individual vs. system https://www.vox.com/22429551/climate-change-crisis-exxonmobil-harvard-study Links to an external site. 

We will explore four approaches 

      • Economic incentives and disincentives
      • The role of governmental polices and regulations
      • The role of the business community and consumer pressure, and
      • Activism.  

These are all mechanisms to implement solutions and not solutions in and of themselves.  

 

Economic Incentives and Disincentives:  Carbon Pricing

Carbon pricing, as it sounds, puts a price on the emission of carbon-containing greenhouse gases like carbon dioxide and methane.  This increases the cost of carbon-intensive goods and services relative to lower-carbon equivalents. The analogy is that I don't get to dump my trash in the street, but have to pay to have it disposed. The more trash I generate, the more I pay. This is an incentive to reduce my garbage.

Carbon pricing encourages efficiency and makes nonpolluting forms of energy more cost competitive. There are different ways to put a price on carbon emissions, and there are extensive analyses of the pros and cons of each method. Frankly, I don't have a strong enough background in economics to decide which is better or worse. Instead, I'll just give you a short summary and links to resources to learn more if you would like. 

 

Carbon Tax 

 A carbon tax seems very straight forward. For every unit of carbon embedded in the item I buy, I pay the government a tax.  Therefore a product that is low in GHG emissions costs less than one that is high  in GHG emissions.  The Citizens Climate Lobby is a nonpartisan group that has a well respected proposal that they have been trying to get passed in the US congress for many years.

The arguments emerge with the details: how much of a tax? What should be done with the revenue from the tax?  (CCL's solution: pay it back as a dividend to all Americans) Should you charge the tax to goods that are made outside of the country in which the tax is paid (border adjustments)?  (CCL's solution: charge the tax to all goods made outside the US- so homegrown manufacturers aren't at a disadvantage) 

Cap and Trade 

Cap & trade caps the amount of emissions that are permitted, usually by the largest emitters, and allows companies to buy and sell (i.e., trade) emissions allowances.   Allowances are generally auctioned off, with the carbon price established by the market.

California has a cap and trade program that has contributed to the decline in emissions within the state.  However, it is not without criticism.  Notably, it still permits large polluters to emit carbon into the air along with other particulate pollutants that can make air unhealthy for nearby residents.  Here are two optional resources:  

Optional Resource 1.  A general overview of how cap and trade programs generally work: Link to How Cap and Trade Works  Links to an external site.

Optional Resource 2.  An article that discusses some of the criticisms of the cap and trade program and how it could be made better.  Link to How California can make its cap-and-trade program more equitable Links to an external site.

What to do with the money?

Both forms of carbon pricing bring revenue into the government, and there is vigorous debate about the options for what to do with this money.

    • One option is to invest this money in climate adaptation, climate research, or to increase adoption of renewable energy sources. This is what California has done.  For example, the state has used this money for subsidies for electric cars and solar panels to increase the adoption of these technologies, and for expansions of public transit.
    • A second option is to return the money to taxpayers.  This would make the carbon pricing program revenue-neutral for the government.  As for the public, those who use relatively few carbon-intensive goods or services would likely make money relative to what is paid into the system, while those who use more carbon-intensive goods or services would pay in more than they receive back.  

Would this solve the crisis?

At this late date, carbon pricing alone will not reduce emissions rapidly enough to achieve the needed results without carbon prices that would be incredibly disruptive to the economy.   The IPCC  has found that prices of at least $135/ton and up to $5500/ton by 2030 would be required to keep warming below 1.5 C.  For comparison, a bill has been sitting in Congress to institute a $15/ton carbon price but there has not been political support for its passage.  The average carbon price across countries in which they exist is $8/ton.  

Asked during an IPCC press conference if carbon pricing could radically overhaul the global economy in the next decade, James Skea, a co-chair of an IPCC working group, said it was “one among that portfolio of instruments that can be used” but could not serve as a panacea."