Carbon Dioxide – a virtual, negative commodity

http://www.cato.org/event.php?eventid=7999

I found this excellent little CATO Institute debate somewhere in my Twitter stream, and I watched the whole of it, despite the annoying accents and speaking styles of the speakers, and the insider economics references to Pigou and Coase (they’re only theorems, you know).

I thought that Kate Gordon made some excellent rebuttals to Andrew Morriss’ whining, pedantic free marketeering, and I was with her right up until the last few frames when she said that the Center for American Progress, of course, supports a carbon tax, as this is, of course, the best way to prevent Carbon Dioxide emissions.

Such disappointment ! To find that somebody so intelligent cannot see the limitations of carbon pricing is a real let down. I tend to find that American “progressives” on the whole are rather wedded to this notion of environmental taxation, “internalising the externalities” – adding the damages from industrial activities into the cost of the industrial products. I do not see any analysis of the serious flaws in this idea. Just what are they drinking ? What’s in the Kool-Aid ?

1. Carbon Dioxide is a virtual, negative commodity

You burn some fossil fuels. It makes light, heat and steam to generate electricity. Brilliant ! Virtually the whole economy runs off of burning dead critters and pondweed from millions of years ago. Talk about recycling !

Problem : the colourless, odourless carbon dioxide gas that’s thrown off during the oxidation (burning) adds to the Earth’s Greenhouse Effect, and the quantities are creating a serious imbalance in atmospheric heat containment.

You can value a stable climate, but you can’t put a price on carbon dioxide – it has (virtually) no chemical, agricultural, engineering or infrastructure value, so who wants to buy it ? Let’s re-phrase that – who wants to pay an additional fee to burn fossil fuels ? Fossil fuels are becoming more and more costly to dig/drill/mine out of the ground – the economy cannot accept the burden of a carbon tax in addition.

Nobody wants to pay for a virtual commodity – hence the moves for global carbon finance are failing – nobody wants to pay into the Climate Finance Fund pot. It’s just like International Development, very few countries are anywhere near the aid contribution levels that will deliver the Millenium Development Goals. And nobody will pay Ecuador to save its rainforest from oil exploitation, sorry “exploration”.

2. A carbon price will never be paid by the polluting industries

The fossil fuel extraction and distribution industries are directly responsible for the global warming side effect of their products, but a carbon tax won’t touch them. A carbon tax or any other form of carbon pricing will slip down the value chain to the end consumers – downstream to the energy service and fuel customers.

Therefore, carbon pricing will never incentivise the polluting industries to change their business models – they’ll just pass the costs on, energy becomes more expensive and even though the poorer will buy less, the rich will carry on consuming. Carbon pricing is therefore regressive, inegalitarian, fostering greater division in society, and not actually tackling the problem of how to reduce carbon dioxide emissions.

Large oil and gas companies like BP, Royal Dutch Shell and ExxonMobil regularly line up in support of carbon pricing, carbon trading or carbon taxation. They know full well that their businesses will carry on extracting, even with carbon pricing in place. Carbon pricing won’t touch their profit margins.

Some people show surprise that large oil and gas companies support carbon pricing. Me, I just reason that carbon pricing will add to the inflationary pressure on energy costs, which will lead to aggressive profit-seeking in energy companies. To my mind, carbon pricing will enable higher energy costs and higher energy profits which will finance the drilling of less accessible places and the continued exploitation and desecration of places such as Canada’s First Nation interior, Latin American rainforest and African coasts.

Energy will get more expensive with carbon pricing, making it imperative that more pristine habitats will be exploited and polluted – because it’s cheaper to rampage over poor, unindustrialised countries, and too costly to clean up. Carbon pricing won’t save the planet – it will exacerbate its ruination. Carbon pricing won’t even lock down and diminish carbon dioxide emissions – people will continue to buy energy, and the companies will continue to supply it, from the same old fossil fuel paradigm.

Tell me, honestly, have environmental taxation and envirocrime fines ever really stopped the offending behaviour in the past ? BP paid for Deepwater Horizon, but now they and their “competitors” are moving on to mine the Arctic.

3. The School of Economics with its sleight-of-hand tricks won’t stop carbon dioxide – only regulation can

New Jersey Governor Christie has pulled out of the RGGI – the Regional Greenhouse Gas Initiative – trying to do Cap and Trade in several US States. Why ? Because Cap and Trade cannot work. Too much of the economy is invested in carbon. You cannot apply a “marginal” re-orientation tariff scheme to a major pillar of the economy. Cap and Trade can work for things like fluorinated chemicals (the Montreal Protocol) because they are easily substitutable and therefore not essential to the running of the economy.

What the economists tell you won’t work. You cannot cap carbon dioxide emissions by general dictat and pricing – you need to be more clever and go for the roots of the problem.

Here’s a parallel example. Why is there so much plastic waste ? Why so much landfill ? Because people throw plastic away. And why do people throw plastic away ? Because plastic is packaging. And why is plastic used for packaging ? Because it is made from cheap feedstock waste from the petroleum refining and chemical industries. And so how do we stop plastic waste ? Putting a price on it ? We already pay the price by having to pay town and district taxes to clean up the waste and dispose of it. But paying for plastic pollution doesn’t stop the problem. How do we stop so much plastic becoming environmental waste ? Go to the root, the source of the problem. Make it a legal requirement for all plastic goods and plastic product packaging to be biodegradable, made from plant sources (or as a second best, fully recyclable).

The best way to reduce carbon dioxide emissions is to become less wasteful with energy. And the best way to stimulate energy efficiency is regulation.

We need regulation and enforcement to ensure that all energy appliances and energy-using products, such as cars, are efficient.

We need regulation and enforcement to make sure that all major energy users, and public services, such as street lighting, office facilities and hospitals, are making the most efficient use of energy.

We need regulation and enforcement to ensure that procurement along each public (state) and private contractual supply chain is the most energy efficient and least energy-wasting it can be.

We need regulation and enforcement to prevent the insanity of the global food and goods supply chain – locally sourced should have preference over globally sourced.

We need regulation and enforcement to increase the proportion of energy that comes from truly sustainable and renewable sources.

Renewable energy is set to become cheaper and more prolific. It will win in the end. Give green a chance.

4. Break the link between energy sales and profits

While energy remains a positively valued commodity, carbon dioxide will always retain a negative value.

Energy should come to be regarded as a utility again, not as a commodity. Energy should be a public service, not the profit centre of private enterprise.

Companies shouldn’t win profits by selling more and more energy. They also shouldn’t win profits by forcing the costs of energy to rise.

Energy should have price control.

Energy services should make profits for companies, not energy sales.

5. Carbon Trading between North and South can only constitute a minute fraction of the global economy

All those economists who think that a major market in carbon can be created out of thin, hot air, are naive to the point of stupidity, in my view.

Real emissions cuts have to take place in industrialised countries – they cannot be offset by outsourcing to China or India.

6. Dream the impossible dream

Of all the things to fight for, carbon pricing is not only the farthest from reach, but also the thing that most people will obviously fight over. It really is an impossible dream to think that the world would ever reach a consensus over pricing Greenhouse Gas emissions. Piecemeal, unilateral action won’t work – only a global deal could create a “level playing field” between polluting and non-polluting forms of energy. A global deal cannot be reached – at least not in a hurry – so it won’t happen in the timeframe we have.

Carbon Trading is not working.
Cap and Trade is not working.
Cap and Anything is not working.
Climate Finance is not working.
Carbon Pricing is not working.
Carbon Taxation is not working.

Supply me with examples that contradict my claims and I will write them up and apologise on bended knee. Seriously. I will supply photographic evidence.

Stop listening to economists. Start thinking about sensible ways to reduce energy waste.

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