it's unthinkable to put a firm number on
the economic effects of climate change
it's difficult to say that hurricane
harvey which cost 125 billion dollars in
damages would not have occurred or would
have been less catastrophic if climate
change had not been a factor
it's tough to say that california's 2018
wildfires which cost roughly 150 billion
dollars in damages were caused by
climate change it's tough to say if the
severe cold snap of 2021 was caused by
climate change which left millions of
texans without power and damaged the
state's economy upwards of 130 billion
dollars
nonetheless it is rather tough to deny
that the frequency and intensity of
natural disasters have been growing the
causes for this are well documented and
understood according to multiple studies
spanning industries climate change
caused by human carbon emissions would
trigger significant economic upheaval
and that's without taking on record the
obvious human consequences of these
natural calamities extreme weather
disasters disproportionately harm the
most disadvantaged people in our
societies this is a problem that has to
be addressed right away however finding
strategies to speed up the transition
away from fossil fuels has been
challenging
our economy is based on the use of
fossil fuels so it's a catch-22 if we
don't use them to save our economies
most industries are unmotivated by these
intangible economic effects we need a
quick strategy to encourage the shift by
putting real economic pressure on people
this is where carbon fees enter the
picture carbon taxes are levied on the
source of carbon emissions directly
however this economic policy is not
without controversy and issues the
arguments against carbon prices are
simple to comprehend consider a
straightforward carbon tax levied on
fuels based on their carbon emissions
the goal is to make the use of carbon
intensive fuels more affordable but how
would that play out in practice on a
personal level the obvious response is
that fuel prices will rise making it
more expensive for ordinary people to
commute to work and heat their homes new
electric vehicles will be purchased by
those who can afford them however most
individuals just cannot afford to make a
move and the electric car industry isn't
creating enough automobiles to make that
transition happen right enough
those who are already struggling
financially will be driven even further
into poverty
the economic consequences on a bigger
scale are more difficult to anticipate
electricity prices would of course be
influenced
our electricity grids run on fossil
fuels a rise in fuel prices would be
passed on to consumers increased energy
and fuel prices impact every industry on
the planet a sharp increase in corporate
overhead expenses would almost certainly
result in a drop in gdp as industries
adjust
these are significant challenges that
governments must examine and balance
against the future and often intangible
economic damages that climate change may
bring when designing policies like this
there are so many things to consider
what is the best way to price carbon
taxes they must be high enough to make
high carbon intensity fuels such as coal
unappealing driving them out of the
market however they can't be so high
that they suffocate the economy what
should the money be used for should the
money be put back into refunds for lower
income people who would be hit the
hardest or should it be utilized as a
tax swap for companies to offset the gdp
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today we'll look at these issues using
two computer models and the work of mit
researchers who merged the two models to
forecast the future under alternative
taxation scenarios the models used were
the u.s department of energy's reeds
model for simulating the electric grid
and mit's u.s rep model for simulating
the effects of the electrical grid on
the u.s economy when these computer
models were combined the researchers
were able to predict how different
policies would affect the electrical
grid and the entire us economy and the
results are quite intriguing two
different starting scenarios were put to
the test the carbon tax would start at
either 25 dollars per ton of co2 or 50
dollars per ton of co2 starting in 2020
so how does that work in practice how do
we measure co2 release one way we can
effectively do this is by taxing fuels
according to their carbon dioxide
emissions per million btu which stands
for british thermal unit let's do a
quick conversion of the scientific unit
of joules which more or less equals one
gigajoule plus some change one giga
joule of coal is only about 34 kilograms
of coal
maybe two bags worth of your traditional
home heating coal coal emits about 0.1
metric tons of carbon dioxide per
gigajoule if we priced our carbon tax at
50 per metric ton that would result in
five dollars of the additional cost
however we can see that natural gas
releases about half the carbon dioxide
that coal does making its penalties half
that of coal thus giving it a major
advantage in the market next the studies
applied to annual rates of carbon tax
hikes one where the tax would increase
by one percent per year and one where it
increased five percent a year combined
this gives us four scenarios the
electricity grid adapts and evolves to
the new tax environments very quickly
with the most aggressive tax policy the
initial price spike is 50 percent a very
large increase which decreases to 30
percent by 2030 and then decreases again
in 2040. these price increases are
daunting but it's incredible to see how
this simulated electrical grid adapted
within a few years the coal power plants
are throttled out of existence while
natural gas power plants and wind energy
quickly take over the void left behind
solar energy gradually increases in
capacity but the study does mention that
the mix of solar and wind is highly
sensitive to assumptions made in the
model
most interestingly in this high tax
scenario a completely new type of
technology appears around 2040. with
that 50 carbon tax increasing by 5
percent every year the carbon tax in
2040 in this scenario will be 133
dollars per ton of co2 and at this stage
it actually becomes economical to
combine natural gas with direct carbon
capture direct carbon capture a
technology that absorbs carbon dioxide
directly from the air currently costs
between 250 to 600 per ton it's nothing
near cost effective but that price is
predicted to continue lowering and it
will be a lot cheaper to recover carbon
dioxide from the exhaust of a gas
turbine than trying to capture it after
it's diffused into the atmosphere and if
by 2040 we managed to reduce the price
down to 100 a ton combining this
technology with natural gas plants will
make a lot of sense
for every ton of carbon dioxide absorbed
that equates to a cost reduction of 33
dollars
the golden number for making that happen
appears to be about 30 to 40 dollars per
ton of carbon dioxide and in every
scenario eliminating coal is what
generates the biggest reductions in
carbon emissions so we must make it a
top priority to get it out of our energy
mix
so what happens to all of the funds
raised the revenue generated under the
four scenarios reveals a high tax high
growth scenario worth more than 600
billion dollars that's a substantial sum
of money
what exactly should we do with this
money it does not simply vanish
this study looked at three main
approaches to recycle the money raised
in order to counteract the taxes
negative impacts
households affected by the carbon tax
will get lump sum rebates
labor income tax reductions and capital
income tax reductions as well as five
hybrids of these three potential tax
routes they discovered that direct money
transfers to households are the most
progressive meaning that they have the
least impact on low-income households
direct capital tax reductions on the
other hand were shown to be most
efficient for preserving the economy
it's essentially a tax exchange with any
funds earned from the carbon tax going
to lower capital taxes however this is
the least progressive strategy as it
benefits wealthier households the
optimum strategy appears to be a hybrid
system in which six to eight percent of
the carbon tax is recycled to low-income
households and the remainder goes to a
capital tax exchange this appears to be
a good balance of progressivism and
economic efficiency carbon taxes clearly
work direct taxing of fuels is the most
straightforward but states such as
california have developed cap and trade
systems that impose a hard cap on carbon
emissions while allocating allowances to
different businesses
companies who successfully cut their
emissions can then sell their allowance
to other businesses in need however
because there is no straightforward way
to trace a company's emissions across
activities this is a considerably more
difficult system to manage companies are
determined to find ways to fool these
systems if possible as seen by high
profile incidents like volkswagen's
pollution cheating technology which was
installed in 11 million vehicles
it is impossible to evade a direct
gasoline tax this system is effective it
compels polluters to change their
business swiftly reduces carbon
emissions dramatically and promotes
innovation
carbon taxes are being implemented in a
number of countries and they are being
gradually increased nevertheless the
united states is not one of them in fact
the fossil fuel sector continues to
benefit from significant tax breaks
while their own lobbyists argue that
taxes are bad to oppose carbon pricing
no one desires to pay more taxes but the
reality is that this tax can be
implemented without raising additional
revenue instead it simply shifts where
taxes are collected and encourages the
shift to low carbon energy
which will save us millions of dollars
over time by reducing the impact of
climate change on our planet if this
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