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.
By Dana M Bergstrom, Euan Ritchie, Lesley Hughes and Michael Depledge
In 1992, 1,700 scientists warned that human beings and the natural world were "on a collision course." Seventeen years later, scientists described planetary boundaries within which humans and other life could have a "safe space to operate." These are environmental thresholds, such as the amount of carbon dioxide in the atmosphere and changes in land use.
The Good and Bad News<p><span>Ecosystems consist of living and non-living components, and their interactions. They work like a super-complex engine: when some components are removed or stop working, knock-on consequences can lead to system failure.</span></p><p>Our study is based on measured data and observations, not modeling or predictions for the future. Encouragingly, not all ecosystems we examined have collapsed across their entire range. We still have, for instance, some intact reefs on the Great Barrier Reef, especially in deeper waters. And northern Australia has some of the most intact and least-modified stretches of savanna woodlands on Earth.</p><p><span>Still, collapses are happening, including in regions critical for growing food. This includes the </span><a href="https://www.mdba.gov.au/importance-murray-darling-basin/where-basin" target="_blank" rel="noopener noreferrer">Murray-Darling Basin</a><span>, which covers around 14% of Australia's landmass. Its rivers and other freshwater systems support more than </span><a href="https://www.abs.gov.au/ausstats/[email protected]/latestproducts/94F2007584736094CA2574A50014B1B6?opendocument" target="_blank" rel="noopener noreferrer">30% of Australia's food</a><span> production.</span></p><p><span></span><span>The effects of floods, fires, heatwaves and storms do not stop at farm gates; they're felt equally in agricultural areas and natural ecosystems. We shouldn't forget how towns ran out of </span><a href="https://www.mdba.gov.au/issues-murray-darling-basin/drought#effects" target="_blank" rel="noopener noreferrer">drinking water</a><span> during the recent drought.</span></p><p><span></span><span>Drinking water is also at risk when ecosystems collapse in our water catchments. In Victoria, for example, the degradation of giant </span><a href="https://theconversation.com/logging-must-stop-in-melbournes-biggest-water-supply-catchment-106922" target="_blank" rel="noopener noreferrer">Mountain Ash forests</a><span> greatly reduces the amount of water flowing through the Thompson catchment, threatening nearly five million people's drinking water in Melbourne.</span></p><p>This is a dire <em data-redactor-tag="em">wake-up</em> call — not just a <em data-redactor-tag="em">warning</em>. Put bluntly, current changes across the continent, and their potential outcomes, pose an existential threat to our survival, and other life we share environments with.</p><p><span>In investigating patterns of collapse, we found most ecosystems experience multiple, concurrent pressures from both global climate change and regional human impacts (such as land clearing). Pressures are often </span><a href="https://besjournals.onlinelibrary.wiley.com/doi/abs/10.1111/1365-2664.13427" target="_blank" rel="noopener noreferrer">additive and extreme</a><span>.</span></p><p>Take the last 11 years in Western Australia as an example.</p><p>In the summer of 2010 and 2011, a <a href="https://theconversation.com/marine-heatwaves-are-getting-hotter-lasting-longer-and-doing-more-damage-95637" target="_blank" rel="noopener noreferrer">heatwave</a> spanning more than 300,000 square kilometers ravaged both marine and land ecosystems. The extreme heat devastated forests and woodlands, kelp forests, seagrass meadows and coral reefs. This catastrophe was followed by two cyclones.</p><p>A record-breaking, marine heatwave in late 2019 dealt a further blow. And another marine heatwave is predicted for <a href="https://www.theguardian.com/environment/2020/dec/24/wa-coastline-facing-marine-heatwave-in-early-2021-csiro-predicts" target="_blank" rel="noopener noreferrer">this April</a>.</p>
What to Do About It?<p><span>Our brains trust comprises 38 experts from 21 universities, CSIRO and the federal Department of Agriculture Water and Environment. Beyond quantifying and reporting more doom and gloom, we asked the question: what can be done?</span></p><p>We devised a simple but tractable scheme called the 3As:</p><ul><li>Awareness of what is important</li><li>Anticipation of what is coming down the line</li><li>Action to stop the pressures or deal with impacts.</li></ul><p>In our paper, we identify positive actions to help protect or restore ecosystems. Many are already happening. In some cases, ecosystems might be better left to recover by themselves, such as coral after a cyclone.</p><p>In other cases, active human intervention will be required – for example, placing artificial nesting boxes for Carnaby's black cockatoos in areas where old trees have been <a href="https://www.environment.gov.au/biodiversity/threatened/publications/factsheet-carnabys-black-cockatoo-calyptorhynchus-latirostris" target="_blank" rel="noopener noreferrer">removed</a>.</p><p><span>"Future-ready" actions are also vital. This includes reinstating </span><a href="https://www.abc.net.au/gardening/factsheets/a-burning-question-fire/12395700" target="_blank" rel="noopener noreferrer">cultural burning practices</a><span>, which have </span><a href="https://theconversation.com/australia-you-have-unfinished-business-its-time-to-let-our-fire-people-care-for-this-land-135196" target="_blank" rel="noopener noreferrer">multiple values and benefits for Aboriginal communities</a><span> and can help minimize the risk and strength of bushfires.</span></p><p>It might also include replanting banks along the Murray River with species better suited to <a href="https://www.abc.net.au/gardening/factsheets/my-garden-path---matt-hansen/12322978" target="_blank" rel="noopener noreferrer">warmer conditions</a>.</p><p>Some actions may be small and localized, but have substantial positive benefits.</p><p>For example, billions of migrating Bogong moths, the main summer food for critically endangered mountain pygmy possums, have not arrived in their typical numbers in Australian alpine regions in recent years. This was further exacerbated by the <a href="https://theconversation.com/six-million-hectares-of-threatened-species-habitat-up-in-smoke-129438" target="_blank" rel="noopener noreferrer">2019-20</a> fires. Brilliantly, <a href="https://www.zoo.org.au/" target="_blank" rel="noopener noreferrer">Zoos Victoria</a> anticipated this pressure and developed supplementary food — <a href="https://theconversation.com/looks-like-an-anzac-biscuit-tastes-like-a-protein-bar-bogong-bikkies-help-mountain-pygmy-possums-after-fire-131045" target="_blank" rel="noopener noreferrer">Bogong bikkies</a>.</p><p><span>Other more challenging, global or large-scale actions must address the </span><a href="https://www.youtube.com/watch?v=iICpI9H0GkU&t=34s" target="_blank" rel="noopener noreferrer">root cause of environmental threats</a><span>, such as </span><a href="https://www.nature.com/articles/s41559-018-0504-8" target="_blank" rel="noopener noreferrer">human population growth and per-capita consumption</a><span> of environmental resources.</span><br></p><p>We must rapidly reduce greenhouse gas emissions to net-zero, remove or suppress invasive species such as <a href="https://onlinelibrary.wiley.com/doi/abs/10.1111/mam.12080" target="_blank" rel="noopener noreferrer">feral cats</a> and <a href="https://theconversation.com/the-buffel-kerfuffle-how-one-species-quietly-destroys-native-wildlife-and-cultural-sites-in-arid-australia-149456" target="_blank" rel="noopener noreferrer">buffel grass</a>, and stop widespread <a href="https://theconversation.com/to-reduce-fire-risk-and-meet-climate-targets-over-300-scientists-call-for-stronger-land-clearing-laws-113172" target="_blank" rel="noopener noreferrer">land clearing</a> and other forms of habitat destruction.</p>
Our Lives Depend On It<p>The multiple ecosystem collapses we have documented in Australia are a harbinger for <a href="https://www.iucn.org/news/protected-areas/202102/natures-future-our-future-world-speaks" target="_blank">environments globally</a>.</p><p>The simplicity of the 3As is to show people <em>can</em> do something positive, either at the local level of a landcare group, or at the level of government departments and conservation agencies.</p><p>Our lives and those of our <a href="https://theconversation.com/children-are-our-future-and-the-planets-heres-how-you-can-teach-them-to-take-care-of-it-113759" target="_blank">children</a>, as well as our <a href="https://theconversation.com/taking-care-of-business-the-private-sector-is-waking-up-to-natures-value-153786" target="_blank" rel="noopener noreferrer">economies</a>, societies and <a href="https://theconversation.com/to-address-the-ecological-crisis-aboriginal-peoples-must-be-restored-as-custodians-of-country-108594" target="_blank" rel="noopener noreferrer">cultures</a>, depend on it.</p><p>We simply cannot afford any further delay.</p><p><em><a rel="noopener noreferrer" href="https://theconversation.com/profiles/dana-m-bergstrom-1008495" target="_blank" style="">Dana M Bergstrom</a> is a principal research scientist at the University of Wollongong. <a rel="noopener noreferrer" href="https://theconversation.com/profiles/euan-ritchie-735" target="_blank" style="">Euan Ritchie</a> is a professor in Wildlife Ecology and Conservation, Centre for Integrative Ecology, School of Life & Environmental Sciences at Deakin University. <a rel="noopener noreferrer" href="https://theconversation.com/profiles/lesley-hughes-5823" target="_blank">Lesley Hughes</a> is a professor at the Department of Biological Sciences at Macquarie University. <a rel="noopener noreferrer" href="https://theconversation.com/profiles/michael-depledge-114659" target="_blank">Michael Depledge</a> is a professor and chair, Environment and Human Health, at the University of Exeter. </em></p><p><em>Disclosure statements: Dana Bergstrom works for the Australian Antarctic Division and is a Visiting Fellow at the University of Wollongong. Her research including fieldwork on Macquarie Island and in Antarctica was supported by the Australian Antarctic Division.</em></p><p><em>Euan Ritchie receives funding from the Australian Research Council, The Australia and Pacific Science Foundation, Australian Geographic, Parks Victoria, Department of Environment, Land, Water and Planning, and the Bushfire and Natural Hazards CRC. Euan Ritchie is a Director (Media Working Group) of the Ecological Society of Australia, and a member of the Australian Mammal Society.</em></p><p><em>Lesley Hughes receives funding from the Australian Research Council. She is a Councillor with the Climate Council of Australia, a member of the Wentworth Group of Concerned Scientists and a Director of WWF-Australia.</em></p><p><em>Michael Depledge does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</em></p><p><em>Reposted with permission from <a href="https://theconversation.com/existential-threat-to-our-survival-see-the-19-australian-ecosystems-already-collapsing-154077" target="_blank" style="">The Conversation</a>. </em></p>
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