Tuesday, August 01, 2006

Climate Change Policy --a draft in progress, as of August 1, 06

July 28, 2006

Draft Note: Greenhouse Warming and Efficient Climate Protection Policy,
with discussion of Regulation by “Price” or by “Quantity,” Future Forms of Energy, and Present Becalmed Non-responsiveness on the Issue

P. Lydon[1]

1. A new problem.. 1
2. Working through national governments, although the real parties at interest are generations (age cohorts) worldwide. 4
3. Methods: Short vs. long-range perspective; targets and timetables vs. programs and measures; regulating quantities vs. raising prices. 5
4. We should use government (firmly and drastically), and then harness the strengths of the market. 7
5. Main elements of a proposed approach: Internationally coordinated elimination of fossil energy subsidies and imposition of a carbon tax at $25 per ton of carbon emitted. Half of tax proceeds to be returned to national economies (i.e., are revenue neutral), other half of tax proceeds to be internationally administered to support energy decarbonization on a worldwide, cheapest-first basis. 8
6. Can third world nations be recruited into such a price-based (coordinated taxation) approach?. 12
7. Downsides and liabilities of this approach. 13
Box One: Prices vs. Quantities. 14
Box-within-Box One: Beforehand Indeterminacy of Costs of Emission Reduction. 17
End Box-within-Box. 19
End Box One. 19
8. In a material, engineering sense, how are we to go off carbon energy?. 19
9. Does this paper advocate a “nuclear” solution? Why, and what are the implications of that?. 26
10. Present torpor and inadequate response to climate change. 28
11. Biblio/Ref List 30

1. A new problem

The broad public can legitimately think of global warming as a “new problem.” For the last 200 years or so, the industrialized countries have developed the economies and culture of modern life based upon the massive use of fossil energy in industry, transportation, and households. Only in the last one or two decades have we learned that the burning of fossil fuels has raised by a third the trace concentration in the atmosphere of carbon dioxide, which is the principal heat-retaining or “greenhouse” gas. We are thereby warming the earth’s surface in a way never remotely taken into account by the builders of the modern world. The case is comparable to the discovery by the public mind that smoking tobacco causes lung and heart disease.

Putting massive and ongoing scientific and engineering work into very short form, the intensified greenhouse effect is not seriously disputed. It is known that it exists, and its basic mechanisms are well understood. There is no easy technical fix, a “catalytic converter” to remove at the point of retail use the CO2 that is produced when we burn coal, oil or natural gas. It is clear that greenhouse warming of the climate threatens to make major changes, predominantly damaging ones, in the environment in which humans evolved and on which we rely.[2] A central problem for world society is how to end the use of CO2-emitting fossil fuels as quickly as possible, while preserving modern standards of living, and doing as little harm as possible to our economies.[3]

In 1992, the members of the United Nations (including the United States, then led by the senior George Bush), meeting in Rio De Janeiro, agreed in a Framework Convention on Climate Change to work together to stabilize “greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system ... within a time-frame sufficient to allow ecosystems to adapt naturally to climate change, to ensure that food production is not threatened, and to allow economic development to proceed in a sustained manner.” [4]

However, in spite of these good intentions, fossil energy use continues, and is even fast expanding, both in the industrialized first world, and as large and growing third world countries, particularly the immense societies of Asia, press for economic modernization and industrialization.[5] Greenhouse climate change is a major problem that requires a major response.

Nonetheless, one response to any new problem is to deny that it exists, or that it matters. Although the United States is by far the largest emitter of CO2, in important parts of the American population, including the present Bush Administration, denial is still a prevalent attitude. Another common reaction, especially when trying to mobilize public support for a policy response, is to link a new problem to older and more familiar ones, and to draw up a combined set of policies that aim at several goals. The greenhouse warming issue overlaps more familiar forms of air pollution, such as sulfur, nitrogen, particulate matter, and even CFCs. It is easy to lump these issues together even though there are thoroughgoing analytical and operational differences among them. The breadth of the climate change issue also makes it appealing to link it to great historical causes, such as improving the lives of the poor, or seeking greater equality or equity in the distribution of wealth.

But, the worldwide greenhouse effects of modern fossil-based industrial civilization, both those now occurring and the far larger potential ones, make this a problem that on its own and on the merits calls for a sharp attentive focus and very substantial efforts. It may be useful to work on it along with other issues, or to see climate change as part of a generalized problem of environmental protection and sustainability, but it will be a major historical failure if we are distracted from an adequate response to warming itself.[6]

We are vulnerable to the pitfalls of denial and distraction because climate change, as well as being a new, unfamiliar problem, is not an easy one. Two of its particularities demand sharp adjustments in our habits of thought.

First, how far a pollutant or gas spreads in the atmosphere depends on how long it stays aloft. Particulate matter, or soot, drops out in a matter of days or weeks. It does not have time to go far from the smokestack that sent it out, and so can be dealt with locally. Sulfur is called a regional pollutant because, after its conversion in the air from a gas to particle form, it can be in the atmosphere weeks, months or longer, and can therefore go further, often across a state or national boundary, before it is rained down. But CO2, the main greenhouse gas, once emitted will remain in the air about a hundred years. Therefore, it spreads throughout the entire atmosphere. Once emitted it really is everywhere, and its effect is truly global. CO2 from a coal power plant in Shanghai will affect Florida as much as it does China, and an emission from an SUV in Seattle will affect climate in New Delhi as much as it will in our Pacific Northwest—and in both cases, for many years. Suddenly, finding the perpetrator and the victim of climate damage is dramatically simpler than for earlier environmental problems--any fossil fuel burner anywhere is doing damage, and we all, anywhere in the world, will suffer from it. But this “global” characteristic of the greenhouse effect also baffles our reflex habit to localize a problem and its consequences as the first step in solving it.

Second, CO2 in the air is odorless, invisible and harmless to health—indeed its presence at its old, pre-industrial, “natural” level is indispensable for life as we know it. The timescale on which climate change takes place (the century is a basic unit) is long, with many extended lags between causes and effects. Ordinary citizens live in the day-month-year timescale, so that it is understandably hard for them to feel the reality of climate change. But in the end, democratic majorities, that is to say, ordinary citizens in great numbers, decide the policies of modern societies and states. For there to be an effective policy response, the public must understand greenhouse warming, and understand that it is real. It will not be easy for the public, working through legislatures and governments, to vote the policy changes and the substantial investment funds needed for climate protection. Perhaps the hardest part will be to sustain an effort undeterred by the fact that the slow improvement that will come will also be nearly invisible. To achieve genuine sustained climate protection, we will have to learn not to rely on what we see and feel in our daily time scale, but, instead, to learn like an airplane pilot to have confidence in our instruments—in this case, the relevant scientific community. Having confidence in instruments when they seemingly contradict our senses takes a high level of intellectual capacity, training, and self-discipline for individuals, as we see in the case of pilots. It stands to be even harder for large social aggregates, such as the population of a country.

At present there is a very mixed response in different societies to the advance of global warming and the diplomacy of climate change often seems schizophrenic. Leaders of nations open conferences by talking about the imperative need to bring greenhouse climate change under control. Then, as the working sessions begin, working delegates switch over to elaborating how their countries cannot sacrifice other interests or economic advantages to take significant climate protection steps right away. The conferences, and the many weeks of preparing for them, are devoted less to stopping global warming, than to arguing why each country should be able to minimize or postpone its effort, in order to save itself from economic pain or even just from the turmoil and effort of change.

2. Working through national governments, although the real parties at interest are generations (age cohorts) worldwide

We live in the age of the nation-state, if perhaps in the latter part of that age. There is no practical alternative to conducting the effort to control global warming mainly through national governments. Among countries, it is governments that have the traditions and established procedures, collectively known as diplomacy, to communicate with each other and to deliberate together. Within countries, governmental action is necessary because carbon emissions are an economic externality, not reachable by individuals and companies, that is to say, by the market, acting independently.[7]

But in other important ways, the greenhouse problem is not a “governmental” nor an “international” one. The real adversaries, or competitive stakeholders (beneficiaries and payers), are not national populations in relationship to one another. Rather, the conflict of interest is between generations or age groups of the world population across all countries. Recent generations and the one now working are the beneficiaries of the present cheapness of fossil carbon-based energy, and if there is a major commitment to climate protection, the present generation will pay the costs of developing and applying new non-fossil energy sources. On the other hand, future generations, perhaps starting with present children, will enjoy a more stable and better climate, and thus benefit from decarbonization if it is performed now, but will suffer a deteriorated and less predictable climate (and general ecology) if the present generation avoids the costs of converting to non-fossil energy sources.

This generational opposition between those who will pay for climate protection and those who will suffer from climate change is not the kind of problem among countries that we are accustomed to perceive and react to. It is not the sort of problem that the profession and institutions of diplomacy have developed to handle. Present and future generations exist in all countries, of course. But future generations, as such, are never directly represented in decision-making. Officials and citizens of the present must represent the interests and values of people of the future, a difficult task that is likely performed very differently from one culture to another.

We interpret the great inter-generational issues in this case as inter-national ones because governments and government departments are the only machinery we have, or at least the machinery we know best. But the interests in conflict, in this case, are not intrinsically national. This awkward fit between the problem and the tools we use to work on it is itself a problem, not to be lost from sight.

3. Methods: Short vs. long-range perspective; targets and timetables vs. programs and measures; regulating quantities vs. raising prices.

The approach to world climate protection reflected in the Kyoto Protocol has been a process among nations and national governments. Although the U.S. failure to sign it is regrettable, the protocol is far from an ideal arrangement. The hesitation of nations to act in 1997 and since, and perhaps their desire to “free ride,” tended to minimize the total effort ( or “amount of solution” ) that could be collectively generated and applied. Concerned scientists agree that the goal set in Kyoto (a 5% reduction from 1990 levels of emissions by industrialized countries in 2008-2012) is far too unambitious in relation to the physical problem.[8] Kyoto also is distorted by the accident of “hot air”, in which the former communist countries of eastern Europe receive credits (which they can sell to other countries) for large windfall carbon reductions created not by policy, but by the collapse of their economies a decade ago. As will be discussed below, the Kyoto decision that countries should agree on targets and timetables for carbon reduction, rather than on policies and measures that they would apply to seek that goal, was an important misstep.

Fundamentally, Kyoto seriously misconceives the world’s response to global warming, which will necessarily be a large and complex pattern of social action over a long time. The protocol approaches climate protection not as the marathon that it is, but rather makes it a series of sprints. This is an understandable error, because at the predecessor meeting in Rio de Janeiro in 1992, nations promised to reduce their emissions with no specification of amounts or deadlines, and all the pious talk produced no climate protection action at all. It is a natural swing of the pendulum to go from such a schedule-free non-performance to precise targets and timetables.

But the high value and long service life of fossil energy infrastructure (coal railroads, oil refineries, auto engine foundries) mean that converting to non-fossil energy is not a short term matter, but rather an exercise in long term planning and sustained implementation over decades. Careful coordination will be required to change the many links of the energy processing chain, a chain that runs, to take only one example, from coal under Wyoming’s Powder River Basin to electric light shining on a page being read in Manhattan.[9] What is needed is not commitments for relatively small reductions of carbon emissions in a short interval (as were given at Kyoto), but rather firm engagements by countries to start long term courses of action which will produce a large reduction in carbon use over an extended period – on the scale of a 50%, or even a 90% reduction or better over twenty to fifty years.

But a national effort, not to speak of performance, on such long-term and potentially expensive engagements is obviously very difficult to measure, especially in the early stages of a very extended process. The hangover from the failure to generate action through the vague aspirations expressed in Rio de Janeiro in 1992 is the belief that if results cannot be measured and verified at short intervals, there will be no performance. Without detailed specifications, it is assumed that even if a nation promises an effort, as the U.S. did in Rio in 1992, the country will not actually make that effort, as we in fact did not perform. But in Kyoto five years later, the need for short-term measurability worked at cross-purposes with the need for actual deep carbon reductions, which are intrinsically long-term achievements. The design of the system was skewed to make the visibility of national climate protection actions as important as their effectiveness. Detailed greenhouse gas reduction targets and timetables (T&T) were chosen over coordinated policies and measures (P&M), which include carbon taxation. In an apparently unthought-out, but consequence-laden step, Kyoto chose to employ quotas regulating quantities of emissions to be cut, rather than agreement on costs (prices) which governments would impose on emissions in their domestic markets, as the vehicle of reform. Why? Primarily because performance under quotas is more easily measurable [10], [11]. (See Box One, on quotas versus prices below)

Let us re-focus on the single goal of reducing world emissions of carbon as much and as quickly as possible while imposing the least costs on the world’s economies. We want to frame the question as an economic one as much as possible, and make our policy rational, both environmentally (rapid reduction of emissions and atmospheric concentrations of greenhouse gases) and economically (minimize costs). To keep focused on environmental goals and on economic efficiency, we set aside political goals and logics. These include preserving traditional preconceptions so as to salve the ego sensitivities of late adopters, preserving “face” for anyone, or safeguarding the sovereignty of the state or the prerogatives of a political party or bloc, or defending or altering status rankings among institutions and nations. We will also not expend resources to pursue moral goals, such as punishing sin or rewarding virtue. Recognizing the global nature of carbon’s distribution in the atmosphere, we will try not to exaggerate our attention to the politically-tinged issues of where the emissions came from, and who will pay for reduction measures. Because we are serious about reducing greenhouse gas emissions, we will try to get as close as we can to canonical, maximally efficient economic solutions, taking full advantage of the different cost structures for different kinds of carbon reductions that we find.

We want to bear in mind the modern truth that often the best politics is good economics.[12] By reducing carbon in the least expensive way (or, put another way, by getting the greatest carbon reduction for the least resources) we can make climate protection a more achievable policy. To the extent that reductions are cheap and economically sensible, with as little exertion as possible devoted to satisfying essentially political claims, the cuts should be easier to implement, with less stress and disputation about monitoring, enforcement, cajoling, coercing, and essentially paranoid preoccupations like sealing up every possible avenue for minor free-riding. The cheaper carbon reduction is, the stronger the logic of the whole decarbonization exercise, and many extraneous problems will be less preoccupying and obstructive.

4. We should use government (firmly and drastically), and then harness the strengths of the market.

Because greenhouse effects are externalities of energy use and by themselves do not affect day-to-day energy markets, moving against greenhouse warming requires an intervention by a non-market part of society, in a word, government.[13] Because the prospective damages of global warming are major, governments must intervene (tilt the table) quite deeply to re-shape markets drastically from their existing patterns, which are now, of course, clung to and defended as their “normal, natural” patterns. But that said, we want governments to bring in as little of other agendas, or non-economic baggage, as possible. We want them carefully to scrutinize command and control (regulatory) interventions for their efficiency, and to prefer the flexibility and creative problem-solving characteristics of market forces where these can be relied upon to help —or when market forces can be redirected by governmental action to lead reliably toward our environmental goals.

Internationally and within countries, a system is needed that will help governments and economic actors, such as corporations, see the necessity and general merits of what needs to be done, and take action to move toward those goals in a broad-gauged, objective and dispassionate way. One aspect of the challenge that certainly calls on these qualities is protecting the inevitable (but not necessarily numerous) genuine economic losers from decarbonization, coal-miners, for example. Such “remedial” spending is an important part of doing matters right. If guaranteed ahead of time, it also neutralizes likely adversaries of decarbonization, such as the miners’ labor union, and thereby improves the prospects of achieving climate protection goals. Such damage compensation should be accepted in principle on all sides.

What we want from governments and among governments, we can encourage by a well-designed system of cooperative effort. But the truly indispensable component remains wide and deep public understanding within all countries of the climate change danger and the basics of dealing with it. Achieving this understanding is an immense challenge, and is critical to the success of the effort to slow and halt climate change.[14] One view is that only great, unmistakable natural catastrophes can “wake up” the public, but that opinion, with its implication that we must simply wait for disasters to teach us, seems very fatalistic and disparaging of human capacities, in addition to being temporizing and delaying in a situation in which time is of the essence.

5. Main elements of a proposed approach: Internationally coordinated elimination of fossil energy subsidies and imposition of a carbon tax at $25 per ton of carbon emitted. Half of tax proceeds to be returned to national economies (i.e., are revenue neutral), other half of tax proceeds to be internationally administered to support energy decarbonization on a worldwide, cheapest-first basis.

Assuming broadbased political will and forward impetus, and a focus on environmental goals and economic efficiency rather than political prerogatives, how should we proceed?

A. We recognize that among the greenhouse gases, only carbon is massive enough in its presence and economic role to be a political issue requiring mass public understanding and support. Methane, nitrous oxide, the CFC substitutes and other significant gases such as sulfur hexafluoride (SF6) should be dealt with actively and vigorously at the administrative level, generally less in the public eye and not needing the glare of media attention. This can readily be done in the wake of public conviction and readiness to act against the marquee issue of CO2 .

B. All countries agree to revise their legislation and budgeting practices to de-subsidize fossil energy completely over, say, a period of eight years, ending in 2015. A system of international reporting and consultation, comparable to the more general one on energy use set up by the FCCC, will guide countries in fulfilling this commitment, and in making each country’s work as internationally transparent as possible. Technical assistance from centers of expertise such as the IMF, the World Bank, the IEA and WTO, and the technical branches of the UN will be available both to countries and to an international office set up to oversee de-subsidization. (Other functions of an international climate protection office are discussed below.) While in a certain sense desubsidizing fossil energy is merely a housekeeping step necessary to make the carbon taxation discussed below evenhanded and effective, socially and politically it will undeniably be a controversial, complicated and very difficult process.

C. All countries agree to impose an internationally coordinated national tax or permit fee on the use of greenhouse fuels of about $25 per ton of carbon emitted (equivalent to ~$6 per tCO2). This could be done over a period of three years, aiming to be fully achieved as soon as possible after 2011. If the tax is paid upstream by large energy producers and importers, government regulators would deal with a limited number of entities (say 2,000 in the U.S.) and their task would be administratively quite simple. The costs of the permit/tax, would, of course, be passed downward to be reflected in prices to end-users of energy products. $25 per ton of carbon emitted is equivalent to six cents per gallon of gasoline, or about a 2 % increase of the U.S. retail price. A carbon tax of $25 per ton would cost about $12.50 per ton of coal, equivalent at present to about 30% of the cost of coal to a power generator, and to about four tenths of a cent per kilowatt hour of coal-generated retail electricity to a householder. A purpose of setting the carbon tax level is to assure that it is no longer economic to build new pulverized coal power generation plants. Since many are planned[15], this need to end construction of new coal power plants is the most critical policy goal of all. It functions as a floor or minimum value in the ratesetting, and it is likely that a rate of $25 per tonC would satisfy this criterion.

Although $25 per tC is proposed here, the proper level to set this tax initially would be subject both to technical evaluation, and to international negotiation. $25 per tC is the lower of the two levels discussed in the U.S. Department of Energy’s Scenarios for a Clean Energy Future[16] , and is thought of as a moderate starting level to initiate the whole system of internationally coordinated taxing of fossil fuel. At the same time, it is likely that many emission reductions are available worldwide at a cost of $25 per tC or less, and that these would rapidly be implemented by emitters because to do so is less expensive than paying the carbon tax. (Setting the level of this tax after the initial period is discussed below.)

In the United States such a tax would initially raise about $40B per year (for scale, about eight percent of current defense spending). Worldwide it would realize about $160B per year. Those rightly concerned with equity should note that this tax, while it has an impeccable “polluter pays” logic of taxing carbon equally no matter its source, will automatically be most heavily borne by high fossil-using economies. Its incidence will be smaller on economies which have lower fossil energy consumption, either through past policy (France) or through emerging from recent underdevelopment (China, India, 3rd World in general). Because the tax will be universally applied, the problem of international flight of carbon-intensive economic activity does not arise.

D. One half of the proceeds of the $25 tC fossil energy tax/fee would be considered revenue neutral in each country, and after collection by the government would be remitted back to the domestic population through tax reductions in other areas of each national economy. Each government would determine which existing taxes have the greatest drag on their economy, and which form of tax relief would be the most stimulative and helpful, thus making possible a “double dividend” from this policy. It is at this stage, as well, that any regressive effects of a carbon tax could be remedied.

E. The other half of the revenue earned by the fossil energy tax would be used to subsidize, incentivize and generally support carbon emission reductions through investment in either efficiency or non-greenhouse alternative energy sources anywhere in the world. The criterion for support is to be efficiency in long term carbon reduction. From the United States, at the level initially proposed in this paper, this would generate roughly $20B per year, and from the world as a whole, about $80B. These funds would be remitted to an international office that would apply them to energy efficiency and non-greenhouse energy projects, on a grant or loan basis, wherever the cheapest decarbonization gains presented themselves. (The international office could also support research and development work, and perhaps education and training.) In all likelihood the majority of such projects would be physically in third world countries, since most new infrastructure construction is in developing countries, and the economics of introducing non-fossil systems at the time of new construction are much more favorable than those of retrofitting, or of cutting short the life of existing energy infrastructure capital. Clearly, the existence of the fossil energy tax discussed above would already be giving carbon emitters a sharp incentive to seek non-fossil energy sources, and would make the subsidies drawn from the worldwide support funds of $80B go a great deal further.[17]

Consider a possible transaction within this system: Let us say China is building a new gigawatt (1,000 megawatts) of electrical generating capacity. The alternatives are a domestic coal-fired plant costing $800 per kilowatt, or a total of $800M, or nuclear/renewable facility(ies) costing $1,600 per kW, totalling $1.6B.[18] The international agency would offer China $800M of international climate protection funding to make its new gigawatt plant nuclear or renewable rather than coal-fired. Of the $800M, plausibly $600M could take the form of long term credits to permit capital-scarce China to acquire the capital-intensive nuclear/renewable plant.[19] This credit would be repaid over the life of the plant by the $500M savings on a less expensive fuel supply, and by $100M of regional and local environmental benefits (sulfur, NOx and particulate reduction) which China would realize by not burning coal. $200M would be a straight non-reimbursable grant from the international climate protection fund against the additional cost of the nuclear/renewable facility, justified by the substantial reduction in global greenhouse gas emissions over the 50 year life of a large non-emitting plant. The cost per avoided ton of carbon for this arrangement is about $10 for the first twenty years, and the carbon elimination is enjoyed at no cost for the succeeding thirty year life of the plant.[20] Such calculations of cost-per-ton-avoided would be the basic, but not overly rigid, yardstick for allocating these international carbon reduction funds.[21]

As the international authority lends $600M and spends outright $200M to make a power plant in China nuclear/renewable rather than coal fired, all sides of the transaction, must realize that the beneficial result of this spending is an improvement of the global atmosphere, which is a world wide public good, participated in by all countries, and not a benefit as such to the recipient country.

Let us assume for a moment that the international authority obtained the funds in this case from carbon taxation in the United States. It can be expected that the U.S. Congress will be willing to tax and spend to reduce GHG emissions, but is reluctant to “send money out of the country.” At this point, as discussed above, the customary conception of the world as a collection of nations, with their respective frontiers, political interests and financial accounts, becomes an obstruction, and is better set aside. It is justifiable to do so with regard to the non-reimbursable grant of $200M, precisely because of the non-national, global nature of GHG emissions and atmospheric stocks of carbon. China is the locus but not the beneficiary of the $200M grant for a pure greenhouse reduction effect because such spending does not increase the quantity nor improve the quality of electricity that China receives from the plant. A kilowatt hour obtained from a plug in the wall to light a lamp or power a computer in Shanghai is no better for the Chinese consumer if generated by a nuclear plant or a photovoltaic array, than if it comes from a coal-fueled plant. The U.S. Congress has only incidentally sent the funding to China via an international agency; what it has really done is spent the money where it can be the most effective for the least-cost carbon reduction. Congress does have the alternative of setting up a system which would spend the $200M within the United States, but it would have to recognize that it had generated a smaller carbon reduction, and a smaller benefit for the U.S., than the same funds could generate if they were spent independently of national or geographic location, that is to say, in China in this example.

That is the nature of reacting against a genuinely global danger. As discussed at the outset of this article, greenhouse warming is a global problem because carbon emissions, due to their long residency in the atmosphere, distribute themselves (and their climate effects) throughout the entire earth’s atmosphere. Climate protection funds spent on the most economical carbon reductions regardless of location are being spent in the most efficient way possible to obtain a global public good, a reduction in greenhouse warming, which is of benefit indiscriminately to Americans, Chinese, and all other inhabitants of the world. Despite appearances in our example above, there is no transfer of resources or of value from the U.S. to China. The lowered operations costs and local air quality benefits to China of the greenhouse-free plant are accounted for separately (by the $600M loan), and the electricity China obtains from a greenhouse-free plant is in no way better or worse for its consumers than coal-generated power. Although we have used China and the United States in this example, the climate protection subsidy essentially is generated without respect to location, being paid through the carbon tax by any user of fossil fuel anywhere. It is spent without regard to location, and the benefit of reduced warming has no location, but is global. The global environmental and economic benefit per dollar spent, indeed, is maximized by the freedom from “where” and “who” constraints on climate protection spending. Governments become administrative agencies that collect the fossil energy tax and forward half of it to the international agency for spending, so political and non-economic considerations are minimized. Built into this system is the maximum form of emissions trading, which is extremely lucrative and may well cut the cost of worldwide carbon reduction in half or better, by comparison with intra-national programs.[22]

6. Can third world nations be recruited into such a price-based (coordinated taxation) approach?

Any voluntary international arrangement must satisfy the interests of its members to attract their participation from the beginning, and to hold them throughout. A contributory project to create a public good is always vulnerable (though not necessarily mortally so) to free riding, and to gaming of various forms.[23] The developing countries have not accepted quantified carbon reduction obligations under the Kyoto Protocol. Even while endorsing the aims of the Framework Convention in Rio they have effectively limited their contribution so far to no-regrets (costless) policies. Why would they (most importantly China and India) join the arrangement proposed here? The answer is that these agricultural, often south-lying countries stand to suffer heavily themselves from greenhouse warming. Their governments are aware of this, as has been demonstrated by serious efforts outside the Kyoto Protocol to reduce, for example, Chinese energy intensities, and by ongoing de-subsidization of energy in China and India.

Is the plan proposed here equitable to them? The lion’s share of carbon protection investment funds will be invested on developing countries’ territories, as discussed above, since it is primarily they who are building new energy infrastructure, which offers the best investments for a carbon reduction dollar. Having projects done on their territory is not strictly speaking a benefit, but in practice it will bring employment opportunities as well as technology transfer ones. The “profit margin” on the construction work for individual projects will be open to negotiations in which project-accepting countries can seek to advance their interests and be as well paid as possible for the work that they do. That part of the carbon tax which is revenue neutral within a country is not a payment by a third world country, or a cost to it, but merely a purposeful rearrangement of its own taxation system. Moreover, there are several points of flexibility in the approach proposed here which could be used to attract countries reluctant to join. To mention two, the carbon tax, initially to be set at $25 tC, could be made adjustable with regard to countries, or groups of countries, in early rounds. China, for example, could start with a lower level of tax if the Chinese delegation could win that concession in international negotiations. Secondly, the percentage share of the tax’s proceeds to be returned to a country’s domestic economy, rather than being pooled internationally for climate protection investment, could be adjusted to give a larger share of third world country revenues back for the direct benefit of the local economy. For them, 70 or 85 percent of the tax could be held to be revenue neutral, for example, where for OECD countries, only 50 percent would be retained in that way.

7. Downsides and liabilities of this approach

The liabilities of this proposal are in the political domain, having been intentionally left there in the name of economic rationality. An approach such as is proposed here will undoubtedly find opponents in all countries who will portray it as intruding upon governmental prerogatives and national sovereignty. A big policy commitment does indeed take subsequent control away from local or national decision-making bodies, such as the U.S. Congress. In this case, it gives some powers over implementing decisions affecting Americans to foreigners, so we can expect that all the usual objections, some rational and some visceral, against the UN, the WTO and similar bodies will rise from the usual suspects. In the U.S., and in all countries, nationalists and xenophobes will resist, because attacking the problem of greenhouse warming on a plane of worldwide economic rationality, rather than by means of a collection of policies which are politically rational country-by-country, represents a further step in the knitting up of the world’s nations and economies. Many people fear and resist this trend, in some cases with justification.

Can a de-nationalized, economically rational world policy gain the support of 160-odd national governments, prevailing against nationalist, autonomist, political objections? Now, certainly not.

In the United States, a tax-based approach to global warming was raised in the February 2002 report of the Council of Economic Advisors. This document served as a prelude to President Bush’s climate change policy announced a little later that month, about a year after the administrations rejection of Kyoto participation. The CEA report dismissed a tax-based climate protection response, including an internationally coordinated one, as unrealistic and impractical, primarily for lack of experienced institutions to implement it.[24] In fact, the intellectual objections from the President’s technical economic advisors to an international tax approach were remarkably mild, having to do only with problems of implementation. It can be seen, however, from other U. S. government decisions (such as those on CAFE automotive fuel efficiency standards, and on New Source Review, prolonging the use of coal for power generation), that other voices heard by the administration and the Congress have much deeper objections than those of the CEA to moving against global warming. These tougher positions coming from industry are based not on academic views of policy implementation feasibility, but on substantive, hard core economic interests.

Once again, the only conceivable way that the most rational course against the danger of global climate change could be supported by executive branches of government and legislatures around the world is if the public gains a broad and deep understanding of greenhouse warming and its causes, and if that knowledge leads to public desire to act against it. Achieving that awareness through public education, first and foremost in a United States now lagging far behind Europe, must be the proximate target for those who believe that acting soon and effectively against greenhouse warming is a great historical challenge to which we must respond.

Begin Box Text

Box One: Prices vs. Quantities

Two important questions are appropriate at this point. The first highlights a contrast between the recommendations of this paper and the methods chosen in the Kyoto Protocol. It can be summarized, “Why discourage carbon use by a tax that will make it more expensive, rather than by agreeing on national quotas (or caps lower than current use) for carbon reduction, allowing trading among fossil carbon users so that they can find among themselves the cheapest carbon reductions?” The second question is, “ If we tax, then after starting out at a rate designed to initiate the system, how high should the tax be, to strike the right balance between the need to reduce atmospheric carbon, on the one hand, and, on the other, the need to avoid macro-economic damage to national economies and the world economy?”

The first question leads us to the issue of how a government seeking to restrain an environmental externality gives its signals to the market. Should the signals take the form of regulations placing quantitative limits (caps or quotas) on the harmful externality, or should the signal consist of laws not forbidding the offending commodity, but taxing it in order to raise its price and thereby decrease demand for it, thus decreasing the amount which is produced and sold. For the regulator who must choose between using a quantity tool (such as a cap), or price tool (such as a tax), to discourage an undesired economic effect, which instrument is better? (To reduce smoking, for example, would it be better for the federal government to put a cap, state by state, on the maximum number of cigarette packs that could be sold in the country, or would it be better to put a tax on cigarettes which would drive up their price to the point that smoking would drop across the country to the same level as the level under the cap? In the case of cigarettes, the taxation approach was used. It was effective, and clearly, a cap method on smoking would have been impossibly cumbersome.)

A comprehensive analytic answer was given to this question in 1974 by economist Martin Weitzman, then of MIT and now of Harvard, in a classic article, “Prices versus Quantities.”[25] Weitzman makes it clear that an important element of the issue is a little like quantum indeterminacy in physics. If a fixed tolerable quantity of the pollutant is set as a cap or ceiling, there is no way of knowing with precision ahead of time what it will cost to forego use of the pollutant or to find functional non-polluting substitutes, and to bring generation of the pollutant down to that limit. Therefore, at the international level, as FCCC participating governments enter into the arrangement for common action, they know their emission reduction commitments in terms of tons of CO2, but they do not know what it will cost their home economies to reach the agreed lowered emission level. This uncertainty in itself is a major disincentive for a country to agree to join the arrangement. If, on the other hand, to join the pact countries must know ahead of time only how much their economies will be obliged to spend, they can agree on a tax or permit fee arrangement which will fix the costs of the emission reductions effort to their home economies. They will know that they will not have to spend more than an agreed amount, but they will not know how much pollutant reduction they will get—that will be determined only by the actual cycle of operations. Which method then, working through quantities or through prices, should be applied in a given case?

To know fully the results of his proposed action, the regulating policymaker must know how big a reduction of the pollutant he will bring about, and he must know what that reduction will cost. But in practice in the real world, as he embarks on his policy, he can know, and can state in his policy, only one of these, the quantity or the price, and the other has to be left open to be worked out or discovered in the process of carrying out the policy itself. In a world of perfect and complete knowledge in which the cost of reducing carbon was known ahead of time, it would not matter which route the policymaker took, since he would reach the exactly same result by using either quantities or prices to influence the market and bring it to the desired point, but the world of energy policy and climate protection is not remotely one of perfect and complete knowledge of future quantities and future costs. Therefore, an unavoidable unknown remains: either you know how much carbon reduction you want, and have to accept a risk with regard to how much you pay for it, or you know how much you are willing to pay, and have to take a risk with regard to how much carbon reduction you will get. On which side should you take your certainty, and on which side should you take your risk?

One case is quite clear: if the pollutant is harmless up to a certain quantitative threshold but then becomes castastrophic, we should regulate it by quantity, and to set the tolerated quantity a safe distance before the catastrophe is unleashed.

However, in general, Weitzman found that if each additional increment of the pollutant does not make much difference in the damage done, or if the amount of added damage from each marginal emission is not known, the price mechanism, is more effective. This latter case applies in a particular way to greenhouse gas emissions, whose effects are buffered because it is not the marginal emission itself which does the damage, but the stock, or the concentration of carbon in the atmosphere. This stock grew over two centuries and is not immediately related in a decisive way to a current year’s emissions.[26] The moral of the price/quantity story with regard to greenhouse gases is that regulation by price is likely to be more efficient (perhaps several times over) than regulation by quantity.[27]

Why, then, did the countries gathered in Kyoto in 1997 choose quantitative regulation (quotas), instead of price regulation (carbon taxes)? The American political phobia against taxation was certainly significant, and a second main reason was that even on a short term basis the signatories wanted to be certain about the amount of reduction to be achieved. This was understandable after the debacle of the Rio arrangements, which had not specified quantitative reduction targets (nor made any price arrangements), and had achieved no reductions at all. Anxieties on this score were intensified because no country wanted to proceed until it was known how far the other participants were proceeding, which may be called the “sidelong glance” phenomenon. Each country wanted to pin other countries down not to promise a certain effort against carbon emissions, but rather to promise certain results, which of course is a more doubtful matter, taking more courage from any government—or suggesting to a government that it should limit the results it promised.

But as a result of the choice to regulate through quotas (quantities) rather than taxes (price), each developed country participant at Kyoto was making a tentative commitment, subject to later ratification, to reduce carbon emissions by a certain amount for which it did not know the cost of fulfillment. The costs are prospectively very large, and truly unknown (although much speculated upon)[28]. It is also clear that costs of carbon reduction would vary greatly from country to country according to the nature of their energy sectors, which are very diverse. A large and central participant in the 1997 negotiations, the United States, which had failed to restrain rising fossil fuel use since 1992, faced costs that were both unpredictable, and likely to be high. This uncertainty about the cost of moving toward non-carbon based energy, and the fear of important economic damage from high costs, certainly pushed the American delegation to stress minimizing costs through various measures, but the US government’s political phobia against imposing taxes, even though that method would have made costs known rather than unknown, also could not be abandoned. The specter of important economic damage from high costs was a major factor, probably the single most important one, in the American opposition to ratifying Kyoto. Opposition to Kyoto was from the beginning the dominant position in the U.S. Senate, and has now been made explicit and definitive by the Bush administration.[29]

Eliminating cost uncertainty is why this paper proposes a path of agreed taxation, or price regulation, rather than an agreement to reduce emissions to common or allocated quotas, caps or quantitative limits. Since no one knows how much it will cost to reduce carbon emissions, the Kyoto approach amounts to each country’s committing itself to a fixed performance result, without knowing what achieving it will cost. On the other hand, an agreement among countries to tax carbon based fuels at a certain level, as proposed here, commits each nation to make a certain effort, at a fixed cost to its energy sector. The actual carbon reduction results of that effort are not known ahead of time, and are left for determination as the collective effort proceeds. This plan assumes that the countries make their efforts in basic good faith, with an honest intention to perform. That is a reasonable assumption because within each country there is a logic and domestic political support for a serious climate protection effort, and because the effort of each country is quite verifiable by remote observation of the country’s economy, of the sort that the WTO and the IMF now routinely conduct on all economies. The actual quantitative emission reduction effects of raising the price of carbon energy will be seen as the exercise proceeds. The guidelines can be adjusted in the second cycle (after say, five years), both as emission-reducing effectiveness is judged to be high or low, as scientific knowledge about greenhouse climate change and applicable technologies deepens, and as public opinion evolves, it is to be hoped toward greater willingness to invest for climate protection.

Box-within-Box One: Beforehand Indeterminacy of Costs or Emission Reduction

Weitzman, in his article Prices vs Quantities, sees that a regulator choosing between the price and quantity instruments does not know in advance the costs of reducing an externality, in this case, carbon emissions. If the regulator did know costs, he could reach the same result through either applying an equivalent tax or applying the matching quantitative limit on emissions. That is to say, if his estimated costs prove exactly correct, he could reach the same desired carbon reduction equally well by raising the price or cutting the allowed quantity. But that exact correctness of a beforehand cost estimate is not very likely; for one thing there will not be one agreed upon best estimate, but rather in the real world there will be many and varied estimates from various interested (and likely politicized) parties, who will be wrangling vigorously, so that the actual cost outcome, which itself may be influenced by unpredictable accidental or localized factors, will undoubtedly be above or below almost all of the estimates. The expected negotiating results if the real cost proves to be higher or lower than the estimated cost, can be shown in a simple matrix:

If you regulate by:

And costs are:



Higher than expected
I. Less carbon reduction than expected is achieved; the system can be adjusted to increase the tax, or to lower carbon reduction expectations in next cycle.
II. Gov’t must pay high costs to meet target, dam-aging its economy, or must renege on commitment or leave pact.

Lower than expected
III. More carbon reduction achieved; in next cycle, tax can be adjusted in either direction, to slow down climate protection, or to press harder since costs have been seen to be low.
IV. Carbon reduction stops when stipulated quantity reduction is achieved; some available reduction gains go unharvested. (US sulfur case)

Fear of the outcome in quadrant II, when binding quantitative targets have been accepted and costs come in high, leads governments to resist accepting major quantitative commitments, and generally impels them to seek an unambitious international arrangement if the arrangement uses quantitative commitments. In quadrant IV, it is seen that lower than expected costs under a system of quantitative commitments leave carbon reduction gains “on the table.” This is what happened in the sulfur reduction trading system under the U.S. Clean Air Act Amendments of 1990. If the commitments are by price, higher than expected costs hurt only the first round climate protection results in quadrant I, and lower than expected costs permit full harvesting of windfall de-carbonization gains. The less risky and preferable system is price regulation.

Moreover, imagine you are an observer looking over the shoulder of the regulator as he chooses between price and quantity signals. If you believe that the costs will be lower than the estimated costs, which environmentalists generally do believe, you will want price regulation because under it you will get more carbon reduction. If you are a pessimist, and believe that costs will be high, you still do not want quantitative regulation, which is likely to “bust the bank,” producing a painful outcome which will discredit international climate protection arrangements significantly into the future.

End Box-within-Box

The second question at the head of this box was, “How do we set the level of an internationally harmonized carbon tax, after an initial level has served to start it off?”

It was noted above that in choosing between quantity and price as means of carbon regulation, if a ceiling existed at which catastrophic environmental effects would begin, then the regulatory system should be quantitatively based, and should assure that that ceiling is not approached or breached. Such a ceiling is not known with regard to greenhouse emissions. But, interestingly, there may be a potential for economic disaster if a certain cost ceiling is exceeded. This ceiling exists at the point where raising the costs of energy engenders not just effects in the energy sector (such as conservation or substitution), but has effects in the economy as a whole (inflation, recession and unemployment).[30] Such effects were felt from the energy revaluations of the 1970s, and perhaps in the 1990s as well. For every political leader, such damage to the general economy, particularly unemployment, is a nightmare to be avoided at all costs.

There should be no need to pay the price of a depression, or even recession, to decarbonize the world economy. Therefore, if a control mechanism, price, is chosen which permits economic authorities to navigate cautiously with regard to this frontier of disaster, it is a far safer course for the durability of the whole long-term climate protection effort. It seems likely that an initial tax level of $25 per tC (equivalent to $6 per tCO2) is well and safely short of this frontier. Thereafter, it can be imagined that at the national or world level, a body comparable to the Federal Reserve or IMF would advise on setting carbon taxes at their maximum level that would avoid negative macro-economic effects. This could prove to be one of the basic measures of how fast the governmental climate protection effort could proceed.

End Box One.

8. In a material, engineering sense, how are we to go off carbon energy?

World energy demand is driven by ongoing economic development and population growth. Nakicenovic and his associates at the International Institute of Applied Systems Analysis[31] make the point that demand will inevitably continue to increase for both larger quantities and higher qualities of energy services. This massive and imperative energy demand is a fundamental feature of modern and modernizing societies, which cannot be denied or wished away. It is a foundational belief of this paper that if adequate technologies and policies for the large-scale decarbonized production of energy do not emerge and find acceptance early in the now opening 21st century, humans will use fossil energy and see the climatic environment suffer, rather than abstain from greenhouse energy use to stabilize and preserve the traditional and known climates of the world. The Bush Administration in the United States, now elected to a second term, is demonstrating the attitudes and policies, the values, the conception of economic rights and the commitment to market-only solutions, that will underlie such short-sighted behavior, and has developed and modeled the public vocabulary, political maneuvering, and sophisticated rationales used to justify such folly.

Within the overall picture of large growth in energy use, however, there are also other trends. These more favorable developments include increasing awareness and practice of energy efficiency, perhaps some small movement toward actual energy conservation (giving up of energy services) in the rich societies, carbon reduction policies and investments by some governments, primarily European, and, most importantly, the general tapering off of energy demand found at the higher levels of economic development, where services replace industry as the dominant part of the economy and national energy intensities (energy use per dollar, yen, Euro, rupee or yuan of GDP) diminish, even as GDPs grow.

There is also another important and little commented-upon trend: a larger and larger fraction of total energy is used in the form of electricity.[32] Electricity is high quality (and expensive) energy in the thermodynamic (Second Law) sense, and is also functionally high quality energy for its flexibility and precision of application, its transportability and its cleanliness. Stoking home furnaces with coal in the United States of 75 years ago was a direct, low-quality use of primary energy, as is cooking today over firewood in a Nepali peasant household. Where more modern alternatives are available, there is an upward movement in degree of processing and in the thermodynamic quality of energy, of which electricity is the pinnacle, and such elementary direct uses do not persist.[33] Electric power’s percentage share of total energy used will likely continue to increase worldwide.[34] An example of this is the movement from coal-fueled open hearth steelmaking to electric arc steel production. Could electricity advance still further to become virtually the only form of energy use?

A major segment of the energy market which does not use electricity now is transportation, notably automobiles and trucks, burning refined petroleum in internal combustion engines. But it is certainly technically possible, and maybe even likely, that this huge and growing transportation sector (half of all energy use in California, according to the Union of Concerned Scientists) will be converted to electric propulsion in the two-decade scale future. The power trains of automobiles and trucks will be electrified, as they already are in today’s electric automobiles and in many hybrid vehicles. (Although not intrinsically necessary for electrification, it is possible and desirable additionally for all vehicles to be engineered for high mileages through minimized size and weight in relation to their function, and through aerodynamic efficiency, as proposed by Amory Lovins.[35]) Most vehicles, which travel less than 150 miles per day, will receive their energy from batteries recharged at night by off-peak power from the normal grid.[36] Drawing power from the grid during off-peak consumption hours means that much less new generating capacity will have to be built than would be expected in proportion to the large amounts of energy that the electrified transportation sector will use—instead, existing generating capacity will be more fully used, which is basically inexpensive.[37] The relatively rare vehicles which do longer daily mileages than lithium-ion batteries can support will initially use small engines like those in present day hybrids, or their more advanced and extremely promising “plug-in” hybrid cousins. The smaller engines in these could quite feasibly use bio-fuels, such as ethanol, which have no greenhouse effect.[38] A transition thereafter may or may not take place to hydrogen fuel cells as the on-board source of the electricity that a long-daily-mileage vehicle uses.[39] Such fuel cells should use electrolysis-generated hydrogen, rather than hydrogen which is re-formed from fossil energy. If the vehicle uses electrolysis-generated hydrogen based on non-fossil generated electric power (or gets its hydrogen from a bio-fuel, such as ethanol), the vehicle as a whole is truly and fully non-CO2 emitting, and the same is true if it burns a bio-fuel directly.

In sum, the decarbonization of automotive, and even most truck, energy use is technically accomplished—there remain only applications level engineering issues. There will be no reduction in the performance of vehicles. The problem then becomes one of mass dissemination and market shift, which are difficult, and certainly demand leadership, but which should not present insuperable obstacles, especially if the turn to fossil carbon-free alternatives at the mass market level is encouraged by a tax on the fossil carbon in fuels.

With regard to other sectors of the transportation picture, there is no technical difficulty and probably not even much economic challenge in converting railroads from diesel propulsion to electric drive via overhead wire feeds, which is already the dominant mode in Europe and Japan. Airplane propulsion will be an exception, probably continuing to be by jet fuel (kerosene from petroleum, perhaps with an admixture of ethanol), although engines and airframes will continue to grow in fuel efficiency. Planes consume about 8% of petroleum energy in the United States now, and although this percentage is rising, it is a relatively minor carbon source whose persistence can be tolerated in an otherwise fossil carbon-free world.

With transportation electrified, the major non-electrified energy function in the United States is space heating, including home heating, especially in northern climates, which now uses oil or natural gas[40]. Space heating is a low-quality energy function in thermodynamic (Second Law) terms, and at first sight would be extremely inefficient to handle by an expensive, high-quality form of energy such as electricity. That would indeed be the case for electrical resistance heating (as seen in an electrical stove), but electricity-based heat pump/mini-geothermal equipment uses power in an entirely different and more efficient way. Heat pumping and geothermal equipment using electricity can provide space and house heating at costs lower than those of now-standard fossil fuels.[41] “Green” improvements in building construction, especially insulation, can also substantially reduce the energy burden of space heating. When space heating and transportation are added to existing electricity uses, is it seen that virtually all energy can be used in the form of electric power. There will be no further need to open gas stations for cars, nor to build natural gas pipelines to newly built houses.

This, of course, leads back to how electricity is to be produced. Among fossil fuels, it puts the decarbonization issue in the domain not of petroleum and natural gas, but of coal, which still produces about half the electric power in the United States, and a far larger percentage in India and China.[42] Coal is by a great deal the worst of the fossil fuels for carbon dioxide emissions. In the policy context, this means that it must be replaced by carbon-free sources of power. The addition of transportation and building heating to electricity demand will increase the need for power massively, doubtless leading to a net increase in power consumed, at the same time that expectable efficiencies in transmission, distribution and across all electricity end-uses will tend to restrain the growth in power consumption. The off-peak charging of transportation batteries will generally increase the use of base power and reduce the proportion of peak power needed.[43] As mentioned above, for a given total of power consumed, nightime off-peak consumption will tend to reduce the need to construct new generating capacity, in that way lowering the costs of much power.

Thus, the core problem of decarbonizing world energy supply will be decarbonizing electric power generation. Relatively dispersed, low-volume electricity consumption may well be able to be handled by locally produced and consumed power from renewable technologies, including photovoltaic panels, wind, and geothermal collectors, with associated storage devices as needed. These resources and others such as mini-hydro and existing large-scale hydroelectric dams can be substantially stretched not only by energy efficiency policies and technologies, but by a capable and “intelligent” national grid which predicts and manages demand, including rapidly shifting power over distances to handle local demand peaks or shortfalls using running capacity that is surplus at a given moment elsewhere. To further smooth demand, an intelligent grid could well charge differential prices according to time-varying levels of supply availability and demand, as is now done at the wholesale level in some places. At the consumption end, “intelligent” power-using devices will track the momentary price of power, and will use this information to control and schedule their operations and consumption automatically. For example, refrigeration units will run their compressors only when power is cheap; when the price of power is very high, brownouts of varying percentages can be initiated on a pre-agreed basis at consumption sites where full power is not always essential. [44]

Such opportunities to use renewable energy and energy efficiency in many forms should be exploited to the maximum, and could cover a very substantial share of future energy demand. However, the creation of marketable, economically usable energy is at root a process of concentrating energy, which is abundant but not very useful in its many dispersed and unharnessed forms, notably the 240 watts per square meter of sunlight available “everywhere.” The problem of replacing fossil electric energy becomes most acute where energy demand is large and highly concentrated, classically perhaps in an industrial situation like a steel or aluminum mill, but more typically and generally, in a large city. The world population, of course, is urbanizing even faster than it is growing. Energy use follows wealth, and in a world perspective, cities are where the wealth, or the largest “effective demand” for electricity is.

As a result, a very large proportion of the total demand for energy is very specifically urban (that is, geographically concentrated) demand for electricity. This very big and concentrated demand, now largely served by coal, can be met by nuclear power, which, of course, is greenhouse gas free. Modern nuclear generating technology used with vigilance and good management has effectively eliminated the danger of Chernobyl and Three Mile Island accidents, and the waste disposal issue is within range of solution, at present being obstructed by political issues such as Nevada’s resistance to housing a repository. The vulnerability of a nuclear plant to terrorist attack can be dealt with by making the plants very large, or grouping them in large ensembles, quite possibly at considerable distance from the consumption centers that they serve, and then protecting them heavily, even quasi-militarily. [45] Moving the power they produce to the concentrated urban populations, which may be at some distance from a plant, (for example, metropolitan Los Angeles from the massive Four Corners power generating site at the juncture of Arizona, Utah, New Mexico and Colorado)[46] is already done in very large volumes. To the extent that there will be additional power to be transmitted long distances, volume capacity expansion (as well as the qualitative upgrading toward “intelligence” discussed above) of the national transmission system will be indicated.

A major new transmission and even distribution network is a large national capital investment, as is a very large ensemble of safe nuclear plants sufficient to perhaps triple the present national nuclear capacity, taking it from the present 20% to 60% of supply in the United States. A large amount of solar PV and wind, as well will be required. These amount to such a capital investment that the price of electric power –which under these proposals will be the only vehicle of energy—may well rise for a period, but in the long run, this energy system, which has extremely low fuel costs for its nuclear part, and effectively no fuel costs at all for the solar/wind component, and which will also be replacing enormous present petroleum/gasoline costs, will be much less expensive than our present energy budget. In contrast to petroleum, effectively none of the “new energy” will need to be imported. Much will be learned about a new de-carbonized energy system in the process of building it, including the optimum balance and blend between concentrated nuclear and dispersed renewable production, and the possibilities of consumption efficiency gains, which translate into power demand reductions.

In the future, we are likely to see our energy coming entirely in the form of electricity, and being managed under a new set of differentiations and labels: 1) Direct, concentrated electricity, largely generated in large and remote nuclear plants for centralized grids. There will be two main categories of this power, peak and off peak. Life in America now is heavily urban or metropolitan, and this is the metropolitan form of electricity. With the development of substantial off-peak uses of electricity (night-time charging of electric vehicles, time-optimized refrigeration and other time-optional uses) peaks will be lower, and the difference between peak and non-peak costs is likely to grow smaller. 2) Spatially dispersed or decentralized electricity, meaning power that is non-urban and is generated by solar or wind means, and used off the grid. While the core grids mentioned above are likely to become more “concentrated,” at the same time more power will be produced off-grid on a decentralized basis, perhaps even for the suburbs, or at least the outer ring of metropolitan suburbs. 3) Stored electricity, under several sub-categories, which include storage for mobility, as in electricity converted to the storage medium of hydrogen for use in a fuel-cell powered car, and storage for time. The latter includes nighttime power stored after being produced by photovoltaic systems during the day, or power from wind turbines, stored for availability at windless times[47], and 4) Special forms of energy, such as long-distance aviation gas and high seas bunker fuel which may remain fossil-sourced, and highest quality non-interruptible electricity free of voltage spikes for computer and similar applications.

The United States is a long way from such virtually carbon-free national energy today, in the summer of 2006. Moreover, any path to major non-traditional changes in our energy system is blocked by the Bush-Cheney administration, effectively acting as a proxy for the corporations and capital that supply and use energy under the present fossil-based system, most of which have chosen to vigorously resist change.

Environmental Defense (ED), a leading non-profit organization campaigning for climate protection, said in April 2006 that “global warming has finally arrived as a mainstream American issue. Global warming is no longer a matter of political or scientific debate. The only question is what we will do about global warming pollution, and how quickly we will do it.” (Emphasis by ED.) This paper has tried to answer the first half of that question, in terms of taxing carbon, domestically and under coordinated international arrangements, and suggesting broad directional avenues for the design and construction of energy supply to future infrastructure, housing, and transportation in our country. The answer to “how quickly” should we make these changes, is “immediately,” or certainly, “as immedately as possible”.[48]

Let us summarize the steps to be taken in an adequate response to climate change. In the first instance, we would de-subsidize and tax carbon-based energy, as discussed above.[49] This paper proposed $25 per ton of carbon (tC)[50] as a reasonable opening level, but the actual initial amount of tax per ton of emitted carbon would be set by legislative negotiation. Legislation of a carbon tax would supersede current bills calling for caps, ceilings, quotas or quantitative controls on carbon emissions, such as the McCain-Lieberman “Climate Stewardship” proposal now before the U.S.Senate.[51], Waxman-Jeffords target-setting bills, and Bingaman-Domenici legislation. The trading aspect of cap-and-trade (quota) plans is handled by a taxation approach far more simply and efficiently, since a energy user which has no immediate alternative to using fossil fuel can continue to work simply by paying the tax and continuing its business until it can create non-fossil energy sources, which it will have a cost incentive to do. With international coordination, similar de-subsidization and taxation will be applied by other nations, thus eliminating the issue of competitive economic disadvantage. The proceeds of taxation in each country will be split between return to the population (revenue neutrality and regressivity correction), and pooling for investment in energy efficiency and non-carbon energy sources on a worldwide, cheapest-first, basis.

Fossil-free energy regimes operating almost entirely through the medium of electricity will mix renewable (hydro, wind, solar), and nuclear sources, plus packages of energy efficiency investments. To improve knowledge of the trade-offs and balances among electric power coming from the different sources and going to different uses, the Federal government should pick one or more experimental areas in which to work out new systems. The region of Missoula, Montana, with a combined urban and nearby rural population of about 85,000 has been suggested as an appropriately sized and adequately isolated, or demarcated, location. After the consent of the people of the region to serve as a test bench has been obtained, the Federal government should subsidize electricity-driven cars and trucks, energy conservation programs, geo-thermal heating systems and especially a highly intelligent distribution grid in Missoula. The national government should install solar, wind and nuclear power generating capacity[52], and create the power storage and intelligent local grid capacity needed under a new fossil-free energy regime. (This effort would be comparable to the FAA’s 1960s direct construction of the innovative Dulles Airport near Washington D.C.) In such an operation, the integration and performance of an entirely electrified and de-carbonized energy system would be carefully monitored and progressively optimized. The government could alternatively carry out such experiments in the region of the already federalized Tennessee Valley Authority, which runs major coal, nuclear, hydro, and renewable energy facilities, most on a large scale.

The key question to be answered through the experiment is the best mixture of power sources to meet the community’s energy needs at the lowest cost.[53] Solar power, not available at night, will have to be blended with wind power, which has a separate variability according to wind strength. A goal should be to minimize the amount of nuclear generation, but it will need to be worked out what is the minimum of concentrated reliable baseline power that is required after the best contributions have been made by hydro, solar and wind power, by energy economy measures and variable pricing, and by storage via hydrogen production, batteries, pumped water storage, or other means.

Before application in a real location such as Missoula or the TVA region, of course, such a regime, with many alternative variations, could instructively be modeled mathematically at local, regional and national scales. That work should begin immediately, or existing electric supply models should be run, with a view to working out the issues raised by converting to a greenhouse emission-free (and quite possibly virtually all-electric) energy supply.

9. Does this paper advocate a “nuclear” solution? Why, and what are the implications of that?

The answer to the first question is “Yes.” This path to climate protection leads through further major electrification of energy supply and urges maximum feasible use of renewable power sources (wind, solar, hydro, and efficiency, including a highly rationalized “smart” grid), for less dense areas of demand. However, for base power in more concentrated centers of demand, including metropolitan cities and taking into account a large additional nighttime baseload demand from plug-in hybrid vehicles, this paper basically recommends using nuclear power, implying a very large nationwide increase – possibly a tripling or more-- of present U.S. nuclear generation.

This recommendation is reached reluctantly, and only after giving thought to the alternatives available. It is necessary to review the context. To meet the very large future energy needs of the United States, and beyond us, the world, there are three broad options available:

The first is carbon-based business as usual (BAU), which can be considered a default position, in the sense that if the other policies are not carried out, BAU will happen, as it is happening now. The market and relatively short-term economic considerations will rule. Transportation will move from petroleum to electric power at the pace of petroleum exhaustion and oil price escalation rather than the pace of climate protection, and electric generation will be by coal[54]. This will lead to major anthropogenic climate change and climate destabilization in the course of the present century, representing an immense human failure, and also necessitating climate adaptation costs which will dwarf the costs of climate protection through decarbonization if decarbonization is begun promptly.

The second path is that of non-nuclear, non-carbon based energy, that is to say renewables and increased efficiency, including a highly intelligent grid and large scale supply-smoothing power storage facilities, likely including storage through conversion to hydrogen. Storage capacity, which is expensive, is required in a renewables solution due to the off-and-on availability of solar and wind power. A renewables path will be extremely costly, and because of its expense, is likely to be executed only slowly or partially, leading to much energy being supplied by carbon-based, BAU methods. (In contrast to heavily nuclear France, Germany, where plebiscites have rejected nuclear power, appears to have long-range plans for a mixture of renewable and coal-fired power.)

The third path is to maximize use of renewable and efficiency gains, but to accept reliance on nuclear power in place of coal for dense power consumption centers. This will mean large scale construction of additional nuclear capacity, with its supply chain of uranium and its disposal chain for used fuel.[55] It is understood that full advantage will be taken of current technical advances in the safety of nuclear generation, and that technical successes such as the French standardization of plant designs will be applied. Generating units will be grouped and protected intensely in remote locations, and used fuel will receive long-term storage, in locations such as Yucca Mountain in Nevada. The question of fuel reprocessing is left open. It is possible that domestic power generation plants would be put under a universalized and strengthened international regime of supervision, including the fuel supply and disposal chain.

The semi-conscious linkage in the public mind of civilian nuclear power with nuclear weapons has cast a shadow on the merits and usefulness of peaceful nuclear electrical generation for many years. Every possible step should therefore be taken, in this country and other countries, to assure complete isolation of the nuclear power effort from military nuclear programs, such that long term military nuclear disarmament could (and should) be pursued entirely independently from the nuclear power generation commitment. A significantly nuclear power solution would be less expensive and more feasible by a great deal than an entirely renewable path, which is essentially unrealistic, and will lead in practice to realization of the planned expansion of coal-based power[56]. To mitigate the factors of danger that remain associated with nuclear power, it is justified to invest in the tightest security and storage safety measures; they should be accepted and paid for even as they raise somewhat the final cost of power.

Many observers (notably including Pacala and Socolow of the 2005 “wedges” analysis) would likely accept some further use of nuclear power in industrially advanced, politically stable countries, such as the United States, Europe and Japan, but have understandable hesitation in turning to nuclear power as a general, worldwide solution, since this implies constructing many nuclear power plants in fragile and volatile less- developed countries, where control of them, both technical and political, could be very shaky. There are two approaches to this issue: the one is to refrain from using nuclear generation in such countries, even though that creates an invidious distinction which would be difficult to maintain among sovereign nations, and the second would be to build such civilian power reactors, but keep them under the kind of international control already exercised over numerous countries by the International Atomic Energy Agency (IAEA) under the Nuclear Non-Proliferation Treaty, or perhaps a strengthened, and technically intensified version of such control. It could well be beneficial for the United States and other advanced countries which both use nuclear power generation and possess nuclear weapons, to accept such international controls on their civilian, power generation nuclear activities. This separated, dual system of international access and control, differentiating between recognized nuclear weapons and peaceful programs, is essentially what we have agreed upon with the government of India in the pact signed in 2006 by the U.S. Executive Branch and currently awaiting Senate consideration.

10. Present torpor and inadequate response to climate change

With regard to global warming and climate change, we are living at a strange, but very important and troubling historical moment. Changes of the gravest consequence in the relationship of civilized, industrialized man to the natural world are gathering speed in our own time, indeed, before our eyes. On the one hand, the numbers, economic power, and fossil energy use of humans has risen to the extent that we are having a worldwide, systemic effect on the environment that supports us, through increases of anthropogenic greenhouse gas in the atmosphere. Reciprocally, nature is responding to our intervention in the form of an altered climate.[57] Although entirely feasible measures are available to control our intervention, and thereby exercise some control over the immense and real dangers of nature’s response, we are failing to apply those measures. Historians in the future looking back will judge that this is, on the largest scale, an extraordinary case of passivity, immobilization and political and social inertia and in front of a major and very real problem. It is true that the extraordinarily slow, but inexorable, pace, and the fully global spatial extent of the drama are not on an easily apprehended, familiar human scale, like for example, a war. Nonetheless, the educated middle, owning, and managerial classes that dominate societies across the modern world seem unwilling, almost afraid, to understand the most basic facts about the what is going on, and even less willing and ready to act upon them with a decisiveness and intensity proportionate to the danger.

In the United States, uncritically proud of its democratic system and role of world leadership, climate protection has no voting political constituency to speak of. It is axiomatic among political practitioners that to bring it up would bring a devastating onslaught from political forces opposed to taking serious climate protection action on grounds primarily of cost, resistance to change, and generalized hostility to governmental action as such.[58] The Democratic presidential candidate in 2000, Al Gore, although he had written a notable book about global warming[59] and was one of the country’s most convinced and expert figures, declined to raise it as an issue in his campaign. This was clearly on the advice of political staff in close touch with public opinion through continuous polling. Even after the devastating Katrina hurricane of August 2005, climate change is not even a defined, tertiary level issue, according to Democratic pollster Peter Hart, who observed that an uninstructed public “doesn’t know how to vote on it.” Although media attention is increasing[60], politically, climate change lurks in an outer darkness, with few indications that it will feature significantly in the congressional elections of 2006 or the presidential ones of 2008.

In the face of an unwillingness to use the governmental institutions which could respond, and massive, smothering public torpor, resistance and even hostility to any decisive action which could be portrayed as costly, even advocates and analysts of climate protection are intimidated and coopted. This was desolately illustrated by a March 29-30, 2006 conference of U.S. and British economists held in Washington D.C.[61] The experts present could not break through the limits of “reliance on markets” thinking, although it was palpable throughout the proceedings that the measures that were relevant in their context (550 ppm atmospheric CO2 was assumed) were a form of hand-waving that fell far short of responding to the physical realities of ongoing warming. Steven Specker, a lifelong senior General Electric engineer and executive now heading the important EPRI (Electrical Power Research Institute), a visibly intelligent and socially mainstream expert, who spoke on a separate occasion at RFF later in March of 2006[62] in Washington, is so in the grip of pervasive social and economic orthodoxies that, while leaving the future “cost of carbon” unspecified, he envisages only those changes in power generation technology which the market will choose on the basis of cost — a level of passivity and deference to “the market” which it is inconceivable he would show in an analogous crisis that touched him more personally or immediately.

In early 2006 the prevailing policy analysis of how to respond to climate change is an article by Stephen Pacala and Robert Socolow entitled: Stabilization Wedges: Solving the Climate Problem for the next 50 Years with Current Technologies.[63] The article does two salient things: it relegates the use of nuclear power to a minor position among remedial technologies, although without direct explanation, and it defines a fifty year solution of the climate problem as holding the level of atmospheric carbon at 500 +/- 50 parts per million. This is a capitulationist goal: from a base level of about 280 ppm in 1800, the present level of carbon is 380 ppm, and major warming, sea level-lifting, and species-pressuring effects are already visible. A selection of seven major packages of energy use reductions, which the article carefully defines and refers to as “stabilization wedges, ” are estimated by Pacala and Socolow to be capable of mitigating what otherwise would be massive predicted growth in emissions, but not to be capable of reducing future emission levels below present levels between now and 2050.

The commitments at Kyoto are certainly a wave of the hand rather that serious policy by serious people that matches the scale of the threat, but the Kyoto approach is routinely dismissed as “extreme” in the United States. Canada, after a 2006 election swing to the right, is giving up its aspirations to fulfill its Kyoto commitments, and there appears to be ongoing softening in Britain’s engagement to Kyoto carbon reductions.

It is clear that at present rates of response and action within the political and economic orthodoxies of the modern capitalist world, global warming will not be mitigated or prevented in a timely way to a degree that remotely approaches either humanity’s objective physical needs for a stop to warming, or the available technical possibilities of control. Here and now, we need to grapple with the very large and consequential crisis that modern industrialized and educated society has created. It is a test of our broadest social systems of decision-making and response, and at present they are are not working, or at a minimum, they are working at a complacent pace far behind the true, ongoing and inexorable pace of the problem itself.

11. Biblio/Ref List

Athanasiou, Tom, 1998. Divided Planet, the Ecology of Rich and Poor. University of Georgia Press, Atlanta and London

Ausubel, Jesse H. and H.Dale Langford. 1997. Technological Trajectories and the Human Environment. National Academy of Engineering. National Academy Press, Washington, D.C.

Ausubel, Jesse H. and Cesare Marchetti. 1997. Elektron: Electrical Systems in Retrospect and Prospect. In Ausubel and Langford, eds. 1977.

Ausubel, Jesse H. 1977. The Liberation of the Environment. In Ausubel and Langford eds. 1997.

Bernow, Stephen, William Dougherty, Max Duckworth, Sivan Kartha, Michael Lazarus and Michael Ruth. 1998. Policies and Measures to Reduce CO2 Emissions in the United States. An Analysis of Options through 2010. A Study for the World Wildlife Fund, Tellus Institute and Stockholm Environment Institute, Boston, MA.

Bernow, Stephen, William Dougherty and Max Duckworth. 1996. Modelling Carbon Reduction Policies in the U.S. Electric Sector. Tellus Institute presentation at EPA workshop held in Alexandria, VA.

Bolin, Bert. 1998. The Kyoto Negotiations on Climate Change. Science vol 279, No. 5439. p. 330. January 16, 1998 American Association for the Advancement of Science, Washington, D.C.

Cooper, Richard. 1998. Toward a Real Global Warming Treaty. Foreign Affairs 77 (2): 66-79. Council on Foreign Relations, New York

Davis, Ged R. 1990. Energy for Planet Earth. Scientific American (September 1990)

Sangstad, Alan et al. 2000 (October). New Directions in the Economics and Integrated Assessment of Global Climate Change. Contributions by Allen Sangstad, Stephen Canio, Richard Howard and Steven Schneider. Climate Change Policy Project. The Pew Center for Global Climate Change, Washington D.C.

Dower, Roger C. and Mary Beth Zimmerman. 1992. The Right Climate for Carbon Taxes: Creating Economic Incentives to Protect the Atmosphere. World Resources Institute, Washington D.C.

Edmonds, Jae, Roop, Joseph and Michael J. Scott. 2000 (Sept). The Technology and the Economics of Climate Change Policy. Pew Center on Global Climate Change. Arlington, VA.

Goodell, Jeff. 2006. Big Coal, the Dirty Secret Behind America’s Energy Future. Houghton Mifflin, Boston, New York

Gore, Al. 1992. Earth in the Balance, Ecology and the Human Spirit. Houghton Mifflin Co. Boston, New York, London

Goulder, Lawrence H. 2000 (September) Confronting the Adverse Industry Impacts of CO2 Abatement Policies: What does it cost? Climate Change Issue Brief No. 23, Resources for the Future, Washington, D.C.

Grubb, Michael, with Christiaan Vrolijk and Duncan Brack. 1999. The Kyoto Protocol, A Guide and Assessment. Energy and Environment Program, The Royal Institute of International Affairs, London

Hammitt, James K, and Harvey, C.M. 2000. Equity, Efficiency, Uncertainty and the Mitigation of Global Climate Change. Risk Analysis (Journal) 2000 December. 20 (6), 851-60.

Holdren, John P. 1990. Energy in Transition. Scientific American (September 1990)

Holdren, John. 1999. Six Reasons to Take Action Now. Foreign Service Journal, March 1999. Published by the American Foreign Service Association, Washington, D.C.

Howarth, Richard B. 2000 (October). Climate Change and Intergenerational Fairness, in New Directions in the Economics and Integrated Assessment of Global Climate Change. Pew Center on Global Climate Change. Pew Charitable Trust, Washington D.C.

Huber, Peter W, and Mark P. Mills. 2006. The Bottomless Well -- the Twilight of Fuel, the Virtue of Waste, and Why We will Never run out of Energy, Basic Books, A member of the Perseus Group, New York

Interlaboratory Working Group. 1997. Scenarios of U.S. Carbon Reductions: Potential Impacts of Energy Technologies by 2010 and Beyond. (Berkeley, CA: Lawrence Berkeley National Laboratory and Oak Ridge, TN: Oak Ridge National Laboratory), LBNL –40533 and ORNL-444, September. (URL Address: http://www.ornl.gov/ORNL/Energy_Eff/

Interlaboratory Working Group. 2000. Scenarios for a Clean Energy Future. (Oak Ridge, TN: Oak Ridge National Laboratory, Berkeley, CA: Lawrence Berkeley National Laboratory, and Golden, CO: National Renewable Energy Laboratory), ORNL/CON-476, LBNL-44029, and NREL-TP-620-29379, November.

Johnson, Todd, et al. 1994. China, Issues and Options in Greenhouse Gas Emissions Control, Summary Report. Prepared by a Joint Study Team from the National Environment Protection Agency of China, The State Planning Commission of China, The United Nations Development Program, and the World Bank. Published by The World Bank, Washington, D.C.

Jorgenson, Dale W., Richard Goettle, Peter Wilcoxen and Mun Sing Ho. 2000 (Sept). The Role of Substitution in understanding the costs of Climate Change Policy. Pew Center on Global Climate Change. Arlington, VA.

Kolbert, Elizabeth. 2006. Field Notes from a Catastrophe, Man, Nature and Climate Change, Bloomsbury Press ( Substance published in the spring of 2005 in three consecutive issues of The New Yorker Magazine.)

Kerr, Richard A. 1998. Acid Rain Control: Success on the Cheap. Science, vol 282, p. 1024, 7 November 6, 1998 American Association for the Advancement of Science, Washington, D.C.

Lee, Henry. 2001. U.S.Climate Policy, Factors and Constraints, in Climate Change, Science, Strategies, and Solutions, Eileen Claussen, Executive Editor, Debra P. Davis, Editor. A Publication of The Pew Center on Global Climate Change, through Brill, Leiden, Boston, Koln. .

Lovins, Amory and L. Hunter Lovins, 1995. Reinventing Wheels. Atlantic Monthly, January 1995. Boston Massachusetts.

Mabey, Nick and Stephen Hall, Clare Smith, and Sujata Gupta. 1997. Argument in the Greenhouse, the International Economics of Global Warming. Global Environmental Change Program, Routledge, London and New York

Malakoff, David, 1998. Nuclear Power: New DOE Research Program To Boost Sagging Industry. Science, 11 December 1998. Vol 282. pp 1980-81. American Association for the Advancement of Science, Washington, D.C.

Nakicenovic, Nebojsa. 1997. Freeing Energy from Carbon. In Ausubel and Langford, eds. 1997 (see above).

Nakicenovic, Nebojsa, Arnulf Grubler and Alan McDonald, eds. 1998. Global Energy Perspectives. International Institute for Applied Systems Analysis, The World Energy Council, and Cambridge University Press, Cambridge, New York, and Melbourne

Oberthur, Sebastian, and Hermann E. Ott. 1999. The Kyoto Protocol, International Climate Policy for the 21st Century. Ecologic and Springer, Berlin.

Olsen, Mancur. 1965. The Logic of Collective Action, Public Goods and the Theory of Groups. Harvard University Press, Cambridge, Mass.

Pacala, Stephen, and Robert Socolow. 2004 “Stabilization Wedges: Solving the Climate Problem for the next Fifty Years with Current Technologies.” Science August 13, 2004. Published by the American Association for the Advancement of Science.

Pacala, Stephen, and Robert Socolow. 2004 Digital Online supplement to article “Stabilization Wedges….” Available on line at www.sciencemag.org/cgi/content/full /305/5686/968/DC1.

Pizer, William A. 2001. Combining Price and Quanitity Controls to Mitigate Global Climate Change. Submitted to Journal of Public Economics. At present a discussion Draft, Resources for the Future, Washington, D.C.

Pizer, William A. 1999 (July). Choosing Price or Quantity Controls for Greenhouse Gases. Climate Issues Brief No. 17. Resources for the Future, Washington D.C. Also published as Chapter 9 in M.A.Toman, ed, 2001, for which, see below.

Pizer, William A. 1997 (October). Prices vs. Quantities Revisited: The Case of Climate Change. Discussion Paper 98-02. Resources for the Future, Washington, D.C.

Pizer, William A. 1998. Optimal Choice of Policy Instrument and Stringency Under Uncertainty: The Case of Climate Change. RFF Discussion Paper, 97-17. Resources for the Future, Washington, D.C.

Repetto, Robert and Duncan Austin. 1997. The Costs of Climate Protection: a Guide for the Perplexed. The Climate Protection Initiative. World Resources Institute, Washington D.C.

Rhodes, Richard, and Denis Beller. 2000. The Need for Nuclear Power. Foreign Affairs. Vol 79, No. 1. January February 2000. Council on Foreign Relations, N.Y.

Sailor, William C., David Bodansky, Chaim Braun, Steve Fetter, Bob Van der Zwaan. 2000 (May). A Nuclear Solution to Climate Change? Science, 19 May 2000 Vol 288, No. 5469. American Association for the Advancement of Science, Washington, D.C.

Toman, Michael A., ed. 2001. Climate Change, Economics and Policy, An RFF Anthology. Resources for the Future, Washington, D.C.

United States Government. 2001 (May). Reliable, Affordable, and Environmentally Sound Energy for America's Future. Report of the National Energy Policy Development Group (chaired R. Cheney). Washington D.C.

Victor, David G. 2001. The Collapse of the Kyoto Protocol, and the Struggle to Slow Global Warming. A Council on Foreign Relations book. Princeton University Press. Princeton

Weiner, Jonathan Baert. 2000. Policy Design for International Greenhouse Gas Control (September 1997 revised July 2000) Climate Change Issues Brief No. 6, Resources for the Future, Washington D.C. 17 pp. (Also appears as Chapter 20 in Toman ed. 2001, above.)

Weitzman, M.L. 1974. “Prices vs. quantities.” Review of Economic Studies 41:477-491

Weyant, John P. July 2000. Introduction to the Economics of Climate Change Policy. Prepared for the Pew Center on Global Climate Change, Pew Charitable Trust, Washington, D.C.

Weyant, John, editor. 1999 The Costs of the Kyoto Protocol: A Multimodal Evaluation. A special issue of the Energy Journal, published by the International Association of Energy Economics, or Energy Economics Education Foundation, Cleveland, OH. Additional editors, Henry Jacoby, MIT, James A. Edmonds, Battelle Pacific Northwest Institute, and Richard Richels, EPRI.
[1] Visiting Scholar, Institute of Governmental Studies, U.C. Berkeley. (also:1584 LeRoy Avenue, Berkeley, California 94708)
E-mail: ptrlydon@berkeley.edu, or ptrlydon@sbcglobal.net. Tel: 510-644-8064; Fax: 548-1639

[2] There is abundant writing on the observed and expectable effects of climate change. See Gelbspan, IPCC, Herman Daly, Andrew Revkin, and many others, notably the three part series by Elizabeth Kolbert published in the New Yorker magazine in March 2005, and in 2006 as a book: Field Notes from a Catastrophe, Man, Nature and Climate Change, Bloomsbury Press.
This policy-oriented paper refrains from the common scare-mongering about climate change, but the situation should be evaluated in a precautionary mode. This means that the unknown and imponderables details of the precise rates and local effects of climate destabilization and change should be counted as dangers, and not as “easy outs” which excuse us from action. Well borne in mind is climatologist Wallace Broeker’s 1997 dictum: “Climate is an angry beast, and we are poking it with sharp sticks.”

[3] See below for discussion of the relationship in the policy domain among carbon dioxide and the other greenhouse gases, such as methane, nitrous oxide, certain fluorocarbons, and sufur hexachloride.

[4] The Framework Convention on Climate Change (FCCC) was signed in Rio de Janeiro in 1962 as a centerpiece of the United Nations Conference on Environment and Development. The Kyoto Protocol, negotiated in 1997 and subsequently rejected by George W. Bush, although it came into force among other countries in 2005, is an elaboration added to the FCCC, making the broad engagements of the earlier treaty more concrete and specific.

[5] See the “International Energy Outlook 2006,” June 2006. Published by the Energy Information Administration of the U.S. Department of Energy. Available at: www.eia.doe.gov/oiaf/ieo/index.html .
[6] The relationship of the climate change problem to the ceaselessly busy world of environmentalism as a whole can be seen as like the relationship of physics to the rest of science in the mind of Lord Rutherford: “there is phyics, and all the rest is stamp collecting.” (Joke, a bad joke?)
[7] The formation of carbon in the form of carbon dioxide, a principal greenhouse gas, is an unavoidable by-product of burning fossil fuels, but atmospheric carbon’s effects are so diffuse that they have little consequence for buyers of the fuel, and do not enter into the price or desirability of fuel at the time of sale. The effects of the carbon on society as whole are therefore said to be external to the economic transaction. This means that the negative ‘nuisance” effects of the by-product will not be dealt with by the market, and if society wishes to do something about such long range and remote effects, it will have do so through some agency other than the market. Normally, the social agency taking action is the government. A common way to do so is to control the “external” effect by regulation, or by altering the market’s treatment of the commodity, for example raising its price through taxing it. For comparison, unlike the case of carbon emissions, the advantages of oil over coal (cleanliness, transportability, usability in internal combustion engines) were perceptible and important to buyers in the middle decades of this century, and led to the replacement of coal by petroleum in many uses by forces within the market, without the need for government action.

[8] Cf. Bolin, Bert. 1998. The Kyoto Negotiations on Climate Change. Science, vol 279, p. 330. January 16, 1998 American Association for the Advancement of Science, Washington, D.C.

[9] For a description of the many stages in making energy usable, see Davis, 1990.

[10] Richard Cooper, 1998, took early note of this wrong turning

[11] An American writer, David Victor stresses one consequence of choosing to regulate by quantity rather than by price. A country which commits itself to certain emissions reductions, he points out, is thereby “entitled” by the Kyoto process to the balance of its normal emissions. For example, if the United States emits to the atmosphere 1.5 billion tons of carbon in the year 2000, and commits itself to reduce that to 1.4 BtC in 2010, it can be considered, if we look at the figures the other way round, to have received an entitlement from the Kyoto process to emit 1.4BtC in 2010. These entititlements to emit carbon (that is to say, to obtain energy from fossil sources, which in the short run are usually cheaper than non-emitting sources, such as renewable or nuclear power) are looked upon by Victor as having a monetary value,. The backhanded creation by the international negotiating process of these entitlements seems to be an immense creation of wealth by the governments meeting at Kyoto. Immediately, the distribution of this wealth becomes a classic international bargaining issue, with innumerable varieties of claim upon it put forward. One claim is for eventual international per capita equality in carbon emissions, while Victor basically assumes a U.S.-centric system of distributing emission rights on “prior use”, or “grandfathering” principles, as indeed Kyoto did, or as will any system that uses percentage reductions from existing fossil consumption.

But there is a fatal flaw here. In reality, there is no need to move into an intensely complicated sharing out of fossil emission rights which have been placed under a quantitative cap worldwide, a process probably so adversarial that agreement could never be reached between the first and third worlds. The good being sought, which indeed should be fairly distributed, is not entitlement to use fossil energy, but rather, access to energy services. Energy services—the actual electric light shining on a page so that one can read it, the transportation from one city to the next, an operating computer, a warm house in winter, a cold beer in summer—do not necessarily come from the use of fossil fuel, but can come as well from a photovoltaic panel, a hydropower dam, a wind turbine or a nuclear generating plant, none of which contribute to greenhouse warming. It is entitlement to energy services, not to fossil fuel use, which needs to be allocated equitably, and this is in fact an easier problem. Victor, David. G. 2001. The Collapse of the Kyoto Protocol and the Struggle to Slow Global Warming. Council on Foreign Relations, New York

[12] As the quintessentially political figure, James Carville put it in the 1992 U.S. presidential campaign: “It’s the economy, stupid!”
[13] This is the domain of “welfare economics” originally developed by British economist A.C. Pigou in the 1930’s.
[14] For current developments on this front of popular awareness in the United States, see footnote 49 below. Is there a “tipping point?” Was Hurricane Katrina the “needed” natural catastrophe?
[15] See Simon Romero, 2 Industry Leaders Bet on Coal, but Split on Cleaner Approach. New York Times, 5/28/06, and Jeff Goodell, Big Coal, 2006, Houghton Mifflin, and EIA (U.S. Energy Information Admin.) Planned Nameplate Capacity Additions from New Generators, by Energy Source, Report released Nov 2005, http://www.eia.doe.gov/cneaf/electricity/epa/epat2p4.html .

[16] See Interlaboratory Working Group. 2000. Scenarios for a Clean Energy Future. (Oak Ridge, TN: Oak Ridge National Laboratory, Berkeley, CA: Lawrence Berkeley National Laboratory, and Golden, CO: National Renewable Energy Laboratory), ORNL/CON-476, LBNL-44029, and NREL-TP-620-29379, November

[17] As an alternative to an international office disbursing large scale investment funds for climate protection, it is possible, that for up to one half of an energy firm’s liability for carbon taxation, its home government would accept, in lieu of tax payments, certificates of emission reduction (CERs), which the firm would seek on an international market in which such CERs would be traded. The role of the international agency would then be limited to certifying such certificates, which itself is a complex task, including the thorny matter of establishing baselines against which to evaluate them. In principle, many CERs could be generated by seller firms or governments for less than $25 tC, and specialized intermediaries would emerge to stimulate their creation and the trading of them.

[18] Cf. Todd Johnson, World Bank et al. 1994. p. 47: “Chinese nuclear proponents anticipate that capital costs will fall to 6500 yuan/kW (US$1,180/kW in 1990 US$) by the year 2020 as China develops its own nuclear production industry. However, even at such low estimates, the levelized costs of nuclear power are 40 percent above the high estimates for modern coal-fired baseload generation in 2020. If the cost estimates of the international experts participating in this study (US$1,900-2700 kW) prove more accurate, nuclear power would be too expensive to compete with coal in China.” (without subsidy-PL)

[19] Note that this supportive intervention in the Chinese decision by the international agency (or CER market) fits well with an important characteristic of energy investments: in general the capital costs of renewable/nuclear power plants are higher than the capital costs of a fossil facility, but the nuclear/renewable installation will have lower operating (fuel) costs. Because of this, over the life of a plant, nuclear/renewable energy is likely not to be more expensive than fossil based energy, although it is more demanding at the up-front original investment stage. It is the third world country’s shortage of capital, not a poverty-based need for a permanently cheaper but dirty solution, that makes the international contribution of capital in the loan component of the package remarkably opportune and useful. The interest rate of the loan, of course, can be concessionary to an appropriate degree if that is desired.

[20] At 85% reliability, a coal fired gigawatt plant produces 7.4 billion kWh/yr, which at 300 grams of carbon per kWh emits 2.2 million tonnes of carbon/yr. Estimating that $20 million per year is the annual cost of $200 million of capital with amortization in 20 years, we are avoiding annual emissions of 2.2 million tons of carbon for $20 million, or a little better than $10 per ton avoided.

[21] The degree to which the international agency should be rule-bound or free in making judgments of efficiency as between alternative carbon emission reduction investments (or CERs) is a significant and interesting question. The relatively spontaneous and creative, but highly purposeful decision-making used in the Marshall Plan, as discussed in Schelling, 1997, is well worth consulting (see refs).
[22] Weyant, John P. and Jennifer N. Hill. 1999. Introduction and Overview, in The Costs of the Kyoto Protocol: A Multi-Model Evaluation. Special number of The Energy Journal, published by the International Association for Energy Economics, Cleveland OH.

[23] The classic economized discussion is Olsen 1968.
[24] Here is the relevant extract from the CEA’s Economic Report of the President 2002, page 246:

“Yet concepts such as a worldwide tax on greenhouse gas emissions or a worldwide tradable permit system, sometimes advertised as solutions, are at best theoretical benchmarks against which to measure alternative, practical approaches. At worst, they can be a distraction from meaningful steps forward.
Why are such proposals impractical? Because they fail to recognize the enormous institutional and logistical obstacles to implementing any sweeping international program. Institutionally, it is important to learn to walk before trying to run. The United States implemented its successful SO2 trading program only after gaining experience in the 1970s and 1980s with netting and banking programs, experimenting with control technologies for more than 20 years, and recognizing the limitations of alternative command and control approaches. Most other countries have significantly less experience with flexible approaches. A flexible international program would be unprecedented.
As the case studies have also shown, flexible programs have been remarkably successful—but sometimes they run into glitches. For that reason, it would be dangerous to make any serious U.S. policy or commitment dependent on newly designed and untried international institutions—a point highlighted by the President’s Cabinet-level climate change working group in its initial findings. Moreover, the current uncertainty surrounding climate change implies that a realistic policy should involve a gradual measured response, not a risky precipitous one.”
[25] Weitzman, Martin L. 1974. Prices vs. Quantities. Review of Economic Studies, vol 41, Issue 4.

[26] For discussion of this and other outcome-buffering factors, see Pizer, and James K. Hammitt’s work, as noted in biblio/ref list.

[27] William Pizer (in Toman ed, 2001), suggests that price mechanisms can produce gains five times higher than even well designed quantitative targets.

[28] Cf Goodell, Big Coal, p. 182: “In every debate about limiting CO2 emissions, the central question was always this: what will the economic impact be? For this, economists had to rely on computer models…. According to Jason Shogren, a professor at the University of Wyoming who was also the senior economist for environmental policy on the president’s Council of Economic Advisors during the run-up to Kyoto, credible estimates of the treaty’s economic impact ranged from 0.5 to 2.4 percent of the U.S. gross domestic product (GDP) by 2010. In Shogren’s view, the best numbers came from Stanford University’s Energy Modelling Forum, which compared a diverse group of economic models employing different parameters. This study, which was co-sponsored by the Electrical Power Research Institute (EPRI) estimated that if the benefits of a global carbon trading program were included in the treaty…the economic cost to the United States would be between 0.3 and 0.5 percent of GDP, or $30 billion to $50 billion per year.” Shogren’s September 2004 article, “Kyoto Protocol: Past, Present and Future,” is in the AAPG Bulletin 88 no. 9, 1221-26.

[29] Cf David Victor, in a brief article for GRIST Magazine in 2000, “Kyoto is Dead, an Upbeat Requiem.” (http://www.gristmagazine.com/grist/heatbeat/debates011700-b.stm) “What’s wrong with Kyoto is the obsession with emission targets and timetables. In market economies, governments do not control emissions directly, and thus it is extremely hard to set strict, binding future targets. More sensible would be a treaty that focuses on actions, with non-binding targets as milestones and long-term goals.”

[30] The image here is that such a ceiling would be situated on a bright line between these two levels of economic effect. In reality, there is doubtless less of a boundary than a transition zone, and the location of the ceiling would be a matter of substantial and perhaps intense debate.

[31] Nakcenovic et al, 1998
[32] See, for example, Ausubel and Marchetti, 1997, pp 110-134, in Ausubel and Langford, 1997. See also extensive discussion and bibliography on this in Huber, Peter W, and Mark P. Mills. 2006. The Bottomless Well -- the Twilight of Fuel, the Virtue of Waste, and Why We will never run out of Energy, Basic Books, including discussion of electrification of automotive drive trains.

[33] See Huber and Mills, cited previous footnote.

[34] Need a historical graph of the share of electricity asa fraction of all energy use for footnote at this point.

[35] See Lovins and Lovins, 1995

[36] Footnote to EPRI article on Plug-in Hybrids, EPRI Journal, Nov/Dec 2005. Battery-powered cars are fueled at the cost equivalent of gasoline at 79 cents per gallon. Gasoline itself is now passing the mark of $3 per gallon.

[37] Insert graphic here from EPRI article on PHEV’s showing use of nightime baseload capacity, no need new capacity.

[38] See Romm, Joseph, and Andrew A. Frank. 2006. Hybrid Vehicles Gain Traction. Pp. 72-79. Scientific American, Vol 294, No. 4. April 2006. Note especially the Scientific American article’s description of “plug-in hybrids,” and references to further material on them in Romm, Joseph. 2004. The Car and the Fuel of the Future, Report for the National Commission on Energy Note Policy, available at www.energyandclimate.org . Reference on plug-in hybrids is also made to www.calcars.org and www.team-fate.net , and www.mydocs.epri.com/docs/CorporateDocuments/EPRI_Journal/2005-Fall/1012885_PHEV.pdf . These texts make a persuasive case that the plug-in hybrid electric vehicle (PHEV) in which a present hybrid, such as the Toyota Prius, is equipped with supplementary lithium ion batteries which can be charged overnight from a household electric outlet, will render the movement to hydrogen fuel cell cars unneeded. Romm states in his “Car and Fuel of the Future” that plug-in hybrids will likely travel three to four times as far on a kilowatt-hour of renewable electricity as fuel cell vehicles.

[39] For the case of the vehicle that is driven less than 150 miles on most days, but occasionally is driven longer distances, there are two additional possiblilities: one is to use a differently configured vehicle for the different days, drawn, for example, from a Car Share pool, and a second is for the personal vehicle to be fitted to accept a special power unit, such as a small light engine or a fuel cell, or an additional supplementary battery, just for the days of longer travel.

[40] Lighting, pumping and other motors, appliance and computer operation, refrigeration and air conditioning are already energized by electricity.

[41] Goran Hellstrom, of Lund University, Sweden. Ground Source Heat Pumps for Domestic and Commercial Applications in Europe. Lecture, May 2, 2006 at Lawrence Berkeley Laboratory, Berkeley, California

[42] But because of the larger size of our economy, the U.S. remains the largest coal producer and consumer in the world.

[43] See graphic from EPRI footnoted above.

[44] The Electric Power Research Institute has created the public/private “Intelligrid Consortium” to do research and diffusion work on an intelligent grid. See http://epri.com/IntelliGrid .

[45] See 2004 MIT Committee study on nuclear power—PL has copy of Exec Sum. Give full citation. Cite also NYT Magazine cover article of July 2006 by xxxxxx.

[46] This concentrated generation location has already developed based on coal power, but fossil units at this particular site could be replaced by a complex of nuclear ones, and the site as a whole could receive intense security protections. It is in large sites like this, and only at such large central locations, that the technique of carbon capture and sequestration (CCS) can be applied. In CCS operations, coal is used for energy, but the carbon emissions are captured and sequestered undergound, rather than entering the atmosphere. This makes base-power coal burning 95% inoffensive with regard to greenhouse warming, but the substantial costs of capture and storage, and their efficiency and overall merit in relation to nuclear power, are not yet clear.

[47] EPRI reports that only 2.5% of the electric power in the United States is cycled through storage facilities, compared to 10% in Europe and 15% in Japan. EPRI also reports the development of the sodium-sulfur (NAS) battery, a large scale storage, or “peak-shaving” technology. See http://epri.com/docs/CorporateDocuments/SectorTopics/topic_ElectricStorage.html .

[48] A recent study, Jones, Katherine.A., Brendan Jordan, Kenneth H. Keller, and Stephen J. Taff, Pathways to a Reduced Carbon Energy System for the Upper Midwest, (final draft, February 2006), speaking of a carbon redution program probably less ambitious than that proposed here, says: “Achieving the magnitude of carbon dioxide emission reductions tested in this study requires an immediate transition to a reduced-carbon pathway. It is critical that reduced carbon technologies are adopted as new demand arises or opportunities to replace retiring capacity in the existing system present themselves. Further investments in traditional, carbon-intensive technologies have long-term consequences, ensuring carbon emissions over the lifetime of each new facility, and delaying progress toward emission reductions.” Cf also the story of Voltaire and planting the tree posthaste.

[49] Give cit on present subsidy level-- from PIRG (?) material.

[50] Equivalent to about $7 per ton of carbon dioxide (CO2 ). In popular discussions, carbon dioxide is often used as the measure of emitted carbon, rather than carbon itself. The scientific literature usually follows carbon rather than carbon dioxide, which is the practice followed here. There is no substantive difference: one unit of emitted carbon, which is the element with the greenhouse properties, in combustion combines immediately two units of oxygen, and it can be measured in either vocabulary, as C or CO2.

[51] Senate Bill 139 of 2003.

[52] Testing an integrated non-fossil system on a scale such as that of Missoula would probably not require a base power source as large as most modern nuclear units. If it were not of value for other reasons to construct a small nuclear unit, the prototype system’s baseline supply could be furnished by another means, such as using the existing grid covering the city, and various adjustments could then be made in the experiment’s calculations “as if” the supply were nuclear. Cf NYT story of Iowa town, published circa June 4, 2006

[53] And minimize energy demand at the same time. See Amory Lovins and Rocky Mountain Institute material.

[54] Very large new coal power generation capacity is now in the planning-investing pipeline, not only in China and India but in the United States. See Goodell, Big Coal, and the estimates of the U.S. EIA. Rather than petroleum, this is the true critical front between climate protection forces and climate-wreaking ones. Stopping definitively the construction of new coal-based power plants should be the major current focus of environmentalists, rather than, for example, raising automotive mileage (CAFÉ ) standards.

[55] See the excellent and comprehensive 2003 study “The Future of Nuclear Power” by an interdisciplinary faculty group at MIT led by John Deutsch and Ernest Moniz (which also included John Holdren of Harvard and the economist Paul Joskow), which reached the conclusion that “The nuclear option should be retained precisely because it is an important carbon-free source of power.” Among the valuable recommendations of this study, which is available at http://web.mit.edu/nuclearpower/ is a “once-through” fuel cycle, rather than the use of reprocessing. The present paper accepts that recommendation, and does not discuss reprocessing, although European countries and Japan reprocess nuclear fuel. See also Gertner, Jon. 2006. Atomic Balm. New York Times Magazine, July 16, 2006, which reviews in detain the situation of the Vogtle nuclear plant in Waynesboro, Georgia, and the owner’s plans for an additional nuclear generating unit on that site.

[56] See Madsen, Travis, and Rob Sargent, 2006. “Making Sense of the “Coal Rush”: the Consequences of Expanding America’s Dependence on Coal.” U.S. PIRG Education Fund, and the National Association of State PIRGS. Available at http://www.uspirg.org/uspirg.asp?id2=25576 . See also Goodell, Big Coal, op.cit, and an excellent recent article: Smith, Rebecca, As Emission Restrictions Loom, Texas Utility Bets Big on Coal, Wall Street Journal, July 21, 2006.
[57] Bill McKibben has written expansively, philosophically and eloquently about the problem at this scale in The End of Nature.

[58] An excellent discussion of the way the U.S. political system deals with such questions is in Lee, Henry. 2001. U.S.Climate Policy, Factors and Constraints, in Climate Change, Science, Strategies, and Solutions. Pew Center on Global Climate Change. See Bibliography

[59] Gore, Al. 1992. Earth in the Balance, Ecology and the Human Spirit. Houghton Mifflin Co. Boston, New York, London

[60] Notably the 2005 Elizabeth Kolbert articles in the New Yorker magazine for a generalist but elite readership (see note x above), and a high-pitched twenty four page cover article/special report in TIME Magazine of April 3, 2006 for a mass middle class audience. Al Gore’s film and book An Inconvenient Truth may have an effect. Mention should be made of sustained attention by the New York Times to the climate issue since the mid-nineties.

[61] Resource for the Future (RFF) Conference with the UK Ministry of the Environment, March 2-3, 2006. Remarkably, the entire proceedings of this conference, providing both text (Power Point) presentations and videos of speakers, is available at http://www.rff.org.

[62] See http://www.rff.org.

[63] Science, Vol 305, 13 August 2005, p. 968. See also Supporting Online Material at www.sciencemag.org/cgi/content/full /305/5686/968/DC1 . Pacala and Socolow are associated with the Carbon Management Institute at Princeton University.