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Carbon Economics and the Cost of Inaction

August 23, 2013

This is a repost of my new Skeptical Science ‘basic’ level rebuttal of the myth that “CO2 limits will damage economic growth.”

What the science says: The costs of inaction far outweigh the costs of mitigation.

If climate change proceeds without any efforts to reduce it, we can expect to incur serious economic costs. In fact, it’s not unreasonable to expect that the effects of climate change will create greater economic instability worldwide. The solution is, of course, to reduce fossil fuel use. One way to do this is to shift away from fossil fuels towards renewable energy sources. The other way is to reduce energy demands through increased efficiency.

Both mechanisms have economic implications. In order to stimulate the private sector’s investment in renewables, governments can put a levy on fuels, which may be used to fund or subsidise new initiatives.

To reduce demand, there are a number of solutions available, but most seek to raise the cost of carbon through taxes. However, such increased costs give rise to concerns that change underwritten by taxes or levies will damage economic prospects, particularly in developing countries.

The Representative Picture

In the fifth IPCC Assessment Report (AR5), a new set of scenarios called Representative Concentration Pathways (RCP) will be used. The four RCPs replace the previous scenarios from the “Special Report on Emissions Scenarios” (SRES). Each RCP represents a set of initial conditions and projections to year 2100, based on a synthesis of the peer-reviewed literature.

The graphs below show the predicted RCP trajectories for economic performance:

Figure 1: GDP projections of the four scenarios underlying the RCPs (van Vuuren et.al. 2011). Grey area for income indicates the 98th and 90th percentiles (light/dark grey) of the IPCC AR4 database (Hanaoka et al. 2006). The dotted lines indicate four of the SRES marker scenarios.

The number of each RCP is the forcing (in watts per square metre) associated with a specific amount of emissions for each scenario, up to the year 2100. The graph of GDP clearly shows that the pathways that reduce emissions the most in that time frame (2.6 – green, and 4.5 – red) are those with the best long-term economic performance. In other words, the investment required to reduce emissions is repaid by increased economic performance. Business as usual strategies (high-emission scenarios RCP 6 and 8.5) are the least profitable; the money saved early on is dwarfed by the costs of damage and disruption done in the longer term.

Putting a Price on Carbon

There are a number of schemes under consideration, and a number already implemented. According to the article Pollution Economics in the New York Times, more than 20 percent of global greenhouse gas emissions are now subject to carbon pricing systems. About 60 other states, provinces or countries are considering similar approaches, according to a recent World Bank report.

It’s too early to judge long-term economic performance of the early adopters, but Canada’s province of British Columbia serves as a good example of how carbon pricing can reduce fuel use – in their case through a revenue-neutral scheme. A recent study found that since 1st July 2008, when the tax was introduced:

  • BC’s fuel consumption has fallen by 17.4% per capita (and fallen by 18.8% relative to the rest of Canada).
  • These reductions have occurred across all the fuel types covered by the tax (not just vehicle fuel)
  • BC’s GDP kept pace with the rest of Canada’s over that time
  • The tax shift has enabled BC to have Canada’s lowest income tax rates (as of 2012).
  • The tax shift has benefited taxpayers; cuts to income and other taxes have exceeded carbon tax revenues by $500 million from 2008-12.

Source: BC’s Carbon Tax Shift After Five Years: Results, Elgie & McClay 2013

In a separate report, the British Columbia Department of Finance found that in 2012, BC’s taxes were among the lowest corporate tax rates in North America and the G7 nations.

Conclusions

Since a number of economic incentives are being tried, it seems too soon to declare them failures. It is interesting to note that while governments are having difficulty negotiating agreements on the global scale, regional schemes are already proving effective, flexible and popular. An important ingredient seems to be an accompanying tax reduction that makes the carbon tax revenue-neutral.

In the long term, unless we drastically reduce the rate at which we are still emitting greenhouse gases, we are very likely to incur huge costs as a result of climate change. Part of these costs will be in adaptation, and the inevitable disruption. In part costs will escalate due to turmoil and uncertainty throughout the economic world. There will also be costs that cannot be quantified, particularly when we try to value a human life and its loss.

We have to reduce our emissions. If we are to avoid draconian government intervention, carbon pricing schemes are a viable method of encouraging us to reduce fossil fuel use. Coupled with other measures to stimulate renewable energy development, putting a price on carbon may help us make the transition away from fossil fuels. And from our experience to date, it seems likely  that carbon taxes, instead of bringing an economy to its knees, may well help transform an outdated system into one fitting for a sustainable century.

Further Reading: The Skeptical Science Intermediate and Advanced rebuttals contain detailed information about carbon pricing and tax schemes. Skeptical Science contributor Andy Skuce has also written an article about British Columbia’s experience here, with an update here describing the findings of the Elgie & McClay paper.

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6 Comments leave one →
  1. Rosemary Jones permalink
    October 25, 2013 11:56 pm

    We already have grossly interfered with planetary albedo by increasingly covering the earth with black tarmac, so why is there an objection to white tarmac ?

    Why is it being suggested that use of solar reflective paint on black tarmac roads is in anyway dangerous ?

    Is there some strange lobbying for the most complex and high risk geoengineering methodologies or is equalizing the black and white tarmac effect actually as risky as is being suggested ?

  2. Graham Wayne permalink*
    October 26, 2013 6:19 am

    Hi Rosemary – thanks for your post. However, I’m a bit puzzled; roads have not been laid historically over land that previously has a high albedo, but in main over grassland or scrub. This has not significantly lowered albedo in my opinion, and I don’t think there is any science to suggest otherwise. If you have evidence of such a reduction, I’d like to see it.

    As for your claim that it is ‘suggested’ solare reflective paint is dangerous, who is saying that? In the US, where I lived for a while, and in parts of Europe, the road surfaces are often of a light-ish colour concrete, rather than tarmac.

  3. Rosemary Jones permalink
    October 27, 2013 10:10 am

    Hi. The earlier email details some research on solar reflective painting and local bio-engineering. About black tarmac, it is noticeably darker than most natural backgrounds, so it absorbs more heat than they do rather than reflecting it. I haven’t found the tarmac area statistics yet. Rosemary. Date: Sat, 26 Oct 2013 05:19:26 +0000 To: rosjonesenvedu@hotmail.com

  4. Rosemary Jones permalink
    November 4, 2013 5:54 am

    The research on the effect of urban surfaces and white roofs is by Jacobson and Ten Hoeve, Stanford University 2011, and seems to be saying that the overall effect of artificial whitening is to heat rather than cool, which is like saying that restoring the Arctic ice would add to global warming.

  5. Tom G permalink
    February 18, 2014 11:58 pm

    I’m sorry, I must have missed the part where the Earth became covered with black tarmac. I’m interested in geology, and I am a conservationist. But you do realize that the Earth is 28% land mass, and man has a footprint on less than1% of that 28%. So man inhabits about 3 tenths of one percent of the Earth’s surface. I’m going to guess that less than 10% of that area is “covered with black tarmac”… so about .003% of the Earth’s surface is “covered with black tarmac” and probably a great deal less than that. The effect of covering roof space with one surface color or the other may have an effect on that individual structure, but on global temperatures? If you took the sum total of every rooftop in the united states, it would be shockingly small. probably wouldn’t cover the But in your minds, man is crowding out the whole planet. Try driving through Nebraska, Nevada, Kansas and Oklahoma. Then look at Russia, East of Moscow. Look at the Sahara desert. This planet is freaking huge. Wake up and smell the roses, reflections from rooftops and the highway system are not changing global temperatures.

  6. Rosemary Jones permalink
    February 19, 2014 9:43 am

    Hi Tom.

    Yes, and unfortunately the great permafrost plains are now exuding methane because of warming, and what used to be ice covered rock reflecting back vast amounts of sunlight is now ice bereft rock absorbing solar heat, and about the tarmac and the roofs, you would need to link to the cooler cities website for the statistics there and extrapolate.

    As for the increasing desertification, unfortunately that is not sand replacing dark surfaces but sand covering vegetation, which has the capacity to utilize sun’s energy in the making of material, which is useful to human and animal existence there. As far as I know, vegetation doesn’t increase local temperatures, and therefore contribute to global warming, and sand can get very hot – as in too hot to walk on, so its reflectivity, though better than dark earth, may not be contributing to any reflective related cooling effect ?

    I don’t know why you think my mind contains the idea that man is ‘crowding out the whole planet’ but I do know that people who make surmises about other people’s minds like that might do well to be more focused on being creative, then they may find their own brains come up with solutions to these problems and they also value other people’s solutions.

    I don’t think about overcrowding. I sometimes think about the overpopulating of certain countries, like the UK for example, and I think the EU should require its members to only accommodate the number of people that the carrying capacity of the land can support. There are opportunities to be critical about that statement, for example – What about Hong Kong ? but racism isn’t relevant to any of them.

    I hope this helps.

    Rosemary.
    P.S. I think the tarmac statistics are about 0.05%. You could Google that one.

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