Sunday, August 14, 2016

If carbon pricing is so great, why isn't it working?

If carbon pricing is so great, why isn't it working?
Ensia, 12 July 2016, by Peter Fairley

Carbon pricing is often touted – by the IMF, by CCL, by me – as the best way to reduce greenhouse gas emissions and get climate change under control.  Various carbon-pricing schemes are already in effect around the world, from "cap-and-trade" in Europe and the Northeast's RGGI to a carbon tax in British Columbia, and carbon pricing is under consideration in several more countries, including China and Brazil.  And yet the carbon-pricing schemes we have seen so far have generally been failures, with prices on carbon so low as to be "virtually valueless" – usually below $15/ton, whereas it is estimated that $44/ton would be needed to achieve the Paris climate goals (as an average global target, I think?).  This discrepancy is, the article argues, because "carbon pricing is as politically inexpedient as it is economically efficient".  For cap-and-trade, this manifests in many ways: too many allowances allocated, too much acceptance of questionable carbon offsets, too much complexity and hidden exemptions.  Carbon taxation schemes avoid most of these pitfalls, and BC's tax of $23/ton has led to some emissions reductions, but the price remains too low, and taxes are more politically difficult to achieve than cap-and-trade schemes.  Despite its success, BC's tax is unpopular and has been frozen since 2012; since Canada, with its very high emissions and dirty tar sands oil, is estimated to need a price of $124/ton to meet its ambitious Paris pledges, it is hard not to see the BC scheme, too, as a failure.  As a result of this, support is growing for a more regulatory approach to climate change.

My take: I love Ensia.  This is a really thoughtful and interesting article that challenged me as a staunch supporter of carbon pricing.  I would not say that it actually changed my mind; I see so many serious problems with the regulatory approach to climate change that a carbon tax simply seems non-negotiable to me.  As Sherlock Holmes said, when you have eliminated the impossible, whatever remains, however improbable, must be the truth.  This article should give pause to all carbon tax advocates given the serious doubts it raises about the viability of carbon pricing.  However, those doubts are only about its political viability.  The article raises no objections regarding the effectiveness of carbon taxation when properly implemented; indeed, the tax in BC is acknowledged to have reduced emissions substantially while perhaps even increasing economic growth in the region – until it was gutted.  So my belief that a carbon tax is the solution remains undiminished; but my worries about the politics of getting there have increased.  CCL's proposed fee-and-dividend scheme would start at a low price that would ratchet upward over time, which I imagine is a nod to political expediency since the necessary price could never pass at the outset.  But BC's experience with a very similar scheme sounds a cautionary note: every time the price went up, there was a new round of kvetching, and soon the political pressure to freeze the increases was irresistible, and so the target price was never reached.  I don't know what the solution is.  Mostly I think our politicians need to be pushed to do what is necessary by a groundswell of public opinion that overwhelms the denialists and the special interests.  Which is why I support CCL.  But boy, this article depressed me.

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