Creating a Carbon Price Differential

Creating a genuine and effective Carbon price differential will be awkward, perhaps impossible. Carbon Taxes will stop working after a few years, and Carbon Caps are already strongly resisted.

As for Carbon Trading, the incentive to cheat, the “leakage”, will mean that most exchanges will be measured in “hot air” – virtual Carbon emissions.

As the world toys with the idea of giving Carbon a price, and has international gatherings of top leaders, the atmosphere carries on burning.

These days, it’s quite hard to distinguish between the so-call “developed” nations, and some of the so-called “developing” nations, in terms of the race to emit Greenhouse Gases.

China’s overall Carbon emissions probably beats that of the United States. China’s emissions per person is rising sharply because of the use of Coal and Oil. Brazil and other countries with rainforests are hard at work taking down trees. We’re all at it : the Carbon emissions race.

Most of it, probably all of it, is connected with Economic activity, and the changes in Economic activity almost all relate to the increase in globalised trade.

Conclusion Number 1 : Globalisation is central to the rise in manmade Greenhouse Gas Emissions.

Economists who have some understanding of Carbon emissions have looked back in time to Environmental Protection laws and policy of the past. Their conclusion is simple and straightforward : put a price on the thing that’s bad, and the bad thing should go away.

This “pricing of environmental bads” is the bedrock of international Climate Change negotiations. Some groups of countries call for a Cap on Carbon activities coupled with Trade in unused Carbon Allowances under that Cap.

Some well-developed countries realise it’s difficult to impose a Cap on Carbon activities, so they opt for merely applying a Carbon Price, in the form of Auctioned Carbon Permits, or a Carbon Tax.

A piece of the analysis is missing here. The reason it’s tough to impose a Carbon Cap is because most Economic activity is dependent on Carbon Emissions.

Nothing happens these days without Oil, Coal and Gas. A Carbon Cap would destroy the engine, and the gears, of the globalised trade automobile. Even if a Carbon Cap were imposed, it would not be possible to continue to turn the thumbscrew. At some point a stop sign would be reached in the road to implementing the Cap.

Conclusion Number 2 : A Carbon Cap implies the breakdown of the Global Economy and so there will be huge resistance to it, and it will achieve little because it won’t be possible to fully implement it.

A Carbon Price however, would make all Economic activity more expensive, since everything is dependent on Carbon. No matter how fast businesses, governments and people “race out of Carbon” by switching to Low Carbon alternatives, everything will still be touched by the Carbon Price, which will cause global price increases, and eventually global inflation.

In other words, the Carbon Price will become the driving value underpinning the Global Economy, and cause all prices for everything to rise, until the punitive effect of the Carbon Price is wiped out by the inflationary effect.

We’d be back at square one, just with more zeroes at the end of every price. Coal, Oil and Gas will become relatively cheap again, compared to everything else. And the proportion of the Global Economy dependent on Carbon will stay as it is.

Conclusion Number 3 : Carbon Pricing cannot bring about de-Carbonisation (removing Carbon from the machine of the Global Economy) except for a very short time window, and most of that de-Carbonisation will be in the form of changed demand rather than changed infrastructure.

It costs money to change manufacturing, transport and domestic Energy systems to take the Carbon out. If a Carbon Price is imposed, there is no positive incentive to change the manufacturing, transport or domestic Energy systems to take the Carbon out. A Carbon Price is only a negative incentive – to not use those systems so much.

A simple Carbon Price in the form of a Carbon Tax or Carbon Auction, or even a fixed Carbon Trading Price, cannot create a lasting price differential. It cannot create a long-lasting incentive for businesses and individuals to stop Carbon Emissions and start doing something else instead. Punishing Carbon by costing it will not create the incentive to halt Carbon Emissions.

And a Carbon Cap is almost impossible to impose, given that it will be a vote-loser as it will destroy employment, employers and the consumer supply chain. A Carbon Cap sounds the death knell for an Economy unless there are gains to be made in moving out of Carbon.

Conclusion Number 4 : Carbon Caps and Carbon Pricing are already facing huge resistance from businesses and citizens and governments, and within the international negotiations on Climate Change.

Punishing Carbon (by pricing or capping or a combination of the two) cannot give positive incentives to de-Carbonise. But what can ? How can we create a differential that makes it cheaper to act in a Low Carbon way ?

Instead of punishing Carbon, how about rewarding non-Carbon ? How about rewarding Energy Efficiency, Energy Demand Reduction, green manufacturing plant and processes ?

How can they be rewarded ? How about entirely removing tax breaks and subsidies from Coal, Oil and Gas operations and using the funds to invest in Green Energy ? The World needs to spend enormous sums on new energy infrastructure in the next 20 years anyway. Why not pay for Green Energy and refuse to pay for Carbon Energy ?

If you’re a government, don’t invest in Carbon Emissions. If the Energy Companies want to burn Coal in new plants to test partial Carbon Capture and Storage, let them pay for that themselves.

If you’re in charge of public finances, don’t invest in future Carbon Emissions. With Nuclear Energy, you use a lot of Carbon Energy to construct the plant, and you use a lot of Carbon Energy to decommission the plant and dispose of the by-products of the spent fuel. If the Energy Companies want to start a new round of Nuclear Power plants, make them accountable, in terms of their own finances, for the Carbon Energy that will need to be used to clean up the radioactive waste at the end.

Instead of issuing Carbon Permits, a licence to pollute, whether for free or priced, how about issuing Low Carbon Trading Permits, a licence to trade for those businesses that can demonstrate Low Carbon strategies and processes ?

Create not a price differential, but an action differential. If it is not permitted to construct High Carbon Energy infrastructure, then it won’t be done.

Actively investing in new Nuclear Power is like saying that Calories consumed outside the home don’t count if you’re trying to lose weight. Allowing partially abated Coal-fired generation stations is like trying to quit smoking by changing to a low tar brand.

Carbon Trading isn’t working, and can’t be made to work. Effective Carbon Pricing isn’t happening; Carbon Taxation would only produce general inflation; and year-on-year reducing Carbon Caps aren’t coming, because they can’t be implemented.

When a pollutant is all-pervasive, there is only one solution. In the end, you have to ban Carbon, not try to phase it out, or price it out.