A carbon tax may not actually do a whole lot for emissions

There's a chicken/egg problem at work.

A carbon tax is most economists' favourite method of dealing with climate change. It is exactly the sort of simple, market-driven intervention that they tend to like: set a price per tonne of carbon emitted which is equal to the value of the damage that tonne does to the climate, and then sit back and what businesses and consumers react. Some may cut their usage; some may switch to low-carbon sources of energy, which suddenly become cheaper comparatively; and some may choose to just pay the extra cost (what happens in that last situation is debatable – some think the money should just count as general taxation, others that it should be put towards climate change prevention and mitigation).

The Washington Post's Brad Plumer suggests that it may not work as well as we would hope, however. He reports on a recent MIT study looking at the likely effect of a $20 a ton carbon tax in the real world – the value proposed by a pair of MIT researchers last month.

Plumer writes:

Sebastian Rausch and John M. Reilly of the MIT Global Change Institute recently put forward a proposal for a $20/ton carbon tax that would rise 4 percent each year, starting in 2013. (The funds would be used to offset taxes elsewhere.) Here’s what their economic model predicts would happen to U.S. greenhouse-gas emissions:

Blue line: MIT reference case with no carbon tax. Black line: EIA reference. Green line: Scenario with MIT carbon tax in place.

With a carbon tax in place, U.S. greenhouse gas emissions do start declining quite a bit (this is the green line). But by 2030, emission levels stall, even though the carbon tax keeps rising and rising each year. The United States wouldn’t get anywhere near the 80 percent cut by 2050 that the White House has envisioned.

One explanation here is that MIT’s proposed carbon tax just isn’t high enough. But Muro favors another possibility–that a carbon tax alone isn’t enough to drive deep reductions. The private sector tends to under-invest in energy R&D and key bits of infrastructure such as transmission lines. Without further policies, it’s unlikely that we’ll see a sweeping transformation of our energy system to give people alternatives to coal plants and gasoline-powered cars.

This echoes an argument I've heard several times from those on the more technical side of climate change prevention. For all that the economists and politicians like to talk about creating the conditions in which the private sector will be incentivised to help tackle climate change, those who are more keenly aware of the massive costs involved tend to be rather more pessimistic.

They point out that the carbon tax model provides a cash injection to providers of low-carbon energy – but only after the tax is already instituted. As a result, there's another weak link in the chain, which is the ability of those providers to secure loans to build the capacity required. That's possible for massive companies looking to get into a new area; and it's possible for smaller companies, provided they get enough certainty from the government to be able to convince bankers.

But the fear is that larger companies, already strongly embedded in the conventional energy infrastructure, have little incentive to devote money, which could be used to lower the cost of polluting fuels, to instead build new capacity; and smaller companies won't be left with enough time between when the government finally confirms a carbon tax, and when their new generation is actually needed.

At the same time, though, there is growing evidence that some companies really are going above and beyond the call of duty. Some of it may be greenwashing, and some may be token expenditure, but if there really is any sizeable investment in low-carbon infrastructure, then it makes a carbon tax that much more effective.

Carbon taxes can only lower emissions if they raise the price of polluting relative to an alternative. If that alternative isn't available, then they risk being simply another source of revenue for the state.

Wind turbines being prepared. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

New Statesman
Show Hide image

Quiz: Can you identify fake news?

The furore around "fake" news shows no sign of abating. Can you spot what's real and what's not?

Hillary Clinton has spoken out today to warn about the fake news epidemic sweeping the world. Clinton went as far as to say that "lives are at risk" from fake news, the day after Pope Francis compared reading fake news to eating poop. (Side note: with real news like that, who needs the fake stuff?)

The sweeping distrust in fake news has caused some confusion, however, as many are unsure about how to actually tell the reals and the fakes apart. Short from seeing whether the logo will scratch off and asking the man from the market where he got it from, how can you really identify fake news? Take our test to see whether you have all the answers.

 

 

In all seriousness, many claim that identifying fake news is a simple matter of checking the source and disbelieving anything "too good to be true". Unfortunately, however, fake news outlets post real stories too, and real news outlets often slip up and publish the fakes. Use fact-checking websites like Snopes to really get to the bottom of a story, and always do a quick Google before you share anything. 

Amelia Tait is a technology and digital culture writer at the New Statesman.