Natural gas and climate change

Natural gas is cleaner than many alternatives, notably coal. It could help to reduce US carbon dioxide emissions from around 18 tonnes per person today to around 14 by 2040.

Unfortunately, that is nowhere near enough. I went to an interesting presentation last week on the 'Economic Implications of Moving Toward Global Convergence in Carbon Emissions'. I learned that taking into consideration population growth, the sustainable level per person per year is around 2 tonnes. That is around the India's level today.

A carbon tax imposed only in the developed world can help. But even a tax of around $250 per tonne would not be sufficient to achieve convergence at sustainable levels. A tax around this level would increase the price of petrol by around $4 per gallon. That sounds like a lot but it really isn't. Americans are still drastically under-paying for petrol compared with Europe and even compared with plenty of developing countries, which can least afford it. Unfortunately, carbon is currently trading at around $10 per tonne in the EU. Still some way to go.

Market forces to combat climate change

David Frum argues that the best way for the (US) government to reduce oil dependence is to 'do nothing'. By 'do nothing' he seems to mean tax dirty energy and reduce income taxes by an equivalent amount*. If consumers really value polluting, they will spend all of their reduced taxation on that, if not, they can maybe use their extra cash to buy a bike and cut down on petrol. Given that 40% of trips in the US are under 2 miles and 90% of these are done by car, this seems possible even with current sprawling suburbs. Although there are issues, some independent-minded folk from Raleigh, North Carolina have been trying to figure out how to make Americans walk more (a short, fun video). I think that higher taxes on fuel are a practical and moral obligation.

Unfortunately, maybe your kid will learn that climate change is a big hoax in school. And Newt Gingrich seems to think that a free-market supporting American government should intervene to guarantee cheap petrol (HT:JK). The flip side is that taxes would have to rise to pay for the increased subsidies and there will be more floods, droughts, forest fires across America as a result of the increased pollution. It doesn't seem like such a fantastic deal.


* In the sense that this means no net change in the burden on the taxpayer, this is 'doing nothing'. But I think he undersells himself in that changing behavioural incentives to minimise negative externalities is a difficult and important part of governing a country.

Carbon offsetting is sexy!

I did it for my flights to the UK over the xmas hols and for the 1600 miles I managed to clock up in the hire car. I don't think that I should have had to do either as it should be included automatically. Happily, any airlines flying into or out of the EU now have to pay the carbon tax if they exceed their (tradeable) limits. It's a pity these carbon credits were given away rather than sold to begin with and not sold but it is a good start. 

I am really happy the EU resisted pressure from airlines and other countries not to introduce the tax. See, for example, this stupid article from the Washington Examiner which thinks that the EU is trying to get foreigners to bail out the failing European economy - um... Europeans have to pay the tax too; increasing transport costs hurt not benefit the economy in the short run; and, quite frankly, we will all destroy all of our lives if we done implement schemes such as this - in economic models, that results in a utility of minus infinity making this excellent long-run economics.

Carbon offsetting the flight and the car journey makes them both more expensive but if I don't pay, someone else (who is probably significantly poorer than me) will pay for it. 

I use myclimate.org to do my carbon offsetting.

Exporting pollution and jobs

George Osborne had a few Green Concessions in his Autumn Statement, although maybe not enough - more words than actions but it is a good start as it at least acknowledges the importance of climate change for the economy.

Here is a part I found interesting:

"We are not going to save the planet by shutting down our steel mills, aluminium smelters and paper manufacturers," Osborne said, announcing the expected rebate. "All we will be doing is exporting valuable jobs out of Britain."

From an economic perspective, I dislike it - it smacks of protectionism and subsidising some sectors when British society and developing societies would all be better off if British steel mills, aluminium smelters and paper manufacturers did indeed shut down and we imported these goods from other places.

But I do agree that from a climate change point of view, he is probably right. Brits will not stop consuming these goods - they will just be imported. The pollution will just be shifted elsewhere. Here is some excellent analysis from The Oil Drum blog which shows that carbon emissions can decline in, say, the UK, but it gets shifted to, say, China (HT: MM). The planet as a whole does not benefit. Indeed, due to transport and the fact that China is less energy-efficient there may be a short term negative impact (but perhaps longer term positive one thanks to learning to be more energy efficient).

This is not a sufficient argument for bad economics though. Instead it means that it is the consumers and not the producers of carbon who need to pay for it. Shifting dirty production abroad and importing the goods is just cheating. It should also imply that taxes in the West help to pay for industrialising countries to become more energy efficient.