Why is carbon pricing so hard?

I’ve just published a piece in Aeon (an excellent and free online magazine) drawing on the analysis in my (about to be published) book Economics in Two Lessons. I make the case that carbon pricing, whether through a tax of an emissions trading scheme, is the most cost-effective way to stabilize the global climate. Moreover, it’s straightforward to offset any adverse effects on low-income earners, displaced workers and others.

That raises the obvious question: if carbon pricing is so good, why is it so hard to implement, compared to less efficient alternatives like mandatory renewable targets. One factor, which I discuss, is that the creation of property rights over previously open-access resources creates obvious, and often powerful losers.

I was limited by space, so I couldn’t discuss the more puzzling problem of why regulations are more politically salable than prices even in the absence of income effects.

41 thoughts on “Why is carbon pricing so hard?

  1. mrkenfabian,

    I agree 100%. At the same time I am advising my 25 year old twins for their respective life paths;

    (a) Long term, live well above sea-level; 50 vertical meters should do it.
    (b) Live 2 meters above a 1 in 1,000 year flood level.
    (This is based on current assumptions now,,or soon, being a factor of 10 out.)
    (c) Use an underground or semi-undergound house design.

    There are extant designs, with or without firestorm shutters depending on the window quotient.
    These houses are naturally well insulated and have a huge thermal ballast capacity.
    A semi-rural setting is best with full solar power and water collection facilities.
    Have batteries and water tanks (water tanks underground within the house).
    Be connected to power and water grids if possible but have the capacity to “island” for up to a month.
    Don’t go full prepper but still have reasonable stocks of non-perishables and water for a month or two.
    Rely on concealment and non-obtrusiveness in the landscape and social-scape.
    Have nothing to do with man-traps and guns.
    Seek cooperative and friendly arrangements with neighbors and locals
    (Who will know you are there but that knowledge will be largely local.)
    Hope there isn’t a large war.

    This is how I would prepare now if I were 25 on a professional income or a double income with a partner. The world is going to change radically but how radically we do not know. The above hedges bets nicely I think.

  2. Ikon: “stuck in the desert I can drink two liters of potable water or I can put it in a boiling radiator but I cannot do both”

    Actually, in that example, you can do both 😉

    I think you identify the problem correctly. Too much economic reasoning is clearly politically and ideologically driven towards growth and profits at all costs. The costs preferably borne by someone else (Harry’s solution)

    But opportunity costs aren’t negative externalities. Opportunity costs cost me. Negative externalities cost someone else. Most companies won’t account for negative externalities, let alone pay them, unless they’re required to by law. Regulation forces companies to include those costs in their accounting.

    Hence, why a carbon tax is so important. It’s not a problem of economics, but political will.

  3. To meet Harry halfway, I’d suggest:

    “Australia will only export fossil fuels to those countries which have a working and effective carbon pricing scheme in place.”

    We could introduce that policy in 2025. And begin phasing out exports and production all together between 2030-2040.

    The sheer amount of superannuation money forced to flow into the rest of the economy (hundreds of billions) would be of massive social benefit.

  4. Nick, That is effectively taxing the exports but refunding the proceeds of the tax to the country receiving them. It won’t work.

  5. Why is carbon pricing so hard?
    Because all those ideas presently mentioned in the discussion generally are punitive and would cover the most of the population in some form.
    Ideas coming from government should not be punitive for large sections of population. This is the major reason that Soviet block has failed.
    Me personally, do not believe that human actions are the contributing a large percentage to climate change that is still real. When you take a look at the really long term temperatures on earth (0.1 milion years) you will notice huge climate changes long before human population could have affected it. Simply huge temperature changes that are very moderate in last 10,000 years ever since the Ice cap over North America melted and rose see levels for about 400 feet. Nobody can figure out where the energy needed to melt that much of ice came from. Even if placed in Sahara that much ice would need thousand of years to melt. Yet that climate change happened in decades when there was no population to cause it.
    Climate Change is real but we are not doing it that much as something else is.
    Still i would like to have cleaner environment then it is now.

    Making the cleaner environment by punitive action by government is simply wrong way to go, especially that people are so divided over it.
    The solution should be to act rewardingly from government. Pay for cleaning or better yet to organize cleaning or collecting of the pollution that polluters create while keeping the present laws on environment protection active so the program is not simply abused by polluters.
    The project should be a part of the Job Guarantee.

    While the present low employment is conducive to such program, in times of full employment there would be no resorces left for environmental programs.
    I find that very destructive jobs are in marketing sector. Marketing on such scales is simply destructive . While the job number reduced by technology we can see that major growth of jobs is in entertainement and marketing. Entertainment is not bad but marketing is just destructive and create bad dynamics of much lieing in society. market yourself at any cost is very prevalent in society all over the globe. And i think that commercial marketing is a major contributor of that.
    Place a large tax on marketing industry to reduce it and create employment for environment projects on a permanent base.

    Again, solutions should not be punitive from the side of the government but provide a free service to keep the environment clean in all areas. Collect pollution for free and governments will get a better rap. MMT explains that governments can run deficits as much as needed. Consolidated government has a financial set up to provide sovereign governments with unlimited power of organization at a desired goals.

  6. Harry, you want no carbon tax on fossil fuel exports. The least we can do in that case is ensure carbon emissions from those exports are being taxed appropriately in the countries we’re exporting them to. Otherwise we’re just kidding ourselves. And it’s not just another way of taxing exports, because just taxing exports doesn’t incentivise other countries to introduce carbon pricing.

  7. Nick, You didn’t read what I wrote carefully.

    We don’t rule the world so the “least we can do” claim is meaningless. That is our objective not something we can force.

    BTW no-one as far as I know has ever (ever!) suggested taxing carbon exports because coal (apart from fugitive emissions associated with mining it) is not a pollutant – burning it is. So it is taxed where it is burnt.

  8. That’s totally disengenuous Harry, why would anybody dig up coal if they didn’t want to burn it? It has no other use so it is a pollutant, unless it remains in the ground.

  9. Disingenuous, indeed. Makes me think of cigarettes – harmless unless you set fire to them and inhale the smoke; nothing to do with tobacco growers or cigarette manufacturers!

    If responsibility for climate consequences could be sidestepped with a warning label – “Flammable product. Keep away from naked flames” or perhaps “No responsibility taken if burned” – the climate science deniers and coal boosters could have skipped funding all that FUD. Pretending that coal boosting is lifting the world out of poverty whilst pretending the external costs don’t exist or don’t count – mid range estimates of US$40 per ton of CO2 mean the external costs exceed the sale price – is also disingenuous.

    As for the “least we can do” claim, I stand by what I wrote. I believe Australia is responsible for the position it takes in international obligations. I’ve seen no evidence of any ambition to achieve the most emissions reductions, whether domestic or global – but plenty of evidence of anti-ambition to keep Australia’s obligations low.

  10. Re: https://johnquiggin.com/2019/03/13/why-is-carbon-pricing-so-hard/comment-page-2/#comment-206499

    Ikonoclast,

    It looks like you are saying one is not a ‘full’ prepper without taking man-traps and guns on board. Given that, then what you have listed must still approach describing a 99% prepper. The guns and traps in your “semi-rural” to wilderness refuge could well be for food alone and not man… Fine lines to draw, I know, but survival is often a close run thing. I tell my kids, near the same age as your twins, to make the same preparations… I recall that I thought a bit less of my father when, back in the 90s, then in his mid-70s, he said whenever the subject came up that he’d be dead before climate destruction caused TEOTWAWKI. Prospect of personal oblivion seemed to render the prospect of TEOTWAWKI remote. Now TEOTWAWKI is all but a fact of history, and soon, yet I now am old enough and resigned to the fact that I will most probably lazily duck it myself despite the energised 25 year old within having now the knowledge and resources to do some survivalist prepping. I know my time is limited. I’m sure my kids’ time to prepare is also limited. I’m old enough to grok how fast time flies, but actual 25 year olds are still immortals. I could set up a prepper refuge, but I likely will not need it, and the kids wouldn’t know how to utilise it when the time came. I’m being swept with the tide some way towards my father’s situational outlook back when. I may soon build a boat to cruise upon the sea instead of a proverbial ark to leave prepped and propped upon some fertile mountain slope.

  11. Svante,

    I don’t see my advice as anywhere near full prepping. Guns and man-traps are 50% of hard prepping. Fortressing, surveillance and hoards of food, fuel etc. are the other 50%. I’ve advocated about half of the second half, if that. Halve that again for just 1 month of supplies. That makes it about 12.5% of hard prepping. But it could be quickly taken to 25% at need.

    (Actually full prepping advocates 12 to 24 months of supplies. If you need that much then civilization won’t be coming back. The environment will be so degraded after that you won’t be able to feed yourself after that anyway. So forget 24 months supplies, a young family will need 24 years of supplies. LOL, good luck with that.)

    The underground or semi-underground house is intended as a fortress against environmental hazards only (heat, cold and bush-fires). It would be designed in that fashion. Such an underground house may well be cost neutral in the long term, factoring in maintenance savings, energy savings, insurance savings etc.

    It’s wise to build well above sea levels and flood levels anyway. The levels I suggest indicate a very high risk aversion but again the extra financial costs are probably zero or even negative. Further from coastal and river scenery, land is usually cheaper. There’s plenty of nice bush. I like bush but not bush-fires. The house would be fully immune to bush-fires. There is just the issue of preventing smoke intrusion but smoke at ground levels is at the lowest concentration.

    The other aspects are not heavy prepping, just keeping a low profile and friendly cooperation with neighbors. Being outside full urban areas is nice to avoid riots, civil unrest, and that sort of nonsense. Outbreaks of that are possible. I am not envisaging full societal breakdown. If that happens then most people are dead already, or wishing they were.

  12. Harry: “Cigarettes are likewise taxed when sold.”

    Australia doesn’t grow or export tobacco.

    https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/edrates/excise-duty-rates.html#_Toc527013632

    https://www.thejakartapost.com/news/2019/03/18/indonesia-nets-931-6m-for-cigarette-exports.html

    There are a few others, mostly developing nations. Many countries have had them at various times , but the tobacco industry has fought hard to have them stamped out.

    Got to have free trade at any cost.

  13. Harry – “It can be burned in different ways”. Coal not tobacco presumably. I hope you aren’t buying into the nonsense that HELE is low emissions; it isn’t. Or that CCS is feasible – Carbon Capture and Storage means dealing with 2 to 3 times as much CO2 (by weight) as there was coal, and requiring a lot more sophisticated technology than unpressurised ship’s holds or open rail carriages. And it would have to go somewhere very deep that has never been drilled before, or even during the process of pumping it underground – because how long do we expect concrete plugs to last? An interesting dilemma.

    We will only successfully deal with climate change by facing up to it and sacrificing expectations of an enduring fossil fuel industry, whether for domestic consumption or export.

  14. No-one ever has suggested taxing coal. It isn’t on the radar nor has ever been. The debate is about whether to tax the production or consumption of emissions. My argument is that a production base is preferable. The argument I develop concerns that. A lot of irrelevancies here.

  15. Like tobacco, the idea should be to tax coal before it goes up in smoke.

    Both coal and tobacco are harmful to public health and a drain on resources and their reduction or elimination should be seen as a nett saving to the economy.

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