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A simple set of thoughts for a carbon fee

June 30th, 2010 · 1 Comment

In pure economic efficiency terms, the most cost-effective system for establishing a price on carbon pollution and starting a societal move toward a lower-carbon future, might be an upstream simple price.

Carbon Fee not tax

This price is not a “tax”, because a ‘tax’ implies a taking of a good. That assumes that we have a right to pollute and impact others. In fact, that very pollution is a taking of a good, a seizing of a value, that occurs today without any form of compensation.

A gradual implementation …

Whatever the path, this should start relatively low and gradually increase. This should be a a steady and predictable increase rate to enable investment /other decisions to be made in an orderly fashion. Decisions about tomorrow at the individual, household, community, business, and societal/national levels.

Now, the path and price set in 2010 won’t necessarily work in 2016 or 2025 or 2040 … the structure should, as with the US constitution, provide structure for reasoned change and adaptation in the face of change (changed world conditions, changed political support, change … These price changes could perhaps be downward from trendline or upwards as we know more about climate science/political system recognizes benefits from clean energy.

Thinking about price …

First off, we should recognize that the best analysis of the social price of carbon (SCC) suggests that the ‘right’ fully-burdened cost is easily in the range of $80 per ton or perhaps higher. The numbers below start from a perspective that that honest evaluation of carbon’s cost is simply beyond the pale of ‘rational’ political discourse …

Thus, how about …

$12 per ton, starting in 2012

  • Going up $1 in real terms every year until 2020 ($20 per ton in 2012 dollars in 2020)
  • Reevaluate price impacts, levels of carbon reductions, on a continuing basis with proposed changes to pricing offered up in ‘odd’ years

As to revenues. 2008 total US emissions were 6,957 Tg CO2 equiv. Thus, we’re talking about $84 billion in available revenue in 2012 assuming that as a starting point. We could allocate this roughly as follows.

  • 30% in rebate to US citizens living on US soil (with guardians of minors receiving 50% and the other 50% going into ‘trust’ fund to be gradually paid out from age 18 through age 27). (We’d be talking about $25 billion, which would translate to about $80 in checks per citizen. Household of 4 would receive $240: $80 for two adults and $40 for each of two minor children.)
  • 20% for clean energy RDT&E & climate science ($17 billion first year)
  • 35% for clean energy & energy efficiency deployment (5% of this for aid to developing countries to leapfrog) ($29+ billion first year)
  • 10% for climate mitigation efforts (including carbon sequestration efforts via paths like biochar) ($8.4 billion)
  • 5% for … ($4 billion in reserve)

While the real terms price would be going up $1/year, the revenues would not go up as fast due to reducing pollution loads. Even so, in 2020, that average household would receive a direct payment likely somewhere in the range of $350+ while seeing their full system energy costs fall (due to energy efficiency, mainly, but also due to reduced pollution having lower health care impacts).

To be clear, above is not what I would do in an environment where ‘bureaucrat’ wasn’t used as a curse word and where scientists were listened to rather than derided (and where one political party was suffering a severe case of anti-science syndrome).

While I would like to see a direct “cap” on carbon emissions (with a very strong target for reductions … soon) and understand that the social cost of carbon is far higher than $20/ton, I believe that we would significant improvement in our energy security and our economic performance with very meaningful reductions in our carbon emissions. This would foster businesses to move toward cleaner paths and give a high degree of certainty that would enable long-term investments in cleaner energy & energy efficiency. Our pollution would fall, our security would strengthened, our economy would improve … And, I have confidence that the rapid successes that would accrue from the massive amount of low-hanging fruit would foster greater public support of the reasonable nature for imposing a carbon fee and of the benefits accrued from the resources derived from it.

Related: see Global Warming Impact Fee

Tags: Energy · climate change

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