“Be kind, for everyone you meet is fighting a hard battle” - Often attributed to Plato but likely from Ian McLaren (pseudonym of Reverend John Watson)

Sunday, June 22, 2014

Breakdown Dead Ahead

Image credit: Texas A&M University-Galveston
Dr. Patrick Louchouarn
Last week, I was in Washington, DC (well, actually at National Harbor, a very cool place) for the TechConnect World Innovation Conference and Expo. One component of that conference is Cleantech Energy and Efficiency, the portion I attended. In particular, there have been papers presented on research in energy efficient and low carbon construction materials, something in which my firm is very interested. But, while those topics may be grist for future posts, they aren't the topic for this one.

There are two mutually complementary reasons to be extremely concerned about our (and by "our" I mean inhabitants of planet Earth, not only US residents) energy future. One is the unfolding crisis of the availability of cheap and easy fossil fuel resources (for a brief summary see this primer). The other is the strong likelihood (not certainty) of major disruption in our planetary climate system due to the combustion products and byproducts of producing energy from fossil fuels.

Two weeks ago, while in Houston, TX, I met my college friend, Dr. Michael Tobis for dinner. Dr. Tobis, as I've mentioned previously, is the editor-in-chief of the site Planet3.0. He has a strong background in modeling, climate science, and system dynamics as well as a keen interest in the interface between science, journalism, and public discourse.

Michael and I see many things very differently. But we were discussing the potential societal train wreck dead ahead and what might be done to avert its worst consequences. Michael said "carbon tax" believing, I think (judging by his surprise at my response) that I'd strenuously disagree. In fact, I agree absolutely and, were I King,  I would make such a decree immediately.

Such a tax has many things favoring it. It attacks both problems  directly, i.e. declining availability of "cheap" (both in terms of financial cost and energetic cost) fossil fuel energy and climate disruption due to combustion products and byproducts of fossil fuels. It is Pigovian in nature (in brief, it attaches a price to externalities, that is, negative consequences not paid for by the producer, that the market fails to capture without it) and thus achieves a "societal good" by directly increasing the price of fossil fuels, thereby reducing demand for them and creating a resource for dealing with the consequences of their use and for investment in alternatives. The diagram at the top of this post will look generally familiar to those who've taken Econ 101 and 102. See this page (from which I shamelessly lifted the diagram) for an in-depth explanation.

Clearly, such a tax is regressive (in the colloquial sense of "affects lower income people proportionally more than those of higher income" rather than in the strict sense of the rate decreasing as consumption increases) and this would certainly have to be accounted for in the deployment of the government income generated. I'll post in the future as to what level I believe would represent the best combination of most effective and least economically damaging. Hopefully, further thoughts and research can lead to an idea of how it would be implemented and how the resulting funds would be distributed.

Of course, the pitfalls are many. Anyone in the business of selling fossil fuel based products and services will fight such a tax tooth and nail. The number of groups with differing opinions on what to do with the funds would be huge and all would be strident in their objection to whatever final determination was made. Every group would think that they got the short end of the stick. And Republicans (of which I used to be one) can't be elected unless they claim that a new era of US energy independence is upon us if only the Washington DC bureaucrats, tree-huggers, and alarmists would get out of the way and that anthropogenic climate change is a hoax/conspiracy/get rich scheme for elitist academics.

So, until the engine of the train is already over the cliff and the passengers in the first few cars are screaming, I think that the prospects for such a tax being implemented are bleak at best. Thus, I think that there's a Breakdown Dead Ahead.


Michael Tobis said...

I wasn't surprised at your approval of a carbon tax!

I would expect no less of you.

I was perhaps surprised that you thought that would surprise me. It is the conservative, privilege-protecting option.

But I do support it. It's obviously necessary and possibly even, taken far enough, sufficient to resolve the emissions problem.

The social ramifications are interesting, but it is the pure market-driven solution. I expect right wingers who understand and accept the outlines of the climate issue to accept it, because the arguments for it are purely conventional free market economic thinking.

malik aayan said...
This comment has been removed by a blog administrator.
Rob Ryan said...

It will come as no surprise that I'm a fan of market based solutions. They align well with incentives and, properly applied (of course, the rub is in the "proper sez who" discussion) they can get things done quickly and with less distortion than other top-down solutions.

Resistance will (or would) come first, of course, from those whose business relies, in one way or another, on demand for fossil fuels. The cry will be "loss of jobs!!!" The next cries would be from those who feel like they aren't going to get a big enough piece of the resulting largess.

Frankly, the discussion feels quite academic at this point, I see a vanishingly small chance that such a tax will gain any traction until it's much too late to engage in anything except triage.

As I've said elsewhere, philosophically, I'm a free-market small l libertarian but I'm not doctrinaire. There are many adjustments to the market that I, when I'm crowned, will make. These relate to externalities, excessive emphasis on the immediate at the expense of the long term, etc. Also among my early proclamations will be removal of the "personhood" of corporations.

I guess I'm analogous to the mathematicians who are philosophically constructionists but whose research is, for example in point-set topology and who use convergence of infinite sequences. Purity is one thing, practicality is another.

And it even adds more irony when I'm talking about practicality in relation to carbon taxes, dividend and transaction taxes for asset classes, and revocation of corporate personhood. If those things aren't practically impractical, it's hard to know what is.