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.

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Leader: Trump's dangerous nation

From North Korea to Virginia, the US increasingly resembles a rogue state.

When Donald Trump was elected as US president, some optimistically suggested that the White House would have a civilising effect on the erratic tycoon. Under the influence of his more experienced colleagues, they argued, he would gradually absorb the norms of international diplomacy.

After seven months, these hopes have been exposed as delusional. On 8 August, he responded to North Korea’s increasing nuclear capabilities by threatening “fire and fury like the world has never seen”. Three days later, he casually floated possible military action against Venezuela. Finally, on 12 August, he responded to a white supremacist rally in Virginia by condemning violence on “many sides” (only criticising the far right specifically after two days of outrage).

Even by Mr Trump’s low standards, it was an embarrassing week. Rather than normalising the president, elected office has merely inflated his self-regard. The consequences for the US and the world could be momentous.

North Korea’s reported acquisition of a nuclear warhead small enough to fit on an intercontinental missile (and potentially reach the US) demanded a serious response. Mr Trump’s apocalyptic rhetoric was not it. His off-the-cuff remarks implied that the US could launch a pre-emptive strike against North Korea, leading various officials to “clarify” the US position. Kim Jong-un’s regime is rational enough to avoid a pre-emptive strike that would invite a devastating retaliation. However, there remains a risk that it misreads Mr Trump’s intentions and rushes to action.

Although the US should uphold the principle of nuclear deterrence, it must also, in good faith, pursue a diplomatic solution. The week before Mr Trump’s remarks, the US secretary of state, Rex Tillerson, rightly ruled out “regime change” and held out the possibility of “a dialogue”.

The North Korean regime is typically depicted as crazed, but its pursuit of nuclear weapons rests on rational foundations. The project is designed to guarantee its survival and to strengthen its bargaining hand. As such, it must be given incentives to pursue a different path.

Mr Trump’s bellicose language overshadowed the successful agreement of new UN sanctions against North Korea (targeting a third of its $3bn exports). Should these prove insufficient, the US should resume the six-party talks of the mid-2000s and even consider direct negotiations.

A failure of diplomacy could be fatal. In his recent book Destined for War, the Harvard historian Graham Allison warns that the US and China could fall prey to “Thucydides’s trap”. According to this rule, dating from the clash between Athens and Sparta, war typically results when a dominant power is challenged by an ascendent rival. North Korea, Mr Bew writes, could provide the spark for a new “great power conflict” between the US and China.

Nuclear standoffs require immense patience, resourcefulness and tact – all qualities in which Mr Trump is lacking. Though the thought likely never passed his mind, his threats to North Korea and Venezuela provide those countries with a new justification for internal repression.

Under Mr Trump’s leadership, the US is becoming an ever more fraught, polarised nation. It was no accident that the violent events in Charlottesville, Virginia, culminating in the death of the 32-year-old Heather Heyer, took place under his presidency. Mr Trump’s victory empowered every racist, misogynist and bigot in the land. It was doubtless this intimate connection that prevented him from immediately condemning the white supremacists. To denounce them is, in effect, to denounce himself.

The US hardly has an unblemished history. It has been guilty of reckless, immoral interventions in Vietnam, Latin America and Iraq. But never has it been led by a man so heedless of international and domestic norms. Those Republicans who enabled Mr Trump’s rise and preserve him in office must do so no longer. There is a heightened responsibility, too, on the US’s allies to challenge, rather than to indulge, the president. The Brexiteers have allowed dreams of a future US-UK trade deal to impair their morality.

Under Mr Trump, the US increasingly resembles a breed it once denounced: a rogue state. His former rival Hillary Clinton’s past warning that “a man you can bait with a tweet is not a man we can trust with nuclear weapons” now appears alarmingly prescient.

This article first appeared in the 17 August 2017 issue of the New Statesman, Trump goes nuclear