By the way, I'm working on the assumption of a carbon price applied on fossil fuels at the source, such as the Energy Innovation Act would include.
The downside to having separate laws per industry is that you’ll get insane workarounds (see import tariff law). Carbon is carbon — so workarounds are easy. For example if natural gas is taxed higher than steel, you’ll have natural gas companies producing just enough steel to be qualified as steel production companies so that they get the lower rate. Or something like that.
Choosing policy is tremendously difficult. We could deliberate all day. despite what I’ve said, a carbon tax is better than doing nothing, and we would be wise to start creating/increasing carbon taxes already.
1. In the short term it makes steel more expensive. But because steel is essential, we still use it, it just costs a little more. If you're building a clean energy power plant, or making a generator for a hospital, some of the tax revenues could go to you, to make those things still affordable.
2. In the longer term, there are now huge financial incentives to either reduce the carbon consumption of steel production, or to replace steel with something which uses less carbon. Which is what you want.
Your implicit assumption is that companies are willing to pay more for steel. An increase of just a single digit percent more to the price of steel is enough to be completely uncompetitive with overseas steel production, which would inevitably lead to the closing of all local manufacturing capacity of steel.
Steel production is also a commodity critical to national security. Losing access to foreign steel due to war or other concerns would literally bring the country to its knees for the duration of the encounter.
Shifting all local manufacturing capability overseas to where there is less regulation sounds good, until it doesn't... as we saw during the pandemic. The world would have looked a lot different today if Chinese manufacturing had closed or decreased for more than a few weeks (roughly Jan-Feb, much of which coincided with the usual Chinese New Year shutdown that is typically planned for).
2. Replace steel? I see how this rationale works, we strive to replace X for something that generates less carbon, this ought to work to some extent until nothing more carbon neutral exist.
You could also have tax paid off over time. E.g. a concrete building that lasts 60 years, vs a stick build that lasts 20. Bricks are frequently recycled, >100 year lifetime.
I'm open to hearing counter-examples, i.e., where there is an external cost to not manufacturing a high CO2 cost product. The examples I've seen so far are really arguments about competition with BRICS economies, and their bizarre exemption from controls.
That customers will feel price pressure from their most-carbon-emitting activities and commodities is precisely the point. This will encourage finding alternatives. No demand is entirely inelastic.
Squeezing extra tax out of poor people who have literally no alternative is not going to be a popular plan. Allowing for a hint of nuance in your public policy would incentivize switching to alternatives where possible, while also incentivizing the development and adoption of alternatives where they don't currently exist.
I am highly skeptical that is it possible for American legislation's 'nuance' to tilt a simple tax law in any direction but towards enriching the rich and powerful.
I feel like carve outs would be great for lobbyists and the politicians they pay patronage to, but it would destroy the effectiveness of the carbon tax: the industries with enough political power would negotiate exemptions because "there are no economically feasible alternatives" but making carbon-expensive activity economically infeasible is the core purpose or the carbon tax.
Exempting any industry in particular is just corruption.
I think a carbon tax with dividend actually fits the criteria you are describing pretty well.
If the amount of the tax were fixed, the dividend would decrease over time, but the tax gradually increases as we get better and better at doing things without emitting greenhouse gases. The eventual target being net zero carbon. Based on the tax level in the Energy Innovation Act as an example, this is predicted around 2050.
As to your second point - moving the goalposts every time progress is made eliminates any incentive to improve. If you're committing to keeping the dividend the same over time, that means you need to keep the tax take the same. And if you're gonna take the same amount of money off me regardless, why should I pay attention to my emissions? In the limit case, of zero carbon, the carbon tax rate is infinite and you're taking a bunch of cash off people for nothing. Somewhere along the way, something has got to give.
For the rest of the word, we are having that massive technological innovation right now that will increase quality of life globally. For electrifying the developing world, micro grids with renewables and storage will be immensely cheaper than building our massive transmission grids and large centralized production.
Industrial sectors have the least clear path to decarbonizations, as well as sea-freight and flight, but if we can solve electricity and transportation in the next decade we have a few years so solve these far smaller sources of emissions.
There is a lot of reason to be worried, but there's also a ton of reasons to be hopeful. GDP is already decoupling from emissions, and I think as we decouple it further, we will find a higher quality of life for the vast majority of people, both in developed or developing nations.
But if we have to drastically reduce ground freight and shipping emissions to reduce co2 emissions enough, which we do, goods will be more expensive. And it's also not free to switch private cars to EVs. If goods in general are more expensive, then peoples' money goes less far.
To be clear, I am in favor of this. Maybe you can make the very wealthy eat the cost, but somebody has to pay for it, and I can't see how it doesn't result in lower mean quality of life.
Average age of a car in the US is 12 years. The fleet gets swapped out naturally pretty quickly, and slight incentives would accelerate that. It's faster than swapping out electric generating capacity.
If we are at 100% of new vehicles being electric in 2030, I'd be surprised but also ecstatic.
I don't think that's necessarily true. It will be expensive to switch to renewables, certainly, but the ongoing externalities and subsidies for fossil fuels are already extremely expensive to society. Even if you completely ignore climate change, the costs in terms of healthcare and QALYs just due to air pollution alone are tremendous.
We have the technology we need to solve climate change already, the problem is not that people aren't willing to make the necessary sacrifices, the problem is that it's hard to get past societal inertia and overcome entrenched special interests.
Not really, that’s why it’s an externality. The damage in the US caused by climate change is maybe a few billion annually in increased hurricanes right now. That’s only like $10/person a year.
This is why it requires getting people to understand the future damage that will be caused. What’s happening now isn’t enough to justify doubling electricity costs, etc because most citizens aren’t feeling any pain from climate change.
> the costs in terms of healthcare and QALYs just due to air pollution alone are tremendous.
CO2 != “air pollution” in the sense that causes health problems.
In France we had a Citizen's Convention for Climate (CCC), basically a citizen's jury of 150 people tasked with finding solutions for the climate crisis.
One thing was extremely clear from their proposals: people are absolutely willing to have strong climate laws passed as long as they only constrain other people. Usually these other people being vague shapeless corporations, because it feels like any cost that they bear isn't a real cost.
Maybe a climate change solution won't reduce anyone's standard of living, but maybe it will. If we're content to say "we have to stop polluting activities unless someone's livelihood depends on it in which case we'll do something else", we're screwed. Every polluting activity has someone's livelihood depending on it.
If the price is set on carbon, I’d expect it to be proportionate.
If a ship burns the filthiest high sulphur bunker oil then it pays no more tax than a sail boat.
We can't fix climate change with exceptions for everyone.
So it seems to me the authors of carbon pricing proposals agree with this book, and pivoted accordingly.
See https://rooseveltinstitute.org/wp-content/uploads/2020/07/RI... for more of that.
If anything, it's actually this sort of nuclear subsidy that could be too hands off --- if it's like a 1990s throw money at ISPs for fibre with no strings attached tpye thing. I would say Carbon tax and nationalize the nukes.
https://www.wiley.com/en-us/Making+Climate+Policy+Work-p-978...
If we treat all industry as spherical cows, a common carbon price comes out as a great way to incentivize industrial change.
However, once we get into the particulars of different industries and the varying levels of difficulty they have in decarbonizing, and the very different levels of lobbying power they have to influence that price, and the difficult of enforcement across different sectors, a common shared policy across all sectors starts to be far less efficient than tailoring the solution to each industry.
For example, steel is pure commodity, very difficult to eat any cost from stranded assets, and has far less ability to call up capital to solve the problem than, say, natural gas. So the price will have hugely different consequences for steel than natural gas production, and there are different tailored industrial policies that will make the transition happen much more time- and cost-efficiently.