Big Picture Carbon Commodities Climate Change

Carbon Cannot Be Costed

After our Masters class on the last 600 million years of Earth Climate history, a number of the students all collected together in the student bar.

One of our number pulled out a block of A4 paper on which he had written a number of probing questions.

At the very top of the list : asking how one could justify the “social cost” of Carbon.

I pulled my “remember Montreal” cat out of the bag.

You know, the Montreal Protocol, designed to protect the Ozone layer.

It was easy enough to find replacements for CFC chemicals, and easy and cheap enough to set incentives to replace CFCs, allowing the incentives to operate through a market.

CFCs represented a tiny part of the World economy, and there were effective, easily sourced alternatives, and it was inexpensive to “rig” the market with incentives to move out of CFCs.

But, Carbon.

Now, that’s another matter.

Carbon, in the form of Carbon Energy, is prevalent within the industrialised and industrialising economies, and has created a high dependency in many sectors.

And there are no easily substitutions for Carbon Energy without serious investment costs being incurred.

And even then, it takes time to de-Carbonise your Energy.

The Economics of the Environment make it clear that environmental bads and toxics are basically unaccounted costs and damages to Society.

The concept of “internalising” an “externalised cost” with protecting the Ozone layer was easy : the social value of Ozone is pretty easy to account. No, we don’t all want to die of skin cancer before the year 2100. And we want to have viable agriculture, and animal husbandry, too.

But Carbon Dioxide presents another chemistry altogether.

Yes, Climate Change from Global Warming from the enhanced Greenhouse Effect from increased Carbon Dioxide in the atmosphere from mankind’s activities, will cause “untold misery” on the poor nations on Earth :-

But no, it won’t kill everyone and everything at a stroke. The death of all living things will take some time with Climate Change.

If 3 degrees Centigrade of added Global Warming will kill all the coral reefs and cause die-back of the Amazon, well, that won’t have an immediate “social cost”.

Who cares if all the coral dies ? Only those who fish the atolls. And if all the Amazon trees die, then the resulting plains will allow greater pasture of food animals and greater exploitation of the mineral resources of the area. So, not all bad then. Even if the Indian monsoons completely disappear, Europe should still have enough rainfall to grow food.

The basic problem is : you can’t “cost Carbon”. The monetary value would be set within the context of the economies of the wealthiest nations, which economies place little or no value on coral reefs or the Amazon.

Rich world money systems place no value on coral or Amazonian rainforest. They cannot be traded, so they cannot be costed.

If Carbon gets “costed”, gets given a price, then two things will happen :-

1. Everything will get more expensive

Within the economies which are dependent on Carbon Energy, a cost for Carbon will raise the price of everything, in a domino effect.

If everything costs more, this is called inflation. The relative cost of Carbon Energy compared to everything else will descend to where it is currently, that is, too cheap compared to the alternatives.

2. Carbon costs will not create incentives to de-Carbonise Energy

Making people pay for Carbon will have the same effect as Value Added Tax : the suppliers of Carbon Energy will pass the costs of Carbon on to their customers.

Therefore, there will be no incentive for the Energy suppliers to remove Carbon from their products – de-Carbonisation will not take place.

Plus, adding a cost to Carbon Energy will have a negative effect on investment.

In order to de-Carbonise the Energy supply, companies/corporates will need to invest in new infrastructure, which will involve using Carbon Energy to build the new infrastructure, which will therefore be subject to the cost of Carbon.

So costing Carbon will add a double cost to de-Carbonising Energy supply, so it won’t happen.

This very simple reasoning seems to have escaped most of the people negotiating for universal Carbon Trading.

Pricing Carbon will cause inflation, and re-relativising of the price of Carbon within the higher regime.

Pricing Carbon will de-incentivise the de-Carbonisation of the Energy supply by adding costs to investment in Renewable Energy and more efficient infrastructure such as Combined Heat and Power.

I say no to Carbon Trading.

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