After Copenhagen: A Better Way Than Cap-n-Trade
Last weekend's minimalist Copenhagen global climate accord provides a great opportunity. The old deceitful, ineffectual approach is severely wounded and must die. Now there is a chance for the world to get on to an honest, effective path to an agreement.
The centrepiece of the old approach was a "cap-and-trade" scheme, festooned with offsets and bribes – bribes that purportedly, but hardly, reduced carbon emissions. It was analogous to the indulgences scheme of the Middle Ages, whereby sinners paid the Church for forgiveness.
In today's indulgences the sinners, developed countries, buy off developing countries by paying for "offsets" to their own emissions and providing reparation money for adaptation to climate change. But such hush money won't work. Yes, some developing country leaders salivated over the proffered $100 billion per year. But by buying in, they would cheat their children and ours. Besides, even the $100 billion hush money is fugacious. The US, based on its proportion of the fossil fuel carbon in the air today, would owe $27 billion per year. Chance of Congress providing that: dead zero. Maybe the UK will cough up its $6 billion per year and Germany its $7 billion per year. But who will collect Russia's $7 billion per year?
Most purchased "offsets" to fossil fuel carbon dioxide emissions are hokey. But there is no need to flagellate the details of this modern indulgences scheme. Science provides an unambiguous fact that our leaders continue to ignore: carbon dioxide from fossil fuel burning remains in the climate system for millennia. The only solution is to move promptly to a clean energy future.
The difficulty is that fossil fuels are the cheapest energy, if the price does not include the damage they do to human health, the planet, and the future of our children. "Goals" for future emission reductions, whether "legally binding" or not, are utter nonsense as long as fossil fuels are the cheapest energy. The Kyoto Protocol illustrates the deceit of our governments, which have not screwed up their courage to face down the fossil fuel industry. As the graph here shows, global fossil fuel emissions were increasing 1.5% per year prior to the 1997 Kyoto accord. After "Kyoto" emission growth accelerated to 3% per year. A few developed countries reduced their fossil fuel use. The only important effect of that was to slightly reduce demand for fuel, helping to keep its price down. The fuel was burned in other places, and products made were shipped back to developed countries.
As far as the planet is concerned, agreements to "cap" emissions, such as the Kyoto Protocol and the imagined Copenhagen Protocol, are worthless scraps of paper. As long as fossil fuels are the cheapest energy, they will be burned somewhere. This fact helps define a solution to the climate problem. Yes, people must make changes in the way they live. Countries must cooperate. Matters as intractable as population must be included. Technology improvements are required. Changes must be economically efficient. The climate solution necessarily will increase the price of fossil fuel energy. We must admit that. But in the end, energy efficiency and carbon-free energy can be made less expensive than fossil fuels, if fossil fuels' cost to society is included. The solution must have honesty, backbone and a fair international framework. We need a rising price on carbon applied at the source (the mine, wellhead, or port of entry). The fee will affect all activities that use fossil fuels, directly or indirectly. The entire fee collected from fossil fuel companies should be distributed to the public. In this fee-and-dividend approach people maintaining a carbon footprint smaller than average will receive more in the dividend than they pay via increased energy costs. The monthly dividend, deposited electronically in their bank account or on their debit card, will stimulate the economy and provide people with the means to increase their carbon efficiency. All that governments need do is divide the collected revenue by the number of shares, with half-shares for children, up to two children per family.
Some economists prefer a payroll tax deduction over a dividend, because taxes depress the economy. The problem is that about half of the public are not on payrolls, because of retirement or involuntary unemployment. I suggest that at most 50% of the collected carbon fee should be used for payroll tax deduction.
Cap-and-trade is the antithesis of this simple system. Cap-and-trade is a hidden tax, increasing energy costs, but with no public dividend. Its infrastructure costs the public, who also fund the profits of the resulting big banks and speculators. Cap-and-trade is advantageous only to energy companies with strong lobbyists and government officials who dole out proceeds from pollution certificates to favoured industries.
Fee-and-dividend, in contrast, is a non-tax – on average it is revenue-neutral. The public will probably accept a rise in the carbon fee rate, because their monthly dividend will increase correspondingly. As fee-and-dividend causes fossil fuel energy prices to rise, a series of points will be reached at which various carbon-free energies and carbon-saving technologies are cheaper than fossil fuels plus the fee. The market place will choose the best technology. As time goes on, fossil fuel use will collapse, coal will be left in the ground, and we will have arrived at a clean energy future. A rising carbon fee is essential for a climate solution. But how to achieve a fair international framework?
The critical requirement is that the United States and China agree to apply across-the-board carbon fees, at a relative rate to be negotiated. Why would China agree to a carbon fee? China does not want to be saddled with the problems that attend fossil fuel addiction such as those that plague the United States. Besides, China would be hit extraordinarily hard by climate change. A uniform rising carbon fee is the most economically efficient way for China to limit its fossil fuel dependence.
Copenhagen discussions showed that China and the United States can work together. Europe, Japan, and most developed countries would very probably agree to a similar status to that of the United States. Countries refusing to levy an across-the-board carbon fee can be dealt with via an import duty collected on products from that nation in accord with the amount of fossil fuel that goes into producing the product. The World Trade Organisation already has rules permitting such duties.
The international framework must define how proceeds from import duties are used to assure fairness. Duties on products from developing countries will probably dwarf present foreign aid to those countries. These funds should be returned to developing countries, but distributed so as to encourage best practices, for example, improved women's rights and education that helps control population growth. Fairness also requires that distribution of the funds takes account of the ongoing impacts of climate change. Successful efforts in limiting deforestation and other best practices could also be rewarded.
James Hansen was the first scientist to warn the US Congress of the dangers of climate change. The ideas discussed in this article are expanded on in his new book "Storms of My Grandchildren".
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