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No carbon price means no international carbon price


I've never been certain that if America puts a real price on carbon it will give us the moral authority to convince other countries -- particularly developing nations like India and China and Brazil -- that they should put a serious price on carbon, too. That was always going to be an uphill battle, as the developing nations reply, quite correctly, that it's rather unfair for the rich countries to get rich off of cheap energy and then decide that no one else can do the same. The map above comes from Wikipedia and tracks carbon emissions per capita by country. This is pretty much how the situation looks to the developing world.

So I'm quite certain that if America doesn't put a real price on carbon -- as seems increasingly likely -- there's no way the rest of the world is going to put a price on carbon, either. That means whatever dreams we had of dealing with global warming through an economically efficient carbon-pricing scheme are pretty much out the window.

What's left is the hope that somebody invents something really impressive, really quick. Environmentalists talk about this in terms of a "Manhattan project" for energy, which is probably the right way to talk about it. But I've been reading a bit about the Manhattan project, and one of the things that immediately jumps out at you is that the threat posed by Germany meant that price was no object in the search for the atomic bomb. Conversely, price is the object in the search for new energy technologies. What we need isn't just a clean energy source, but a clean energy source that is about as cheap as dirty energy sources that we've spent hundreds of years learning how to access and use.

By Ezra Klein  |  June 11, 2010; 10:21 AM ET
Categories:  Climate Change  
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This is not really a very smart argument. Price actually was an object in the manhattan project; what wasn't an object was investment cost. If each bomb had cost a billion 1945 dollars to build (instead of a million or so) the project would have been a failure, just as it would have been if each bomb had been too heavy to carry on a B-29. (In fact, for a long time US defense plans were tilted toward nuclear weapons precisely because nukes were much cheaper than trying to build as many tanks and planes and field as many soldiers as the USSR.)

And the same thing for alternate energy sources that could mitigate climate change. If not doing anything is going to cost us 2-10% of world GDP in a few decades, we're talking about lost cash flow of roughly $1-5 trillion a year, which is equivalent (very roughly) to lost wealth of $20-100 trillion. Investing a paltry couple of trillion is petty cash by comparison.

Posted by: paul314 | June 11, 2010 10:40 AM | Report abuse

But you're missing a step here. Why does an "international carbon price" matter to anyone but the bankers who'd be managing permit trading? What matters is emissions reduction, whether through market or regulatory mechanisms.

If you're worried about leakage, the way to handle that is to limit imports from any country that doesn't adopt similar carbon reduction measures. Or force those states to pay a fine equivalent to the average impact of carbon regs on our economy (or some other measure, like the European carbon price).

Carbon regulation doesn't necessarily require a carbon price. Cap and trade may be the most effective way to achieve reductions WITH A WELL CONSTRUCTED PROGRAM. But there's no reason to believe this Congress is capable of creating such a program. And there's even less reason to believe the more conservative Congress we'll have in 2011 could do so.

Posted by: NS12345 | June 11, 2010 10:53 AM | Report abuse

Yeah, this misses the reality by a significant margin. Even if Michael J. Fox showed up in his DeLorean with all the schematics to mass produce "Mr. Fusion" devices, the current market response would be "meh".

Energy is free right now. While I'm typing this post, I'll earn about enough to buy a short ton of coal - enough to produce around 6000 kilowatt hours of energy. We may be running out of petroleum, but we have enough coal to last hundreds or thousands of years. Nothing will ever push aside the free option - sure, we can pretend that there are other borderline viable options out there if we subsidize them enough, but they have 0 chance of ever changing the energy landscape without artificially inflating carbon energy prices.

Posted by: eggnogfool | June 11, 2010 11:01 AM | Report abuse

Oh, and it doesn't matter if you can get other countries to sign on or not, unless your policy makers are wildly incompetent.

You have a carbon tariff on imports from countries that have a lower carbon tax (evening up the difference), and a carbon subsidy to companies that export to countries with a lower carbon tax (evening up the difference).

Posted by: eggnogfool | June 11, 2010 11:10 AM | Report abuse

eggnogfool --

Oh I'm not advocating resting on a carbon tariff. I think we have to start accepting the fact that EPA will be doing most of the regulating here.

An adequately high carbon price would of course drive real emissions reductions. After watching the stimulus, healthcare, and financial reform debates, I am frankly very unenthusiastic of Congress' ability to set such a price. But I refuse to believe that the lack of an adequate price just dooms the world. I think EPA regulation has the potential to achieve significant reductions without any market-based component.

Traditional Clean Air Act regulation -- the kind that's significantly reduced emissions of all of the criteria pollutants and survived two different far-right presidential administrations -- can handle CO2. The lack of a global carbon price is something we can still deal with.

Posted by: NS12345 | June 11, 2010 11:28 AM | Report abuse

What needs to happen is to help a critical mass realize that the threat of continued global warming eclipses the threat of Nazi Germany many times over. "An Inconvenient Truth" was a good first step, but we can do a lot more in terms of adequately conveying the gravity of climate change and what it will mean for people and their children. For the time being, I agree that EPA regulations are the best hope.

Posted by: billy_burdett | June 11, 2010 12:05 PM | Report abuse

The map may look pretty different in 10 years. If Chinese CO2 emissions continue to grow by 9-10% per year, CO2 emissions per capita in China will be nearly equal to those of the US.

Posted by: CLIMATE_GUY | June 11, 2010 12:18 PM | Report abuse

Few things are as fascinating as the duality of our thinking about carbon. We know that price is the way to reduce our use of carbon emitting fuels. Yet we consistently refuse to consider an increase in taxes on gasoline which would have significant benefits. First, it would reduce the miles we drive and so reduce our consumption. Second, it would encourage us to buy more fuel efficient cars; again reducing our consumption of gasoline. In addition it would fund our badly needed highway system. Yet this refusal comes at a time when the price of gasoline is highly volatile and any increase in the gas tax would be modest by comparison and would be masked by market increases.

In addition, at a time when we would like to decrease consumption of electricity we have deregulated the electric energy industry on the premise of lower electricity costs. Is there something wrong with this? I surely think so.

So what are we doing. We are considering a cap and trade system which will surely, and desirably, raise the cost of any energy associated with carbon. Why, for goodness sake, don't we be up front about this? Raise the price of gasoline and quit the deregulation of the electric power industry in order to reduce the price of electricity.

Posted by: hmichaelhayes | June 11, 2010 12:29 PM | Report abuse

Not that it would be likely to change their position, but they could just as well be arguing that it isn't fair that other countries got rich off slavery or child labor or invading other countries ... and so they should get to use the full range of "tools in the toolbox".

Times change and we have to operate in the current world. They'd be better off arguing that cumulative as well as current emissions should be factored in somehow.

Posted by: willNeuhauser | June 11, 2010 12:57 PM | Report abuse

I think another first step is to remove all the subsidies for dirty energy that makes it so cheap. Even if it would still be cheaper than alternative clean sources, it would at least work towards leveling the field.

Taxes, fees and tariffs can be a next step, but at least get rid of the ridiculous giveaways to the dirty energy industry that does make coal and oil so apparently cheap.

Posted by: jeirvine | June 11, 2010 1:03 PM | Report abuse

Or, to put it another way, we're screwed.

Posted by: randrewm | June 11, 2010 1:18 PM | Report abuse

"Traditional Clean Air Act regulation -- the kind that's significantly reduced emissions of all of the criteria pollutants and survived two different far-right presidential administrations -- can handle CO2. The lack of a global carbon price is something we can still deal with."

Doubt it. I don't see how EPA regulations can handle the import/export issues that would prevent it from being a unilateral economic suicide pact. Pretending that EPA regulations would stay in place long enough to have a relevant effect, we could look forward to a clean-burning hydrogen economy in 15 years, where all our hydrogen is produced by inefficient coal burning plants right across the Mexican border.

A reasonable congressional carbon bill would be effective and popular. EPA regulation of carbon would be ineffective and despised. That's why it has a chance of going into effect for a few years, because there is no chance it won't be struck down if it does.

Posted by: eggnogfool | June 11, 2010 1:36 PM | Report abuse

The purpose of a carbon tax is to make carbon more expensive than alternative energy sources. You can achieve the same result - making alternative energy cheaper - by supplying subsidies. I know, you have to spend money, but we should count these subsidies as investments.

Posted by: paul89 | June 11, 2010 3:05 PM | Report abuse

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