Sustain6 BLOG

Do We Need A Carbon Tax?

By Steve Quirk

William Nordaus, the pulitzer prize winning economist and author of the Climate Casino, has stated that “Unless we enact a carbon tax we will get virtually no where in slowing climate change.” In most climate circles, a carbon tax is seen as necessarily the most effective policy tool to reduce carbon emissions due to its simplicity and ability to address the economy as a whole as opposed to targeting specific industries. A number of places including the United Kingdom and British Columbia have implemented carbon taxes with success. Even ExxonMobil and Florida Republican congressman Francis Rooney have embraced the concept of a revenue neutral carbon tax, though skeptics may be justifiably concerned about the sincerity and effort behind this position.
Should we have a Carbon Tax

However, there is evidence to suggest that a carbon tax is not needed as a policy tool for climate change. For example, the United States had reduced overall carbon emissions to approximately 6 gigatons in 2017, fairly close to the 1990 level, primarily because of the large environmental pressure that has brought about the extensive closure of coal power plants. Unfortunately, 2018 showed a sharp reversal of this trend with an uptick of 3.4% according to research published by the Rhodia Group, though preliminary results in 2019 show levels appear to be down by about 2.1% due to continued coal reduction.

While the uptick is certainly alarming, should we take this to be a short term bump on the longer road to an inevitable clean energy future? Tony Seba, a prominent thought leader, author and entrepreneur believes this is the case. Hailing from a long line of energy “futurists” including Travis Bradford and Ray Kurzweil, Seba makes a compelling case for the natural, inevitable, and near term reduction of almost all fossil fuels at the hands of technology, namely solar (and wind) power, electric vehicles (EVs) and battery storage. He notes at the end of his presentation that “this is going to happen despite governments, not because of governments.”

Seba’s fascinating presentation, which also integrates the impact of autonomous electric vehicles, makes the argument that these clean technology genies are out of the bottle and are starting their ramp to mass adoption. These are revolutionary technologies and in sharp contrast to commodity fuels, which increase in price over time, this is technology driven energy that behaves like other computing technologies, namely they decline in price over time. By 2030 Seba posits that the game is over for fossil fuels and the iron horses they power. These technologies will follow the “S Curve” pattern; progress looks slow to start, but then all of the sudden they move from linear to exponential growth and in the process upend entire industries and their incumbents who are addicted to their dying business models and significant though ultimately decreasing cash flows.

Importantly, Seba notes that it is the convergence of these 5 technologies (batteries, EVs, AVs, ride-hailing and solar) that is critical to the rapid time-frame of the adoption.
 
This begs the question: Should we trust these powerful technological trends and simply ignore the messy and nasty politics of implementing a carbon tax?
 
It’s a tempting proposition. Taxes? On Energy? In the U.S.? Vanderbilt Professor Mike Vandenberg, former chief of staff at the EPA under Clinton, and author of Beyond Politics believes that relying on near term policy action is largely an exercise in futility. Instead we should focus on the private sector and NGOs to drive carbon reduction. The rise of organizations like the Carbon Disclosure Product (CDP) and the Sustainability Accounting Standards Board (SASB) have accelerated what can only be described as a tsunami of corporate sustainability initiatives. For example, Walmart’s Project Gigaton aims at removing 1 billion metric tons of CO2 from its supply chain. Seba notes that most large corporations are exploring ways to implement solar power not only for environmental reasons but economical ones too.
I find Seba’s case powerfully seductive and, given current trends, believe that these clean technologies are indeed inevitable. My concern, however, has to do with the time sensitive nature of the climate crisis and the possibility that Seba’s “laissez-faire” time frame of 10 years could turn into 20 or 30 years. Tony’s own presentation highlights a number of transformational technologies that have taken much longer than 10 years to achieve total market penetration.
 
To borrow a phrase, I’m in the “Trust but verify” camp that believes that government policy is a powerful tool in ensuring that the renewable revolution blasts off without delay. After all, it was major policy enactments in the form of Solar PV subsidies from Germany and Spain that really primed the pump on the modern solar revolution. China’s major support for solar today currently drives a substantial part of the market, though unsubsidized solar is now firmly taking root.
 
A similar case of support for electric vehicles also exists today. Government policy (state and national) has enabled EVs to gain traction, but the hard reality is that EVs still make up a small part of overall car sales today (1%) and the installed base of approximately 1 billion internal combustion engine (ICE) based vehicles globally on the road today will have an average useful life of 15-20 years. If, as Seba predicts, oil prices collapse, the incentive to hold onto these cars as long as possible will increase. America is a car culture and has a long-standing love affair on and off the road. Habits take a long time to change and with CO2 already at 420 ppm, time is a critical factor in the climate crisis. The Rhodia research shows how much more stubborn emissions are from transportation, now the leading and growing source of emissions in the U.S. The best way to ensure this unwinding process and nostalgia doesn’t linger more than it has to is to enact a carbon tax.

There is a lot of debate over whether a carbon tax should be “revenue neutral,” which means that a new carbon tax should be offset by a decrease in other taxes like payroll or sales tax. This is the position that Exxon is taking and is generally seen as much more acceptable to conservatives that are wary about inefficient government spending and inefficient policy mechanisms like “Cap and Trade” or “Fee and Dividend”. Virtually all economists agree that a carbon tax is the most efficient and most effective policy tool to address climate change. The below graphic highlighting the impact of British Columbia’s carbon tax shows the powerful impact.

Progressives that dislike the “revenue neutral” point out that the impacts of climate change will be very uneven and climate justice demands additional support for more vulnerable citizens. While this is a very real concern, politics is the art of the possible and the carbon tax can be adjusted in the future as events warrant. The important thing today is to build a broad coalition of support for a carbon tax. For excellent information on carbon taxes check out https://www.carbontax.org/.
2019 appears to finally have been a sharp awakening with regard to the broad and immediate threats of climate change. 
 
Though it will take some time, I think the possibility of enacting a carbon tax is real within a few years.
 
What do you think?
 
Sustain 6 believes that engagement and education are the keys to solving the climate crisis. Check us out at https://sustain6.com/
 

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