Carbon Pricing

The goal of carbon pricing is to make economic transactions more greenhouse gas emissions sensitive.  With the cost of emissions added to the expenses, incentive is created to reduce emissions, produce non carbon renewable energy, and sequester carbon. Greenhouse Gas Emissions includes all gas emitted that trap atmospheric heat.

We recognize that the current political environment works against enlightened carbon pricing.

The opportunity to implement effective policy still waits for a common recognition in the public that nature demands that we limit our human caused emissions to less what can be sequestered. 

Our purpose for considering policy before that opportunity exist is to give us an understanding of a policy framework of how to shape our economy when that recognition occurs and to act decisively at that time. 

The three primary policy methods proposed for pricing carbon into the economy are Cap and Trade, Fee and Dividend and Carbon Tax.

C+Tr

Cap and Trade allows emissions in exchange for supporting some activity that reduces CO2 emissions somewhere else or sequester carbon through technology.  Usually this targets industrial sources of emissions.  Licenses are issued to traditional emitters with the limits to be reduced in the future.  If that activity’s emissions are greater, the industry is to buy credit from another activity that reduces emissions such as renewable energy projects or avoids future emissions such as deforestation.  This provides financial support for preservation and regenerative practices. such as increasing carbon content in soil, reforestation and or avoiding deforestation.  This policy allows policy makers and administrators to insert performance requirements without common recognition of the measure by the public.  Initially, license can be issued based on historic emissions.  Therefore, high carbon electric generating plant can be paid by trading their credit for installing new equipment to reduce their carbon emissions.  The amount that is below their carbon emissions license can be sold to emitters that are above their license.  Once they have a license, they could also be paid simply to close the plant.  Is it fair to give the high emitters the right (license) where a new producer is held to a higher standard?  Cap and Trade can be vulnerable to transaction cost emissions and gaming the system by speculators to claim the credits.  The public is not engaged on the task of reducing their carbon emissions. This may allow policy makers to move forward  with marginal reductions through carbon pricing.  However, without active understanding and support of the public, this will be less emissions reductions than needed to achieve emissions balance (net zero carbon emissions).

Discussions of Cap and Trade proposals gives us an opportunity to examine the measure of emissions relative to the need to solve the problem.

RGGI graphic

Currently Virginia is considering joining the Regional Greenhouse Gas Initiative (RGGI) with other Northeast States that agree to reduce emissions from power plant production to an agreed cap.  Virginia’s participation in RGGI proposes that Virginia cap CO2 emissions for electric production to 33 million tons CO2.  Though Virginia produces power not consumed in state and we consume power not produced in the state, if we average the 33 million tons by Virginia population, the average emissions for electricity alone would be 3.9 tons/person/year.  The fair share estimate that achieves net zero is 2.6 tons.  Therefore, if the world averaged this amount for all emissions, not just electricity, we would still be increasing CO2 debt to the atmosphere.

If you were a pilot needing to fly over a mountain ridge, would you plan a climb rate that almost clears the mountain?

In a Net Sequestration Economy, we must cap all emissions to less than what can be sequestered. 

Fee+Div graphic

Fee and Dividend charges a fee/ton CO2 at the source and returns that fee equally to all citizens.  Returning the payment equally to all citizens, simplifies and reduces the administrative cost (emissions) by avoiding the need to categorize citizens by income.  By creating at first a modest fee ($15/ton) that will predictably increase every year ($10/yr), financial incentives are created for reducing energy use (conservation) and the development of non carbon based renewable energy.  By characterizing the policy as a fee, the advocates hope to avoid the dreaded political liability of taxes.  As households and businesses evaluate future investments, their spreadsheets will show that early investing in energy efficiency and clean renewable energy improvements offers the highest rate of return by reducing future emissions taxes and increasing the market for selling future renewable energy that is not burdened with the ever increasing carbon fee.  Carbon fee is revenue neutral.  All revenues are evenly divided and returned to the  citizens.  According to the Citizens Climate Lobby (advocates for Fee and Dividend) 70% of population would have an increase  or remain flat of disposable income at current levels of consumption.  This may indeed increase popularity of the proposal.  However, with the fee compensating the higher energy price for 70%, would that really incentivize reduction?

CarbonTax

 

Carbon Tax is not revenue neutral.  It is a license to emit carbon into the atmosphere.  Like Fee & Dividend, Fuel resources are taxed at the source. The Tax would be set based on tons CO2 emitted that for fossil fuels assumes all will be burned.

 

The anti tax bias of our current politics compels us to rely on outdated and inappropriate ways of funding our government.  The Carbon Tax can provide funding source for conservation and regenerative projects.  It could also be used as an alternative or supplement  to corporate and individual income or sales tax.  British Columbia was able to achieve support for a straight carbon tax by reducing the corporate taxes.  With our own government having such huge monetary deficits, the question is what mix of kinds of taxes are we going to use.  If not a carbon tax, than other taxes will be needed.  We can explore that potential.  However, the primary goal of the carbon tax is to reduce emissions.  As we approach that goal with respect to fossil fuels, revenue will decline because the economy has developed alternatives not subject to the tax. That is what success looks like.

fairshare

Carbon Tax should include a rebate that represents the monetary tax value of the amount of emissions which the individual has a license to emit as her/his “Fair Share” of the Earth’s capacity to sequester carbon from atmosphere.  This allows financial reward for individuals that reduce their emissions to less than the “Fair Share”.  Finding our health and happiness with less than the Fair Share of emissions reduces the personal imbalance that makes a payment on our collective carbon emissions debt.  This should be financially rewarded. By sending the same amount for all citizens without consideration for income, simplifies the administration.  Whereas higher income citizens are more likely to go over the fair share limits and pay the higher carbon tax, they freely have the option.  Therefore, it is not a redistribution of income.  Although, it is a financial boost for those using less than the Fair Share.

The following tax tables are based on beginning rate of $50 with 10% or 20% annual increase.  The Fair Share Rebate is what would be paid to all individuals to represent the taxes of the emissions that are in balance (not adding to the atmosphere)

CarbonTax10%

CarbonTax20%

As the goal of achieving reduced emissions is achieved, at some point collected revenues will decline, even if the rate is increasing.  Expenditures of tax revenues for rebates and regenerative projects will need to be adjusted by policy (not an entitlement).

fairshare

A more careful assessment needs to come when assessing the initial rate and the rate of increase.  Initially I propose a rate of $50/ton CO2 emissions and GWP equivalents to rise 15% annually.  Ideally this would be applied by the federal government.  If the public truly recognizes the demand by nature to live in the carbon cycle, rates can be increased if emission reduction goals are not met.

 

Graphic show the proportional heat trapping of major greenhouse gases.

Ultimately,  all CO2 emissions specifically and Greenhouse Gases generally should be accounted for.  This policy could be considered a Greenhouse Gas Tax instead of a Carbon Tax.  Discussion of a carbon tax must focus on what is measurable.  The low hanging fruit for this approach is fossil fuels.  Eventually accounting must also include non fire emissions such as respiration, decomposition, and leakage of greenhouse gases like methane and refrigerants, concrete hydration and nitrous oxides for fertilizers and other sources.

 

The first money transaction involving the trade of the extracted fossil fuel would be assessed the current rate for the carbon emissions tax/ton that will result from burning the fuel.  This is straight forward because it is objectively measurable.  The goal for fossil fuels is to incrementally increase price until it is no longer used as fuel.  By phasing in incrementally, the economy has time to use the low carbon tax relative to the future to make the investments to reduce future emissions.

This new revenue source works to the benefit of the economy in two ways.  First the higher emission prices will motivate conservation by the public that is highly nuanced to each person’s personal situation and each business’s opportunities with minimal regulations.  As the carbon tax rises, loans can be issued for energy improvement such as achieving net zero standards in our existing building stock.  This reduces the payback time for such improvements.  Soon, projects can be planned to achieve energy savings sufficient to repay the loans on an annual basis.  At this point, energy efficiency projects improve our financial condition.  This will be a great source of employment.  We can take pride in our creative efforts that improve our emissions balance.

 

Other CO2 emissions that also must be accounted for  include emissions from hydration of concrete, deforestation, respiration of livestock, fertilizer, high tillage. refrigerants and other industrial chemicals.  These are above the fossil fuel emissions used in those processes.

 

 

Greenhouse Gases Emissions (GGE) other than CO2

global_emissions_gas_2015.png

Though less in terms of total impact and volume or mass, greenhouse gases other than CO2 are significant and must also be accounted for, also.  These include Methane, Nitrous Oxides, Hydro fluorocarbon, concrete and others.  These metrics are more challenging and require a firm understanding by the public that the limit to emissions is real, present and destructive when exceeded.  There are many administrative and technical challenges to achieving this framework in full.  On manufactured chemicals such a nitrous oxide or refrigerants, greenhouse gas impact can be measured.

Other GGE are taxed based on their global warming potential (GWP).  Many synthetic gases used  in industry and refrigeration have much higher GWP equivalents.  Therefore these gases would be taxed at quantity x CO2e.  For example, Nitrous Oxide (NH4) has a GWP of 298.  Therefore NH4/ton emissions taxed at CO2/ton rate X  298.  This tax can be assessed at the first cash transaction after manufacturing.  This cost would be passed through to the consumer.

By including other greenhouse gases, the taxes are assessed by their impact.

Greenhouse Gas Tax would be proportional to the 100-year global warming potential (GWP) for greenhouse gases proposed by the United Nations Framework Convention on Climate Change (UNFCCC). (1)

Where measurable, other greenhouse gases should be taxed based on their heat trapping affect when compared with CO2.

GWP.jpg

GWE.jpg

Refrigerants used in air conditioners and refrigerators have a high CO2 equivalency when they are leaked.  Although, the intention when used is to keep refrigerant in a closed loop system where the gas does not escape.  Though in a closed loop, we can assume that eventually all these gases will be leaked to the atmosphere when seals break on aging equipment.  Therefore, the carbon tax would be assessed the first paying customers for those products based on the assumption that all will eventually be leaked (emissions).  This added cost is a motivation for avoiding leaks for the replacement gas. As the carbon tax rises, the value of the refrigerants that have not leaked increases, motivating the economy to capture before it is leaked.  The tax could be considered a deposit if the public sector or the regulated private sector would return that tax upon the amount successfully recovered for reuse.  The disposal cost or recovery value would affect the transnational cost.  If the gas is reusable in time of its return, the market will pay for that resource.   However, if the product must be disposed of, that cost would need to be assessed from the return.  Extended Producer Responsibility is another potent policy option for assessing cost for responsible management of waste to those the profit or benefit from their use (manufacturer, retailer, consumer) at time of purchase.  Imagining a Zero Waste Economy is complimentary to imagining a Net Sequestration Economy.  However, this is another subject not covered by this presentation.

As the public comes to understand the importance, new methods will be developed for measuring the more challenging emissions coming from livestock, high tillage and deforestation. 

All sectors of our economy will be challenged to adapt to the increased price sensitivity to emissions that results from the carbon tax. It will be a source of tension for people to leave behind the high emissions methods that have delivered so much perceived abundance and economic security.  With an understanding of the reasons and the measure of the financial impact, the creative genius in our culture will rise up to adapt to lower emissions.

Agriculture has a large impact on emissions.  Because growing biomass is the primary method for sequestering carbon, agriculture businesses have significant opportunities moving forward to sequester carbon.  As emissions cost are assessed from fossil fuels, fertilizers, respiration of live stock come to be measured and assessed a carbon tax, agriculture methods will be developed that avoids these net emissions.  The administrative goal is to recognize the measure of agriculture emissions that is reasonably accurate and useful for communicating the cost of emissions.  With the carbon tax being phased in at initially a low rate, agriculture businesses will look for adapting methods and markets that reduce their emissions and increase their carbon sequestration.

Sequestration: New Market for Agriculture

Because agriculture is so interactive with land management, there exist an opportunity through best practices to increase carbon sequestration in the soil and the standing biomass such as reforestation.  Farmers have the skill set and assets intrinsically suited for serving this new market for their products and services.

With revenue from the carbon tax, government can develop payments to farmers for growing crops specifically for sequestering carbon and storing for long times.  This new source of revenue for farms will increase their economic resilience as they take steps to reduce emissions from traditional practices and markets.

Other greenhouse gases that are not fuel, include emissions from livestock respiration and defecation, extensive tillage of land, deforestation ( rotting or burning), nitrous oxide in fertilizer, and refrigerants gases used in refrigerators and air conditioners.  Developing the methods to measure and assess these other sources of GGE will build the skills for managing a Net Sequestration Economy.

To meet the metric of a Net Sequestration Economy, demands the population that truly understands the measure of Net Sequestration.  With that knowledge, we search for our steps to fit within the seam of net sequestration by nature to design our economy.  With price sensitivity to GGE, our economy will search and reward the practices of reducing emissions and sequestering carbon.

All industrial sectors have practices that over emit.  We will  be challenged to use all our skills and imagination to identify our emissions and design a path towards the level that lowers atmospheric carbon concentration (Net Sequestration) and other Greenhouse Gas Emissions.

Carbon Capture Storage(CCS)

With carbon tax funding source, we can pay people to capture and store carbon, called Carbon Capture and Storage (CCS).

Biochar

The most promising CCS technology is biochar that is created by burning biomass like wood in the absence of oxygen (pyrolysis) to create charcoal.  This creates recalcitrant carbon that is stable and not biologically active and will not decompose back into CO2. The durability of the carbon storage is similar to fossil fuels before they are burned.  Therefore, a portion of the original biomass carbon is permanently stored, preventing the eventual return to the atmosphere. Biochar creates an environment in the soil that holds micronutrients, microorganisms, water that encourage organic plant growth, therefore improving sequestration by plants.  Doing this improves soil health, improving farmland.  From the carbon tax, we can pay farmers to create and spread biochar on their land.  Added to the payment value is the improvement to the land’s production.  Paying for biochar, creates another revenue stream for farmers, strengthening the farm economy.

Payments to Developing Countries for Sequestration

Because we share a single atmosphere with all the people of the world, we will harvest the benefit of creating biochar anywhere in the world.  Therefore, our payments could be extended to developing countries, providing a global economic stimulus that motivates remote and low income communities to increase carbon in their soil. In addition to the income, this will improve  food security.

The funding for these kinds of supports need to come from the carbon tax, not individual or corporate income tax. In this way, the taxes and regenerative payments are balanced.

When our culture recognizes the absolute demand by nature to limit our carbon emissions to less than what can be sequestered, new opportunities open up for creating policies that will support a Net Sequestration Economy. 

Congratulations to readers of this last line.

Eli