Author says: Cheapest acceleration we can stomach.
Conclusion:
Do what economists say is the cheapest method of accelerating decarbonization and that we can collectively stomach: Keep the carbon tax, explain and mitigate mis-perceptions, give politicians freedom to back off more costly / less effective methods as public understanding and acceptance grows, move away from economist ideal only until just-barely-stomachable optimization/tradeoff, work on trading-block specified emitters agreement to reduce offsets, and promote international rules to limit commons benefit- dilution / dis-incentivize free-riding.
Analysis:
Heel Dragging
Instead of eager decarbonization of Alberta, we're hearing a lot of dog-ate-my-homework excuses about the carbon tax here. And they are coming from people who normally make up the backbone of our province: proud, hard working, disciplined, and responsible citizens. What's going on?
I have some hypotheses:
H1: Normal political partisanship
They love their candidate and their candidate took an early position on a topic of interest, and they want to get behind that candidate, including drowning out voices of reason on the topic. All's fair in politics.
Except there's just one problem. Most Albertans want progress on emissions, and likely will after the 2019 provincial election. And economists agree broad- based carbon pricing --like what we have now-- is the cheapest way to accelerate decarbonization -- cheaper per tonne abated, and cheaper as a % of GDP. And Alberta -- unlike some hydro- power- rich provinces -- has a very long way to climb to decarbonize. Decarbonizing some other more more expensive way is going to slow decarbonization and/or cost the economy more in forgone economic growth: more pain for less gain.
It would help those voters --save them some money/give them more progress for their money-- if they could cut their candidate some slack to move off rhetorical anchor points / 'cement shoes' as voters get more comfortable with carbon taxes.
There's also the all-for-one and one-for-all comradery of living in an oil province that might imply social pressure to be against anything that cuts back on fossil fuel use, but oil companies like a broad based carbon price so they don't have to shoulder the Paris targets by themselves.
If worrying about synchronizing with our major trading partner -USA- there are signs republicans are about to change their tune and support action on climate change. And half of USA has a pledge to keep working on climate regardless.
H2: There's something wrong with the carbon tax
Governments around the world are aware of economists advice on carbon pricing: it works, and its the cheapest way.
ecofiscal.ca
MIT NREL study
But carbon pricing isn't being introduced, and where introduced its been rolled back in some places, due to voter dislike.
Australia
And I've seen first hand the look of disgust and horror from kinfolk in small business and farming when discussing carbon pricing. Why would voters dislike something that will be effective and cheaper? One study reviews the literature:
Overcoming Public Resistance to Carbon Taxes
Main conclusion: public perception doesn't match economic reality. The economists are correct -cheaper and effective- but it doesn't look that way at all from the voters point of view.
Here are a few points from that study:
1. Personal Costs Perceived too High
- rebate formula uncertainty
- over-estimate of costs direct via energy bills and indirect from inputs price increases
- ignoring indirect costs of other approaches, such as income taxes needed to support subsidies
- feeling of coercion/push with tax, vs pull with subsidies
2. Carbon tax seen as regressive - hurts poor.
- In AB currently the revenue is recycled into consumer dividends for those earning under 50k, so already has plenty of social cushioning, perhaps too much as farmers and small business feel 'taxed', and as carbon pricing escalates they'll need some dividends or -as BC did- reducing income tax.
3. Damage to economy / loss of jobs / recession
- this is the main sales pitch of those promising to kill the carbon tax
- the voice of economists explaining broad based carbon pricing is the cheapest -as measure by $/tonne or % GDP doesn't make it into the headlines, doesn't roll off the tongue
Proposed solution: DEEP, STEEP and CHEAP political campaigns that promise to do it the cheapest way, and explain that currently that's the broad based ctax, but if something else cheaper becomes available, will do/switch to it
4. Doesn't work - carbon tax not effective
- confusion over Short-term vs Long-Term price elasticity - voters don't see a change/abatement in their own behavior in the short term. Still filling up the car at the gas pump the same way. What they don't see or feel or attribute properly is their own long-term price-influenced behavior. Such as buying a more fuel efficient vehicle when the current one wears out, or when moving to a new house, optimizing location relative to work and other destinations, and other substitutions in lifestyle.
Solution: Explain that, publish Information Salience and Carbon Tax Elasticity Ideas; ask voters to keep going another 5 years to see if they can notice longer term changes in their own behavior.
5. Tax Grab
Problem: 'information salience': consumers see the carbon tax number clearly on their energy bill. But there's no number there -or anywhere handy- to show them any benefits. So it feels like the money is just a tax grab or worse, being flushed down a toilet. And worse: CO2 is an invisible gas, so hard to personally verify any progress. The average citizen isn't going to wait 2 years to download Environment Canada's NIR sources and sinks.Under provincial ctax revenue recycling benefits aren't clear. (versus under federal backstop plan, revenue is returned to individuals who would net-benefit about $500/year in AB)
Solution: Here's a few ideas to make the costs and benefits more 'salient':
a) CITIZEN DASHBOARD can be designed to show progress:
- progress toward Paris goals
- in near-real-time using a less precise uncertainty band
- before and after dilution for free-riding
- cost per tonne abated
b) HOME DASHBOARD - real-time reports from your gas meter and power meter, so software can compute from natgas-to-CO2 and from the blend of grid generation -coal, natgas, other, hydro, wind- and their intensity numbers to get your per-hour intensity number. Requires new provincial regulations requiring utilities to provide your numbers online every 15 minutes.
c) PROGRESS NUMBER - a numerical progress number could be formulated and computed, that incorporates many considerations, perhaps for all of Alberta. And show that number beside the ctax on energy bills. But what formula?
d) TV SHOW: DECARBONIZING ALBERTA - like a home reno show, each episode shows a home being 'done' ie with GeoX, heat pumps, solar panels, sunwalls and external awnings and blinds, window and door leak checks and upgrades, thermal storage, green energy plans from energy retailers, insulation, substitutes for travel -like vacation close to home, teleworking/telepresence technologies - and shows the cost of each thing so viewers get the idea and can decide what if any elements to adopt. And in doing so, reduce the spooky aspect of unknown costs which in turn improves 'long term price elasticity' - they can see viable ways to reduce emissions in the long run.
e) SLIDEBAR FUTURES - a web page that lets visitors play with slidebars -such as income tax, provincial sales tax, odds of winning a 'rebate lottery' under subsidy plans vs escalating carbon taxes, substitutes and new technologies- to see what scenario they might be personally better under
I'll add a few I didn't see well articulated in that article, but suspect are influencing sentiment in AB:
6. Benefit dilution - "China is still building coal plants". "Canada is only 1.6% of global emissions - we can't save the world".
Economists call scenarios like climate change a 'market failure' and more specifically a 'Tragedy of the Commons' - similar to over-fishing. A fisherman might say 'I'm only taking 1.6% of the fish - I'm not the problem'. For greenhouse gasses the 'commons' is the atmosphere the world shares. The general solution is for participants depleting/damaging the commons or creating negative impacts/externalities to agree to and abide by some rules to fairly curtail their depletion/externality/impacting activities. Like the Paris agreement. If one party doesn't curtail -if they 'shirk' - they benefit from improvements to the commons without doing effort, and are said to be free-riding on the efforts of others. Those abiding / curtailing experience benefit dilution by the free-rider. Any cleaning of emissions here in AB is naturally diluted by air masses moving around the world. Wind Map of Alberta, but eventually the air blends and and we all share the same concentrations. If other nations are perceived to be free-riding -the idea that Albertans are working hard so China or USA or other provinces in Canada can relax- feels unfair / worrying.
Solution: Having some way to compare our progress before and after dilution -graphically- will let us know if we are behind or ahead of the progress of others - within country AB vs other provinces - and with other Paris signatories, and with the world at large.
And some agreements that work with WTO rules to allow reducing large-emitter offsets, such as recognizing carbon levies / carbon taxes as internal taxes like GST / PST.
7. Benefits too far in the future - benefits of a decarbonized global economy accrue more to future generations 2050 and beyond. There's no good example in history of any generation sacrificing directly for any future generation.
https://www.ted.com/talks/will_macaskill_how_can_we_do_the_most_good_for_the_world
- 9m 20s "because future people don't have a vote today"
"It's
part of being human to not worry about the long-term future, we're genetically programmed like that ... we just don't think
ahead." - John "Charlie" Veron aka The Godfather of Coral, in CNN report on coral decimation.
Normally we work as Adam Smith observed centuries ago 'Each actor acts in their own self interest when dealing with others and in doing so both gain, and in gaining, society and the economy at large gain' And that applies to how we help each next generation inherit a more advanced economy: each generation acts in its own self interest, and passes on a better economy to the next as a coincidental benefit - because the interests of overlapping generations are aligned. So the human species never had to evolve/select-for genes/traits/instincts that weigh or sacrifice for future generations. We never had to.And so arguments that we are free-riding on future generations, or causing negative generational externalities have an academic feel to them, and lack the gut-level instinctual support they need to compete in democratic elections based on voter self-interest and gut instinct.
Solution: Focusing on personal descendants of voters - ask them to consult today's youth they know and want to help - may give them better self-interest motivation as they usually want to see their descendants do well. They may want to compare: "Am I better off to just give money to my descendants directly - leave it in my will - or am I better off using that money to accelerate my decarbonization?" Some kind of numerical comparison would let them know if collective action is better and by how much. And making it clear that its just the 'net' cost of decarbonizing earlier than free-market forces that's at stake.
8. Benefits confusion
And even if we could manage our own column of air, the benefits and costs of a green-house here in a generally colder climate are more debatable than for somewhere nearer the equator or with population below future sea levels. Height Map of Alberta.
Solution: Explaining the potential legal liabilities for those not meeting Paris, and the influx of climate refugees - these are topics that may hit closer to home: self interest.
If the AB provincial plan leaned more toward the federal backstop plan, then the individual would gain cash benefits of $500/year in AB, although the fed plan is likely macro-economically sub-optimal (missing tax cut for business, R&D).
Q1. Is there something wrong with the carbon tax?
It assumes a-priori voters want to reduce emissions and are willing to pay hard cash to do so, at least up to a point of 'doing our fair share' as agreed in for the Paris climate agreement.
1) If that's true, then the broad based carbon tax is an excellent place to start:
a) problems with public perception can be explained to voters, and their patience requested
b) accommodations designed to make it more viscerally appealing to the average person:
b.i) improving the 'salience' of benefit information
--- a citizen-dashboard showing real-time emissions per capita and emissions per unit GDP, as well as total emissions. Example pie chart of how clean the Alberta electric grid is at any moment:
Alberta Grid Intensity
--- progress measures and tonnes abated shown where ctax information is on energy bills
b.ii) adjusting revenue recycling away from economists 'maximum gain' toward less optimal uses until voters get comfortable, then moving them back toward maximum gain as voters grow even more comfortable, while continuing to explain it's in voter interest to maximize economists measures of gain
c) reduce dilution of benefits:
- international effort to make sure there's no free-riding.
-- emissions reductions are done in lockstep around the world
-- agreements about financial penalties for missing targets / free-riding
2) if that's not true --if voters don't want to pay to reach Paris-- then there needs to be more done:
- make future generations part of the solution:
2.a) change democratic voting to weight votes inversely with age on topics with negative generational externalities --so youth, with more self-interest at stake in 50 years-- will have more say in carbon rules
2.b) finance part with public debt: use public debt to finance part or all of reductions, and leave the debt for future generations to pay interest on. If no other viable action on climate will pass democratic muster among self-interested voters in this generation, this might be a last resort if the future generation would definitely experience large net benefits for doing so.
Q2. Is accelerating decarbonization free?
No. If it was we would have already done it in self-interest. Ecofiscal p27, government of Canada, and Parliamentary Budget Office p.8 show various estimates of the impact, somewhere between .01 and .06 % of annual GDP. .05% compounded over 15 years would be between 1% and 2% smaller overall GDP, assuming ctax of 200/tonne in 2027. But those are simple estimates and there are unknown + and -ve impacts from things such as USA carbon pricing policy changes (affecting leakage), and the way carbon pricing revenues are recycled, which is province-need and provincial- voter-appetite specific, and if/how much 'clean tech' becomes a positive growth story.
On an individual level, its getting cheaper. Everyone knows someone who knows someone who has an EV or solar panels. Early adopters gain self-interest benefits in the form of bragging rights or brand polishing, boost to their technical skills or market position they can mine later as decarbonization advances, benefits specific to their situation, or just plain recreational fun if they have the money to play with. In the next decade EV car prices are expected to match ICE (internal combustion engine). And at the grid scale solar and wind -with storage- is competitive with natgas for power generation. Under federal backstop plan, individuals would likely come out ahead in cash by $500/year, they could afford to put a bit toward technology.
Q3. Do we need any carbon tax / Can we wait for technology and fuel prices to do all the work changing our preferences via self-interest, so we are only acting in our own self-interest when we sign up for cheaper green methods?
That would be politically easiest. And in the end that might all that gets done if we can't solve the puzzle of how to accelerate reductions in a democracy.
There has always been a price on carbon: the price of the fuel itself. And so there has always been an incentive to develop new technologies to cut fossil fuel consumption. And the trend lines of that business-as-usual / BAU are in the right direction - less carbon emissions per unit of GDP over time.
There has often been perverse counter effects / rebound with technology improvements:
- more fuel efficient cars > people buy bigger SUVs
- better insulation for houses > bigger houses, houses deviating from easy to insulate box shape with cantilevered bays, dormers and skylights - typically with some sacrifice to insulation factors in wall joints.
So technology gains haven't translated entirely into emissions reductions.
But to keep warming under 2C as per the Paris agreement --something with anticipated net benefits to humanity in the long run-- the trajectory of consumption isn't slowing fast enough.
To get onto the Paris trajectory, Canada will need a steep change in trajectory from what --over the long run-- technology by itself hasn't been able to do.
Q4. What about luck - might we get lucky?
There's been some technology improvements that haven't quite hit mainstream yet but we can see them. Exactly when they will hit and how much they will impact our trajectory is still uncertain. Solar cells have been coming down rapidly in price. Lithium ion batteries -with their excellent energy density- are still scaling up in the transport sector. International / trading block / WTO / GATT / NAFTA / TPP / CETA agreements about large industrial emitters - that would reduce their offsets fairly and trigger them to change to cleaner technologies - might help change that trajectory.
There's been some technology improvements that haven't quite hit mainstream yet but we can see them. Exactly when they will hit and how much they will impact our trajectory is still uncertain. Solar cells have been coming down rapidly in price. Lithium ion batteries -with their excellent energy density- are still scaling up in the transport sector. International / trading block / WTO / GATT / NAFTA / TPP / CETA agreements about large industrial emitters - that would reduce their offsets fairly and trigger them to change to cleaner technologies - might help change that trajectory.
But in those cases of luck, a carbon tax would do no harm. It would feel less onerous, and cost less as % GDP, and would be less of a sore spot for voters concerned with self interest and perceptual discomfort. While still doing something to get us to where we eventually need to be: zero carbon. So no harm in keeping the carbon tax even if we could predict good luck with certainty.
Q5. Could we be un-lucky?
Our economy is partially coupled to fossil fuel use, so if /as our economy grows, our total emissions rise. That's good luck on the economy. But might seem like we aren't making progress toward Paris in absolute terms. One way to measure progress against that background: tonnes CO2e divided by GDP (economic output) to get tonnes per unit GDP.
Some say climate might not park at 2C, IPCC didn't compute Paris target correctly -a bias for understatement of the problem- signatories aren't collectively ambitious enough to meet Paris target, Canada won't make its own Paris target, and AB has no plan to make a Paris-equivalent/fair-share target in AB. If all that's true or a risk with impacts too high to accept, then the scheduled 2022 review may show us we need to crank up our targets and/or efforts.
Some legal bloggers have wondered out load 'who is going to pay' for the climate change caused economic damage in Canada and around the world.
Why climate litigation could soon go global
As this author hints, the Paris agreement seems to imply those meeting it aren't liable for global damage. And the author hints at shifting legal ground. Other studies project trillions per year in climate caused damages.
- 14 Trillion/yr in rising sea level costs by 2100 if not < 2C
If you are weighing risks to future generations, some non-zero risk factor for legal liability for climate caused damage, and perhaps a different risk factor for those meeting Paris, and those shirking.
4 luck-driven 2022 - 2032 scenarios for carbon taxes in AB:
1. HOLD:we are ahead of Paris, and Paris will still save the world, no change to ctax needed
2. LOW:
we're close to being on track for Paris, but need to keep working, so
+5$/tonne/year,
100/tonne in 2032
- no
change to offset tightening at 1%/year
3.
MEDIUM: we're not near Paris, OR Paris determined (by ICPP 2022) to not be
sufficient to save the world
+15$/tonne/year,
200/tonne in 2032
+5% /
year offset tightening, offsets half gone by 2032
4. HIGH:
we're not on track for Paris, AND Paris determined insufficient to save the
world
+
25$/tonne/year, $300/tonne in 2032
+10%/year
offset tightening, 0 offsets by 2032
Q6. Is a broad based carbon tax fair?
It makes earlier pre-self-interest decarbonization fairer. Without it two businesses in heated competition wouldn't be able to voluntarily decarbonize early, without losing business due to higher cost. By changing the trigger point fairly for both, they can both decarbonize earlier.
Albertans: keep the broad based carbon tax and fix it, because it's cheaper per tonne and cheaper as % of GDP than anything else we could do. And Albertans have such a long way to climb from our carbon heavy current economy to meet our fair-share Paris target, we need the cheapest.
To fix it, do cheap information accommodations, and otherwise move away from economist ideal solutions as little as we can stomach until we find a collectively- just-barely-stomachable optimization. Cheapest-we-can-stomach will allow us to decarbonize faster and deeper, which science and international agreements say we should and must do for our children and their children and long term future generations.
And while doing that here in Alberta, work on credible international agreements to limit dilution-of-benefits / free-riding and early agreements on reducing / eliminating offsets for certain trade exposed classes of large emitters.
And if we can do all that in carbon-heavy Alberta, it's sure to turn heads elsewhere A second wave of post-Paris effort. And that in turn might reduce the benefits- dilution / free-rider problem and boost our own motivation in Alberta -- and around the world -- giving a 3rd wave boost to decarbonization.
