AEP’s Carbon Tax Fantasy
By Paul Homewood
Ambrose is away with the fairies again!
In deference to Christmas optimism, here is a beautifully simple answer to global climate change, backed by 27 Nobel economists and the United States policy firmament from Keynesian Left to Monetarist Right.
It is guided by market principles. It reduces the role of the state. It does not shaft the poor. It is easy to enforce. It is oven-ready, to borrow the phrase du jour.
This initiative by the Citizens Climate Lobby has the support of Democrats and Republicans in Congress. It has been endorsed by Alan Greenspan, the late Paul Volcker, and Nobel laureate Myron Scholes in the free market camp, and Janet Yellen, Amartya Sen, and Larry Summers on the interventionist side.
It is on the table as HR 763, the Energy Innovation and Carbon Dividend Act, with 73 sponsors (and rising) in the House, led by the Florida bloc smack in the path of surging seas and category five hurricanes.
The sad spectacle of the COP25 summit in Madrid – a step backwards from Paris, even as the science tightens – marks the end of the road for amicable co-operation by powers. The COP process is not up to the task.
HR 763 proposes a carbon tax with a twist. The revenue is recycled back to households on a per capita basis to spend as they wish. The redistribution is mildly progressive since the poor have a lower carbon footprint. Most emerge net winners. Agriculture is for now exempted.
This structure addresses the gilets jaunes syndrome in France: Emmanuel Macron’s fuel tax blew up in his face because he neglected the political asymmetry for forgotten provincial France. “What happened with the yellow vests was a failure of policy design,” says Devra Davis, a Nobel scientist and veteran of the Intergovernmental Panel on Climate Change.
The carbon tax starts at $15 (£12.60) a tonne and ratchets up $10 every year until the annual target is met, ending once US carbon emissions are 90pc below their 2016 level. In theory the levy could hit $115 within a decade, but I doubt that such a level is necessary.
The price signal of such legislation would transform behaviour. Market forces would take charge and accelerate the pace. Relative equity and debt costs for fossil companies would rise (they already have). More investment would flow into renewable energy or carbon capture. The UK’s carbon floor, combined with EU emission contracts, killed coal at under $30.
Carbon Tracker, the London-based think tank, says the scissor effect of a rising carbon tax versus plummeting costs for solar, wind, electric vehicles, or energy storage, is already slashing the putative cross-over point to nearer $40. Green hydrogen from electrolysis for uses such as heating and transport will take longer, but even that promises to be competitive by 2030…….
In order to level the playing field in global trade, the US would impose a “carbon border fee adjustment” on the embedded CO2 in imports from high-emitting states, as well as a refund for US exporters. It is arguably compatible with WTO rules under an Article 20 exemption for human and animal life.
This closely resembles a parallel plan in the EU under the new zero-tolerance policy of Ursula von der Leyen, who is pushing a green new deal as the signature theme of her tenure as president of the European Commission. A strategy document circulating in Brussels proposes a carbon border tax, to be rolled out initially to protect the steel, cement, and aluminium industry from “carbon leakage”.
The flaws are so obvious that I should not have to explain them again, but here goes:
1) The only logical reason for a carbon tax is to reduce emissions. Such a tax might help to reduce energy consumption, but only at punitive levels, because energy demand is so inelastic.
Therefore the real intention is to make fossil fuels so expensive that renewables can eventually become competitive, along with CCS, hydrogen heating etc.
But when that happens, there are less emissions, and consequently less carbon tax revenue to redistribute. Meanwhile energy consumers will still have to face the extra cost of expensive renewables.
AEP’s idea that carbon tax revenues will simply be distributed, and the fiscal effect neutral, is therefore complete bunkum.
2) It is well established that once governments get their hands on a new source of tax revenue, they don’t give it back. And that’s even before counting the cost of collecting and administering it.
3) AEP claims in this same article that the cost of renewables is already plunging. In that case why do wind and solar power still need subsidies, guarantees, and now apparently punitive carbon taxes to be able to compete?
4) His case for carbon taxes assumes that the world can run on predominantly unreliable renewable energy. So far, coal power has been squeezed out in Europe and the US through a combination of carbon pricing, air quality rules etc. But it has been largely replaced by extra gas fired generation.
There is no evidence that gas and oil can in turn be replaced by wind and solar, and certainly not in the short time scales he has in mind.
5) In the UK at least, the power sector only accounts for about a tenth of emissions. Most arise from heating, transport and industry. A carbon tax would have little effect on, for instance, domestic gas usage or car travel. (We do after all already have a punitive carbon tax on cars, called fuel duty – it has not encouraged us to buy EVs).
AEP’s colleague Jeremy Warner wrote about carbon taxes a few weeks ago. He reckoned that a $75 carbon tax would raise natural gas prices by 70%. Does he really believe this is acceptable to millions of people up and down the country who are already struggling to make ends meet?
As the Committee on Climate Change accept, to switch domestic heating from gas to heat pumps or hydrogen will cost hundreds of billions, money which neither householders or government has.
6) If a punitive level of carbon tax really was introduced in Europe, the consequences would be earth shattering. The Gilets Jaune would look like a tea party in comparison with the riots such a policy would cause.
As the squeeze took effect, people’s cost of living would be badly affected. At the same time, the economy would quickly tank, with companies contracting, shutting down or simply offshoring.
AEP talks about a “border carbon tax”, but this would make matters even worse. For a start it would put up prices for consumers even more. Secondly it would set off a highly damaging trade war, as China and the rest of Asia would not sit back and take it. There would be only one loser in such a war, and it would not be Asia.
In any event, an EU carbon tax and border tax would never get off the ground, as the East bloc would reject it out of hand. Why, after all, should their economies, which rely heavily on coal, be hamstrung to suit German and French Greens?
7) Of course, the bottom line with all of this is that a carbon tax would need to be truly global to have any real effect.
Would anybody trust China, for instance, to institute a proper system, rather than some fake one which merely shuffled bits of paper around. Many other developing countries would be in the same position.
They won’t stop using fossil fuels, because they know that they work and renewables don’t. No amount of creative accounting will change that.
Maybe he thinks the UN could ultimately administer a carbon tax, collecting and redistributing the revenue itself. If so, heaven help us all!
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NOT A LOT OF PEOPLE KNOW THAT 
Reblogged this on Climate- Science.press.
Stop plugging your own blog on every post.
Paul: With regard to your point 3), large scale solar farms no longer need a direct subsidy to be competitive, hence large scale solar farms are being applied for again. However, these solar farms still need priority grid access, at a load factor of about 10% they require 10 times as much network capacity and they do not have to pay for the backup to counter the intermittency. So unless the government does something sensible, the electricity system will become more and more unreliable and prone to blackouts.
Phillip, am I right in my thinking that solar farms also do not have to pay for the connection to the grid?
Generators under 100MW are exempt from TNUoS charges. If you see a solar farm at just over 100MW, it will be because its zone TNUoS charge is negative (which can happen in areas where demand exceeds supply). In general around 90% of grid charges are allocated directly to consumers, leaving very little incentive for sensible location of capacity relative to local supply/demand balances.
Philip
I am looking back through my weather diary for December and the amount of solar energy generated this month is minimal at just the time of year that power demand is highest. So it’s not so much a matter of subsidy but one of actually providing energy.
No problem, just fire up the diesel generators, no one will notice…the Spanish got away with it until they got gready and kept the generators running at night!
In Northern Europe, solar generates the most power when demand is lowest. It makes little sense there. In the American southwest, at least peak solar generation is aligned with demand.
@tonyb
Not true. Generators need to pay for the connection. However if you can connect via an existing connection, then the charges are much smaller, if there is capacity on the grid to take your production.
The raventhorpe solar farm connected to the grid via the infastructure of the steelworks. As there was spare capacity in the infastructure of the steelworks, and space on the demand side, this was possible. Thus limited connection costs.
The grid side is important though. Port Talbot works is currently expanding its power generation set due to not being able to use all its generated gases. However, the grid is not allowing for increased exports from the works (currently) as there is no space on the South Wales grid, primarily due to the large expansion of wind power in the area.
The Raventhorpe solar farm is on a hill abpve the Scunthorpe steelworkd
It’s a west facing hill and the south side has bushes/trees screening it from the road. So it is not an optimum location.
It was sold to Chinese corp
Someone is just putting in another track near it but I think that is going to the cellphone tower.
There is planning permission for another farm , but I think that is a few miles away.
Which applies in spades to the ULEZ wheeze that Khan has come up with. Which London Mayor in the future is going to cancel that?? London is my capital city: I doubt I shall ever enter it again in my lifetime.
As for hydrogen gas networks – notwithstanding the rioting that the costs will cause – what will happen when the first spectacular hydrogen explosion occurs? Let’s face it, by the time this happens, people like Deben (and me) will be long gone: who will the (then) young claim is stealing their future?
To be clear, Sadiq Khan did not come up with the ULEZ wheeze. They are being imposed on many cities in the western world. There are versions in Belgium, for example, far more draconian. The UN’s Agenda 30 plan for technocratic global government is being implemented at local government level.
To be clear, Khan could have dumped it. But he saw a bandwagon that needed to be jumped on – and cashed in on. How else to afford his personal publicity entourage..
There has been a proposal to extend the ULEZ zone to the M25, meaning that van and car owners with vehicles made before 2016 will have to pay the fee every time they leave their house, even to travel outside London. This has already had an effect on used car sales. I was going to trade in my old and more polluting Jag for a beautiful XJS but realised that it had a E5 engine. It’s still unsold even though a bargain. Who can say that they won’t decide to tax the E6 cars next or even hybrids. And so we just keep our worthless old diesels and run them for longer, until they are sold for nothing outside cities and we have to find a house and workplace with electric charging points.
Of course, when the ultra low UN air quality standards are imposed by the post democratic state, the extension of the lifespans of people living in cities for 80 years will not even be measurable – using their own doubtful and misleading figures.
The ULEZ charge is a further tax on doing business in London and has certainly been a bonus income for Saddo’s depleted coffers. Of course the boundary will be extended out in due course and at more public expense. Still the entertainment next year will be in introduction of the zero emission battery or fuel cell powered vehicle only restriction in Beech Street in the City of London.
Ilsav.R.
Somebody must have let the lunatics out of the asylum.
What is really scary is that underlying the whole …we will just decide x is the best policy and then we can make it happen….. thing is that when it doesn’t just happen like it is supposed to, the next step will be whatever level of compulsion is necessary to bring it about.
I have never read any newspaper article with so many inaccuracies in it, but the final paragraph talked about runaway global warming, a phrase I have not heard even in the most radical publications for probably a decade.
AEP is really quite intelligent. The problem is he constantly prophesies. Being really smart doesn’t unveil the future. Only God can do that. It’s not just energy and climate, the man continually forecasts monetary disasters that don’t arrive at all or on schedule.
One of the fun things a simple man like myself can indulge in, is predicting the failed prophecies of prophets like AEP. Its all a matter of probabilities. If the future is unknown and unknowable then AEP prognostications are merely guesses based on what is knowable now combined with his biases. Future unknowables would always alter the guess if they were knowable now, but they never are. So betting against an AEP prophecy is one of the surest games in town. It’s a simple matter of odds. He guesses, but without all the information, so his guesses are always wrong. It’s just a question of how wrong. Hugely wrong is more than 50% but just barely. Barely wrong is just a little more than 0% likely. Just plain wrong is 49.9%.
If someone wants to make book for me, I am ready to place bets.
AEP can’t resist prophesying. He may be really smart, but he doesn’t know the future. It’s the safest bet to bet against him. How can he guess right, when all the important, unknown, future, variables are omitted from your calculations? Then you have confirmation bias. The only thing unknown about an AEP failed prophecy (too numerous to count) is the magnitude of the failure.
He ought to leave prophecy to the prophets. His calling is journalism. He can be a fairly good journalist, if he will stick to his knitting.
He’s a fiction writer, fun, but never correct.
AEP, he’s been prediction a global financial meltdown for years and in which I have to agree incidently the world economic system totters like a house of cards only held up on a base of ‘funny money’ and the green agenda shaking greatly the ‘economic table’. Albeit, it still hasn’t happened.
However, I noticed recently that, AEP he is somewhat more optimistically talking up a world trade revival………….that begs, AEP predicting an upturn……….. should that make us more or, less worried?!
In Canada, the federal government has levied a $30/tonne “carbon” tax on residents of provinces which have not instituted their own tax that meets federal requirements (whatever those are). At income tax time, one receives a “tax credit” (to theoretically offset the amount of carbon tax one has paid) when calculating one’s taxes. Besides the ridiculous contention that this arrangement will cause people to change their behavior with respect to consumption of carbon-producing products, there is a more cynical aspect to this. In 9 of 10 provincial jurisdictions we have provincial sales taxes (basically a VAT) plus we have a national sales tax (GST). Since essentially any product or service sold in society will be/has been re-priced to reflect the additional cost of the carbon tax, governments will now collect more in consumption taxes. Even if I receive back as a tax credit 100% of “my” carbon taxes, life just got more expensive because I am paying more in consumption taxes (even if my consumption habits do not change).
The carbon tax in Canada is so unpopular it may end up breaking the country apart. The central-west provinces “hate” this tax and the government that enacted it. “Hate” is not to strong a word either. We live in interesting times. Nobody knows what might happen. It’s dice Trudeau ought not to have thrown.
Hi willybamboo; isn’t hate a hate crime in Canada yet?
Trudeau is not a protected minority. I am not a Canadian, but I saw the rawest political hatred I have ever seen on Facebook posts this past fall during the Canadian election. America’s right was downright respectful of Obama by comparison.
There are any number of people in Alberta that are serious about splitting Canada up. It’s not merely about oil either. The whole agenda of the left alienates them from the Union.
https://www.bloomberg.com/news/articles/2019-12-18/alberta-canada-s-oil-capital-is-considering-a-wexit
Paul makes some very valid and hard-hitting points but (like most sceptics) fails to grasp the most fundamental failing of climate mitigation policy. Any alleged benefits of policy are in preventing “dangerous” climate change, currently defined warming exceeding 1.5C above pre-industrial levels. The current targets are reducing GLOBAL emissions by at least 55% below current levels by 2030, and then to zero by 2050. Yet the United Nations Framework Convention on Climate Change Treaty (which came into force in March 1994) specifically excludes developing countries from any obligation to even constrain their emissions growth let alone reduce emissions. Collectively developing countries account for >60% of global emissions and about 100% of the emissions growth since 1990. This exception was ratified by the Paris Agreement, particularly in Article 4.1.
The implication is that costly policies are being imposed on the people of Britain are pretty much useless in impacting in global emissions. It is false to claim that the imposed sacrifices are “saving the planet for future genertions”
Click to access conveng.pdf
https://unfccc.int/process-and-meetings/the-paris-agreement/the-paris-agreement
Another quite fundamental issue blocking the reduction of global emissions to net zero is found in the preamble to the UNFCCC Treaty.
The most affected countries are, in my opinion, those countries where the value of fossil fuel production constitutes a large part of GDP. To estimate the economic impact I placed an approximate value on coal, oil and gas production for the top 20 producing countries from the BP Energy Outlook 2018.
Clearly the three major producers are USA, China and Russia, with Saudi Arabia and Iran in fourth and fifth. I then expressed these figures as a proportion of nominal GDP.
Although the USA and China are the world’s two largest fossil fuel producers they are also have, by far, the world’s largest economies. For instance the US economy is 13x that of Russia and 36x the size of Saudi Arabia. If global emissions are reduced to zero it will wreck the economies and massively undermine the relative political influence of Russia, Saudi Arabia and Iran. Climate Activists are really oblivious to who they are up against if they genuinely want to “save the planet”.
Nice way of presenting the data, ta
I agree that all carbon pricing schemes are flawed. I think that there are a number of practical reasons that carbon pricing will not work as theorized. Because a global program is impractical, leakage is always going to be a problem. The carbon price has to be set such that revenues over time increase significantly and either the funding to make reductions dries up or as you point out the rebates dry up. The economists who support this theory seem to be blissfully unaware of the reality of the energy market or how inelastic demand is. Based on observed emission reduction programs in New York I think that indirect market signals are going to lead to less cost-effective reductions in the time frame necessary for the aggressive reduction rules. Finally, no supporters seem to understand the very real problems of implementation logistics. More here https://wp.me/p8hgeb-gw.
None of that is true. The simple point about a carbon tax is that it encourages markets to come up with solutions. Unless you believe there are no solutions, it is the best way of solving the problem. We can continue to argue on here that there is no problem, but nobody who matters is listening.
Refusing to then support the least damaging solution is I am sorry to say, stupid.
With all due respect I think you miss the point of our critiques. Even if you believe that a carbon tax is the best solution, that does not mean that our criticisms are incorrect. It just means that this theoretical solution is not perfect. I believe that it can be claimed to be the best solution only if you can implement this across the globe and across all the energy sectors. If that cannot be done, then to claim that it is the least damaging solution because it is the best theory is flawed. At the link above I posted on this problem in New York. Advocates claim this is the best theory so it should be least damaging when we apply it to just the electric sector, in just New York State. I don’t think it is going to work.
So, what would I do to address your problem? I believe that the only way to successfully de-carbonize is to make the alternatives cheaper with no subsidies or externalities considered. One way to try to do that would be to have a small carbon tax on those that feel we have to do something and invest all that money in research and development for cheaper and safer alternatives – how about small modular thorium reactors or fusion? If you want to electrify transportation then you need a cheap, environmentally benign battery too. Unfortunately, there are those opposed to nuclear in any form and even oppose getting cheap, abundant electric power to those who don’t have it. Ultimately that is the stupid position.
There are no viable solutions if CO2 is the problem. We cannot lower emissions and lower what is already in the atmosphere at the same time. The latter is simply too large. Just one ppm of CO2 is almost 8,000 million metric tons and very much more would be required to make a difference to the climate.
Phoenix, the solution that ‘markets’ came up with after the original Carbon Credits were brought into being was, if I recall correctly, fraud.
“It encourages markets to come up with solutions.” Solutions to what? To a distorted market?
Reminds me of a lousy engineering solution to a simple problem. Cover a basic mistake in layers of technology until the basic mistake is lost from view.
The problem will never be solved, but the ‘solutions’ will make lots of people, lots of money.
So true. And lots of people very poor. And cold. And miserable.
Brilliant, the scheme works but only if it doesn’t work.
You totally misunderstand the proposal.
“It is well established that once governments get their hands on a new source of tax revenue, they don’t give it back.”… I completely agree… Carbon taxes on the citizens of Western Democracies are no more than another tax grab by socialist leaning governments and must be be exposed as such…. This CACCC – Catastrophic Alarmist Catastrophic Climate Cult – is all to do with Politics, Power and $$$$’s and very, very little to do with the environment of the Planet…. We, the Climate Change Realists, are getting some traction against all odds a.k.a the five (5) multinational media mega-corporations who are peddling this CACCC propaganda as it makes huge profits for these corporations by selling their newspapers, magazines and the selling of advertising for their other multimedia “news” outlets. Many thanks to all the blog sites for leading the crusade against CACCC, which history will record as the largest fraud ever perpetrated against human kind on this Planet.
More daily tripe on the BBC News channel over Christmas. This time it was about the Danish inventor of his highly efficient and cheap offshore turbines. They were making a giant rotor blade out of fibreglass and it would be put onto a giant tower with the ones in deep water on a floating platform. These will be deployed in quantities sufficient to power the whole world in clean electricity.
The bloke seems to believe this is going to be very inexpensive and that the turbines are going to last for a long time in a force 10 with salt flying past at 180 kph. He waves his arms around when preaching like a born again enviroloon with a permanent smile. Not a word about the inflation linked deals we are paying for st 3x the market price or the average life of 20 years of a turbine. Do they ever find anyone who can add up or has any common sense?
Of course, ANY consumption tax, in our weird, whirling, banks-and bust governments-and fiat-money, economy, will immediately wipe out a part of the exchange-value of your savings, pension rights, etc. A grudging little credit somewhere in the system, will not help anybody very much.
Generally, “a market-economy” is supposed to be run for the benefit of its consumers, not to satisfy the whims of pig-ignorant men, bringing down whips on the backs of consumers to force them to make “the right choices.”
Interfering in a market is not a free-market solution, by definition. Nor is it a least-damage solution, if it perpetuates the power of the madmen for one day extra.
Everyone should read Prof Michael Kelly and Dr Ruth Lea of the Global Warming Policy Forum on the ‘decarbonisation’ issue. The Committee on Climate Change’s decarbonisation plan (zero by 2050) are impossible and will wreck the economy. As Uk produces just over one per cent of global CO2, this is virtue signalling. ‘Oh we must show a lead – we are hosting Glasgow this year’. What’s the Chinese for “What a crowd of silly idiots. Whack up the production line, Chang”
Slightly O/T – but as we are discussing mad ideas and equally deranged (IMO) proponents of them – did anyone else hear what constituted R4’s Today program’s attempt at a CC debate this morning?
They had Matt Ridley up against David King. When I say, ‘debate’, it was nothing of the kind. MR said his piece followed by DK. Neither got to challenge the other with probing questions and DK got to have the last say. The man is quite Ga-Ga: he was banging on about Greenland losing all its ice and sea levels rising by meters; he said that sea levels, anyway, would be two to six meters higher by the end of the 21st century, that hte population of Calcutta (150M) would have to move the city to higher ground and that scientists had been right – even more-so – about the polar ice-cap disappearing ‘soon’. If MR had had a right of reply to that nonsense he might have reminded listeners that many of King’s associates had made wild claims about Arctic ice and failed miserably.
It all ended with R4 claiming that the ‘debate’ was proof of their impartiality in allowing a CC sceptic (albeit, they pointed out, one who does not deny CC) to debate a leading scientist. Oh sure.
“Did anyone else hear what constituted R4’s Today program’s attempt at a CC debate this morning?”
This might explain it:
https://www.bbc.co.uk/news/entertainment-arts-50515081
I thought Thunberg was booked for Monday’s edition. But I have to admit I missed the earlier half of the program…
Harry, a feature of the ‘nineties & noughties’ has been the displacement of poor people from waterfront slums in Latin America, Africa and India, so that their favellas & slums can be bulldozed and exotic houses created for the wealthy citizens of Nowhere to have an extra waterfront home that they can fly to for part of the year.
Let us all be honest about this, that is why there is a constant fuss over sea-level rise.
This is an old idea, refloated again, as they do constantly until they take root. Stern was pushing it in 2010, Socialist International Chief Economist (at the time) and adviser to Obama, was pushing it in 2011. Originally promoted by France.
https://www.mdpi.com/2071-1050/11/19/5278/pdf
“In 2007, Chirac, the former French president, put forward the concept of “carbon tariffs”. In 2009, the US House of Representatives passed the “American Clean Energy Security Act” of 2009, resulting in a carbon tariff on imports from countries without a carbon emission reductions policy from 2020.
Although this bill never made it to the Senate floor, U.S. would not need to be carbon motivated to impose additional tax on imports from China based on the recent “China–U.S. trade war”. Actually, the U.S. has put forward “the Energy Innovation and Carbon Dividend Act”, which can be taken as carbon tariffs.
Carbon tariffs are likely to impact economic structure and trade patterns, especially for developing countries that export carbon intensive goods.”
Socialist International Chief Economist refers to Joseph Stiglitz, http://econ.sciences-po.fr/joseph-stiglitz-columbia-visiting-department.
More accurately, he was Chairman of the Socialist International Commission on Global Financial Issues.
https://keywiki.org/Joseph_Stiglitz
Yes, Harry Passfield I heard large parts of Today’s R4 programme .The guest editor made a reasonable fist of his CC scepticism but ,perhaps , more importantly had a good go at the BBC for bias on this topic. Greta T is booked for Monday.
Yes, she’s going to be blowing smoke up Attenborough’s arse!
This sounds like a minor improvement on the ‘old’ Carbon Tax which turned out to be another convenient vehicle for fraud. But why not a simple Carbon Allowance for everyone (so many air, car, train & bus miles and kw of gas and electricity) that – if unused – could be traded in an open market?
Why not?
Because that would be really and truly progressive and turn an elderly and housebound person into a wealthy person and a jet-setting ‘slebs’, sports-stars or billionaire businessperson into less wealthy people.
Carbon tax, Carbon dividends, Carbon footprint, Carbon emissions, Carbon borders, Carbon floors, Carbon capture! I suppose that no-one is blaming this black solid for changes in our Climate. The Nobel economists need to learn that you will never solve problems without a good level of precision in language.
Lets suppose, for a minute, that they are referring to man-made carbon dioxide gas which is present as about 30ppm in the atmosphere. Roughly one man-made molecule of CO2 gas in 30,000 air molecules. I wonder if the Great and Good can explain to me how this molecule can absorb so much infra-red radiation to warm the other molecules up by one or two degrees Centigrade. Then I would stop thinking it is a scam. My own simple arithmetic thinks this one molecule has to be hotter than the sun – obviously I’m missing something here.