Thursday, October 16, 2008

"Carbon Tax" a Loser (Too Bad)

One key issue in the Canadian parliamentary elections this week was the Liberal Party leader, Stéphane Dion's newfound support for a "carbon tax".

This is a shift for Dion. Previously, only Canada's Green Party supported that type of tax.

Election results indicate the "carbon tax" is a loser. The Conservatives gained 16 seats and the Liberals lost 19. The Conservatives still lack an absolute majority, holding 143 seats to the Liberals 76, with 89 in the hands of three minority parties, the Quebec separatists (50), the New Democrats (37), and the Independents (2). The Greens have zero seats.

As readers of this Blog know I favor a punitive tax on burning of sequestered carbon (oil, gas, coal) as a way to encourage development of nuclear energy and renewable energy (water, wind, biofuels, ...).

All energy used on Earth (with the exception of nuclear) is originally from the Sun.

Some of this energy was delivered to the Earth from the Sun eons ago and was sequestered in the form of carbon and hydrocarbons found in underground deposits of oil, gas, and coal. That carbon was removed from the Earth's atmosphere and, until the industrial age, remained there.

We are now burning increasing amounts of sequestered carbon to energize our mechanized civilization. It is spewing into the atmosphere in the form of man-made carbon dioxide, a "greenhouse gas". Increased levels of carbon dioxide have been detected and are certainly responsible for some percentage of the rise in worldwide temperatures. (The majority of the temperature rise is probably due to Sun and Earth-orbit effects that are beyond our control, but we can control some of the "greenhouse" effects of release of sequestered carbon.)

Nuclear energy is carbon-neutral, and it should be used to reduce cabon emissions, but it is, ultimately, non-renewable.

Until earlier this year, sequestered carbon energy from oil, gas, and coal was considerably less expensive than alternative fuels, which discouraged development of more wind, solar, nuclear, and other sources. The recent spike in oil prices altered that equation, and, as energy prices skyrocketed, many people changed their driving habits and gasoline usage dropped a bit. Interest in alternative energy sources increased.

However, the recent worldwide economic downturn has driven oil prices from about $140/barrel back down to about $70/barrel, half their peak levels. If they remain at these low levels, development of alternate energy will be endangered.

We need to reduce our dependence on sequestered carbon, a non-renewable resource. We must instead power our civilization with the renewable energy that arrives daily from the Sun. As you know, hydroelectric energy is driven by the Sun, which evaporates water from the sea and delivers it as rain that drives our rivers. The Sun also powers the weather, which causes winds that we can capture with wind turbines. Biofuels (including corn and sugarcane-based ethanol) are also powered by the Sun. When we burn biofuels we do release carbon into the atmosphere, but it is carbon that was recently removed from the atmosphere when the crops were grown. As a long-term goal, we may be able to grow crops and then bury them as a way to re-sequester carbon out of the atmosphere.

There are two ways the government can encourage alternative energy. The first is to subsidize it and the second is to punitively tax sequestered carbon as a way to make alternative energy relatively less expensive and allow market forces to do their magic. I favor the second approach. An added benefit of a punitive tax on sequestered carbon is that it will increase the rewards for energy conservation.

According to Wikipedia

The intention of a carbon tax is environmental: to reduce emissions of carbon dioxide and thereby slow climate change. It can be implemented by taxing the burning of fossil fuels — coal, petroleum products such as gasoline and aviation fuel, and natural gas — in proportion to their carbon content. Unlike other approaches such as carbon cap-and-trade systems, direct taxation has the benefit of being easily understood and can be popular with the public if the revenue from the tax is returned by reducing other taxes.
As a C-mind, I find it somewhat distressing that my support of a punitive "carbon tax" puts me with the Green Party and Liberal Party of Canada, and other L-minds like President Bill Clinton, and Senators Al Gore and John Kerry. However, Wikipedia notes:

A carbon tax is an indirect tax — a tax on a transaction — as opposed to a direct tax, which taxes income. As a result, some American conservatives have supported such a carbon tax because it taxes at a fixed rate, independent of income, which complements their support of a flat tax.[2]
Prices of carbon (fossil) fuels are expected to continue increasing as more countries industrialize and add to the demand on fuel supplies. In addition to creating incentives for energy conservation, a carbon tax would put renewable energy sources such as wind, solar and geothermal on a more competitive footing, stimulating their growth. Former Federal Reserve chairman Paul Volcker suggested (February 6, 2007) that "it would be wiser to impose a tax on oil, for example, than to wait for the market to drive up oil prices."[3]

Ira Glickstein


joel said...

Ira said -However, the recent worldwide economic downturn has driven oil prices from about $140/barrel back down to about $70/barrel, half their peak levels. If they remain at these low levels, development of alternate energy will be endangered.
Joel responds -This is why alternative energy is a losing game even with taxes and other kinds of subsidies. We went through this under Jimmy Carter. The cost of producing a barrel of oil is so low compared to its price on the world market that OPEC can afford to manipulate the supply and price to make alternative energy unattractive any time it becomes a serious threat. Market manipulation via artificial incentives or disincentives invites more market manipulation. With respect -Joel

Ira Glickstein said...

Joel is correct in all he says! OPEC could reduce the price of oil well below the current $70/barrel and still make a profit. If they did that, no alternative energy source could compete on a balanced playing field. I also agree artificial incentives or disincentives invite more market manipulation.

On the other hand, once we accept that release of sequestered carbon (oil, gas, coal) is harmful to human civilization, we need to develop a plan for alternative carbon-neutral sources. I would argue that this is a "tragedy of the commons" type problem on a worldwide scale.

As you all know, I distrust government interference with the free marketplace - particularly international government - because it tends to be inefficient, politically charged, and counter-productive. But, this is a special case.

I don't like taxes, but I do support punitive taxes on things like cigarettes and alcohol because they do reduce consumption of these unhealthy products, and they do repay some of the costs to society (higher health care costs for users, auto accidents, ...)

I am not a global warming alarmist, and I believe most global warming is beyond human control, yet I think it is proven that burning sequestered carbon causes at least 10% and possibly as much as 40% of the temperature rise. I think it is a global duty to control that part. We can do it via incentives for alternative energy or via punitive taxation of carbon. Incentives are hard to monitor, easy to cheat on, require large bureaucracies, and are subject to political manipulation. A carbon tax is easy to monitor, hard to cheat on, can be done with minor increase in bureaucracy, and is less subject to political manipulation.

Best of all, if the tax was, say, $50/barrel of oil (and proportional for gas and coal), that would raise the price by about $1.20/gallon of gasoline and bring it up to the $4 we were paying some months ago. We know that that cost was sufficient to change driving behaviors and spur conservation.

Furthermore, it would further push down the price charged by OPEC. They cannot drink the stuff. They will pump and sell it so long as there is a profit to be made.

With a punitive carbon tax the money would go to the treasuries of the consuming countries rather than the coffers of the OPEC countries, some of whom are supporting Muslim terrorism.

And, $4 gas would make alternative energy more competitive. Perhaps, with an umbrella over it, nuclear or wind or biofuel will turn out to be economical once the capital infrastructure is paid for and the technology matures and becomes more efficient.

What is your plan? Or, do you deny that some percentage of global warming is human-caused?

Ira Glickstein

joel said...

Ira said: What is your plan? Or, do you deny that some percentage of global warming is human-caused?

Joel replies: Carbon dioxide, as well as water vapor, methane, etc. are all gases which are all non-symmetric molecules and therefore interact with radiation. Anything which causes an increase in these molecules contributes to the positive side of an energy balance on the planet Earth. Hence, some percentage of global warming is caused by the emission of these gases. The key word is SOME percentage. Everything from breathing to forest fires to cow farts causes emissions. We know far less about absorption or sequestration of these gases. The problem is that the planetary balance is so difficult to measure or calculate that it's impossible in my view to find the individual contributions at the moment. More research and especially unbiased research is necessary before we drive off the economic cliff of government regulation. All I know is that too much of what is being promulgated is politically and ideologically based.

In case carbon dioxide (from whatever source) is a serious culprit, we need more engineering research about sequestering gases. We know for instance that the deep ocean is cold enough to dissolve more carbon dioxide than it currently does. Many years ago, I reviewed proposals for research to do just that. I don't recall the details, but surely the economics of the situation have changed. Blundering in such things as the Kyoto Accords because of media generated political hysteria would have been a mistake.

I believe that any use of taxes should stand on its own merits. An import duty on oil would have a healthy effect in that it would give us leverage in the face of OPEC dominance and I favor such an approach. It uses consumer resistance to price rises in the market place. I don't favor a tax on coal, shale, domestic gas, etc. just because they release carbon dioxide. What's more I cringe at the analogy to the disaster of the Commons. It is too often misused to manipulate our thinking. Sequestered carbon is not free and comes from a wide variety of sources unlike the free grass of the commons. If competitively priced fodder were available or a system of grazing rights to the highest bidder, there would have been no disaster of the commons. The Commons might better be used to justify a government tax on oxygen which we all use freely and without a thought of conservation. Before we go off jogging because of our selfish concern with out personal health, we would think about the consumption of the common oxygen it requires.

I may have used this quip before. Our aversion to nuclear power is like the anecdote of the man drowning in a flood who turns away a lifeboat rescue, a helicopter rescue, etc saying that God will save. When he drowns and arrives at the pearly gates he berates God for not saving him. God replies that he did try to save him by sending a lifeboat etc. We have discovered the ultimate source of non-carbon energy but we turned away from it out of arrogance, ignorance and bureaucratic bumbling. With respect -Joel

Ira Glickstein said...

Joel and I again agree more than we disagree. Yes, nuclear power is currently the best carbon-neutral alternate energy source. I favor adding dozens of new nuclear plants to our power grid. If France could do it so can we! (see Nuclear Power for the People of France.

But how? With safety objections (mostly overblown but some valid) and the high initial capital costs, nuclear cannot compete with sequestered carbon (oil, gas, coal) with oil at $70 or even $100/barrel. I'm not sure it can even compete at $150/barrel, but it will have a better shot.

So, the government will either have to subsizide the difference or require power companies to build them and pass costs to consumers (unlikely due to the emotional safety and weapons issues that turn the left against nuclear and the opposition to government subsidy by the right) -OR- we will need a carbon tax that encourages ALL forms of carbon-neutral energy (nuclear, wiind, water, biofuels, ...) by raising the cost of sequestered fuels to a level that puts an economic umbrella over alternative energy, including your favorite, nuclear.

Certainly carbon could be sequested in the cold depths of the ocean, but why not simply reduce the amounts of carbon we are releasing from already sequestered sources (oil, gas, coal)? Why burn sequestered carbon and then somehow gather it from the air and pump it down the depths?