Market Eco-Topia 1
Putting the money back into saving the world
It’s time to let my inner policy economist nerd out. In a world mired in politics and solutions that must be palatable, even to Twitter, I invite you to come dream a bit with me. Also, I think I may really flesh out a vision of the future sometime before that comes around, so stick around for that too.
The Venerable Carbon Tax
A carbon tax is one of, if not the most popular proposals to mitigate climate change. A typical conception of a carbon tax has the government setting a price for carbon and taxing its release accordingly. In my book, halfway there.
Distributing the revenue via a UBI or NIT could offset the fact that the carbon tax would disproportionately fall on the poor. This is a valid concern, but not a solvable problem with a mere carbon tax. Many taxes, and any volatility for that matter, disproportionately falls on the poor. Typically from a very high starting point, sometimes in the form of an anvil dropped from the ISS. My proposal is one for a world that’s sustainable (and richer in like, 2100), so you’ve gotta think about the poor of the future too. Concerns of equity are outside of the scope of this proposal, and would be better dealt with other solutions. What we really need to do here and now is to take this ‘ere tax to its logical conclusion.
Meat & Potatoes
With CO2 tax revenue, we should turn around and incentivize the removal of carbon from the atmosphere—a two-sided market for CO2 and CO2 equivalents. It starts as a subsidy bridging the gap between emissions and removal. Later, it could be a completely free-floating market, where emitters of carbon sell it to “buyers” who extract the same amount from the air. This would be facilitated by requiring any company that expels CO2 to pay for its removal. This would be exorbitantly costly right now because that infrastructure is not yet in place. It would definitely crash the economy of 2021. We aren’t interested in all that, we just want to induce a mild, prolonged stagnation for the greater good. Climate people, welcome to our BAU situation.
Two-sided is best because it allows for the maximal flexibility in how we get to our climate goals. Long carbon capture, short carbon emissions. Not long Nio and Tesla per se, not short cow farts in particular, but all those too. Long carbon capture, long filters on power plants, long sending it over the wall to Mexico. If we haven’t started thinking about some novel way to get the carbon out of the air, we will now that someone can make money off it.
Against fewer egg baskets
The path is not yet illuminated, and it is preferable not to privilege solutions that are currently in view over others that are more efficient yet simply nonviable in the current climate, or not yet conceived of. By making this market explicit, we allow for solutions that only crazy people could be expected to think up. Ideally, we don’t know the solutions that will save us, because the ones we have right now aren’t exactly inspiring a whole lot of anything. Government bureaucrats and economists are of course welcome to throw their hats in the ring, but I don’t love their chances.
Biden’s infrastructure bill subsidizes electric cars. While that path looks promising (Tesla is trading at 365x earnings right now, and even Detroit is showing signs of life), it’s not 100%. If one day we find a cheap way to extract carbon dioxide from the air, much of that subsidy on net would have amounted to a handout to an electric car corporation and its affluent customers, not to mention the cost to taxpayers.
It would have been better in that world to have started down the removal path earlier rather than later, while keeping the guzzlers guzzlin’. Or perhaps we just put a little seaweed in the cow food, and less methane comes out the other end. Maybe we put some iron in the ocean. The point is, there is no financial reason to pursue the removal solution now, because no one is paying for it. If you’re doing the legwork on getting that solution off the ground, that iron or seaweed is coming out of your pocket. There are of course many great people and governments doing just that anyways. Maybe they anticipate it will one day be a lucrative industry. I think we should guarantee that one day it will be a lucrative industry.
At some point in the debate it became the standard to advocate for the use of solar, wind, and hydro, to the exclusion of other solutions. I think this is mistaken, because it encourages more narrow direct subsidies to those specific industries—money that may be used much more effectively in this fight, elsewhere. Money that carries with it a payoff, but perhaps less than we could be getting. Rather than spending on direct subsidies, we should tax generation commensurate with emissions, so that we open up the possibility of advantaging geothermal, nuclear, and other less intensive fossil fuels over coal and oil. Not to mention that a majority of emissions aren’t from electricity generation. And some are simply unavoidable. Or that a simple green subsidy doesn’t undo any of the damage we’ve done already.
Face Up at the Pearly Gates
That’s not to say I’m opposed to electric cars or solar or wind in the least. They will probably have their place—we just shouldn’t pay for them exclusively if they’re not our best solution. And our way to find the best solution is to put all the cards on the table.
Here are the cards: a ton of carbon is estimated to cost the world $51 per the Biden administration. This is the total cost of that ton in terms of the environmental damage to the world and the economy. Right now, no one is paying it, and we are racking up the debt. And Mother Nature isn’t in the business of deferment or forgiveness. Naturally, those that contribute to the problem, should pay in proportion to the contribution. Those that solve the problem, are compensated in proportion to the grief they save the rest of us.
There exists a resistance from some to oppose any cure, rather than prevention. It is my opinion that the window of time in which prevention in itself would be sufficient is now over. I see that people may worry that the prospect of carbon capture or geoengineering would give people carte blanche to emit to their heart’s content, but the cold hearted economist in me insists that they can, so long as they pay for it. We need to take the solutions we can get, savory or not. The Vatican will grant your indulgence, as for St. Pete, we’ll put in a good word.
Lucid Now
Remember, we’re dreaming here. You may not like it, but this is what getting the people going looks like!
Tomorrow, Joe Biden announces that from now on, anyone emitting carbon will have to remit $10 to the IRS per ton. Over the next 10 years, this will increase to the true cost of carbon, $51. Anyone able to provably remove one ton will receive $1000. This difference won’t matter, no one can do that just yet. It’s all about sending the message.
No one freaks out, everyone goes about their business, content that this is the right policy decision.
The stock market does something predictably unpredictable but certainly CNBC will find something to talk about. Exxon’s share price definitely doesn’t look good, battering yield starved boomers.
Some interesting changes will start to happen, all of course beneficial.
Your gas bill goes up, and you make less trips to the store, buying less meat when you get there. So does your electric bill, meaning that you blast the A/C just a bit less. Car salesmen re-incorporate something about gas mileage into their shtick. The cash flow for solar on your roof starts to look a lot better, every year. The Saudis leave more oil in the ground—at the margin people are carpooling and biking and walking more.
At the risk of pounding it into your head, you’ll use relatively less carbon intensive things, dictated by the new, accurate market price for these goods, and the change will be distributed across all the things you consume. In this way, we distribute the decrease in energy usage according to what you decide is best. If you want the meat, you pay for the damage it does. Things will be a bit more expensive, but not by as much as you may think. And they always were, we were just running up the tab. You naturally rejoice all these changes as sorely necessary—remember, you can wake up whenever you want.
Utility companies begin to invest in all non carbon-emitting energy production at a rapid clip, as they are now cheaper than fossil fuels, without a subsidy. This tax won’t ever end, and will in fact take the thumb off the scale that was keeping oil and coal alive. Nuclear plants still probably aren’t built, but the numbers would look a little better if they could be!
A Giant Sucking Sound
In the short run, the government will accrue tax revenue, without anything to spend it on. It may be tempting to relieve some inevitable economic fallout. However, I propose this money is all used to pay off anyone and everyone who can remove carbon from the atmosphere, at whatever price they can start bringing it online and off of atmosphere. If the price we pay carbon removal corporation to take just a few thousand tons out of the air is $1,000 a ton, so be it, we’ll be one removal station richer. In the short run, any surplus should be used to shore up this market—until we run out of surplus tax revenue, an oxymoron anyways. Now, carbon has a price to emitters, and a reward to removers.
Over the years, the tax will get higher, and interesting things will start to happen. Somebody actually took ‘ole Joe up on that $1,000, using a novel strategy of sucking carbon out of the air with fancy filters and a little elbow grease. Maybe they buy up Nebraska and plant some trees. Perhaps even sprinkling some iron in the ocean. Shoring up the market? Soon, that won’t be necessary.
The aforementioned sucking removal method is one for which the primary input is energy. It just so happens we will start to have a lot more of that laying around. Remember the massive investments in wind and solar? Utility companies take their excess wind and solar power at non-peak hours, in 2021 scarce but practically a liability—but in 2030 a plentiful asset, and use it to pump carbon out of the air. It costs them nearly nothing on the margin—the investments in solar and wind already paid off just selling the energy, and they get $1,000 a ton. They begin to compete down the price, and soon the market-clearing price of CO2 is now at the true cost, or even lower. That is, if they can beat out the ocean ironers and albedo painters and the tree planters for the carbon equivalent tonnage. They will survive—there’s always bitcoin to be mined.
Carbon Options on Robinhood
Anyways, if that happens, we can do something extraordinary—we can get rid of a tax (and the subsidy). It can be replaced by a simple mandate to all emitters: find someone to remove your CO2, and pay them for it. However you wanna do that. The CBOE will find a way to facilitate, surely. It’s cheaper than the tax anyways. This was never about punishing anyone, we just wanted to get to net zero. We bootstrapped the market, and now it can float freely, sans subsidy for removal, if you can even call it that. If the people need more emissions, they’ll have them, especially if it turns out the cost to remove carbon is negligible.
As of now, we know the costs to the environment, but we haven’t the faintest clue if that cost could be realistically offset. All supply side economics in the market for carbon. For all we know there is an industry to be cornered, and we could get the jump on everyone else. Imagine the Chinese paying us to run an industry here at home! No, surely we should grasp about in the dark, subsidizing Model S’s and leaving all the carbon in the air.
If we need to get to net negative, that’s pretty straightforward too—instead of cutting the tax, the government continues to receive $51 per ton, and pays the removal corps something like $30 a ton—the market clearing price. They just use the other $21 to remove carbon in excess of that emitted by the company they taxed. As of right now, for all we know the market clearing price is $5, and we could remove 10 tons for the price of 1. With economies of scale and a lot of fans in Kansas, it could be possible. In my future, we will have price discovery in CO2.
It’s late and this is long. Tune in for part 2: