Charles Komanoff – Page 29

Carbon Tax Center

Pricing carbon efficiently and equitably

We have the agreement — now we need a carbon tax

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Here we reprint a letter published in the Financial Times on April 25 by noted environmental economist Thomas Sterner. Link was added by CTC. Text and headline are unchanged.

Last week, representatives of more than 130 nations, including French President François Hollande, signed the climate pact in New York. The agreement is a success because it has widespread support but it contains little of substance on instruments.

Elinor Ostrom, the economist and Nobel laureate, insisted that the most difficult part of a negotiation is to get the participants to the table. Paris did that. Now every country must ratify, but that is still just the start. To end the fossil fuel era within a generation we need our very best instruments, and yes, that does mean a carbon tax. This is all the more urgent because of current low prices.

Prof. Thomas Sterner

Prof. Thomas Sterner

The fossil fuel industries are not going to give up voluntarily — they will fight back. The recent fall in oil prices from $140 to $30/bbl will provide impetus for increased consumption and emissions may soon rise again. The price fall is partly the result of expectations of stricter climate policies. Fossil producers have understood that, come 2030, business will not be good — so they have done everything in their power to maximise capacity and sell now.

The Saudis have realised that their old strategy of defending OPEC in order to control the oil market in the very long run will not work in the face of climate realities. This is an example of the “green paradox.” Expectations of future taxation lower current prices. The green paradox has already happened in a big way and cannot really happen again (fossil fuel prices cannot fall much more).

We, the consuming importers, would be stupid if we did not seize the opportunity to tax fossil fuels now. This is the best way of stimulating efficiency and renewables — it also gives money to the Treasury (instead of to the producers), and it helps keep the fossil rents low — making it easier to close mines and oilfields.

Thomas Sterner
Professor of Environmental Economics
Gothenburg, Sweden and Collège de France, Paris

What the Sanders-Clinton Clash over a Carbon Tax Says about Democrats and Climate Change

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To grasp how deep the fault line now runs through the Democratic Party and between its presidential candidates, look no further than the exchange between Bernie Sanders and Hillary Clinton over a carbon tax in Thursday night’s debate:

SANDERS: I am proud that I have introduced the most comprehensive climate change legislation, including a tax on carbon. Something I don’t believe Secretary Clinton supports.

MODERATOR (to Clinton): Go ahead and respond.

CLINTON: Well, I’m a little bewildered about how to respond when you have an agreement which gives you the framework to actually take the action that would have only come about because in the face of implacable hostility from the Republicans in Congress, President Obama moved forward on gas mileage, he moved forward on the Clean Power Plan. He has moved forward on so many of the fronts that he could, given the executive actions that he was able to take.

And, you know, I am getting a little bit concerned here because I really believe that the President has done an incredible job against great odds and deserves to be supported.

SANDERS: All right, here is — here is a real difference. This is a difference between understanding that we have a crisis of historical consequence here, and incrementalism and those little steps are not enough.

bernie debate carbon tax challenge to Hillary _ 14 April 2016Not right now. Not on climate change. Now, the truth is, we have got to tell the fossil fuel industry that their short-term profits are not more important than the future of this planet. And that means — and I would ask you to respond. Are you in favor of a tax on carbon so that we can transit away from fossil fuel to energy efficiency and sustainable energy at the level and speed we need to do?

CLINTON: You know, I have laid out a set of actions that build on what President Obama was able to accomplish, building on the Clean Power Plan, which is currently under attack by fossil fuels and the Right in the Supreme Court, which is one of the reasons why we need to get the Supreme Court justice that President Obama has nominated to be confirmed so that we can actually continue to make progress.

I don’t take a back seat to your legislation that you’ve introduced that you haven’t been able to get passed. I want to do what we can do to actually make progress in dealing with the crisis. That’s exactly what I have proposed.

And my approach I think is going to get us there faster without tying us up into political knots with a Congress that still would not support what you are proposing.

To be clear, what bewilders Secretary Clinton is not a carbon tax, but, as she said, “how to respond.” As a policy wonk par excellence, Clinton almost certainly knows the power of a carbon tax very well.

Clinton probably grasps that taxing carbon emissions cuts to the heart of the climate issue by rewarding each and every step that reduces use of carbon fuels; that it harnesses the power of the market — the market! — to spur innovation and investment in clean energy; and that it makes climate polluters pay and diminishes their political power, thus helping untie the political knots she professes to decry.

But cutting to the essence on climate or virtually any other issue, and heeding the political groundswell demanding bold action, just doesn’t seem to be in her DNA, not to mention the DNA of the wing of the Democratic Party that her husband enshrined during his presidency.

The charitable interpretation is that Clinton is wisely refraining from saddling herself with a position that the Republican Party can use to attack her between now and November — as a tax-and-spend Democrat who will damage the middle class. And indeed, a carbon tax is so revolutionary as well as sensible and necessary that Clinton, in stark contrast to Sanders, would likely have a hard time not just defending but championing it against the Republican nominee.

Instead, she would fall back, as she did Thursday evening in Brooklyn, on gasoline mileage and the Clean Power Plan — measures that, as we have explained here ad nauseam, are fine so far as they go, which, alas, isn’t very far. The Clean Power Plan, we pointed out nearly two years ago, merely requires electric power generators (which by now barely account for a third of U.S. climate pollution) to switch from coal to gas and add wind and solar generation at a far lesser rate than they’ve been doing for a decade. As for the vaunted increase in vehicle miles per gallon, it is already being badly eroded by near-record-cheap gasoline, much of it enabled by the explosive rise in U.S. fracking that Clinton supports (and Sanders opposes). [NB: Link in preceding sentence was added in June 2016.]

It’s not that Obama’s actions that Clinton has latched on to aren’t useful. Rather, they don’t go nearly far enough. As Sanders pointed out, “we have a crisis of historical consequence here, and incrementalism and those little steps are not enough.” Nor do they create a policy template for the rest of the world. Outside of Western Europe and perhaps Japan, no other countries possess the bureaucratic machinery to administer the stupendously complex regulations that Clinton touted Thursday evening, and which apparently constitute the limits of her climate vision. While a carbon tax brings its own challenges of transparency and accountability, those now appear manageable in the wake of the Paris climate accord, to which nearly two hundred nations will formally commit at the UN this coming Friday.

To be clear, Clinton is correct that President Obama has accomplished — through creative and steadfast presidential fiat — most of what was possible in the face of implacable Republican opposition. But were she to be honest with herself, she would admit that it’s not nearly enough, especially with emerging revelations leading Scientists [To] Warn of Climate Peril Within Decades, Not Centuries, as the New York Times put it last month.

And were Clinton to seek to inspire Democratic voters, and indeed, the clear majority of Americans who have come to support carbon taxes, provided they’re made economically fair,  she wouldn’t be ducking Sanders’ (and the moderator’s) questions about them. She would be vying with Sanders to see who can fashion the most effective and appealing carbon tax and who can best persuade the American people to demand Congress pass it.

A Struggling Wyoming Is Slow to Embrace Its Renewable Future

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Wyoming, the epicenter of U.S. fossil fuel extraction, is hemorrhaging jobs, the New York Times reported today:

Tumbling prices for oil and gas, along with bankruptcies in the coal industry, have pummeled Wyoming’s energy-dependent economy and eroded a thin safety net for poor and older residents. Energy development helped Wyoming weather the nation’s thin years seven or eight years ago, but now officials estimate that energy companies have shed some 5,500 jobs — a huge number in a state with 580,000 residents.

Black Thunder coal mine in Wyoming's Powder River Basin. Its owner filed for bankruptcy in January.

Black Thunder coal mine in Wyoming’s Powder River Basin. Its owner filed for bankruptcy in January.

The coal bust is stark. U.S. coal-fired electricity plants produced nearly 15 percent fewer kilowatt-hours last year, which is down almost a third from their 2007 peak. Total coal mining fell 10 percent, to a 30-year low, and while 2015 state coal extraction data aren’t available, Wyoming, the source of 40 percent of U.S. coal output, of which almost all is exported over huge distances by train or “by wire,” surely took a huge hit. And though production of “hydrocarbons” (oil and gas) is up nationwide, much of the action is now in fracking regions like North Dakota and Pennsylvania; moreover, drilling of new wells has plummeted along with prices.

As the Times reports, the job losses are exacerbated by parochial decisions by the Republican-dominated state government including a refusal to expand Medicaid under President Obama’s health care law. “A literacy program that helped people get high-school equivalency degrees was eliminated,” added the Times, “as were programs that provided dental care and property-tax rebates to low-income old people.”

The author in Wyoming's Big Horn range, 1977. Photo: Howard Shaw.

The author in Wyoming’s Big Horn Range, 1977. Photo: Howard Shaw.

This is painful to read on many levels, which for me include indelible memories of good times in Wyoming and Montana in the mid- and late seventies. As I wrote, years later:

Defending the American West from ruinous energy development was a particularly intense, gut-level part of that struggle for many of us, including me. I was living in New York then but spending as much time as I could in the Northern Rockies, hiking the high country and getting out onto the land, meeting ranchers, Indians, environmentalists and fellow eco-freaks. I fished for my breakfast in Shoshone streams, played barrelhouse piano in a Montana renewable-energy road show, and got high inhaling Amory Lovins’ Soft Energy Paths at 12,000 feet in the Wind River range.

The irony is that the energy technologies we insisted could take the place of environmentally and economically ruinous fossil fuel exploitation have finally arrived . . . and Wyoming is perfectly positioned to take advantage. The state ranks #8 out of all 50 in wind energy potential, behind only Texas, Montana, Nebraska, Kansas, Iowa and the Dakotas, according to estimates by the National Renewable Energy Laboratory.

The NREL data further suggest that developing only the windiest areas in the state — where 80 meter-tall turbines could achieve 30% annual capacity factors — could generate more than 1.9 trillion kWh a year, or triple the electricity now generated from the state’s entire annual coal output. Yet actual Wyoming wind production is around a thousand times less. (See calculations below; note that NREL’s wind potential excludes a quarter of the state’s windy lands that are protected, developed or otherwise inappropriate, and draws on 2010 assumptions that predate recent new productivity from larger turbines and more sophisticated controls.) Yes, unlocking that potential requires big investments in transmission, but the hellish processions of massive unit trains bearing Wyoming coal to the Midwest and South could diminish and cease.

U.S. National Renewable Energy Laboratory, 2008.

NREL, 2008. For the geographically challenged, Wyoming is the rectangle between Colorado and Montana.

Wyoming looks well positioned for solar as well. The map at left suggests that the Equality State (yep, that’s its motto) is in the top ten, behind California, Nevada, Texas, the Four Corner states, and perhaps Nebraska and Oklahoma. Actual solar electricity generation in Wyoming is nil, however.

Many forces have stopped extensive wind and solar development. Some, like the nation’s only wind production tax, are state-specific; others, like the absence of a carbon price, are more generic. Both of these reflect and reinforce the political power of the fossil fuel industry along with cultural and cognitive biases that valorize carbon fuels at the expense of sustainable energy.

Only time will tell whether the latest downturn in Wyoming’s cycles of boom and bust will lead to a change of heart and in public policy and enable the jobs disappearing from the extractive industries to be replaced by jobs in renewables. For now, this state of rugged but empty landscapes is about to get even lonelier.

Unit trains awaiting loading at Black Thunder. 120 cars carry 120 tons each.

Unit trains await loading at Black Thunder. 120 cars carry 120 tons each.

Calculations for paragraph preceding solar map: Wyoming coal mines produced just under 400 million tons in 2014. Applying standard factors of 8,500 btu/lb for Powder River Basin coal and 1 kWh generated per 10,000 btu released in combustion, that tonnage would have generated 680 billion kWh. The 2015 figure is almost certainly less, and probably under a third of the 1,944 billion kWh annual Wyoming wind potential estimated by NREL using 2010 technology assumptions.

China Emissions Will Peak Soon (If They Haven’t Already): New Study

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The acclaim that greeted China’s pledge in November 2014 to cap its carbon emissions by 2030 was broad yet hesitant. The promise by the world’s Number One emitter to halt the explosive growth in its climate pollution was momentous. But deferring the ceiling to 2030 meant emissions could continue climbing for 16 years, perhaps doubling, on top of the tripling recorded during 2000-2013.

We at CTC chose to see the glass as half-full, and wrote at the time:

Though China’s emissions can still grow in the intervening decade-and-a-half, its cap pledge virtually ensured that its rate of emissions growth would begin bending downward before 2030, on account of the lead time needed to overcome the “inertia” built into the factors that collectively determine emission levels. Moreover, the commitment from Beijing conferred instant legitimacy on political forces within China favoring clean energy and seeking relief from relentless air pollution that kills an estimated 1.6 million Chinese a year.

Our optimism has now been amplified, in spades. An analysis released this week, soon to be published in Climate Policy, forecasts that China’s CO2 emissions from fossil fuel combustion may peak as early as 2020 — a full decade before the cap target year. Moreover, rather than shooting past earlier benchmarks, emissions in 2030 would be 7 percent below the 2020 peak and even 1 percent under last year’s emissions, according to the forecast. Such a turnaround would exceed all but the most buoyant expectations that greeted the 2014 announcement and would raise the bar for the U.S. and the other 190 nations that submitted emission pledges at the U.N. climate summit in Paris in December.

China's 2030 CO2 emissions would be 7% less than 2015, under the Green-Stern "illustrative scenario."

China’s 2030 CO2 emissions would be 7% less than 2015, under the Green-Stern “illustrative scenario.”

This upbeat analysis comes from two of the world’s most prestigious climate think tanks: the Centre for Climate Change Economics and Policy, and the Grantham Research Institute on Climate Change and the Environment, both based in London. The authors are Fergus Green, a climate policy consultant from the London School of Economics; and Sir Nicholas Stern, director of the Grantham Institute and arguably the world’s most renowned climate economist.

The premise of the Green-Stern paper is evident in its title: “China’s Changing Economy: Implications for its Carbon Dioxide Emissions.” China’s economy is undergoing a pronounced transition, say the authors, and the implications for energy use and carbon emissions are profound:

The period 2000-2013, it is now clear, was a distinct and exceptional phase in China’s developmental history, during which the very high levels of greenhouse gases emitted were linked closely with the energy-intensive, heavy industry-based growth model pursued at that time. China is currently undergoing another major structural transformation — towards a new development model focused on achieving better quality growth that is more sustainable and inclusive.

During that 2000-2013 period, China’s primary energy consumption grew at a compound annual rate of more than 8% a year. In 2014, in contrast, primary energy consumption grew from 2013 by just 2.2%, and last year’s year-on-year increase through September was less than 1%. The “new development model,” which the authors date from the start of 2014, entails a marked decline in heavy industry’s share of GDP, with output of steel and cement, production of which is extraordinarily energy-intensive, actually falling in the first half of last year.

“These structural changes,” assert the authors, “are occurring on top of ongoing energy conservation initiatives within industry and other sectors [leading to] strong declines in the energy intensity of GDP over the last two years . . . at the same time as GDP growth slowed significantly.” Concurrently, non-fossil electric generation capacity underwent a veritable explosion, from 257 gigawatts in 2010 to 444 GW in 2014.

The motive forces behind this upsurge ― the air pollution crisis, the problematic rise in fuel imports, and the government’s prioritization of zero-carbon power sources as loci of innovation in global markets ― seem certain to endure. Meanwhile, industrial consumption of coal, which Green and Stern say accounts for half of China’s coal usage, appears to be falling as well, not just because steel and cement output are dropping but because production processes are finally becoming more efficient.

Another factor pointing to lower economic and energy growth going forward, say Green and Stern, is “China’s excess capacity in construction and heavy manufacturing.” In effect, part of the past huge growth in fuel use and emissions was an artifact of stockpiling industrial capacity that no longer needs to be expanded, they suggest. Moreover, they assert, “The structural nature of the turnaround in these industries is now widely recognized throughout the Chinese government and the industries themselves. Accordingly, the prospects for declining investment, rationalization and falling production across such sectors in the context of China’s new development model now appear strong.”

Figures in table underlie the historical and forecast CO2 in graph, above.

Figures in table underlie historical and forecast CO2 in graph, above.

The upshot is two-fold: first, a lesser rate of GDP growth going forward; second, a continuation of recent declines in the energy intensity of GDP. According to the authors, the primary energy required to produce a unit of economic output fell by nearly 4 percent a year during 2005-2013, and they believe this decline rate can continue indefinitely. They also point to China’s 2020 targets of as much as 300 GW of wind capacity and 150 GW of solar (the latter revised last fall from 100 GW), along with lesser but still sizeable amounts of new nuclear capacity. Even coal-fired power generation is ripe for greater efficiencies, say Green and Stern, as older and less-efficient plants are replaced by newer ones able to wring more kWh’s from the same Btu’s.

Needless to say, maintaining and extending these positive trends won’t be painless, especially in light of ongoing expansions of coal-fired capacity — “despite already enormous amounts of excess capacity” — that have pushed utilization rates for coal-fired power plants below 50%. The authors identify three policy imperatives:

  • Rein in expansion of new coal infrastructure in electricity and industry;
  • Institute “green dispatch” that prioritizes non-fossil generation over fossil generation, and more efficient fossil generators over less efficient ones;
  • “Increase effective carbon prices on fossil fuel energy sources, especially coal.” “Effective carbon pricing,” write Green and Stern, “would alter the economics on the supply-side in ways that would disadvantage high-carbon generators and support green dispatch. A rising coal tax would be a highly efficient and administratively effective measure, well-suited to China’s institutional context, though a well-designed and implemented emissions trading scheme operating in the electricity sector could in theory achieve similar results.”

Green and Stern see CO2 emissions peaking “at some point between 2014 and 2025, depending on how the above factors play out.” A table in their paper (summarized above) presents recent-historical (2005-2013) growth rates for GDP, the energy intensity of GDP, and the CO2 content of each unit of primary energy; and possible future growth rates for each for three future periods: 2014-2020, 2021-2025, and 2026-2030. Resulting future CO2 growth rates are then:

  • 1.24% per year for the current period;
  • negative 0.24%/year for 2021-2025, owing to assumed 1% slower GDP growth and a 0.5% per year acceleration in the decarbonization of energy;
  • negative 1.18%/year for 2025-2030, due to a further assumed 1% per year drop in GDP growth.

Emissions would be massively less than near-universal expectations from just 18 months ago. Yet China can and must do even better. The third Green-Stern policy recommendation, to “increase effective carbon prices,” is key. With robust carbon pricing in place, even the optimistic new scenario from Messrs. Green and Stern could soon come to be regarded as conservative.

Sir Nicholas Stern: Current climate models are grossly misleading

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This fall marks the tenth anniversary of the Stern Review, the 700-page report to the U.K. government on the economics of climate change by a team headed by economist Nicholas Stern, who was then chair of the Government Economic Service. The report famously called climate change the greatest market failure in human history and argued persuasively that the costs of climate inaction would grossly outweigh any possible benefits, even assuming high returns from monies not expended in the near term to arrest climate change.

Lord Stern — he received a life peerage in 2007 — currently directs the Grantham Research Institute on Climate Change and the Environment at the London School of Economics. Last week he published an editorial in Nature, Economics: Current climate models are grossly misleading, in which he argues emphatically that climate damage models — which translate postulated global temperature increases into societal and environmental costs — are grossly biased toward undercounting costs.

The editorial builds on research by Lord Stern and colleagues at Grantham that we reported on two years ago. In a nod to Lord Stern’s prominence and the importance of climate-damage modeling, we reprint it here in full. — C. Komanoff

The twin defining challenges of our century are overcoming poverty and managing climate change. If we can tackle these issues together, we will create a secure and prosperous world for generations to come. If we don’t, the future is at grave risk.

Lord Stern

Lord Stern

Researchers across a range of disciplines must work together to help decision-makers in the public, private and non-profit sectors to rise to these challenges. Economists, in particular, need more help from scientists and engineers to devise models that provide better guidance about what will happen if we succeed or if we fail.

As the 2015 Paris agreement on climate change made clear, we must achieve a net-zero carbon economy this century. Doing so will require policies that drive innovation, investment and entrepreneurship. The political will to make the necessary decisions depends partly on improving the analysis and estimates of the economics of climate change. Then the consequences of unmanaged global warming can be weighed much more transparently against the investments and innovations necessary to mitigate it.

Current economic models tend to underestimate seriously both the potential impacts of dangerous climate change and the wider benefits of a transition to low-carbon growth. There is an urgent need for a new generation of models that give a more accurate picture.

Dark impacts

The Fifth Assessment Report of the Intergovernmental Panel on Climate Change (IPCC), published in 2013 and 2014, provided a comprehensive overview of the literature on the costs of action and inaction. But the assessment understated the limitations of the research done so far. Essentially, it reported on a body of literature that had systematically and grossly underestimated the risks of unmanaged climate change. Furthermore, that literature had failed to capture the learning processes and economies of scale involved in radical structural and technical change, and the benefits of reducing fossil-fuel pollution, protecting biodiversity and forests, and so on.

The IPCC pointed out1 that estimates of losses resulting from a 2 °C increase in mean global temperature above pre-industrial levels ranged from 0.2% to 2% of global gross domestic product. It admitted that the global economic impacts are “difficult to estimate” and that attempts depend on a large number of “disputable” assumptions. Moreover, many estimates do not account for factors such as catastrophic changes and tipping points.

It is these hard-to-predict impacts that are the most troubling potential consequences of inaction. The next IPCC report needs to be based on a much more robust body of economics literature, which we must create now. It could make a crucial difference.

Many estimates of economic losses are based on the outputs of integrated assessment models (IAMs). These models attempt to combine the key elements of biophysical and economic systems. This is a worthy endeavour. Sadly, most IAMs struggle to incorporate the scale of the scientific risks, such as the thawing of permafrost, release of methane, and other potential tipping points. Furthermore, many of the largest potential impacts are omitted, such as widespread conflict as a result of large-scale human migration to escape the worst-affected areas.

For instance, there is evidence that temperature increases of 1.5 °C and 2 °C would lead to differing extents of sea-level rise and extreme weather events2, with obvious implications for small island states and coastal communities. These differences are simply not represented in the flawed estimates of economic losses.

IAMs are also used to calculate the social cost of carbon (SCC). They attempt to model the incremental change in, or damage to, global economic output resulting from 1 tonne of anthropogenic carbon dioxide emissions or equivalent. These SCC estimates are used by policymakers in cost–benefit analyses of climate-change-mitigation policies.

Because the IAMs omit so many of the big risks, SCC estimates are often way too low. As a first step, the consequences being assessed should include the damages to human well-being and loss of life beyond simply reduced economic output. And the very large uncertainty, usually involving downward bias, in SCC estimates should always be made explicit.

As the IPCC acknowledged2, published SCC estimates “lie between a few dollars and several hundreds of dollars”. These values often depend crucially on the ‘discounting’ used to translate future costs to current dollars. The high discount rates that predominate essentially assume that benefits to people in the future are much less important than benefits today.

These discount rates are central to any discussion of our hand in the fate of future generations. Most current models of climate-change impacts make two flawed assumptions: that people will be much wealthier in the future and that lives in the future are less important than lives now.

The former assumption ignores the great risks of severe damage and disruption to livelihoods from climate change. The latter assumption is ‘discrimination by date of birth’. It is a value judgement that is rarely scrutinized, difficult to defend and in conflict with most moral codes.

Costing transition

The other role of IAMs — to estimate the costs of climate-change mitigation — also suffers from major shortcomings.

The IPCC’s mitigation assessment3 concluded from its review of IAM outputs that the reduction in emissions needed to provide a 66% chance of achieving the 2°C goal would cut overall global consumption by between 2.9% and 11.4% in 2100. This was measured relative to a ‘business as usual’ scenario. Clearly, growth itself can be derailed by climate change from business-as-usual emissions.

So the business-as-usual baseline, against which costs of action are measured, conveys a profoundly misleading message to policymakers that there is an alternative option in which fossil fuels are consumed in ever greater quantities without any negative consequences to growth itself.

Crucially, IAMs generally omit the potentially huge costs of air pollution from fossil fuels — which are saved if alternative fuels are used4. IAMs struggle to describe developments in alternative energy. They fail, in general, to capture the feedback loops in the innovation process that interact across the economy, prompting institutional and behavioural change, possible discoveries and economies of scale. There is empirical evidence, for example, that the geographical location of researchers and inventors can affect whether a firm chooses to do clean or dirty innovation.

“Discount rates are central to any discussion of our hand in the fate of future generations.”

The initial investment required to catalyse the transition to a low-carbon pathway might lead to great economic benefits in the long run. These could go well beyond avoided climate risks5. The knowledge spillover from low-carbon innovation into the wider economy — for instance, a battery developed for electric vehicles being used in wheelchairs — seems to be greater overall than that from high-carbon-energy technologies6.

As engineers learn how to install, connect and repair technology cheaply, unit costs fall faster for many new technologies than for existing ones. This has already allowed solar-photovoltaic and onshore-wind technologies to become competitive with natural gas and coal in several locations, even without emissions taxation.

Also influential will be the emergence of new networks, such as the integration of electric-vehicle-energy storage into smart grids, as well as rapid technical progress. And these steps can be accelerated if, for example, consumers change behaviour and demand support for resource efficiency, recycling and pedestrianization. It is clear that much will depend on urban management and design; as cities grow rapidly, damaging infrastructure can become ‘locked in’.

What’s needed?

There is much that can be done to make the assumptions in standard IAMs more realistic with respect to the scale and nature of damages7, 4. But to give policymakers the reliable information that they need when implementing the Paris agreement, incremental improvements7, 8 to the present generation of IAMs may not be enough.

A comprehensive review of the problems of using IAMs in climate economics5 called for the research community to develop a “third wave” of models. The authors identify various types of model that might offer advances. Two are: dynamic stochastic computable general equilibrium (DSGE) models, and agent-based models (ABMs).

Like current IAMs, DSGE models can explicitly account for uncertainty about the future through the introduction of shocks, for instance, to economic output, consumption or climate damages9. ABMs, by contrast, seek to provide more-realistic representations of socio-economics by simulating the economy through the interactions of a large number of different agents, on the basis of specific rules. ABMs are widely used in finance, but have yet to be seriously applied to climate change. These are promising developments.

Now, a concerted effort is required by the research community to explore as many potential avenues as possible to better estimate the costs of action and inaction on climate change. The IPCC should distil what policymakers need to inform their decision-making. Learned societies and national academies must bring together researchers from a wide range of relevant disciplines to focus attention on improving economic modelling quickly.

Bangladeshi farmers and Cairo city-dwellers are at severe risk of flooding and storms; southern Europe and parts of Africa and the Americas are threatened by desertification. Perhaps hundreds of millions of people may need to migrate as a result, posing an immense risk of conflict.

There is huge potential in future technologies that can drive change. These are omitted or badly underestimated in our current climate modelling — deeply damaging our guidance for policymaking. The well-being and prosperity of future generations are worth more.

Nature 530, 407–409 (25 February 2016) doi:10.1038/530407a

Answering Krugman: Renewables Alone Won’t Stop Climate Disaster

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“Climate change just keeps getting scarier,” Paul Krugman rightly pointed out in his biweekly New York Times column yesterday. But fear not, he instructs. A “renewable-energy revolution” is brewing in America — one that won’t require threading a carbon tax through the climate-denying GOP Congressional majority.

This “remarkable technological progress in renewable energy,” which Krugman partly credits to Obama administration stimulus and tax breaks that helped wind and solar scale up and drive down costs, has “put the cost of renewable energy into a range where it’s competitive with fossil fuels.” The U.S. will soon be “leading the world” down the low-carbon path, promises Krugman, so long as the presidency, and Obama’s Clean Power Plan, stay out of Republican clutches.

Krugman-RenewablesLeaving aside the fact that the global renewables revolution already has a leader (hint: it’s Europe’s largest economy), there are many reasons to question Krugman’s implicit suggestion that the U.S. and the world can banish carbon fuels fast enough to avert catastrophic climate change without a serious carbon tax in the policy mix. Here are a few:

Demand matters (not just supply) — A renewables-only revolution leaves intact the demand side of the carbon equation. Yet human appetites for energy have proven so boundless that, absent robust prices on carbon emissions, energy demand will invariably outrun the output of even optimized solar and wind power systems — at least during the 50-year time horizon in which our climate fate will be decided.

There’s a new climate villain: cheap oil — With gasoline again going for two bucks a gallon, driving is up and fuel economy is down. Even the Obama administration’s vaunted CAFE standards can’t hold back such powerful price signals. Last year’s bump in U.S. cars’ and trucks’ emissions — the CO2 equivalent of nine good-size coal-fired power plants — will be just the beginning, unless we raise fuel taxes.

Scaling up wind and solar isn’t child’s play — To underscore the first point, take a look at the 100%-renewables plan drawn up for New York State (where both Krugman and I happen to live) by a crack team of physicists and engineers from Stanford. Their zero-carbon and zero-nuclear plan requires 17,000 giant offshore and land-based wind turbines to power just half of the state’s transportation, heating, industry and electricity. (The other half of the energy would come from masses of rooftop solar cells, solar PV and thermal plants, plus existing hydro dams.) Cutting that very tall order down to manageable size cries out for a carbon tax.

Tax breaks cost money — Fiscal-scolding isn’t our thing, but someone must pay for Krugman’s touted solar investment tax credits and wind production tax credits — not to mention ethanol mandates. Moreover, energy subsidies are notoriously hard to dislodge (notwithstanding Sen. Ted Cruz’s victory in yesterday’s Iowa Republican caucuses despite his attacks on ethanol subsidies). And it isn’t necessarily the wealthy who foot the bill, as we showed two years ago in our paper comparing carbon taxes with clean-energy subsidies.

We get that Krugman, an implacable foe of Republican know-nothingism since at least the 2000 elections, thinks it’s essential to keep a Democrat in the White House this November. We also appreciate his “tipping point” argument that “Once renewable energy becomes an obvious success and, yes, a powerful interest group, anti-environmentalism will start to lose its political grip.” And we don’t necessarily insist that every climate commentary begin and end with carbon taxes.

But Krugman, a Nobel laureate in economics, surely knows that in the race to eliminate fossil fuels, raising their prices will go much further than making renewables cheap. We hope his columns will again make this clear, soon.

Cheap Oil’s Peril and Promise in the Fight against Climate Change

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Clifford Krauss and Diane Cardwell have a front-page story in today’s New York Times about the challenge that cheap oil poses to the Paris climate agreement. The way that governments respond could make or break the agreement, they say, with huge ramifications for the global fight to stop climate change:

For the climate accord to work, governments must resist the lure of cheap fossil fuels in favor of policies that encourage and, in many cases, require the use of zero-carbon energy sources. But those policies can be expensive and politically unpopular, especially as traditional fuels become ever more affordable.

“This will be a litmus test for the governments — whether or not they are serious about what they have done in Paris,” said Fatih Birol, executive director of the International Energy Agency.

The Carbon Tax Center has repeatedly highlighted this challenge over the past twelve months, particularly in economic terms. Cheap oil has meant cheap gas, which has encouraged more driving and a reversion to gas guzzlers. We calculated last month that increased gasoline consumption in the U.S. alone in 2015 produced carbon emissions equivalent to a year’s worth of emissions from nine coal-fired power plants. That’s equivalent to the entire annual emissions from burning all fossil fuels for all purposes in Denmark or Ireland.

Want more driving? Cheap gasoline will do the trick.

Want more driving? Just pour on cheap gasoline.

We concluded that cheap oil risks making a “mockery of just about every scenario to move the U.S. and other countries decisively off carbon fuels.” But that’s not the end of the story. Cheap oil paradoxically presents an historic opportunity to pivot away from oil — and all fossil fuels — for good.

As we wrote last January, cheap oil brings a host of positives, like more jobs in most economic sectors, and negatives, like increased fuel use. The trick is how to safeguard the positives while neutralizing the downside. From a policy perspective, this actually isn’t hard to do, and oil’s low price makes it that much easier (as well as more imperative). The real question is whether we have the political will to do so.

The policy solution is a revenue-neutral carbon tax, beginning with a refundable tax on oil. The government would collect the tax at ports and wellheads and distribute the revenues equally to households each month, just like in Alaska. Because tax dollars stay in circulation, the amount of money families have to spend doesn’t fall and the economy benefits. Most families of limited means will come out ahead because on average they spend fewer dollars on oil than they will receive in their monthly revenue check.

By simulating higher fuel prices, we can preserve incentives to get more fuel-efficient. As a result, motorists will buy higher-mileage cars and drive them somewhat less, manufacturers will build more-efficient vehicles and aircraft, and cities and counties will be less inclined to  dial back public transit. The same goes for freight movement — goods produced nearby will be advantaged, boosting local agriculture and domestic jobs. You can read more about our proposed oil tax here.

As we and others, including former Treasury Secretary Lawrence Summers, have argued over the past year, the current cheap oil environment is ideally suited for the implementation of a carbon tax. The question remains: do we seize the moment to lock in the good while neutralizing the bad? Or do we instead continue fighting climate change with one arm tied behind our backs?