There is a well-known saying that “Politics makes strange bedfellows”. In recent weeks, carbon pricing has seen its share of media exposure and strange bedfellows, although this shouldn’t come as a surprise given that it is all about politics anyway. The good news is that this much maligned and misunderstood subject is finally getting some solid airtime, albeit from some interesting supporters.
The re-emergence of this subject has been building for some time now, but perhaps was highlighted by the June 21st op-ed by Hank Paulson in the New York Times. Paulson served as Secretary of the Treasury during the recent Bush administration, following many years at the helm of Goldman Sachs. Although his article was in part directed at the launch of the recent Risky Business report, Paulson used the opportunity to reach out to the Republican side of the political spectrum in the US and argue that a carbon price (a tax in this case) was “fundamentally conservative” and “will reduce the role of government” rather than the opposite which many opponents argue. At least in my view, he is right. Intervening in the energy mix, forcing certain technology solutions, requiring a given percentage from a particular energy source and so on are all big government steps towards addressing emissions. A carbon price is clean and simple and can get the job done.
On the opposite page of the New York Times was the reality check from Nobel Prize winning economist Paul Krugman. While Krugman made it clear that Paulson had taken a “brave stand” and that “every economist I know would start cheering wildly if Congress voted in a clean, across-the-board carbon tax”, the sobering reality from Krugman is “we won’t actually do it”. Rather, he imagines a set of secondary measures, the “theory of the second best” as he calls it, including vehicle efficiency standards, clean energy loan guarantees and various other policy measures. My view is that while all of these are important parts of a coherent energy policy, they are approaching third best when it comes to CO2 emissions.
Meanwhile, another strong advocate of carbon pricing has emerged, namely the World Bank. They have never been silent on the issue and indeed have pioneered policy approaches such as the Clean Development Mechanism of the Kyoto Protocol, but this time they have gone much further and are being considerably louder and bolder. The World Bank have produced a statement, “Putting a Price on Carbon” and have called on governments, companies and other stakeholders (e.g. industry associations) to sign up to it. The statement calls for:
. . . the long-term objective of a carbon price applied throughout the global economy by:
- strengthening carbon pricing policies to redirect investment commensurate with the scale of the climate challenge;
- bringing forward and strengthening the implementation of existing carbon pricing policies to better manage investment risks and opportunities;
- enhancing cooperation to share information, expertise and lessons learned on developing and implementing carbon pricing through various “readiness” platforms.
This is all good stuff, but of course now it needs real support. A further look at the World Bank website illustrates the growing patchwork of activity around carbon pricing. It’s quite heartening.
To finish where I started, the strange bedfellows, perhaps nothing could be closer to this than seeing Australian mining magnate and now Member of Parliament, Clive Palmer, on the same stage as climate crusader Al Gore. Only weeks before Mr Gore had made the very clear statement that “We must put a price on carbon in markets and a price on denial in politics”, but nevertheless stood with Palmer as he announced that he would support the Government’s decision to repeal the Carbon Pricing Mechanism (there isn’t a colour for repeal on the World Bank map). I don’t think Mr Gore was particularly happy about that bit, but hopefully was there for the follow-on, where Palmer announced that his party would require a latent ETS to be established in Australia for use once Australia’s main trading partners were also pricing carbon. Given PUP’s (Palmer United Party) hold on the balance of power in the Australian Senate, this might at least mean that Australia will stay in the ETS club and emerge again as a player in the years to come. However, considering the fact that New Zealand, the EU, parts of China, Pacific North America (i.e. California, British Colombia), Japan and (soon) South Africa all have some sort of carbon price, latency may indeed be short lived.
David–a great piece. Citizens Climate Lobby (CCL) released their REMI report on a US carbon fee and dividend which shows that a moderate tax will provide 2.1 million new jobs, a GDP boost (0.5%) and reduce emissions by 33% by 2025, and 50% after 20 years. It also saves 13,000 lives each year after 10 years from reduced pollution.
Separately: remember this number: 100 GWper year.
This is the new electric capacity needed to replace all US fossil fuel usage in 20-25 years. The cost of doing this at current rates is $400 bln per year, half of what we spend on fossil fuel now, and 1/4 of what we pay for healthcare.
We can do this!
I am sending a link to this wonderful blog entry to over a dozen members of Congress and their Aides who I have met. I will include mention of the five requirements of a “good” carbon tax. They are 1) tax upstream at the well-head the mine or the port, 2) start small, say $15 a ton, 3) increase the tax by a meaningful amount annually, say $10/ton, 4) protect the most vulnerable in our society from rising energy prices by returning all fees collected to households on a per capita basis, and protect American businesses and insure that other countries follow our lead by combining a carbon fee and dividend plan with import tariffs on countries which don’t follow our lead. There is a REMI Study out now, that shows such a plan would add jobs to our economy, boost GDP and actually extend lives as we reduce NOx and Sox and that is just part of the good news out of REMI.
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