Are climate damages immeasurably bad?

by Frank Ackerman

It is a paradox of climate economics: How can we know that a few degrees of global warming will be very bad for us, when we do not know how to measure how bad it will be?

The principal benefit of reducing greenhouse gas emissions is that future climate impacts will be less severe. The most serious climate risks will emerge as temperatures climb beyond the range of historical experience, creating conditions qualitatively worse than we have ever encountered. Definitive empirical evidence about the magnitude of future damages will not be available until it is too late to avoid them.

Still, in the prevailing paradigm for climate policy, particularly in the United States, cost-benefit calculations reign supreme and precise numbers are needed. The models used to calculate the Obama administration’s “social cost of carbon” (SCC) estimates all rely on “damage functions” – quantitative estimates of losses that will be incurred as temperatures rise. My own work has criticized the FUND model, which offers the most detailed, and most conservative, damage estimates, often based on dated or limited information (see my 2012 and 2016 articles). The National Academy of Sciences has issued an extensive, damning critique of the analysis behind the SCC estimates.

The point is not to make up [sic] a different damage function. We still have no idea exactly how bad future damages will be. Nonetheless, there are at least two reasons why we know it is urgent to combat climate change. First, our society has emerged and thrived in an era of remarkably stable temperatures. Second, within that era, short-term episodes of global cooling have revealed astonishing, if unpredictable, sensitivity to moderate temperature changes.

One hundred centuries of stability

In One Hundred Years of Solitude, Gabriel Garcia Márquez imagined Macondo, a community that developed its own idiosyncratic and magical life, believing itself to be insulated from outside forces – until suddenly it was not. Our global society has enjoyed one hundred centuries of temperature stability, developing the unmagical realism of agriculture, cities, modern medicine, Facebook and Twitter, and all the rest of modernity, for good and ill. Yet the history of the previous hundred centuries (i.e., 10,000 years) demonstrates that there is no guarantee of such stable temperatures, as shown by the temperature record reconstructed from Greenland ice cores (see graph).

There were three wild swings in temperatures between 10,000 and 20,000 years ago. First came the sudden end of the last ice age, followed by both the beginning and the end of a later cold spell. Known as the “Younger Dryas,” it was named for an alpine wildflower (see picture) that flourished at lower altitudes during the millennium of cold. In all three cases, the temperature changed at by at least 5°C per century, for more than a century. A 5°C change is equivalent to turning Illinois into Arizona, Boston into Raleigh, NC, or London into Barcelona. A change of this magnitude in a matter of decades is much too fast for successful adaptation in society, housing, infrastructure, and particularly agriculture.

Nothing remotely like that has happened in the last 10,000 years, but the Younger Dryas experience shows that disastrously rapid climate change is entirely possible. The cause, in that case, may have been rapidly melting glaciers at the end of the ice age, dumping a huge volume of cold, fresh water into the North Atlantic. This could block the large-scale circulation of ocean currents and shut down the Gulf Stream, which normally warms Europe and North America. Could the same thing happen again as the Greenland ice sheet continues to melt? Or could something else suddenly destabilize temperatures?

This is the scale of risk that matters, not the nuances of measuring incremental damages in a non-crisis environment. The baffling but logical “Dismal Theorem,” proved by economist Martin Weitzman, shows that because we cannot rule out truly catastrophic scenarios with much confidence, the marginal benefit of emission reduction is literally infinite. The timing of crisis is unknown, but action is urgent: as a leading citizen of Macondo realized much too late, “races condemned to one hundred years of solitude did not have a second opportunity on earth.”  


The high costs of global cooling

Even within the last 10,000 years of relatively stable temperatures (see graph), there are blips up and down. Some of the strongest evidence on the risks of global temperature changes comes from historical episodes of temporary cooling. Two recent histories of such periods may provide too much information for the average non-historian, but they thoroughly document our sensitive dependence on precise temperature ranges.

In Global Crisis: War, Climate Change and Catastrophe in the Seventeenth Century, Geoffrey Parker describes the bleak political and economic consequences of the global cooling, averaging about 2°C, in the mid-1600s. This “little ice age” was a time of widespread crop failures and extreme weather – and of civil war in England, the bloody conclusion of the Thirty Years War in continental Europe, the overthrow of the Ming Dynasty in China, and on and on around the world. In the seventeenth century, black magic was a popular explanation of mysterious losses; the Salem witch trials followed some years of unusual cold and scarcity. Less magical explanations include the near-absence of sunspots and the high level of volcanic activity at mid-century, both of which reduce the amount of solar radiation reaching the earth.

In The Year Without Summer, William and Nicholas Klingaman chronicle the effects of the immense 1815 volcanic eruption of Mount Tambora, in what is now Indonesia. As epic quantities of dust and debris circulated in the atmosphere, dimming the sunlight, 1816 became the second-coldest year on record in the Northern Hemisphere since at least 1400 (the one colder year, 1601, also followed a massive volcanic eruption). Cold rain, snow, and occasional frosts continued throughout what should have been the growing season in 1816, leading to widespread crop failures, famine, food riots and increased emigration in Europe, North America, parts of China, and elsewhere. It took several years for the dust to finally settle, allowing the climate to return to normal.

In short, our society, and particularly the agriculture that feeds us, is dependent on a narrow range of what we consider normal temperatures, precipitation, and other climate conditions. Human beings can survive wide swings in temperature; the stuff we eat is much fussier about the climate it needs. The rippling social, economic, and political effects of sudden changes in climate are hard to predict in detail, but disastrous in general, even from what may seem like small or temporary changes. A 2°C change in temperature, now taken as the threshold for dangerous climate change, has been enough in the past to cause the collapse of harvests, the overthrow of kings, and wars, poverty and misery on many fronts.

None of that fits in the damage function of an economic model. It is simply immeasurably bad.

 You can email Dr. Ackerman at The graph and parts of the text in this article are taken from his recent book, Worst-Case Economics: Extreme Events in Climate and Finance.


A Climate of Capitalist Dominance

by Peter Dorman, member green economist of the E3 network

reposted from EconoSpeak







(New York City; DigitalGlobe)

We’ve now had a chance to see the second column on climate change by the new NY Times voice on the right, Bret Stephens, and unlike the first (which reasoned—sort of—back from its conclusions in true hackish fashion), this one isn’t so bad.  He argues that government action on climate change has done as much harm as good, pointing to the biofuels fiasco and shortcomings in the European (Carbon) Trading System (ETS) and Germany’s Energiewende as cases in point.  I agree.  What he says about these programs deserves to be said, especially since too many self-styled progressives won’t.  There’s a lot of really sketchy climate policy out there.

So what does he miss?  The first omission, and it’s an important one, is that he considers only the failures of government, not those of business and the market.  Above all, the continued operation of, and even investment in, a fossil fuel-based economy in the face of what we know about climate risk, is a massive fail, greater than every error committed by governments.  That doesn’t justify bad policy, but it puts government malfeasance in perspective.

To see the second omission we need to drill down a bit.  Consider the three examples Stephens brings up; what do they have in common?

Biofuels: Rather than taking action to remove fossil fuels from our energy base, government policy boosted a supposed “green” energy source derived from commercially grown crops.  This generated substantial profits for agribusiness, but, as Stephens rightly argues, it did little if anything to forestall greenhouse gas accumulation while producing a number of serious economic and social costs.

The ETS: Despite howls of protest from the scientific community, European politicians made decision after decision that eviscerated their carbon pricing system, handing out carbon permits for free, setting meaningless targets and removing large sectors of the economy from regulation.  The system has essentially broken down, but not before, as Stephens mentions, bilking European households of billions in energy costs, which went directly into corporate coffers.

Energiewende: While the achievements of solar and wind energy promotion in Germany are remarkable, the overall strategy prioritizes expansion of renewables and avoids taking any action to simultaneously restrict carbon fuels.  The result is that Germany has both record-setting increases in renewable capacity and hardly any reduction in carbon emissions.

All of these examples have a common theme: governments seem unable to frame climate policy in any terms other than subsidies for corporate investment and profit.  A biofuels initiative is easy to advance, since it funnels public money to agribusiness.  The only ETS element that had any effect is the one that temporarily increased electricity prices and allowed privately-owned utilities to reap all the profits.  Energiewende supports firms that invest in the renewable sector but overlooks firms that continue to profit from burning carbon.

The common denominator is overweening capitalist power.  Climate policy is constrained by the determination of wealth-holders to protect and expand their wealth.  An effective response to the threat of a climate catastrophe, on the other hand, would unavoidably deplete their wealth—not only the stranded assets of the fossil energy sector but a range of other investments that would be devalued by a rapid shutdown of oil, gas and coal.  (I’ve done a back of the envelope estimate that the wealth hit to non-energy assets would be approximately as great as that to carbon energy.)

So I’m on board with what Stephens is against but not what he’s for.  Rather than dismiss all action on the climate front as misguided, I would like to see the non-wealth-obsessed interests in society mobilize to overcome capitalist power.

Who Needs the Dakota Access Pipeline?

by Frank Ackerman, member green economist of the E3 network

reposted from CommonDreams

A packed Seattle City Council chamber cheers passage of the bill to drop Wells Fargo as its bank last week. (Photo: Ken Lambert / The Seattle Times)

The final link of the Dakota Access Pipeline (DAPL) can now be built, thanks to a recent decision by the Army Corps of Engineers (although the Cheyenne River Sioux have filed a last-minute suit to stop it). In light of the disappointing but unsurprising federal approval of the pipeline, it is worth pausing to ask who and what DAPL is good for.

Who needs the pipeline? There are four main answers: three are silly and one is dangerous.

Silly answer #1 is that the ravenous ego in the White House needs a continual flow of evidence that he is always a winner and his enemies are all losers. Indian tribes and environmentalists can get in line next to Muslims and Mexicans as obstacles, which he shall overcome, to the huge success of making America some kind of great again.

Answer #2, only slightly less silly, is that Energy Transfer Partners (ETP), the company that built the pipeline, has $3.8 billion invested and won’t earn a dime on it unless the pipeline is finished. ETP is a well-connected company – at least until recently, Rick Perry was on its board of directors and Donald Trump was one of its stockholders. Surely that’s irrelevant to the recent decision.

But it is well established in economic theory that people who make bad investments should lose money on them. Milton Friedman, the forefather of conservative free-market economics, was emphatic on this point. As Friedman might have asked, why is DAPL a worthwhile investment that deserves to make money? Who actually needs this pipeline?

Answer #3 is only silly if you pay attention to the numbers. Building a pipeline creates jobs. Good, high-paying jobs making and laying pipe. In fact, building anything creates jobs. Building a bridge to nowhere or a pipeline that no one needs will create jobs – but building things that people need can create even more jobs. An in-depth study of alternatives to the proposed Keystone XL pipeline found that the host states could gain many more jobs by investing in much-needed infrastructure for clean water and natural gas distribution.

Moreover, almost all the jobs created by building DAPL have already happened, because the pipeline is almost complete. It makes no sense to count past jobs as future benefits. If construction jobs are an important benefit of the pipeline, I hope you enjoyed them; they’re all but over. Once a pipeline is completed and in operation, it needs very few workers to keep it going.

Finally, the dangerous answer is that DAPL would be useful to keep oil flowing if the price of oil was much higher than it is today. The danger involves the factors that might cause higher prices. But first, a little back story.

DAPL was planned in early 2014, at a time when the price of oil had been above $80 per barrel, often closer to $100, for the past several years. Oil production in North Dakota was booming, and there were early signs of a shortage of pipeline and rail capacity to carry the state’s oil.

Then, in the second half of 2014, the price of oil collapsed. Since the beginning of 2015, the price of oil has been below $60 per barrel, occasionally far below. Oil production in North Dakota has slumped, and the volume of oil carried out of the state by pipeline or rail transport has plunged so low that there is no hint of a capacity shortage.

North Dakota is among the most expensive on-shore locations for oil production in North America. Several oil experts have estimated that the break-even price for North Dakota oil is $60 per barrel or more. In my own study of the state’s data, I found that North Dakota oil production tends to go up when the price has averaged more than $61.50 per barrel for the last few months. The flip side is that North Dakota output tends to drop when the price of oil lingers below $61.50 – as it has done for the last two years, ever since early 2015.

So DAPL will only be needed for oil transport if the price of oil goes, and stays, much higher than it is today. Here comes the dangerous part: suppose that an out-of-control White House was inflaming conflict in the Middle East, threatening bad relations or even war with major oil producing nations. If OPEC countries cut off oil shipments to the United States, the price of oil will soar, North Dakota’s oil boom will resume, and DAPL will become key to Fortress America’s oil supplies.

Normal diplomacy would prevent that, of course. But normal diplomacy is so 2016.


Carbon Dividends: The Bipartisan Key to Climate Change?

by James K. Boyce

reposted from the Institute for New Economic Thinking

The practical question in Washington today is not whether regulations will go, but whether anything will replace them

A ray of light may be piercing the cloud of gloom that settled over climate policy after the November election. It comes from an unexpected source: grand old men of the Republican Party and prominent conservative economists. In same-day op-ed pieces in the Wall Street Journal and New York Times, they unveiled a climate strategy that aims to win support on both sides of the aisle, uniting environmentalists, growth advocates, libertarians and populists around a common cause.

A conservative plan for climate action

Recalling President Ronald Reagan’s advocacy for the 1987 Montreal Protocol, the international treaty that protects the Earth’s delicate ozone layer, George Shultz and James Baker (who served in Reagan’s cabinet as Secretary of State and Secretary of the Treasury, respectively) call in the Wall Street Journal for “the Grand Old Party to once again lead the way” in rising to the greatest environmental challenge of our era.

In the New York Times, Harvard economists Martin Feldstein and Gregory Mankiw (who chaired the Council of Economic Advisers under presidents Reagan and George W. Bush, respectively) and Ted Halstead, founder of the Climate Leadership Council, write that rather than simply repealing climate regulations left by the Obama administration, Republicans should embrace a “repeal and replace” strategy that protects the climate in a way that’s “pro-growth, pro-competitiveness, and pro-working class.”

The centerpiece of their strategy is carbon dividends: recycling revenues from a carbon tax back to the American people as equal quarterly dividend checks. For a family of four, dividends from a $40/ton carbon tax would amount to about $2,000/year.

To protect the competitiveness of American producers, they call for border price adjustments: fees on the carbon content of imports from countries that do not have comparable carbon pricing, and rebates on carbon taxes paid by exporters to such countries.

Obama-era regulations made unnecessary by the carbon tax would be eliminated, including the Clean Power Plan, which the Trump administration already has vowed to repeal.

Echoing an argument long made by climate policy advocates, the proponents maintain that the strategy would promote robust economic growth by encouraging innovation and investment in new energy sources.


Early reactions to the proposal have been mixed. Predictably, Breitbart News was having none of it. Ronald Reagan “is reaching for the celestial sickbag over this absurd proposal,” a commentator jeered within hours of the op-eds, urging the Trump administration to tell the Republican elder statesmen, “in the nicest possible way, exactly where they can shove their carbon tax.”

Former Republican presidential candidate Mitt Romney lauded it on Twitter as a “thought-provoking plan from highly respected conservatives to both strengthen the economy & confront climate risks.”

The Nature Conservancy immediately released a statement applauding the plan. The president of the Natural Resources Defense Council was less positive, telling the Washington Post that while a carbon price could be important in a comprehensive climate policy, it should not replace existing regulations.

Pricing v. regulation?

In principle, carbon pricing and regulation can co-exist. California’s cap-and-trade program, for example, complements state regulations rather than substituting for them. The cap-and-trade program for sulfur-dioxide emissions from power plants, created by the 1990 Clean Air Act amendments under President George H.W. Bush, likewise supplemented regulatory standards rather than replacing them.

Yet, many existing carbon regulations were introduced by the Obama administration as a fallback alternative in response to the failure by Congress to pass legislation that would have put a price on carbon.

There may be good reasons to maintain some existing regulations or even craft new ones. For example, fuel economy standards for automobiles that mandate a 54.5 miles/gallon average for the 2025 model year may inspire manufacturers to accelerate investments in innovations, including electrified vehicles, that yield high payoffs in years ahead.

Regulations can also be important in preventing “hot spots” where hazardous co-pollutants that are emitted along with carbon impose unacceptable risks on local populations. A one-size-fits-all carbon price does not take into account how public health benefits vary across pollution sources.

But it would require a considerable leap of faith to imagine that no regulations would be rendered superfluous by carbon pricing. For example, the Clean Power Plan’s carbon emission standards for power plants could become redundant once a serious carbon price is in place.

Moreover, all signs emanating from Washington are that the power plan will be scrapped by the new administration. If so, the practical question is not whether regulations will go, but whether anything will replace them.


The idea of carbon dividends originated more than a decade ago with the entrepreneur Peter Barnes, whose visionary book Who Owns the Sky? made the case for carbon dividends on the grounds that the atmosphere’s limited ability to absorb carbon emissions belongs to the people, and that everyone should share in payments for use of this scarce resource.

Over the years this idea gained modest political traction, notably in the cap-and-dividend bills proposed by Senators Maria Cantwell (D-Wa) and Susan Collins (R-Me) and by then Congressman (now Senator) Chris Van Hollen (D-Md).

However, bipartisan support for climate policy instead coalesced around cap-and-trade plans that would have awarded free carbon permits to polluters (rather than auctioning the permits as in cap-and-dividend). In this case, the revenue from the carbon price paid by consumers would have gone to corporations that got free permits, a windfall that proponents of the policy thought would neutralize opposition by the fossil fuel industry.

That hope proved unfounded. Successive cap-and-trade bills — McCain-Lieberman (2003), Lieberman-Warner (2007), and finally Waxman-Markey (2009) — all failed to survive the legislative gauntlet on Capitol Hill. Part of the opposition came from fossil fuel lobbyists whose preferred option turned out to be no policy at all, and from industry-funded climate change denialists.

But opposition also came from centrist Republican politicians who did not want to back a tax that would spark voter resentment. “By imposing a tax on every American who drives a car or flips on a light switch,” declared House Speaker John Boehner in opposing the Waxman-Markey bill, “this plan will drive up the prices for food, gasoline and electricity.” Democrats contested this argument, memorably claiming that the cost to the average American would be “about the price of a postage stamp per day.” But, in fact, Boehner was right. The postage stamp number came from a Congressional Budget Office study that estimated the cost of clean energy and efficiency investments to reduce emissions. Boehner was talking about the price that consumers would pay for emissions that are not reduced, much of which would have wound up as those windfall profits for energy companies.

Carbon dividends do not clear the political hurdle posed by the vested interests of corporations who do not want their fossil fuel reserves turned into stranded assets. But dividends do surmount the hurdle raised by Boehner, by turning the tax (a regressive one at that) into a net financial gain for the majority of Americans, benefiting low-income households and protecting real incomes of the middle class.

Carbon dividends could even dent opposition from those who doubt that climate change is real since, as its proponents note, the plan’s economic benefits “accrue regardless of one’s views on climate science.” Indeed James Baker says he’s still uncertain as to whether humans are responsible for climate change. But in the face of uncertainty, he and George Shultz write in their op-ed that “the responsible and conservative response should be to take out an insurance plan.” For most Americans, whose dividends would exceed what they pay in higher fuel prices, this insurance policy would not only be free, it would pay them.

Setting the carbon price

A key feature of any carbon pricing policy is whether the price is high enough to drive the necessary reductions in fossil fuel consumption within the necessary time frame. A price of $40/ton would be a good start, but it would need to rise over time. The question is how.

This is one reason why some carbon dividend backers (myself included) have favored a carbon cap over a carbon tax. Under a cap with auctioned permits, as in the Regional Greenhouse Gas Initiative of the northeastern states, the number of permits is fixed by the cap and their price can vary. Under a tax, the price is fixed and the quantity can vary. Apart from this, the two are equivalent. Because the precise relationship between price and quantity cannot be known in advance — no one can say exactly what price will reduce emissions by a specified amount, especially over the medium and long run — a cap that “gets quantities right” is the better way to hit the target.

Carbon tax proponents worry, however, that fluctuations in permit prices would impede long-range planning by investors. They also worry that cap-and-permit systems could be opened to permit trading and market speculation, or weakened by “offsets” that offer polluters alternatives to buying permits.

One way to address the concerns on both sides of this debate is to combine a cap and a tax in a hybrid policy. For example, changes over time in the tax could be calibrated to the quantity of emissions, rising automatically whenever reductions fall short of the targets. This strategy was implemented in Switzerland’s carbon levy on power plants.

The case for carbon dividends

In the past, support for carbon dividends has been limited by competing preferences of carbon pricing advocates. Among conservatives, the go-to option has been to use carbon revenue to cut other taxes, especially corporate income taxes, in the belief that this would spur economic growth. This belief is grounded in the orthodox doctrine that income taxes necessarily impose an “excess burden” on the economy, lowering total output by reducing supplies of labor and capital. This supply-side theory is taught as gospel in most graduate economics programs, despite the widespread phenomena of unemployed labor and idle capital – in other words, excess supply of both factors of production – in the real world.

Among liberals, the go-to option typically is to earmark the carbon revenue for worthy public purposes, especially clean energy investments. At first blush this may seem like a way to speed the transition from fossil fuels, but as long as the policy includes quantitative limits on emissions it could affect only how the emission targets are met, not total emissions. For example, if the money is used to subsidize more efficient electrical appliances, this frees more space for emissions from other sources like transportation fuels.

Liberals also often contend that any payments to shield consumers should be means-tested, with eligibility restricted to the needy. While this would mitigate the regressive impact of carbon pricing, it would raise administrative cost. Dwarfing this concern, however, may be the political cost of excluding the middle class. Much as the universality of Social Security and Medicare has safeguarded these programs from rollback attempts over the decades, universal dividends could safeguard climate policy over the decades needed to complete the clean energy transition.

For many conservatives and liberals, dividends may remain second to their favorite alternatives. But given that neither side has the political muscle to prevail on its own, dividends may define the scope for a political compromise that brings an effective carbon price. To their credit some prominent conservatives have figured this out. It remains to be seen whether they can enlist significant support from their fellow Republicans, and whether their liberal counterparts will figure it out, too.

Carbon Pricing To Combat Climate Change

by James K. Boyce & Mark Paul

reposted from Jacobin

Climate change is the biggest challenge facing humanity today. We need to think deeply about the consequences — environmental, distributional, and political — of the strategies being proposed for a clean energy transition. A recent Jacobin article discussed a range of strategies and concluded that carbon pricing, a strategy currently being actively promoted by environmental groups and policy makers, should not be part of the answer to the climate crisis.

We disagree. A carbon price coupled with complementary regulation is actually a viable way to combat climate change and hasten the transition to a green economy. And it’s something economists across the political spectrum largely agree on. With the Clean Power Plan likely to be dismantled under the Trump administration, a carbon price is needed now more than ever. A well-designed carbon tax or carbon cap can bring real, lasting benefits to current and future generations and help us reclaim common ownership over our environment.

Why a Price on Carbon?

Carbon emissions are not being curbed nearly fast enough (even with the Paris agreement) to fundamentally alter the current path that will take us past the 2 degree Celsius mark. We live in a market-based economy in which the majority of states do not place a price on carbon emissions. In this sense it’s reasonable to think of CO2 pollution as a massive economic externality. Externalities are costs — health impacts from air pollution, or coastal Florida going underwater in the not-too-distant future, for example — that are not currently priced into the market. When you pay for gasoline at the pump, you don’t pay for the environmental damages caused by burning it.

Putting a price on carbon changes incentives. It encourages everyone — individuals, government agencies, and most importantly companies — to curtail their use of fossil fuels. Something that used to be free — our use of the limited carbon absorptive capacity of the biosphere — now costs money. By turning what used to be an open-access resource into a form of property, putting a price on carbon compels us as a society to decide how this new property right will be distributed, above all who will get the money that people pay to emit carbon.

Choosing a Plan

Carbon pricing can be achieved via either a tax or a cap. A tax sets the price of carbon and allows the quantity emitted to vary. A cap sets the quantity of carbon that can be emitted and issues permits up to that cap, allowing their price to vary. The two can be combined, for example by setting the tax rate (or “price” or “fee”) so that it automatically increases if targets for reducing the quantity of emissions are not achieved, as is done, for example, in Switzerland’s CO2 levy.

Commentators frequently assume that a cap means cap-and-trade. This need not be the case. When the government caps carbon emissions by issuing a limited number of permits, trading is needed only if permits are given away free to corporations — typically according to a formula based on past emissions.

This model is not a given. Rather than giving the permits away, we can sell the permits via auctions (as has been done since 2008 in the northeastern US states under the Regional Greenhouse Gas Initiative). With permit auctions no trading is necessary; firms simply buy what they want at the auction. Without trading, there is no scope for market speculation or profiteering.

Regardless of whether permits are auctioned or given away, the cap results in higher prices for consumers. As the quantity of fossil fuels is reduced by the cap, their price goes up. Firms pass along the cost of buying permits at the auction — or, in the case of cap-and-trade, the “cost” of not selling permits they got for free — to consumers, who pay in proportion to the carbon embedded in the goods and services they buy.

The difference is who gets the money. When permits are given away to polluters in cap-and-trade, the corporations get to keep the money — they get the permits for free, and pocket the higher prices paid by consumers. When permits are auctioned, the money is available to the public.

A cap-and-auction permit system, like a carbon tax, allocates rights to the limited carbon absorptive capacity of the biosphere to the public, but what the government does with this money matters. Congressman (now Senator) Chris Van Hollen (D-MD) introduced the Healthy Climate and Family Security Act of 2015 — a bill to implement a carbon cap to reduce economy-wide emissions by 40 percent by 2030, selling the carbon permits at auction. The bill does not propose that the government keeps the money, but instead that the carbon revenue will go to all of us in equal and common measure in the form of a dividend — an equal payment to every woman, man and child with a Social Security number.

Benefiting the People, Not the Corporations

Many economists worry more about the size of the pie than about how it’s sliced. Growth — how fast we can expand the pie — is their obsession. Reading the Wall Street Journal we see economists poring over the recent GDP numbers. Even tuning into “Marketplace” on your local public radio station you’ll be bombarded with “the numbers” — how the stock market is doing. They’re not focusing on Main Street, where distribution matters. How are ordinary Americans faring?

We believe that in the United States today, the distribution of the pie is what matters most. After all, despite the growing pie, most Americans today are no better off than forty years ago. As Nobel laureate Joseph Stiglitz argues, “inequality is a choice.”

We face this choice in carbon pricing, too. We can choose a carbon policy that benefits all Americans, not just corporate shareholders. Due to consumption patterns, a carbon price in itself is a regressive tax: it falls disproportionately on lower-income households, because they spend a larger share of their income on carbon-intensive goods than do the rich. The average worker spends $2,600 a year commuting, but that’s a larger share of one’s income for the middle class than it is for the rich. But the net distributional impact of carbon pricing — how much money one has after taking account not only of higher prices for fossil fuels but also of where the money goes — depends crucially on who gets the revenue.

If the money is returned to the people as equal dividends per person, the policy’s net impact is progressive: the poor receive more in dividends than they pay in higher fuel prices, while the rich pay more than they get back as dividends for the simple reason that they consume more of just about everything, including carbon. Calculations reveal that the majority of households in every state would be better off under such a policy.

A carbon price-and-dividend policy would not only make a modest contribution to reducing income inequality, but would also help to ensure that carbon pricing remains politically sustainable even as higher fuel prices kick in across the economy. In this respect, as Suresh Naidu wrote a few years ago, “[t]he political economy of climate change looks a whole lot like the political economy of redistribution.” Who will come out ahead depends on who will get the revenue from a price on carbon.

No Free Rides for Polluters

There’s no need to rely solely on carbon prices to solve the problem, but they’re surely part of the solution. In fact, when we decide as a society to use prices as a remedy for externalities, we invariably combine them with regulations. For example, when we install parking meters to allocate scarce parking space along our streets, we also have rules about parking between the lines in designated spaces. A combination of prices and rules can be applied to parking carbon in the atmosphere, too.

Regulations, like fuel economy standards for automobiles or the Clean Power Plan for electricity producers, can be important tools in pushing technological change in specific directions. Regulations, like prices, provide incentives — but only to comply with the regulations, nothing more. These alone have proven inadequate to address the climate crisis. Carbon pricing provides incentives to reduce the use of fossil fuels across the board — oil, coal and natural gas alike — and also to figure out new ways to reduce their use.

Regulations alone, in the absence of carbon pricing, are like dams against a river’s flow: they may hold the water in check, but it always wants to flow downhill — in this case, towards the cheapest energy source. Carbon pricing levels the terrain for clean energy. And it has the support of a majority of rank-and-file Republicans, whereas regulations do not.

Moreover, when regulations are the only game in town, polluters continue to use the scarce carbon absorptive capacity of the biosphere for free. Those who pollute the most get the biggest free ride. With carbon pricing, the polluters pay. If we design it right, the public gets the money via dividends, government revenue, or a combination of the two.


Putting a price on carbon by means of a tax or auctioned permits does not mean turning nature into a commodity, any more than installing parking meters turns our public streets into a commodity. It means protecting nature from abuse.

Implementing a carbon price and returning all or most of the money to the people as dividends, similar to the dividends that are paid annually by the State of Alaska to all its residents in the Alaska Permanent Fund — an institution that is supported across the state’s political spectrum — will curtail the use of fossil fuels and speed investments in energy efficiency and clean renewables. At the same time it will put a dent in inequality, by charging for use of our atmospheric wealth and returning the money to all of us on the principle that we own it in common. It’s a win for the environment, and a win for most people.

There is one powerful group for whom it’s not a win: owners of fossil fuel reserves. Keeping these under the ground will substantially reduce their value. This distributional conflict is at the heart of climate policy.

Green State America: How to Keep America’s Climate Change Promises

By Frank Ackerman (reposted from Dollars & Sense)

In January, Donald Trump will endorse climate denial, renouncing the Clean Power Plan and climate targets in general. This will damage the fragile global momentum toward emission reduction, established in last year’s Paris agreement. If the United States refuses to cooperate, why should much poorer, reluctant participants such as India do anything to cut back on carbon?

But among many things that this dreadful election did not represent, it was not a statement of (dis)belief about climate change. Large parts of the country recognize the validity of modern science, understand the urgency of the problem, and remain committed to ambitious carbon reduction targets.

Suppose that many of our state governments got together and told the rest of the world about our continuing commitment to action: we are still abiding by the U.S. pledges under the Paris agreement, or even planning to do more. Not just NGO reports, blog posts, or individual signatures, but an official, coordinated announcement from government bodies with decision-making power over emissions—primarily states, perhaps joined by Indian tribes and major city governments.

The participating states could in theory be on either side of the partisan divide, but of course one side is more likely to sign on at present. Think of Green-State America, initially, as the states that voted for Clinton, and have either a Democratic governor or both houses of the legislature controlled by Democrats. (As it happens, that’s all the states that voted for Clinton except Maine and New Hampshire.) Those 18 states plus the District of Columbia account for 30% of U.S. greenhouse gas emissions. The governor or the legislative leadership of each state could sign the Green-State Climate Agreement, pledging their state to continued dialogue, cooperation, and rapid reduction in emissions. Tribal leaders and city mayors could do the same for their jurisdictions.

Green-State America is the world’s fifth-largest emitter, behind only China, the rest of America, India and Russia. We emit more greenhouse gases than Japan, Brazil, or Germany. If we were a separate country, our participation would be essential to international climate agreements. Even though we are states rather than a nation, we might be able to help reduce the international damage, by letting the world know that much of America still cares about the global climate.

Why should we address global plans at the state level? The United States is a federation of states, governed by archaic eighteenth-century interstate agreements—aka “the wisdom of the Founding Fathers”—such as the electoral college. (If we were a one-person, one-vote democracy, Hillary Clinton would be our next president, just as Al Gore would have been 16 years ago.) The expected assault on environmental and other regulations is likely to include efforts to give more power back to the states, reducing the role of federal rule-making in favor of state-level pollution control. State-level international climate policy is just one step further down that road.

Green-State America is less carbon-intensive than our neighbors; with 30% of national emissions, we have 43% of the U.S. population and 49% of GDP. Our emissions amount to 12 tons of CO2-equivalent per capita, compared to 21 tons in the rest of the country. There is more to be done to control carbon emissions in America—but it will be easy for other states to join us, one at a time.

And this could be a model for other issues. Green-State America might also want to support international treaties on the rights of women, the treatment of migrants, the rights of indigenous peoples, and more.

For now, it’s time to act to protect the climate. It’s time to tell the world that Green-State America keeps its promises, because climate change trumps the election returns.

Oregon Clean Fuels Program

By Robin Hahnel

Roughly one-third of Oregon’s greenhouse gases come from the transportation sector. In 2009 the state legislature passed House Bill 2186 authorizing the Oregon Environmental Quality Commission to adopt rules to reduce the average carbon intensity of Oregon’s transportation fuels to 10 percent below the 2010 emissions. However, the oil industry fought against regulation from the get-go, and lobbied heavily to allow the bill to sunset in 2016, which would have re-established the industry’s monopoly over fuel choice in Oregon. A broad coalition of environmental organizations, led by Oregon Climate Solutions, lobbied successfully in 2015 for the passage of Senate Bill 324. This allowed the  Department of Environmental Quality to fully implement the Clean Fuels Program in 2016.

The Clean Fuels Program aims to lower carbon emissions in the transportation sector in Oregon by 10 percent over 10 years – from 2010-2020. It requires oil companies to blend low-carbon biofuels, or to purchase credits that support electric vehicles, natural gas, and other cleaner fuel alternatives to reduce emissions. And since Oregon has abundant clean fuels available from farms, forests, and waste disposal facilities, the program creates market demand for local fuel alternatives.

The oil industry is the most powerful opponent — with the deepest pockets and well placed political assets – which environmentalists face in our battle to de-carbonize before it is too late. Because the clean fuels program is aimed directly at big oil, it challenges the organizational and political skills of environmental organizations in Oregon as never before. The real story lies in the educational campaign waged to inform the general public and rebut false claims from industry spokespersons and the strategy used to form the broadest possible coalition of organizations in support of SB 324. Various coalition partners pressured and worked with State Representatives, State Senators, the Democratic Party leadership, and the Governor’s office to defeat endless attempts to water down and derail the bill, which did not cease even after it was passed and signed into law!

New Anthology on The Economics of the Environment

By Bryan Snyder.

Dollars & Sense’s political economy of the environment anthology, The Economics of the Environment, 2nd ed., incorporates both current material relevant to today’s most controversial environmental issues, while still including many seminal “standard” articles with strong pedagogical value. The articles contained in the anthology are written in a clear and accessible manner and are concise so they will not overwhelm undergraduate readers.

The topics covered in the book include market failure and roles of government, resources and rents, climate change, agriculture and sustainability, and visions of a sustainable future. This reader is designed to accompany a fine text in environmental economics (Goodstein, Harris, et al.). Chapters in the reader, however, will fit nicely with most undergraduate environmental-economics texts, adding real-world context to the often-abstract analytical discussion. It can also be used as a “stand alone” primer to facilitate discussion on a broad scope of environmental issues. Articles from James K. Boyce, Timothy A. Wise, Robin Broad and a host of others make this edition of The Economics of the Environment particularly rich in content and scope. Continue reading…

Innovative Low-Carbon Urban Infrastructure: A View from Vancouver

Marc_books-Oct08Marc Lee is a Senior Economist with the British Columbia office of the Canadian Centre for Policy Alternatives and researcher with E3 Network’s Future Economy Initiative. Marc joined the CCPA in 1998, and is one of Canada’s leading progressive commentators on economic and social policy issues. Since 2008, Marc has been the Co-Director of the Climate Justice Project (CJP), a research partnership with the University of British Columbia, funded by the Social Sciences and Humanities Research Council. 

The narrative on climate change this fall is a familiar one: global greenhouse gas emissions hit another record high last year; extreme weather events are causing record damages; and yet we face an impasse in global negotiations for a new climate treaty, and a relentless push for ever more fossil fuel extraction – seemingly because there is no alternative. On the other hand, demands for action at events like the Peoples’ Climate March, and the growing calls for divestment from fossil fuels, there is a growing movement joining the climate scientists in their call for humanity to change course. But this movement needs more good news stories to counter-balance the gloom, and to start reimagining a sustainable and equitable future.

Around the world cities have asserted a leadership role in wrestling with climate action. Where I live, in Vancouver, British Columbia, my federal and provincial governments are deep in denial, enamoured by fossil fuel riches, but my city aspires to be the greenest of them all. Cities ostensibly have a more limited policy toolbox than senior governments, yet decisions on land use planning, buildings and urban infrastructure can have a powerful long-term impact on their carbon footprint.

My case study looks at Vancouver BC’s Neighbourhood Energy Utility, and its repurposing of district energy as a key ingredient in urban planning and greenhouse gas mitigation.  At its core, district energy is primarily the use of centralized boilers to provide heat and hot water to multiple buildings. It’s comparatively technocratic and boring, with appeal among engineers and energy economists. And it’s old, with examples of steam systems (powered by fossil fuels) in downtowns across North America going back more than a century. Continue reading…

An Unexpected Journey to Something New in Cleveland

By Jonathan Ramse, I-PhD student in Economics at the University of Missouri-Kansas City. As part of a team with two colleagues, Julia Poznik and Ruchira Sen, Jonathan has been investigating the role of multiple anchor institutions as stakeholders in economic development as a researcher with E3 Network’s Future Economy Initiative.

It has been apparent for some time now that the economic theories and policies considered business as usual have simply failed. But this is no reason to give up hope quite yet. Meet the new economy! There are numerous innovative models, business and strategic plans, community organizers, and agricultural and waste management techniques that are breaking new paths into a better world. This movement of innovation is not centrally planned and not coordinated by a set of power elites, but is springing up organically in different locations across the country and the world. One of those places is Cleveland, Ohio where the Greater University Circle Initiative (GUCI) is shaping a new way of thinking about and a new way of doing urban economic development.

The GUCI is the focus of our team’s case study. The journey there was not one we expected. Like most everything, the research process is buffeted by uncertainty and unexpected turns. As our research team set off to better understand innovations in Cleveland, our intent was to study the Evergreen Cooperatives. However, we found that doors we thought were open to us were in fact closed. Our timing was off as Evergreen was about to embark on a significant internal assessment which made external review unwelcome. This required a little “on-the-fly” adjustment for our team as we shifted the scope and focus of the project to the GUCI. The GUCI is a multi-anchor institution based development model that encompasses Evergreen in addition to several other projects. As a whole, the initiative attempts to align the interests of three wealthy institutions with the impoverished neighborhoods that surround them. Continue reading…