11 Posts
At a recent town meeting where I presented CF&D options, I was asked a question. The question was, specifically, how does the EICDA actually reduce carbon usage, particularly when higher income individuals will continue to use carbon at the same or higher levels. Is there a good response to this? I thought it was fairly self-evident that pricing carbon would incentive people to reduce consumption to save money and for producers of carbon to find less carbon-intensive options. I shared the Wall Street Journal article, Are there other resources you might suggest I share with the elected official?
Thank you!
Steve
Thank you!
Steve
16 Replies
282 Posts
Steve,
That is a really good question. While we have models and some real world experience (UK, for example) that raising the price of FF does drive down emissions, you're asking exactly how. I see it as a function of market signals and economic competition, not to mention behavior as in Econ 101 (cigarette taxes drove down consumption.) Once producers of everything "get" that the carbon tax is here to stay (a big if reliant on political durability, which relies on the perception that the government isn't stealing the money), they'll realize that unless they start driving carbon out of their supply chains, someone else will. If you're GM or Ford, you go EV because you see the writing on the wall and intense competition. That said, there's a strong independent streak in America that will resist and persist in driving guzzlers, paying the higher fuel costs with their dividend. (Remember the lightbulb brouhaha.) That has to be okay in societies like ours. But price-sensitive consumers (who isn't?) will gravitate towards lower carbon stuff as the fee drives up production costs. I think that's how capitalism is supposed to work. Where the fee doesn't penetrate, regs are needed. I'm sure there are more sophisticated answers. Hope that helps.
That is a really good question. While we have models and some real world experience (UK, for example) that raising the price of FF does drive down emissions, you're asking exactly how. I see it as a function of market signals and economic competition, not to mention behavior as in Econ 101 (cigarette taxes drove down consumption.) Once producers of everything "get" that the carbon tax is here to stay (a big if reliant on political durability, which relies on the perception that the government isn't stealing the money), they'll realize that unless they start driving carbon out of their supply chains, someone else will. If you're GM or Ford, you go EV because you see the writing on the wall and intense competition. That said, there's a strong independent streak in America that will resist and persist in driving guzzlers, paying the higher fuel costs with their dividend. (Remember the lightbulb brouhaha.) That has to be okay in societies like ours. But price-sensitive consumers (who isn't?) will gravitate towards lower carbon stuff as the fee drives up production costs. I think that's how capitalism is supposed to work. Where the fee doesn't penetrate, regs are needed. I'm sure there are more sophisticated answers. Hope that helps.
282 Posts
Additionally, see this piece by Jonathan Marshall, Marin CCL member and Economic Policy Network contributor.
"Can Carbon Taxes Do the Job?"
"Can Carbon Taxes Do the Job?"
282 Posts
Largest-Ever Study of Carbon Pricing Confirms It Does Reduce Emissions After All
PAUL BURKE, THE CONVERSATION, 15 JULY 2020
Putting a price on carbon should reduce emissions, because it makes dirty production processes more expensive than clean ones, right?
That's the economic theory. Stated baldly, it's obvious, but there is perhaps a tiny chance that what happens in practice might be something else.
In a newly-published paper, we set out the results of the largest-ever study of what happens to emissions from fuel combustion when they attract a charge.
We analysed data for 142 countries over more than two decades, 43 of which had a carbon price of some form by the end of the study period.
The results show that countries with carbon prices on average have annual carbon dioxide emissions growth rates that are about two percentage points lower than countries without a carbon price, after taking many other factors into account.
By way of context, the average annual emissions growth rate for the 142 countries was about 2 percent per year.
This size of effect adds up to very large differences over time. It is often enough to make the difference between a country having a rising or a declining emissions trajectory.
Emissions tend to fall in countries with carbon prices
A quick look at the data gives a first clue.
The figure below shows countries that had a carbon price in 2007 as a black triangle, and countries that did not as a green circle.
On average, carbon dioxide emissions fell by 2 percent per year over 2007–2017 in countries with a carbon price in 2007 and increased by 3 percent per year in the others.
Carbon dioxide emissions growth in countries with and without a carbon price in 2007
Emissions are from fuel combustion and include road-sector emissions. (Best, Burke, Jotzo 2020)
The difference between an increase of 3 percent per year and a decrease of 2 percent per year is five percentage points. Our study finds that about two percentage points of that are due to the carbon price, with the remainder due to other factors.
The challenge was pinning down the extent to which the change was due to the implementation of a carbon price and the extent to which it was due to a raft of other things happening at the same time, including improving technologies, population and economic growth, economic shocks, measures to support renewables and differences in fuel tax rates.
We controlled for a long list of other factors, including the use of other policy instruments.
It would be reasonable to expect a higher carbon price to have bigger effects, and this is indeed what we found.
On average an extra euro per tonne of carbon dioxide price is associated with a lowering in the annual emissions growth rate in the sectors it covers of about 0.3 percentage points.
Lessons for Australia
The message to governments is that carbon pricing almost certainly works, and typically to great effect.
While a well-designed approach to reducing emissions would include other complementary policies such as regulations in some sectors and support for low-carbon research and development, carbon pricing should ideally be the centrepiece of the effort.
Unfortunately, the politics of carbon pricing have been highly poisoned in Australia, despite it being popular in a number of countries with conservative governments including Britain and Germany. Even Australia's Labor opposition seems to have given up.
Nevertheless, it should be remembered that Australia's two-year experiment with carbon pricing delivered emissions reductions as the economy grew. It was working as designed.
Groups such as the Business Council of Australia that welcomed the abolition of the carbon price back in 2014 are now calling for an effective climate policy with a price signal at its heart.
Carbon pricing elsewhere
The results of our study are highly relevant to many governments, especially those in industrialising and developing countries, that are weighing up their options.
The world's top economics organisations including the International Monetary Fund, the World Bank and the Organisation for Economic Co-operation and Development continue to call for expanded use of carbon pricing.
If countries are keen on a low-carbon development model, the evidence suggests that putting an appropriate price on carbon is a very effective way of achieving it.
An open-access version of this research is available here.
Paul Burke, Associate Professor, Crawford School of Public Policy, Australian National University; Frank Jotzo, Director, Centre for Climate and Energy Policy, Australian National University, and Rohan Best, Lecturer in Economics, Macquarie University.
PAUL BURKE, THE CONVERSATION, 15 JULY 2020
Putting a price on carbon should reduce emissions, because it makes dirty production processes more expensive than clean ones, right?
That's the economic theory. Stated baldly, it's obvious, but there is perhaps a tiny chance that what happens in practice might be something else.
In a newly-published paper, we set out the results of the largest-ever study of what happens to emissions from fuel combustion when they attract a charge.
We analysed data for 142 countries over more than two decades, 43 of which had a carbon price of some form by the end of the study period.
The results show that countries with carbon prices on average have annual carbon dioxide emissions growth rates that are about two percentage points lower than countries without a carbon price, after taking many other factors into account.
By way of context, the average annual emissions growth rate for the 142 countries was about 2 percent per year.
This size of effect adds up to very large differences over time. It is often enough to make the difference between a country having a rising or a declining emissions trajectory.
Emissions tend to fall in countries with carbon prices
A quick look at the data gives a first clue.
The figure below shows countries that had a carbon price in 2007 as a black triangle, and countries that did not as a green circle.
On average, carbon dioxide emissions fell by 2 percent per year over 2007–2017 in countries with a carbon price in 2007 and increased by 3 percent per year in the others.
Carbon dioxide emissions growth in countries with and without a carbon price in 2007
Emissions are from fuel combustion and include road-sector emissions. (Best, Burke, Jotzo 2020)
The difference between an increase of 3 percent per year and a decrease of 2 percent per year is five percentage points. Our study finds that about two percentage points of that are due to the carbon price, with the remainder due to other factors.
The challenge was pinning down the extent to which the change was due to the implementation of a carbon price and the extent to which it was due to a raft of other things happening at the same time, including improving technologies, population and economic growth, economic shocks, measures to support renewables and differences in fuel tax rates.
We controlled for a long list of other factors, including the use of other policy instruments.
It would be reasonable to expect a higher carbon price to have bigger effects, and this is indeed what we found.
On average an extra euro per tonne of carbon dioxide price is associated with a lowering in the annual emissions growth rate in the sectors it covers of about 0.3 percentage points.
Lessons for Australia
The message to governments is that carbon pricing almost certainly works, and typically to great effect.
While a well-designed approach to reducing emissions would include other complementary policies such as regulations in some sectors and support for low-carbon research and development, carbon pricing should ideally be the centrepiece of the effort.
Unfortunately, the politics of carbon pricing have been highly poisoned in Australia, despite it being popular in a number of countries with conservative governments including Britain and Germany. Even Australia's Labor opposition seems to have given up.
Nevertheless, it should be remembered that Australia's two-year experiment with carbon pricing delivered emissions reductions as the economy grew. It was working as designed.
Groups such as the Business Council of Australia that welcomed the abolition of the carbon price back in 2014 are now calling for an effective climate policy with a price signal at its heart.
Carbon pricing elsewhere
The results of our study are highly relevant to many governments, especially those in industrialising and developing countries, that are weighing up their options.
The world's top economics organisations including the International Monetary Fund, the World Bank and the Organisation for Economic Co-operation and Development continue to call for expanded use of carbon pricing.
If countries are keen on a low-carbon development model, the evidence suggests that putting an appropriate price on carbon is a very effective way of achieving it.
An open-access version of this research is available here.
Paul Burke, Associate Professor, Crawford School of Public Policy, Australian National University; Frank Jotzo, Director, Centre for Climate and Energy Policy, Australian National University, and Rohan Best, Lecturer in Economics, Macquarie University.
11 Posts
Thank you, Peter! Your response and the article you forwarded are extremely helpful! Thank you. I will share with the elected official in hopes this will help push him into supporting a CF&D approach!
60 Posts
Critics do not believe the law of economics that if you make something more expensive, people will use less of it. Time and again we have seen this work. In the twin oil crises of 1973 and 1979, Americans saw prices of oil soar as supply was curtailed by OPEC. Folks carpooled, stood in lines at gas stations, used more public transportation, and over time they swapped clunkers for compact cars. Americans lowered thermostats in the winter and increased them in the summer. American car manufacturers finally entered the compact car market which had been dominated by European and Japanese car manufacturers heretofore.
Our country and the world have a rich history of pollution control. Environmental economists will tell you that price incentives work to control pollution and are more effective than regulations. Does it matter whether we are looking at carbon or water quality on the Ruhr River or acid rain in the US or any number of other classic examples: putting a price on pollution works.
193 Posts
This study that was presented last year looked at the California programs for reduction of emmissions and the co-benefits like costs of health.
"Our findings should also be a useful guide to other states or regions contemplating the use of carbon pricing to create a price incentive to reduce emissions and to generate funds for programs to cut greenhouse gas emissions and to provide co-benefits."
https://climate-xchange.org/2020/03/16/cap-and-trade-in-california-health-and-climate-benefits-greatly-outweigh-costs/
"Our findings should also be a useful guide to other states or regions contemplating the use of carbon pricing to create a price incentive to reduce emissions and to generate funds for programs to cut greenhouse gas emissions and to provide co-benefits."
https://climate-xchange.org/2020/03/16/cap-and-trade-in-california-health-and-climate-benefits-greatly-outweigh-costs/
11 Posts
Thank you very much! These are very true and will help me explain to my local elected officials!
Thank you!
Steve
Thank you!
Steve
282 Posts
I hope CCL doesn't go down the "offsets" path:
Cap and trade, offsets at a crossroads in California’s climate policy
Cap and trade, offsets at a crossroads in California’s climate policy
23 Posts
There are functioning carbon price models at work in local circumstance to point toward. If they were broadened to state or federal level, they would only become more efficient, more fair, more effective.
You might also give particular attention wholesale markets where end consumers are more captive and less able to flex their desires, but must consume based on the limited options presented. In these same markets, price is often king, resulting in great responsivity.
As an example, the City of Austin imposed a price on carbon (small price, small budget for the purpose - it is an act of self discipline, an expression of environmental concern greater than Zero dollars, but not a great deal more if no one else is going to play too) on the electric power generation assets it owns that bid into the (now somewhat unfairly infamous) ERCOT wholesale electricity market. Placing a "carbon adder' on that offer price forces us to consider purchasing clean power when it is cheap but foregoing production during low net revenue periods. The goal was to reduce Austin Energy's emissions by as much as 30% from start of year expectations - we did so with 9 mo. of REACH (reduce emissions affordably for climate health) program activity in 2020. At much less cost than budgeted, so by the numbers: 800K tonnes avoided, $3.31/tonne - cheap, fast, effective!
You might also give particular attention wholesale markets where end consumers are more captive and less able to flex their desires, but must consume based on the limited options presented. In these same markets, price is often king, resulting in great responsivity.
As an example, the City of Austin imposed a price on carbon (small price, small budget for the purpose - it is an act of self discipline, an expression of environmental concern greater than Zero dollars, but not a great deal more if no one else is going to play too) on the electric power generation assets it owns that bid into the (now somewhat unfairly infamous) ERCOT wholesale electricity market. Placing a "carbon adder' on that offer price forces us to consider purchasing clean power when it is cheap but foregoing production during low net revenue periods. The goal was to reduce Austin Energy's emissions by as much as 30% from start of year expectations - we did so with 9 mo. of REACH (reduce emissions affordably for climate health) program activity in 2020. At much less cost than budgeted, so by the numbers: 800K tonnes avoided, $3.31/tonne - cheap, fast, effective!
11 Posts
Thank you for sharing! This is very helpful! I met today with two of my town elected officials to review this in detail. I think they have a better understanding of how a price on carbon provides economic incentives for sustainable practices, therefore reducing usage! Hurray! I was not able to answer, however other more technical questions they had about the program such as:
--how would the monthly dividend checks be managed? There was concern for older town residents and those on presumably lower, fixed incomes being able to sustain the increased prices for carbon products if the monthly check is not managed on a timely basis;
-How confident are we that the administrative costs for the program will be low (e.g., 3% or less)?
-Who receives the dividend check each month (US resident over age 21? Tax filer? Self-enrollment process like the social security administration uses?)
--Will all eligible dividend recipients receive the same amount each month or does the amount vary based on your "carbon footprint" and utilization?
--Are citizens required to disclosure any personal information about their carbon use in order to receive the dividend?
Do you have any insights on these questions or a place you'd recommend I go to respond?
Thank you!!!
Steve
--how would the monthly dividend checks be managed? There was concern for older town residents and those on presumably lower, fixed incomes being able to sustain the increased prices for carbon products if the monthly check is not managed on a timely basis;
-How confident are we that the administrative costs for the program will be low (e.g., 3% or less)?
-Who receives the dividend check each month (US resident over age 21? Tax filer? Self-enrollment process like the social security administration uses?)
--Will all eligible dividend recipients receive the same amount each month or does the amount vary based on your "carbon footprint" and utilization?
--Are citizens required to disclosure any personal information about their carbon use in order to receive the dividend?
Do you have any insights on these questions or a place you'd recommend I go to respond?
Thank you!!!
Steve
3004 Posts
Hi Steve Merz
One place to go to find answers to these questions is our Handling Challenging Questions Resource.
Thank you for your outreach to elected officials !
One place to go to find answers to these questions is our Handling Challenging Questions Resource.
Thank you for your outreach to elected officials !
155 Posts
Hi Steve,
It seems it comes down to whether or not one believe prices matter in one's decision. On the industry side, you can easily point to what's happened with coal and natural gas in electricity generation. Gas prices dropped dramatically relative to coal so utilities moved to natural gas. Despite all of Trump's efforts, coal's market share only decreased, and though environmental regulations favor natural gas, the switch in fuel is largely because of the relative prices of the two fuels.
Take care,
Paul
It seems it comes down to whether or not one believe prices matter in one's decision. On the industry side, you can easily point to what's happened with coal and natural gas in electricity generation. Gas prices dropped dramatically relative to coal so utilities moved to natural gas. Despite all of Trump's efforts, coal's market share only decreased, and though environmental regulations favor natural gas, the switch in fuel is largely because of the relative prices of the two fuels.
Take care,
Paul
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