Charles Komanoff – Page 21

Carbon Tax Center

Pricing carbon efficiently and equitably

For scientists, drawing links between warming global temperatures and the ferocity of hurricanes is about as controversial as talking about geology after an earthquake. But in Washington, where science is increasingly political, the fact that oceans and atmosphere are warming and that the heat is propelling storms into superstorms has become as sensitive as talking about gun control in the wake of a mass shooting.”

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Lisa Friedman, Hurricane Irma Linked to Climate Change? For Some, a Very ‘Insensitive’ Question, NY Times, Sept. 11.

The Law of One Price: Remedy for Hobbes’ State of Nature

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This guest post is by Rachael Sotos, an aspiring political theorist and long-time CTC supporter who lives in Santa Cruz, CA.

The gaping flaw in the Paris Climate Agreement was hidden in plain sight even before Trump repudiated the 190-nation compact this year. Notwithstanding the precedent-shattering achievement — an agreement signed by virtually all of the world’s sovereign nations — Paris comprised an unenforceable system of pledges, aptly named Intended Nationally Determined Contributions (INDCs).

True, the first step in any long journey is often the hardest, and the Paris agreement includes a five-year time frame to review and hopefully strengthen the pledges made in late 2015. But let’s be clear: neither the INDCs nor the brave pledges of some U.S. governors and mayors since “Trexit” will radically curb emissions. The world needs a binding agreement with coercive mechanisms to meaningfully address climate change.

Throughout the climate crisis we have been living in a “state of nature” famously described by the 17th century British political theorist Thomas Hobbes. Which makes this a good time to consider Harvard economist Martin Weitzman’s essentially Hobbesian allegory: a World Climate Assembly (WCA) “that votes for a single worldwide price on carbon emissions via the basic democratic principle of one-person one vote majority rule.”

Detail from frontispiece of ‘Leviathan.’ Credit: Getty Images.

Though Hobbes is reviled by some for advocating absolutist politics, he is also credited with discovering modern political economy and laying the foundations for both modern tax law and rational choice theory. One could even say that Hobbes employed allegories of extreme negative externality to legitimize top-down modes of political authority.

In Leviathan (1651) Hobbes asked his readers to abstract from all familiar, inherited and trusted modes of collaboration, to imagine themselves in a “war of all against all,” bellum omnium contra alles. Rather than a literal prehistorical period, his “state of nature” is the ever-present possibility of market failure in extremis. Absent coercive administrative power, Hobbes argued, there could be no property rights, secure contracts or absolute moral duties apart from self-preservation. Each person is a covetous judge of his or her own situation, and every defensive acquisition is justified.

Enter Prof. Weitzman amid growing recognition that global warming is history’s greatest market failure. Weitzman postulates that when the “impending climate catastrophe … is felt on a worldwide grassroots level,” there will be pressure for top-down solutions, and nations will be “ready to forfeit their free-rider rights to pollute.” The time will come, he argues, when “world public opinion is ready to consider novel governance structures that involve relinquishing some national sovereignty in favor of the greater good.” One such structure is Weitzman’s imagined World Climate Assembly (WCA) — a global plebiscite via which people of all nations contract with each other to jointly create “an overarching global governance mechanism” with sufficient awe-inspiring “countervailing force” to eradicate that Achilles Heel of climate agreements: free-riding. (Weitzman’s paper is available here.)

Hobbes was a master of “novel governance structures.” Sweeping aside the hierarchical hodgepodge of inherited feudal allegiances, he envisioned formally equal individuals (for “the weakest can kill the strongest”) renouncing their unfettered “natural rights” in favor of the coercive power of a national sovereign (technically parliamentary or monarchical). This was his “awe” inspiring, man-made Leviathan — the social contract that people voluntarily enter as self-interested modern individuals, thus ensuring safety and well-being, salus populi.

To be clear: Weitzman’s World Climate Assembly is a mechanism, not global government. What is to be voted-upon at the WCA is an internationally harmonized but nationally retained minimum carbon price. Nations, states within nations, or regions such as the European Union can all chart their own path toward climate commitment. While a system of uniform emissions taxes is easiest to conceive, national or regional cap-and-trade regimes with price floors and hybrids approaches are also possible. Nations or regions will retain and distribute collected carbon revenues as they see fit. Green fund transfers are permissible, but the primary coercive mechanism is “law of the single price.”

Harvard economics professor Martin Weitzman delivering the Max Weber lecture (and striking a Leviathan-like pose) in Florence, Italy, Oct. 2015.

WCA representatives will “vote along a single price dimension for their desired level of emissions stringency on behalf of their citizen constituents,” Weitzman envisions, with the votes “weighted by each nation’s population.” Weitzman presents extensive calculations suggesting that the global majority would likely vote for a uniform minimum emission price “tolerably close to the world Social Cost of Carbon.”

In the end, he postulates, the “median” voter-nation would find its emissions abatement costs exactly offset by the benefit of having all other nations reduce their emissions. Half of the world’s population would likely prefer a lower minimum price, with the other half preferring higher; but all will prefer democratically legitimized coercion to the inadequacy and uncertainty of the INDCs. Under Weitzman’s Leviathan, no rich and powerful nation, not even the United States, will be able to trump the greater good.

And if Hobbesian “absoluteness” includes hostility toward institutional division of powers, it nonetheless has attractive features for confronting the climate crisis. According to Hobbes, people willingly renounce their “natural” rights to violence and unlimited acquisition only when their political world allows reasonable certainty of the actions of others.

In the language of game theory, the “state of nature” is the original “assurance” or “coordination” problem. Weitzman plays along, characterizing his WCA as “automatically incentivizing all negotiating parties to internalize, at least approximately, the global warming externality.” Certainty regarding the likely behavior of others is bolstered by the knowledge that the international trading system overseen by the World Trade Organization can be marshalled to impose punitive tariffs on non-complying nations.

Still, the most important feature of a uniform emissions price is its acting as an automatic “countervailing force” that can counter “narrow self-interested free-riding . . . via a simple, familiar, transparent formula that, in Weitzman’s words, embodies a common climate commitment based on principles of reciprocity, quid-pro-quo, and I-will-if-you-will.”

This is Hobbesian “absoluteness”: when we are all in it together and know that we will all be subjected to the same regime, e.g., the law of the single price, we are much more likely to renounce convention and shoot for the moon. In the language of game theory: cooperation is also a stable outcome.

What is being agreed upon, then, is a thoroughly modern Hobbesian social contract centered in transparently assured fossil fuel demand destruction. And while there will be difficulties along the way, Weitzman reminds us that “even just negotiating” within the majoritarian framework bolstered by a coercive countervailing mechanism is a step out of the state of nature.

Expert report: NYS can charge carbon without hiking power bills

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This guest post is by Philip H. Kahn, Co-Leader of Citizens’ Climate Lobby’s New York City Chapter.

A new report commissioned jointly by the operator and regulator of the New York State power grid has found that a $40 per ton charge on CO2 emitted in generating electricity sold in the state would have an insignificant impact on electricity costs, provided the carbon revenues are redistributed to electricity customers in the form of bill reductions.

Problem statement from Brattle report. Solution: $40/ton charge on CO2 from electricity generation, with revenues returned to ratepayers.

The report, with the unwieldy title, Pricing Carbon into NYISO’s Wholesale Energy Market to Support New York’s Decarbonization Goals, was prepared by the Brattle Group for the NY Independent System Operator (NYISO) and the state’s Public Service Commission. Its key finding — that monthly electric bills would likely rise no more than 2 percent and might even fall slightly (by 1 percent) — flies in the face of the conventional wisdom that carbon charges necessarily drive electric rates higher.

Half of the upward cost pressure from the carbon charge would be offset by returning carbon revenues to customers. The remainder would be alleviated through three separate but parallel marketplace responses:

  1. The $40/ton carbon charge will incentivize natural gas generators to upgrade conventional natural gas-powered plants to combined-cycle plants that typically extract 50-60 percent more kilowatt-hours from each unit of fuel.
  2. The higher market price for wholesale power will encourage development of more renewable (largely wind and solar) power generation to supply the state.
  3. The carbon charge will, over time, replace the Zero Emission Credits (ZECs) and Renewable Energy Certificates (RECs) that now subsidize nuclear and renewable energy generation.

Carbon emissions from statewide electricity generation would fall by 2.6 million tons per year, according to the report, an amount equal to 8 percent of current emissions from the electric sector. “This estimate is probably conservatively low,” says Brattle, “because it does not account for the potential re-dispatch of existing resources, nor does it include innovative responses that the market might elicit but that we have not imagined.”

The Brattle researchers assumed that all of the revenue raised from the carbon charge would be returned to customers as line items reducing monthly bills. Alternative revenue treatments that direct some of the funds to energy efficiency and clean energy programs operated by the NY State Energy Research & Development Authority (NYSERDA) would result in deeper carbon cuts but at the possible expense of somewhat higher electric bills. This approach is supported by the Natural Resources Defense Council, the renowned environmental law group whose advocacy has led to utility and state government funding of end-use efficiency and renewables.

How the proposed carbon charge can cut CO2 emissions from NY State’s electricity sector.

The Brattle report pegged its proposed carbon charge to the “social cost of carbon,” which the U.S. Interagency Working Group on the Social Cost of Carbon last year specified at $43/ton of CO2 and rising over time. A combined carbon price of $40/ton from the carbon charge and the anticipated “market” price of $17/ton in 2025 in response to the tightening cap set by the Regional Greenhouse Gas Initiative, or RGGI, would total the $57/ton Social Cost of Carbon in that year.

The Brattle Group’s recommendation of a substantial, explicit carbon charge differs from the state carbon pricing bills under consideration in Massachusetts. Both MA H1726 (the state’s house bill) and S1821 (the senate bill) exempt electricity, with the rationale that carbon emissions from power generation in Massachusetts and the other Northeast states (except New Jersey) are already priced under RGGI. The $57/ton charge that Brattle recommends for New York State in 2025 would be more than triple the RGGI-alone price in that year.

Variations of the Brattle approach may be usable in other wholesale energy markets, especially those that are coterminous with a single state, such as Texas and California, and that use RECs to subsidize renewable energy.  What makes New York’s case particularly promising is that the subsidies now provided by the ZECs and RECs would be reduced because non-fossil fuel generation would receive the same market price set by fossil generators subject to the carbon adder.

Fig. 1 from Brattle report. Note concerted drop in emissions from electricity.

If the carbon adder fee paid by the fossil-fuel generators is returned to the ratepayers then rates will not go up. Other ISOs with RECs in their markets could implement a similar scheme, but multi-state ISO markets would require negotiations between states with different REC regimes.

Implementation of the Brattle Group’s recommended carbon charge would give NY Gov. Andrew Cuomo a way out of his unpopular new program subsidizing several upstate nuclear power plants via Zero Emission Credits pegged to the Social Cost of Carbon. That program, which went into effect in April, adds a charge to all state customers’ monthly electric bills which flows to Entergy Corp., the reactors’ owner-operator.

Proponents laud the nuclear subsidy for monetizing the reactors’ zero carbon emissions and helping NY State meet carbon-reduction targets, but opponents point to the anticipated $7 billion price tag over the dozen years of the subsidy, as well as the lack of equivalent support for energy efficiency and other zero- or low-carbon electricity provision. A universal carbon charge such as the $40/ton fee recommended by Brattle would reduce the nuclear-only subsidy while retaining the monetary reward that could enable the reactors to continue operating.  As the carbon adder is increased, the subsidies would diminish, ultimately to zero.

Don’t Fear Exxon’s Endorsement of the Baker-Shultz Carbon Tax

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Here we cross-post my article published in The Washington Spectator magazine yesterday, under the headline, A Carbon Tax With Legs. Except for a handful of line edits below, the two versions are the same.

For years, carbon tax advocates scoffed at the notion that Exxon-Mobil would back a tax on climate-damaging carbon pollution. We saw through the vague hypotheticals in which the oil giant cloaked its occasional expressions of support. Rather than invest political muscle in carbon tax legislation, Exxon for decades funded a network of deception that blocked meaningful action on climate.

So why are we taking notice that this past June Exxon formally endorsed a so-called Republican carbon tax plan? And why am I not up in arms that the plan entails granting Exxon and other fossil fuel owners immunity from legal damages for the climate havoc caused by extracting and burning these fuels?

It comes down to two reasons. First, there’s little chance that oil, coal, and gas companies could ever be made to pay more than token amounts for the ruin their products cause. Second, though bankrupting big oil may seem appetizing, it’s a distraction from the real goal of “demand destruction” — shrinking and eliminating the use of carbon-based fuels. The fastest path to that goal is through a robust carbon tax that manifests the harms caused by those fuels in the prices the marketplace sets for oil, coal, and gas, as the new proposal would do.

The carbon tax plan is dubbed “Republican” because its public faces are those of George Shultz and James Baker, exemplars of the outcast center-right GOP establishment. Two factors set this plan apart from current Republican orthodoxy.

First, the Shultz-Baker tax is no slouch. It would start at $40 per ton of carbon dioxide and rise from there, putting it miles above anything floated by oil companies or Republican officeholders. The price is high enough not only to nail the coffin on coal, by far the dirtiest fossil fuel, but also to put a serious dent in oil usage.

After a decade, according to my modeling, U.S. carbon emissions would be 27 percent less than last year and 36 percent less than in 2005, the standard baseline year in climate analysis.

Second is the equitable distribution of the carbon tax proceeds. They would be disbursed to American families as “dividends,” with equal revenue slices for all. This approach is not only income-progressive, making it a black swan among Republican policy ideas; it also buys support for raising the tax level over time, since the dividends would rise in tandem.

The Shultz-Baker tax may actually have political legs. While the current White House and Congress are tribally bound to vilify anything smacking of Al Gore or Barack Obama, the 2018 midterms and the 2020 presidential election could bring a reckoning on climate policy. With a majority of Americans in a recent poll calling climate change “extremely or very important” to them personally, Republicans may soon be seeking an escape hatch.

Three attributes in the Shultz-Baker proposal meant to win over the center-right are anathema to progressive elements in the climate movement. We can call them: no investment, no regulation, and no litigation.

“No investment” means dedicating the carbon revenues to the dividend checks, leaving none for government to construct carbon-free energy and transportation systems or to remediate the “frontline” communities most ravaged by fossil fuel infrastructure. Yet economists are convinced that the price-pull of the carbon tax will bring about this transition.

“No regulation” means rescinding EPA climate rules, principally the Obama-era Clean Power Plan prized by environmental powerhouses like the Sierra Club. But the Clean Power Plan is nearly “mission accomplished”: its target is already four-fifths met (and rising) as coal-fired electricity production is eaten away by natural gas, rising wind and solar power, and energy efficiency.

Finally, “no litigation” means letting carbon corporations and shareholders off the hook for producing and promoting their climate-ruining products — a bitter pill for the broad and insistent fossil fuel divestment and “Exxon knew” movement spearheaded so effectively by Bill McKibben. Yet would that be a grievous loss? Not according to Michael B. Gerrard, who directs the Sabin Center for Climate Change Law at Columbia Law School: “No lawsuits anywhere in the world seeking to hold fossil fuel companies liable for climate change have succeeded,” Gerrard told me recently via email. “Losing the ability to sue these companies for climate change would not be giving up a huge amount if it were in exchange for a large enough carbon tax.”

So is the promised carbon tax large (and solid) enough to justify dealing away the triad of litigation, investment, and regulation? My colleagues and I at the Carbon Tax Center believe it is.

The proposal is gathering steam. Not just Exxon but a dozen other corporations, including General Motors, Procter & Gamble, Unilever, Pepsico, and three other oil companies (Shell, BP, and Total) formally endorsed the plan in June, along with the Nature Conservancy and the World Resources Institute. The political path for the Shultz-Baker carbon tax, not much wider than a human hair when it was launched last winter, is broadening rapidly.

Charles Komanoff, an economist, directs the Carbon Tax Center in New York City.

Just Posted: CTC’s Carbon Tax Model, Updated for 2017

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We’ve just posted the 2017 update to the Carbon Tax Center’s spreadsheet model of U.S. CO2 emissions. That’s our powerful but easy-to-use tool for predicting future emissions and revenues from possible U.S. carbon taxes. The model, which runs in Excel, accepts any carbon tax trajectory you feed it and spits out estimated economy-wide emission reductions and revenue generation, year by year.

Here’s what’s new:

1. A year of new data: The most obvious update is that we’ve incorporated 2016 baseline data on energy use, CO2 emissions and emission intensity into each of the model’s seven sectors.

2. Oil refining is now allocated to usage sectors: Last year we pulled oil refinery emissions out of “Other Petroleum Products” and into its own category, which accounted for an estimated 6.4% of U.S. CO2 emissions in 2015. We’ve now taken the logical next step and allocated those emissions into the economic sectors that require refining crude into product in the first place: autos (principally gasoline), freight (largely diesel), air travel (jet fuel) and the catch-all “other petroleum” encompassing home heating oil, propane, kerosene and residual oil used by industry. The lion’s share of Refineries’ 6.4% slice of CO2 emissions is now within autos; not only is gasoline by far the largest-volume petroleum product, it also consumes the most energy per unit among the major petroleum products. Although our model is again down to seven sectors, from eight, the change promises a more accurate prediction process by tying demand more closely to emissions.

3. Slimmed-down graphics: We’ve weeded out extraneous graphics so you can focus on what’s key: comparing emission reductions between the Climate Leadership Council’s carbon tax, a carbon tax pegged to the “social cost of carbon,” and future emissions absent carbon pricing. Other graphics break down emissions by sector (see graphic above), depict reductions in oil consumption and show carbon-tax revenues nationally and by household. Most importantly, you can input your own starting tax level and growth path and see how fast (or slowly) emissions fall. That’s still done in the spreadsheet’s “Summary” tab, which we’ve cleaned up to make it easier to navigate.

And don’t overlook these two features we added in 2015:

Our familiar pie chart now assigns refinery emissions to end-use sectors.

1. Smoothing the uptake of the carbon tax: The model now captures lags in households’ and businesses’ adaptation to more-expensive fossil fuels. You, the user, set the adaptation “ceiling” rate; the model automatically carries over any excess to future years. This feature is helpful for trajectories like the Whitehouse-Schatz bill, which kicks off with a bang at $45 per metric ton of carbon dioxide but then rises only slowly. Under our default setting, in which the economy in any year is assumed to be able to process only tax increments up to $12.50 per ton of CO2, the reductions from that initial $45/ton charge are spread over four years rather than, unrealistically, assigned to the first year.

2. Demand impacts vs. Supply side impacts: At the bottom of the Summary page is a new section comparing the projected CO2 reductions from changes in fuels’ carbon intensities (“supply side”) versus reductions from reduced energy usage (“demand side,” e.g., lower electricity purchases, less driving or flying). Under our default carbon tax — the one proposed by former Rep. Jim McDermott — an estimated 58% of projected CO2 reductions are on the supply side (i.e., due to decarbonization); a large minority, 42%, come about through reduced demand, illustrating that subsidies-only policies miss out on huge CO2 reductions. Indeed, clean-energy subsidies undercut decarbonization by stimulating energy usage through lowered energy prices, as we pointed out in our 2014 comments to the Senate Finance Committee.

Please download the spreadsheet — here’s the link again — and run it in Excel. See for yourself the relative efficacy of a carbon tax trajectory that increases by a fixed amount each year, as does the McDermott tax, vs. one like Whitehouse-Schatz that starts high but rises only by small, percentage-driven amounts. See also how much more quickly emissions decline under these and most other carbon tax scenarios, compared to the emission reductions from the Obama administration’s Clean Power Plan.

As you work (play?) with the model, jot down your thoughts so you can tell us what works and what needs improving. Especially the latter, as we just wrapped the update an hour ago and there are bound to be glitches. Thanks.

Carbon Tax Ferment in NYC’s Northern Suburbs

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Yesterday I biked to Grand Central Station and boarded a commuter train to the Hudson River village of Tarrytown to participate in a forum on carbon taxes. (For readers not from the area, Westchester is the suburban county immediately north of New York City.) My co-panelists were climate organizer Iona Lutey and economist Sara Hsu.

Flyer for the first of three forums in Westchester County (NY) this summer. See text at end for July 19 and 26 details.

Sara, a professor of economics at the State University of New York, outlined her research and legislative advocacy for a NY State carbon tax, while Iona delivered Citizens’ Climate Lobby’s hopeful message that persistent but collegial citizen engagement can build political will for the group’s “carbon fee and dividend” proposal, even among Republicans. I had a subtle pitch: emissions are falling in the U.S. and flattening in China without the benefit of carbon emissions pricing, yet carbon taxing is essential to accelerate and broaden progress.

I usually make that point with modeling results, but last night I brought something new: a Powerpoint page (shown below) listing a dozen complementary pathways for reducing use of fossil fuels that need the price signal from a carbon tax to. (Download my PPT here.)

All three presentations seemed to hit home with our audience of 40 or so folks, most of whom haled from nearby towns and villages. (The local paper Hudson Independent has a fine summary.) The Q&A was unusually lively. A resident of nearby Croton-on-Hudson had perhaps the most provocative question of all: why trade away the right to sue the fossil fuel purveyors and extractors, as the Climate Leadership Council is proposing in its Republican-branded carbon tax deal, when successful litigation could deliver a double-barreled victory: bankrupting the carbon barons while providing financing for the energy transition to efficiency and renewables?

The question was in response to the support I voiced for the Climate Leadership Council’s deal in my talk and in my previous post here. My primary answer then and now was that there seems to be little chance that oil, coal and gas companies could ever be made to pay more than token amounts for the ruin their products cause. But the question deserves further thought, which I kicked off this morning with this thought experiment:

What if we took all U.S. CO2 from burning fossil fuels over the past century and split “responsibility” for it 50-50, with half of the costs written off as the “fault” of consumers (who weren’t entirely innocent buyers and burners of all that gasoline and fuel-based electricity), and the other half charged to the fossil fuel producers? What magnitude of damages and reparations would that entail?

A slide from my presentation in Tarrytown yesterday.

A molecule of carbon dioxide remains in the atmosphere for roughly a century, so we need to consider 100 years of fossil fuel combustion. The historical magnitude of U.S. CO2 is more or less known, but for this exploratory calculation we might rough-estimate the century’s total as 60 years worth of last year’s emissions of roughly 5 billion metric tons. To each metric ton we now apply a $50 “social cost of carbon,” though that’s almost certainly far too low, as I wrote here recently.

With these rough assumptions, the producers’ “debt” is then one-half of 60 years x 5 billion metric tons x $50 per ton, which equals $7.5 trillion. Paying that out as damages over, say 20 years implies an annual charge to the producers of $350-$400 billion. Interestingly, that’s the same as the annual revenue from a $75/ton carbon tax.

Let’s now say, improbably but hypothetically, that Congress enacted, and the courts approved, award of those damages to Americans (setting aside, for now, damage claims from the other 7 billion of the world’s people). Where would the money come from? It seems implausible that it could be clawed back from shareholders of the fossil fuel corporations. Could it come from raising the prices of the fuels over the next several decades, in which case it could function as a de facto carbon tax? But if so, why not just enact a carbon tax in the first place?

As you can see, I’m trying to wrestle with this issue. I welcome comments and suggestions.

Meanwhile, Sustainable Westchester and Westchester Power, organizers of last night’s forum, are hosting two more evening panels: Wednesday, July 19 in New Rochelle, and Wednesday, July 26 in Bedford Hills. Details here. I’ll be speaking at both.

Carbon dividends plan gains Exxon’s backing as public climate concern hits new high.

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The Climate Leadership Council today announced that it has won support for its carbon dividends plan from ExxonMobil and other major corporations, as well as prominent individuals including physicist Stephen Hawking. The news, reported in op-ed pieces, news stories and a full-page ad in the Wall Street Journal’s Washington, DC edition, comes just four days after release of a new poll suggesting that climate concern among U.S. voters is surging to new heights.

Graphic from NORC-AP poll released 6-16-2017 (annotation by CTC).

Let’s start with the poll, released last Friday by the widely respected National Opinion Research Center – Associated Press polling collaborative. While the June 16 NORC-AP press release led with Pres. Trump’s abysmal (64%) disapproval rating, the more momentous result was the one highlighted in the graphic.

Fifty-three percent of people polled called climate change “extremely or very important” to them personally, perhaps the first time a majority of U.S. respondents assigned climate change such a high level of concern. Indeed, climate is often viewed in political circles as a “low-salience” issue, one that people profess to care about but don’t act on politically.

The 53% figure belies that idea, though the response might have been heightened somewhat because respondents were asked to specifically rate climate (and other issues) rather than to name, say, “the three most critical issues to you and your family.” (The full poll may be downloaded here. See graphic below for a breakout of the climate responses.)

Climate change is now “extremely or very important” to a majority of Americans.

The apparent broadening of public concern could translate into repudiation of climate-denying and ignoring candidates in the 2018 Congressional primaries and elections. It may also provoke more members of Congress to endorse the Citizens’ Climate Lobby’s Republican Climate Resolution or take seriously the Climate Leadership Council’s Republican-branded carbon dividends plan.

That plan was formally endorsed today by ExxonMobil, along with fellow oil behemoths BP, Royal Dutch Shell and Total S.A.; industrial giants General Motors, Pepsico and Unilever; and prominent individuals like former NYC mayor Michael Bloomberg, former Obama Treasury Secretary and Harvard University ex-president Larry Summers, renowned physicist Stephen Hawking, and Nobel Laureate and Obama Energy Secretary Steven Chu.

CLC’s Wall St Journal ad. Click link in text at bottom for easier read.

The broadening of support, orchestrated by Climate Leadership Council executive director Ted Halstead, constitutes an effort to move simultaneously to the left and right: leftward with a relatively high starting carbon tax rate ($40 a ton) and the income-progressive “dividending” of tax revenues rather than cuts to corporate taxes; and rightward with the backing of ExonMobil, which many climate activists hold in contempt for its decades of funding a network of climate denialists who have helped paralyze climate action in the U.S.

From time to time ExxonMobil has said that it “supports” carbon taxes, but as we reported late last year, it has never backed actual carbon tax legislation and has limited its expressed interest to carbon taxes in the $20/ton range. ExxonMobil’s endorsement of the council’s plan is a step forward for the company that could portend support from other quarters long considered hostile or passive on carbon pollution pricing.

With a high starting tax rate, a commitment to disbanding most federal carbon regulation and an offer to indemnify carbon polluters from litigation over climate damage, the council’s proposal defines a broad new center that could eventually unite political forces from the left and right. That strategy appeared today to gain important validation from Michael B. Gerrard, the influential director of the Sabin Center for Climate Change Law at Columbia Law School and a widely respected environmental litigator. Gerrard told The New York Times, “If a sufficiently high carbon tax were imposed, it could accomplish a lot more for fighting climate change than liability suits.”

This link goes to the council’s WSJ ad. Treasury Secretaries emeriti Larry Summers and George Shultz have an op-ed in today’s Washington Post, This is the one climate solution that’s best for the environment — and for business. Links to other op-eds and news coverage are at the Climate Leadership Council’s Web site.

Showing the Cost Side of the Climate Equation in a New Light

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Doubling the temperature rise quadruples the anticipated damage. Curve shown is most conservative of three presented in new paper discussed here.

I’m tempted to call it the decade’s most important paper on the costs of climate damage. The paper, just published in the peer-reviewed journal, Environmental and Resource Economics, upends the long-prevailing approach for estimating the social cost of carbon, potentially laying the ground for putting the SCC (in dollars per metric ton of CO2) into triple digits, from the $44 figure stipulated in rule-making by the Obama White House.

Not only that, the paper presents a trio of climate-damage functions relative to the temperature rise, that let us calculate the estimated global cost to humanity from each global warming increment. The functions vary depending on whether they include so-called “catastrophic damages” from climate change as well as estimates of climate change’s potential drag on future growth in economic productivity.  Each function expresses that cost as the percent of future GDP lost per additional centigrade-degree in global-average temperature relative to the pre-industrial level. (Graph at left, with equation in bold, is the most conservative, i.e., slowest-growing, of the three graphs in the paper. All three are shown in the next graphic.)

The new paper, Few and Not So Far Between: A Meta-analysis of Climate Damage Estimates, is by Peter Howard, economics director at NYU Law School’s Institute for Policy Integrity; and Thomas Sterner, professor of environmental economics at the University of Gothenburg in Sweden. (Disclosure: Thomas and I have shared a warm personal friendship since the 1980s.) As the somewhat unwieldy title suggests, the paper combines data and results of prior analyses that sought to place a cost on future damages from climate change. In those analyses, “damages” are expressed as a percentage of future global economic product — a somewhat cold-blooded metric that nevertheless allows policy-makers to compare the impacts of climate change on human well-being to the costs of mitigation and adaptation.

The Howard-Sterner paper identifies several sources of bias in previous meta-studies of the temperature-damage relationship. There’s “duplicate bias,” by which early climate-damage models tended to be overly conservative but, because of their primacy, came to be cited multiple times, thus biasing downward the temperature-damage relationships in meta-studies. Moreover, methodological choices or constraints kept some analyses from accounting for non-market climate impacts such as reduced biodiversity or for so-called catastrophic impacts such as collapses of regional or global agriculture.

Earlier analyses also failed “to control for whether market impact estimates [of climate damages] included potential impacts on economic productivity,” write Howard and Sterner. Though it may appear bizarre, until recently many attempts to estimate the temperature-damage function deliberately excluded the prospect that climate change will erode societies’ ability to generate new wealth by inhibiting the accumulation of technological and intellectual capital, which are key drivers of economic productivity and growth. In recent years, renowned climate economist William Nordhaus, whose Dynamic Integrated Climate-Economy (DICE) model and long-time intellectual leadership have been integral to estimating the social cost of carbon, has come under criticism for excluding non-market, productivity and catastrophic climate impacts from his modeling.

Graphic from Howard-Sterner paper. We recreated their third-highest curve (“preferred model for non-catastrophic damage”) for our first graphic, above.

As we wrote last Friday, in 2015 the Interagency Working Group (IWG) on the Social Cost of Carbon created by President Obama directed federal agencies to use a “social cost of carbon” equivalent to $37/ton in 2007 dollars. (Note that the official link to the IWG was scrubbed away by the Trump White House, in 2017.) That figure, which equates to $44/ton in 2017 dollars, was drawn in part from the “2013R” version of DICE.

In their paper’s conclusion, Howard and Sterner point out that updating DICE as per their findings “would increase the resulting SCC of the Interagency Working Group by between one-and-a-half to twofold.” While that’s true arithmetically, it’s an understatement of sorts, insofar as their conclusion states clearly that “Using the preferred [model] specification, we find that the 2015 SCC increases by approximately three- to four-fold depending on the treatment of productivity.” However, that increase is attenuated by the IWG’s decision to derive their SCC not only via DICE but with two other temperature-damage models, neither of which are addressed in the Howard-Sterner paper.

Thus, while the authors’ analysis would raise the estimate of the SCC derived solely from DICE by an estimated 209 percent, the need to average the increases for the DICE figures with the unchanged figures from the other models leads the overall increase to be considerably less, though a still substantial 63 percent. Even that lower rise boosts the social cost per ton of CO2 to $72, from the Obama administration’s $44 (both figures in 2017 dollars).

That change is important since it warrants recalibrating the panoply of cost-benefit and other calculations that carbon tax advocates, corporate carbon-cutters and others have been basing on the social cost of carbon during recent years. But there’s more, and here we return to the equation we highlighted (and graphed) in the chart at the top.

A possible increase in the global temperature rise from 2C to 3C is estimated to harm humanity ~5 times as much as the experienced rise from 0C to 1C, according to the Howard-Sterner equations.

In their paper, Howard and Sterner tested various curve shapes to distill the set of temperature-damage relationships they sifted in their meta-analysis. Their most robust functional form was a simple quadratic, by which the total damage to global well-being (expressed as the lost percentage of global economic output) rises by the square of the temperature deviation from pre-industrial levels.

Quadratic curves start slowly and gather steam — much as, when an object is dropped from some height, the distance from its point of release increases more with each passing second. And so it appears with the Howard-Sterner climate-damage function, by which the additional societal damage from each new temperature increment is greater than the damage from the previous increment. (See table directly above.) In fact, the additional damage is a linear function of the temperature rise (as you calculus jocks will have noticed, since the first derivative of any quadratic function is a linear one).

The implications are obvious but nonetheless profound. Arresting climate change isn’t binary, whereby we either stop global warming in its tracks or we don’t. It is, literally, a question of degree, with the importance of reducing and stopping warming intensifying as global temperatures rise. While that appears obvious, experientially — discomfort rises more when the mercury climbs to 100F from 95F than from 90F to 95F; and what goes for heat effects should go for drowned coasts, extreme weather, ecosystem stress, and so forth — now there’s an equation to codify it.

Howard’s and Sterner’s quantification of the accelerating harm as global temperatures increasingly diverge from pre-industrial levels obliges humanity — all of us — to redouble our efforts to tax and eliminate fossil fuels and other greenhouse gas emitters at the fastest imaginable rate.