I have heard more about climate change in the “big” news in the last few weeks than I think I have heard in … years.
The confluence of several big things may have presented an opportunity: the “fiscal cliff”, the hurricane Sandy, and the outcome of the 2012 election.
Avoiding any Discussion for Four Years
Obama has done a lot of good things in four years. Like saving our asses. And using stimulus funds to invest in clean tech. And increasing fuel economy standards dramatically. But he punted on climate change. Not sure he had much choice.
The election campaigns were downright pathetic in their avoidance. The words “climate change” and “global warming” were taboo, and meanwhile the deniers have rebuilt their cases. In some cases, “energy independence” was used as a proxy. I understand the rationale and strategy. Obama is a pragmatist. Look at the stupidity around Solyndra — a debate about climate could only had been bad for Obama. So he agreed with the “all of the above” strategy, tossing a bone here and there to include renewables.
So, while Rome burns it took a costly climate disaster to finally get us talking again:
While We Weren’t Talking About Climate Change
The thing is, this “all of the above” strategy has had a little boost from natural gas fracking which has caused the price of natural gas to fall dramatically, and open up shale oil. The US will be the top oil producer in 5 years, according to an IEA report summarized in the New York Times yesterday.
The Rebound Effect: Yes, and No
I think I need to eat my words, at least to some degree.
The NY Times article asserts “The United States’ reduced reliance on coal will just mean that coal moves to other places”. While increased supply is largely due to technology that reduces the price of getting at formerly expensive oil and gas, it’s also because we’ll need less … because of the dramatic changes in vehicle fuel economy standards. The rebound effect predicts that reduced prices due to efficiency gains are offset by increased consumption. I railed on the conclusions of a 2008 article in The Economist.
What I didn’t account for was a local effect, where “local” is, in this case, the US. Our efficiency, cleverness (and continued luck with natural resources) gives us the chance to shift to natural gas … and ship our coal to China, or maybe Germany which has eschewed nukes. The world’s energy demand is growing as China, Indonesia, India and other countries grow.
Time To Export Something Else
So imagine that we do eventually find our way out of our current economic morasse. And imagine that continued severe weather events with big price tags continue to show people little glimpses of the impact of climate change. Perhaps then we will regain some political will to get serious about climate change?
As noted above, gas prices have plummeted, and we have seen a dramatic conversion of electricity generation towards natural gas away from coal. Price matters (duh). Here’s a chart from the EIA
If we get our act together and start accelerating progress on R&D of renewables, they may catch up in cost advantage. To be sure, this is not a simple conversion, as it is (relatively) for an electricity generation plant. There are many bits that need to be worked out. And yes, when we do and the overall supply of energy increases, prices will fall and make less high-tech energy sources more attractive in growing economies.
The difference is: just as China has exported inexpensive solar panels to the US, increasing adoption here, the US (and other leaders in R&D) can export the same technologies that make clean energy a better and cheaper alternative than fossil. In the end, cheaper wins.
Another difference is climate change. The goal isn’t necessarily to use less energy, it’s to use less carbon-based energy. It is a global problem, and while some countries will be less able or willing to reduce carbon emissions (as the US and some others have been to date, mostly) we cannot escape climate change impacts.
I think for the first time, as a result of the Sandy hurricane hitting New Jersey and New York, the impacts and costs are being discussed openly as a trade off between spending money now to save more later. This is just a cost-benefit analysis.
I (and many others) have been arguing for years that the cost of fossil energy fails to account for the cost of climate change — a classic example of externality in econ-speak. This externality is the justification for solutions like cap-and-trade or a carbon tax.
The problem is that these costs have been seen as unquantifiable and distant. Even if we have attempted to estimate impacts in any systematic way, such calculation is inherently imprecise, and lack of precision is fodder for the seeds of doubt. Similarly, prices in the future are discounted — you’ll pay less for a dollar you’ll get in a year than one you’ll get now. So it’s really hard to say how much we should spend now to mitigate a problem we’ll have in the future.
The good news is, climate change is arriving more speedily, and with more gusto than predicted. Climate change is here, and at least in some ways, its costs are now calculable.
Of course this is terrible news, since it merely confirms that we will pay a huge premium for our failure to plan ahead, just as an insurance company won’t cover an accident after it has happened.
But having the ability — and more importantly, the political will — to quantify the costs of climate change lets us actually do that cost benefit analysis.
With some real numbers, even just by way of examples, will provide a clear justification for legislative change. And here’s why the “fiscal cliff” may be an opportunity: it’s about taxes. And carbon taxes sound relatively appealing, at this very moment.
A Moment in Time for a Carbon Tax
Perhaps, just perhaps, we can capitalize on this right now with
What I came to understand more clearly in these last few years is that our legislative process is an opportunistic process of changing the status quo. It’s very hard to do. Obama’s message in the last weeks of the campaign was “you know me”.
We picked the devil we know (don’t get me wrong, this was definitely a good thing). Likewise, the fact that Obamacare has passed and with the election has survived it’s first real threat means it will increasingly become the status quo. Looking back further, Roe vs. Wade, and even the Clean Air Act all have endured, despite extended opposition.
So, our chance may be now to get some foothold in real legislative action to help address climate change. We may be getting past some of the delay tactics of Merchants of Doubt. For the first time in more than a decade, perhaps we’re finally coming to accept that “tax” is not a dirty word. And the fiscal cliff may force this issue.
If we can get past these roadblocks, the question becomes not whether to tax, but what to tax.
Carbon producers aren’t exactly up there amongst the country’s best loved corporations.
Now that “tax” is back in the lexicon of approved words, we have an opportunity to get out of the mealy-mouthed language of Cap and Trade (even if it is the better option) — language matters: it’s a carbon tax.
The key is, now is the time. We’ll certainly continue to have extreme weather with costly impacts, but this one got peoples’ attention at the right time.