However, fossil fuel addiction can be solved only when we recognise an economic law as certain as the law of gravity: as long as fossil fuels are the cheapest energy they will be used. Solution therefore requires a rising fee on oil, gas and coal – a carbon fee collected from fossil fuel companies at the domestic mine or port of entry. All funds collected should be distributed to the public on a per capita basis to allow lifestyle adjustments and spur clean energy innovations. As the fee rises, fossil fuels will be phased out, replaced by carbon-free energy and efficiency.
A carbon fee is the only realistic path to global action. China and India will not accept caps, but they need a carbon fee to spur clean energy and avoid fossil fuel addiction.
Governments today, instead, talk of “cap-and-trade with offsets”, a system rigged by big banks and fossil fuel interests. Cap-and-trade invites corruption. Worse, it is ineffectual, assuring continued fossil fuel addiction to the last drop and environmental catastrophe.
How wondrous to find an environmentalist who actually gets regulatory capture, public choice economics and the economics of Pigou taxation!
For, yes, this is exactly what we should be doing, assuming that the IPCC is indeed correct about climate change.
We’ve even got two different approaches we could use to this.
One is the Stern Review one: the social costs of carbon emissions are $80 a tonne, so tax carbon emissions $80 a tonne (in detail, CO2-e).
Excellent, we in the UK already largely do that. We’ve not got the taxes properly distributed, it’s too much on petrol, about right on flying and not high enough on farming for example, but over all we’re at about the right level.
There’s also the William Nordhaus idea, start with a low tax and (credibly) commit to raising it. Perhaps $5 or $10 a tonne now, rising to $250 or so around 2040. This allows both the development of new technologies and also works with the grain of the capital cycle.
The Nordhaus solution is almost certainly better for those places (yes, USA, we are looking at you) which do not at present have anything like the required carbon taxes. Whacking $80 a tonne on right now would cause huge dislocation: better to let the economy adapt more gently.
We’d also rather like to stop those $550 billion of subsidies to fossil fuels as well: the $100 billion that Iran spends on consumer subsidies for petrol and natural gas, the $70 billion or so Russia does and so on.
But what really intrigues about what Hansen is suggesting is that it’s obvious that he’s actually been reading real economists on this problem. whether or not he’s actually got his ideas from these sources or not I don’t know, but the rising fee idea is what Nordhaus suggests and the cap and trade inviting corruption is a point Greg Mankiw has made (although he’s politer and calls it corporate pork).
Isn’t that amazing? Someone who desires to change human activity actually going to the experts in how to change the incentives humans face so as to change their activities?
You’d almost think the guy was a scientist or something.