Taxing Carbon May Sound Like a Good Idea But Does It Work?
By Paul Griffin
Exxon Mobil is backing a proposal to tax oil, gas and coal companies for the carbon they emit and redistribute the money raised that way to all Americans. It's also giving a group urging Washington to enact a tax on carbon US$1 million to advocate for this policy.
The carbon dividends plan, named after the former U.S. officials who conceived it—James Baker and George Shultz—reflects the research of Yale economist William Nordhaus, one of the two winners of the 2018 Nobel Memorial Prize in Economic Sciences.
Based on my research regarding how stock prices and greenhouse gas emissions are connected, I find it very encouraging to see an economist become a Nobel laureate for his climate change work. Even so, I am skeptical of the Baker-Shultz proposal.
In particular, I question whether it would prompt Exxon Mobil and other big energy corporations to either change their business priorities enough or to force them to pay for their contribution to the steep costs of dealing with climate change.
On the one hand, economists argue that in theory taxing the companies that produce fossil fuels or the consumers who buy their products, or perhaps both, should curb the supply of and demand for oil, gas and coal. Presto. The carbon tax reduces emissions.
Depending on the model, the government either uses this revenue for a specific purpose, such as investing in renewable energy technologies, or distributes that money to the public to offset any hardship the tax may cause consumers.
However, economists have two hands. They also need to look at the details of any proposal and the accumulated evidence thus far so as not to repeat the mistakes of the past. Unfortunately, the findings and outlook for carbon taxes alone as a way to reduce emissions are not promising.
Carbon taxes are most prevalent in Europe, especially Scandinavia. Finland became the first country to adopt one in 1990, followed within a few years by Sweden, Norway, the Netherlands and Denmark and later by other European nations. More recently, governments in the Americas and Asia have followed suit, including some local ones in California and Colorado.
Studies, however, indicate that greenhouse gas emission reductions from carbon taxes have been mostly underwhelming.
Researchers generally use two approaches to draw this conclusion, by either building a "counterfactual" model of what the past experience would have looked like with no carbon taxes or by comparing emissions before and after the introduction of a tax with controls for reasons for emissions changes other than a carbon tax.
For example, a 2016 paper examining several studies of emission reductions in 16 countries and two Canadian provinces found an average reduction in carbon emission intensity and energy use of less than 1 percent per year. British Columbia, though, was at the upper end of the emission reduction scale, with emissions per capita falling by as much as 9 percent.
Perhaps the biggest challenge to make these plans work better is raising the per-ton tax to reflect new and higher forecasts for the future costs of climate change. These estimates will likely skyrocket within 25 years into hundreds of dollars per ton of carbon if the world is to keep the increase in global temperatures to less than 2 degrees centigrade compared to pre-industrial times, and an effective tax would need to be even higher for maximum warming of 1.5 degrees.
That is far higher than the current average of about $20 per ton.
I have sought in my own research to estimate the toll on stock prices taken for every ton of carbon. My findings suggest that in 2012 capital markets were pricing the cost of carbon at close to $80 per ton. This penalty imposed by the financial marketplace, a guide to what a carbon tax should be, would be higher today if adjusted for inflation.
Given that about half of Americans don't see addressing climate change as an urgent priority, I believe U.S. voters would find taxes based on carbon costs that high unacceptable, making a potentially effective tax policy politically difficult to implement.
To their credit, the proposal from Baker and Shultz does have some sensible safeguards. For example, it would tax imports from countries without carbon taxes, and it would raise the carbon tax it proposes from an initial $40 per ton commensurate with increases in the damage from higher temperatures and sea levels.
My most serious concern, though, with their plan is its apparent quid pro quo. It would shield energy companies from some existing regulations and from being held liable for damage to the environment at the federal or state level from decades of earlier fossil fuel production.
This is not a hypothetical concern. Several states and local governments are already suing Exxon Mobil and other oil and gas corporations over damage from climate change.
Looking closely at the carbon tax proposal, if it were to become law, the fossil fuel industries would likely pay a small carbon tax bill that they could easily pass on to consumers in the form of higher gasoline prices. At the same time, Exxon Mobil and its peers would be absolving themselves of what someday could amount to trillions of dollars in liability due to climate change lawsuits.
Exxon Mobil's support for this carbon tax, in other words, does not signal any generous altruism on its part.
What's more, even without the tangled web of a national carbon tax, renewable energy is getting cheaper through innovation, some of it subsidized by existing incentives, and economies of scale due to the swift growth of the solar and wind industries.
Climate Risk Disclosure
Also missing from the Baker-Shultz plan is the clear role that better information for investors and consumers on companies' climate change impacts can play in guiding markets to accurately and promptly price and allocate carbon risk.
I find that market forces generally are better ways to obtain signals about and establish prices of future states of uncertainty, which is particularly important because climate impacts can evolve over long horizons. Often present in economists' theoretical views of climate policy, however, is the assumption that high-quality information is available at no cost as a basis for sound decision-making. This may not be the case.
Specifically, economists like me want to know at least two things that are highly relevant for investors and creditors. First, the size of a company's carbon footprint. Second, the policies that company would be following to avoid an increase of global temperatures, limits on global sea level rise, or both.
Climate scientists, however, are slowly generating better data to trace the links between carbon production and product use and their impacts on people and biodiversity.
In my view, more and better information from carbon emitters is critically needed to establish effective climate change policies. That's why I am urging the SEC to make companies disclose their carbon risks and carbon footprints voluntarily.
Under my plan, the SEC would provide guidance and apply its enforcement powers to any laggards that might choose to under-disclose or not disclose at all.
I believe this voluntary approach has worked well under the Foreign Corrupt Practices Act, an anti-bribery measure enacted in 1977. I see no reason why it would not also work well as a way to reduce climate risk.
Reposted with permission from our media associate The Conversation.
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Independence Day weekend is a busy time for coastal communities as people flock to the beaches to soak up the sun during the summer holiday. This year is different. Some of the country's most popular beach destinations in Florida and California have decided to close their beaches to stop the surge in coronavirus cases.
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For some combat veterans, the Fourth of July is not a time to celebrate the independence of the country they love. Instead, the holiday is a terrifying ordeal. That's because the noise of fireworks – loud, sudden, and reminiscent of war – rocks their nervous system. Daily fireworks in many U.S. cities in recent weeks have no doubt been interfering with the sleep and peace of mind of thousands of veterans.
What Is PTSD?<p><a href="https://theconversation.com/veterans-refugees-and-victims-of-war-crimes-are-all-vulnerable-to-ptsd-130144" target="_blank">PTSD</a> can occur when someone is exposed to extreme exposure traumatic experience. Typically, the trauma involves a threat of death, serious injury, or sexual violence. Along with war veterans, it happens to refugees; to victims of gun violence, rape and other physical assaults; and to survivors of car accidents and natural disasters like earthquakes or tornadoes.</p><p>PTSD can also happen by witnessing trauma or its aftermath, often the case with <a href="https://www.psychiatry.org/patients-families/ptsd/what-is-ptsd" target="_blank">first responders</a> and <a href="https://www.psychologytoday.com/us/blog/the-many-faces-anxiety-and-trauma/202006/invisible-wounds-the-frontline-heroes" target="_blank">front-line workers</a>.</p><p>All this adds up to tens of millions of Americans. Up to 30% of combat veterans and first responders, and 8% of civilians, <a href="https://www.ptsd.va.gov/professional/treat/essentials/epidemiology.asp" target="_blank">fulfill the diagnostic criteria for PTSD</a>. And that criteria is not easily met: symptoms of PTSD include nightmares, flashbacks, intrusive trauma memories, difficulty sleeping, avoidance of reminders of trauma, negative emotions, and what we call "hyperarousal symptoms."</p>
Fireworks Can Trigger Flashbacks<p>Hyperarousal, a core component of PTSD, occurs when a person is hyper-alert to any sign of threat – constantly on edge, easily startled and continuously screening the environment.</p><p>Imagine, for instance, stepping down the stairs in the dark after hearing a noise; you're worried an intruder might be downstairs. Then a totally unpredictable loud sound explodes right outside your window.</p><p>For people with PTSD, that sound – reminiscent of gunfire, a thunderstorm or a car crash – <a href="https://theconversation.com/veterans-refugees-and-victims-of-war-crimes-are-all-vulnerable-to-ptsd-130144" target="_blank">can cause</a> a panic attack or trigger flashbacks, a sensory experience that makes it seem as if the old trauma is happening here and now. Flashbacks can be so severe that combat veterans may suddenly drop to the ground, the same way they would when an explosion took place in combat. Later, the experience can trigger nightmares, insomnia or worsening of other PTSD symptoms.</p><p>Those of us who set off fireworks need to ask ourselves: Are those few minutes of fun worth the hours, days, or weeks of torment that will begin for some of our friends and neighbors – including many who put their lives on the line to protect us?</p>
Who Else Is Affected?<p>Millions of others, though not diagnosed with PTSD, may similarly be affected by fireworks. <a href="https://adaa.org/about-adaa/press-room/facts-statistics" target="_blank">One in five Americans</a> have an anxiety disorder, many with symptoms of hyperarousal. Also impacted are those with autism or developmental disabilities; they find it difficult to cope with the noise, or just the drastic change from life routines. Then there are people who have to work, holiday or not: nurses, physicians and first responders, who have to be up at 4 a.m. for a 30-hour shift.</p><h3>How to Reduce the Negative Impact</h3><p>There are ways to reduce how fireworks affect others:</p><ul><li>For those with PTSD, the unexpected nature of fireworks is probably the worst part. So at least make it as predictable as possible. Do it in designated areas during designated times. Don't explode one, for instance, two hours after the designated time window. And avoid setting them off <a href="https://www.theguardian.com/society/2018/jul/04/fireworks-ptsd-fourth-of-july-veterans-shooting-survivors" target="_blank">on the 3rd</a>. People are less prepared then.</li><li>If you're aware that a veteran or trauma survivor lives in the neighborhood, move the noise as far as possible from their home and give them prior warning. Consider putting a sign in your front yard noting the time you'll set the fireworks.</li><li>Remember, it doesn't have to be super loud to make it fun. Consider using <a href="https://thehill.com/opinion/energy-environment/504964-its-time-for-silent-fireworks" target="_blank">silent fireworks</a>. And you don't have to be the one who lights the fireworks. Simply enjoy watching while your city or township does it safely.</li></ul>
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By Jeff Berardelli
For the past year, some of the most up-to-date computer models from the world's top climate modeling groups have been "running hot" – projecting that global warming may be even more extreme than earlier thought. Data from some of the model runs has been confounding scientists because it challenges decades of consistent projections.
International Effort to Evaluate Climate Models<p>For the past 25 years the international community has been evaluating and comparing the world's most sophisticated climate models produced by various teams at universities, research centers, and government agencies. The effort is organized by the World Climate Research Programme under the United Nations World Meteorological Organization.</p><p>Climate models are complicated computer programs composed of millions of lines of code that calculate the physical properties and interactions between the main climate forces like the atmosphere, oceans, and solar input. But models also go a lot further, incorporating other systems like ice sheets, forests, and the biosphere, to name a few. The models are then used to simulate the real-world climate system and project how certain changes, like added pollution or land-use changes, will alter the climate.</p><p>Every few years there is a new comprehensive international evaluation called the Coupled Model Intercomparison Project (CMIP). In the sixth such effort, known as CMIP6 and now under way, experts are reviewing about 100 models.</p><p>Information gleaned from this effort will act as a scientific foundation for the U.N.'s Intergovernmental Panel on Climate Change (IPCC) next major assessment report, scheduled for release in 2021. The goal of the report – the sixth in 30 years – is to inform the international community about how much the climate has changed, and, importantly, how much change can be expected in coming decades.</p>
A Conundrum Emerges<p>Over the past year, the CMIP6 collection of models being reviewed threw researchers an unexpected curveball: a significant number of the climate model runs showed substantially more global warming than previous model versions had projected. If accurate, the international climate goals would be nearly impossible to achieve, and there would be significantly more extreme impacts worldwide.</p><p>A foundational experiment in every report addresses "sensitivity": If you double levels of carbon dioxide (CO2) that were in the air before the Industrial Revolution, how much warming do the models show? This doubling is not expected for a few more decades, but it is a quick way to communicate the critical role of greenhouse gases in changing the climate.</p><p>The amount of CO2 in the atmosphere has increased by 35% since the 1800s because of the burning of fossil fuels. As a result, global temperatures have already increased by more than 2 degrees Fahrenheit.</p><p>In the first IPCC assessment report, published in 1990, the answer to that question about the impact of doubling carbon dioxide gave a fairly wide range of results – between 2.7-8 degrees F of global warming. Since then, four more assessments issued six to seven years apart reached nearly the exact same conclusion on sensitivity.</p><p>But that sensitivity may, for the first time, change significantly in next year's assessment. Why? Because starting last year, numerous models in the CMIP6 collection displayed even bigger spikes in temperature upon doubling of CO2 concentrations. We're in serious trouble if the climate sensitivity falls in the mid or upper range of the previous assessments. But if the new, higher estimates are correct, the impacts on civilization would be catastrophic.</p>
In the above CarbonBrief interactive visualization, the bars offer a comparison in the range of sensitivity in the CMIP5 models (gray) and CMIP6 models (blue).
New and Encouraging Evidence Is Emerging<p>At first, scientists were uncertain whether the new model runs were on to something, so the international modeling community dug in to produce multiple studies. The results are not yet conclusive, but a gradual collective sigh of relief seems to be materializing.</p><p>"Evidence is emerging from multiple directions that the models which show the greatest warming in the CMIP6 ensemble are likely too warm," explains Dr. Gavin Schmidt, director of NASA's Goddard Institute for Space Studies.</p><p>For example, <a href="https://www.earth-syst-dynam-discuss.net/esd-2020-23/" target="_blank">a study</a> released April 28 evaluated the past performance of the models making up the CMIP6 ensemble. The team assigned weights to each model based upon historical performance of their warming projections, weighing the poorer performing models less. By doing so, both the mean warming and the range of warming scenarios in the CMIP6 ensemble decreased, meaning the warmest models were the ones with weaker historical performance. This result supports a finding that a subset of the models are too warm.</p><p>That conclusion is supported by another new study evaluating one particular model – the Community Earth System Model (CESM2) – that showed greater warming. Using that model, the researchers simulated the climate in the early Eocene era, about 50 million years ago, when rainforests thrived in the Arctic and Antarctic. The CESM2 simulated a historical climate that seems way too warm compared with what is known about that era from geological data, indicating that the model is likely also too warm in its future projections.</p><p>Two other recent studies of the CMIP6 models being evaluated use clever analysis methods to <a href="https://www.google.com/url?q=https://www.earth-syst-dynam-discuss.net/esd-2019-86/&sa=D&ust=1589209938203000&usg=AFQjCNHYwFB-1KqndGfJ4sXdrrm9DpbLaQ" target="_blank">narrow the range</a> of future warming projections and also <a href="https://www.google.com/url?q=https://advances.sciencemag.org/content/6/12/eaaz9549&sa=D&ust=1589209938203000&usg=AFQjCNEhKY1YZ19qgjSZ_hJM14JmzqXOXw" target="_blank">reduce the projected warming</a> of the CMIP6 models by 10 to 15%.</p><p>Through the intensive research spurred by the CMIP6 climate-sensitivity curveball, scientists have been able to turn a confounding challenge into a confidence builder, providing even greater certainty than they had before in both the abilities of the climate science community and in the computer models used. Moreover, the experience has helped unearth uncertainties remaining in the modeling process.</p><p>Experts conclude much of this uncertainty probably lies in the complexity of clouds. "We have been looking as a community at why the models with greater warming are doing what they are doing – and it's tied to cloud feedbacks in the southern mid-latitudes mostly," explains Schmidt.</p><p>In fact, <a href="https://advances.sciencemag.org/content/6/26/eaba1981" target="_blank">a new study</a> addressing the increased sensitivity was published in Science Advances stating, "Cloud feedbacks and cloud-aerosol interactions are the most likely contributors to the high values and increased range of ECS [sensitivity] in CMIP6."</p>
Understanding the Complexity of Clouds<p>It's long been known in climate modeling circles that cloud processes and interactions are a potential weak link for climate modeling. That reality has been brought front and center by the urgent challenges posed during this CMIP6 evaluation period, but the current evaluation of models also provides an opportunity for discovery and improvement.</p><p>Cloud complexity comes from the reality that clouds have a multitude of sizes, altitudes, and textures. Some clouds cool Earth by providing shade, reflecting sunlight back into space. Others act like a blanket, trapping heat and warming the world.</p><p>Given that about <a href="https://www.nasa.gov/vision/earth/lookingatearth/icesat_light.html" target="_blank">70% of the globe</a> is covered by clouds at any given time, it's no surprise that they play an integral role in regulating the climate. The challenge is to figure out which types of clouds will increase, which will decrease, and what the net effect will be on cooling or warming as the climate changes.</p><p><a href="https://www.nature.com/articles/s41561-019-0310-1" target="_blank">One study</a> last year reached an alarming conclusion: Left unchecked, the release of CO2 into the atmosphere may lead to a tipping point where shallow low clouds disappear – leading to runaway, catastrophic warming of nearly 15 degrees F. While scientists see that outcome as only a remote possibility, it drives home the urgent need to better understand clouds.</p><p>"We have a saying at NOAA: It isn't rocket science – it's much, much harder than that," quips Dr. Chris Fairall, ATOMIC's lead investigator. "One of the major problems for modeling is there is not clean separation of scales." The photo below is one that Fairall took from the NOAA P-3 aircraft.</p>
Investigating the Secrets of Clouds<p>To address the urgent question about the dynamics and role of clouds in a warming world, NOAA and European partners launched their ongoing research effort unprecedented in scale. The U.S. contribution, ATOMIC – short for Atlantic Tradewind Ocean-Atmosphere Mesoscale Interaction Campaign – is an international science mission that was featured recently on "<a href="https://www.cbsnews.com/video/study-aims-to-examine-links-between-climate-change-and-clouds/" target="_blank">CBS This Morning: Saturday</a>."</p>
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