As I have discussed previously, the evidence for global warming is overwhelming. I had hoped that President Trump would publicly recognize this scientific reality and decide to stay in the Paris Climate Agreement. Nevertheless, it will take more than three years for the U.S. to completely withdraw.
But in or out of the Paris Agreement, the best way for the U.S. to show leadership on this critical issue is to adopt a (revenue neutral) carbon tax. The American Enterprise Institute has just issued a comprehensive report on the desirability and feasibility of doing this.
Here is the gist of the AEI argument:
$40 per ton is often taken to be the social cost of carbon in the atmosphere. A carbon tax at this level would raise the cost of gasoline by 36 cents per gallon.
A carbon tax is a consumption tax. Taxing consumption rather than income promotes economic growth. The revenue neutral offset would likely be an income tax such as the payroll tax or corporate income tax.
A carbon tax need not disadvantage the U.S. globally since a border adjustment tax could be imposed on imports from countries without a carbon price regime.
Replacing arbitrary regulations. The primary carbon-reduction regulations currently in effect are the 1) Corporate Average Fuel Economy (CAFE) standards for vehicles and 2) Clean Power Plan which limits power-sector carbon emissions at the state level. Leaving carbon abatement decisions to carbon producers is far more efficient than leaving it up to regulators.
Growing public acceptance. 84% of registered voters, including 72% of Republicans, support actions to accelerate the development and use of clean energy. Even 49% of conservative Republicans say that “Americans will make major changes to their way of life to address climate change.”
Conclusion. For the U.S. to adopt a carbon tax would be an even stronger statement of world leadership than participating in the Paris Agreement.
When Barack Obama was President I described our country’s two biggest long range problems as:
Massive Debt, now 77% of GDP (for the public part on which we pay interest) and predicted by the CBO to keep steadily getting worse.
Slow economic growth, averaging just 2% since the end of the Great Recession in June 2009. This means fewer new jobs are created and lower raises for existing jobs.
Now, under President Trump, I have modified this list to read:
Massive Debt, etc.
Global Warming, for which the evidence is overwhelming.
All three of these issues are large and urgent problems but President Obama was insufficiently concerned about both debt and economic growth while President Trump is insufficiently concerned about both debt and global warming.
Today’s Wall Street Journal, “Paris Climate Discord” has perhaps the best possible argument for withdrawing from the Paris Accord but it is ultimately unpersuasive. Even if full implementation of the Paris standards would have only a tiny effect on global temperatures by 2100, and even if other countries aren’t contributing their fair share, Paris represents a big step in the right direction.
Global warming is real and if the U.S. is the world leader which it needs to be, and often purports to be, then it needs to be part of the Paris Accord. Adjustments to our own domestic energy policies (such as adopting a revenue neutral carbon tax) will enable us to decrease carbon emissions much more efficiently than we are currently doing.
Conclusion. Global warming presents an opportunity for President Trump to show real leadership. I hope he is up to it.
Spring in the U.S. is coming sooner each year on average.
The three biggest carbon emitters in the world are China, the U.S. and India in that order. But what is also true, and not sufficiently well appreciated, is that carbon emissions in the U.S. are dropping while they are still increasing in China and India:
In the 2015 Paris climate agreement, China pledged that it would start reducing carbon emissions by 2030 but, in the meantime, is still continuing to open coal burning power plants.
In the U.S. carbon emissions have been steadily decreasing since 2000 (see chart).
In India the economy is growing at 7% per year and 240 million people still lack electric power. This means that carbon emissions from coal burning are likely to double in the years ahead.
Coal use in the U.S. will continue to drop with or without enforcement of the Obama era Clean Power Plan because natural gas is now so plentiful and so much less expensive than coal. The best way for the U.S. to continue showing leadership in combatting global warming is for it to adopt a revenue-neutral carbon tax. This would let the market sort out which type of energy is the cleanest and most efficient in meeting our country’s growing energy needs. In fact a carbon tax might even be beneficial for the coal industry by creating a strong incentive to develop carbon capture and storage technology. Conclusion. Most Americans now agree that global warming is real and that this presents a huge threat to human civilization. It is likely that a revenue-neutral carbon tax will be adopted by our country in the near future.
The evidence for global warming is overwhelming and largely beyond dispute. On the other hand, our industrialized world is highly dependent on the fossil fuels which produce it. This is what makes global warming such a hot political potato. Yesterday the New York Times columnist Eduardo Porter described a carbon tax which has been implemented in British Columbia and has gained wide political acceptance. Its general features are:
It was introduced in 2008 by the Liberal Party which is actually quite conservative. It survived a challenge by the left-leaning New Democratic Party in 2009.
The economy in British Columbia grew faster than its neighbors even as its greenhouse gas emissions declined.
The tax rose from $10 (Canadian) per ton of carbon dioxide in 2008 to $30 (Canadian) in 2012. It raised the cost of a gallon of gasoline by 19 cents (U.S.)
Despite the price increases, voters warmed to the tax. In 2015 only 32% of British Columbians opposed it, down from 47% in 2009.
Every single carbon tax dollar is returned to families and businesses through a variety of tax breaks.
British Columbia’s experience shows that a carbon tax can work in practice. Here are a couple of reasons why such a tax should appeal to a broad political cross spectrum in the U.S.
A properly calibrated carbon price in the United States could effectively replace all the climate-related regulations businesses hate so much, including renewable fuel mandates and President Obama’s Clean Power Plan.
A carbon tax could become part of a broad fiscal overhaul, using the revenue, for example, to offset cuts in payroll taxes.
Conclusion. The rapidly changing climate and weather patterns caused by global warming are a threat to human civilization. Reasonable measures can be taken to mitigate the effects with minimal economic disruption. As the world’s strongest economy and leading superpower, the U.S. should be providing more leadership towards addressing this very serious problem.
The two main themes on this website, “It Does Not Add Up,” are that the U.S. national debt is too high and that our economy is growing too slowly. How can we shrink the debt (as a percentage of GDP) and how can we make the economy grow faster? I make use of all sources of information which shed light on these two fundamental issues. Today I briefly discuss the work of the Northwestern University Economist Robert Gordon, summarized in his new book, “The Rise and Fall of American Growth.” His basic thesis, see the above chart, is that human civilization experienced essentially no economic growth up until about 1700, then slow growth occurred mainly in the UK and US up until about 1870 followed by explosive growth mainly in the US up until about 1970. Since 1970 growth has slowed way down except for a brief spurt from 1994 – 2004.
According to Mr. Gordon, these growth periods were caused by Industrial Revolution #1 (steam, railroads), IR #2 (electricity, internal combustion, modern plumbing, communications, petroleum), and IR #3 (computers, internet, mobile phones), all of which led to productivity growth spurts which have by now largely run their course. Not only are we out of industrial revolutions but there are, in addition, stiff headwinds working against economic growth. For example:
The First Headwind: Rising Inequality. Downward pressure on the wages of the bottom 90%. Increased inequality at the top. Educational outcomes strongly correlated with socio-economic status.
The Second Headwind:Education. Stagnation in high school graduation rates and poor performance on international tests measuring achievement. High debt levels for college graduates.
The Third Headwind: Demography. The labor participation rate has dropped form 66.0% in 2007 to 62.6% today, only half caused by baby boomer retirements.
The Fourth Headwind: Repaying debt. The public debt, on which interest is paid, is now 74% of GDP and is predicted by the CBO to steadily increase. This will inevitably lead to either higher taxes or slower growth in future transfer payments.
The Fifth Headwind: Social deterioration at the bottom of the income distribution. Increasing number of children are born out of wedlock for high school graduates and dropouts, much higher for blacks than for whites. For mothers aged 40, the percentage of children living with both biological parents declined from 94% in 1960 to 34% in 2010.
Other Headwinds. Globalization and Global warming.
Mr. Gordon makes a voluminous case for the slowing down of economic growth, the basic reasons why this is happening, and the social forces which are making it worse. Next: How should public policy respond to this huge challenge?
One of my favorite economics journalists, Eduardo Porter, has a column which appears each Wednesday in The New York Times. His column this week, “Imagining a World Without Growth,” shows that economic growth took off consistently around the world only about 200 years ago and that two things powered it: innovation and lots of carbon-based energy from fossil fuels. The United Nations climate conference, meeting this week in Paris, is asking all countries to greatly cut back on their use of fossil fuels. Mr. Porter, in an earlier column, described what severe cutbacks in fossil-fuel energy could look like:
In order to meet the consensus goal of keeping the earth’s atmospheric temperature from rising more than 2 degrees C from preindustrial times (and we’re half way there already), CO2 emissions will have to fall to at most 1.6 tons per year for every person on earth by 2050. This is less than 1/10 of the present U.S. average and less than 1/3 of the present world average.
Within about 15 years every car sold in the U.S. will have to be electric. By midcentury more than half of the U.S. economy will run on electricity. Up to 60% of power will have to come from nuclear sources.
To meet these ambitious goals the U.S. will have to decarbonize its energy supply at an average pace of 4% per year for the next 40 years. This is 10 times faster than the Energy Information Administration’s current plan.
This is not achievable by going after low-hanging fruit such as replacing coal with natural gas in power plants. Rather, for example, carbon capture and storage will have to become widely available starting within about 10 years.
Meeting the goal of limiting the average world-wide temperature increase to 2 degrees C will thus require a severe regimen of regulatory actions which will have negative economic consequences. In fact it is difficult to image how such a strict regimen could ever be put in place or enforced without much public dissatisfaction.
We thus have two options for dealing with global warming. We can ignore it at our peril or we can introduce a market mechanism to change people’s fundamental behavior and attitude about energy use. What market mechanism? A (revenue neutral) carbon tax, of course! How else?
The United Nations climate conference has just opened in Paris. The pledges that countries are making fall way short of what many say is needed to solve the problem of climate change. The Deep Decarbonization Pathways Project based in Paris and New York describes what will be needed to get the job done:
The 2 degree C temperature increase benchmark is used even though it is an arbitrary threshold. “Hell is not going to break loose at two degrees – it will take hundreds of years to unfold.” The world has so far warmed .9 degree C since 1880, halfway to the threshold.
The technologies available today, such as solar power and wind turbines, while good enough to get a running start on the transition, are not good enough to finish it.
Many countries will need to keep burning coal or natural gas to generate power while capturing the carbon dioxide emerging from smoke stacks, compressing it and injecting it deep underground. In fact most fossil fuel energy producers do not appear to be putting much effort into this approach.
Governments could easily flub the energy transition by failing to plan far enough ahead. Most countries are setting 10 and 15 year targets that can be met with incremental changes.
To achieve emissions goals, entire economies, including transportation, needs to be electrified as much as possible. Spending a lot of effort, as the U.S. is doing, trying to make gasoline cars more efficient, may be going down a blind alley.
Another potential dead end would be an overreliance on natural gas, which emits only half as much carbon as coal. This helps in the short run but gas has to go away within a few decades. Thus heavy investment in natural gas pipelines and power plants now could undermine long term goals.
The point is that the DDPP, designed to hold a global temperature increase to just 2 degrees C from preindustrial times, is extremely demanding. It will require massive governmental interference in the energy economies of both developed and developing countries all over the world. A far, far better approach is for leading world economies such as the U.S., Western Europe, China and Japan to provide leadership by implementing a tax on carbon emissions and thereby create an economic incentive for the fossil fuel industry to decarbonize itself.