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On The Year in Energy: 10 Big Energy Stories of 2013

Thanks, Jesse. Very useful recap. One story that might make the top ten next year (or some year soon) is the growth of solar power in rural areas of the poorest countries, if the price continues to fall. This might constitute a technology leap analagous to that from no-phones to cell phones in many developing countries (an unoriginal, but still important, analogy). For now:

http://theenergycollective.com/jeremy-gottlieb/321276/5-countries-you-probably-didnt-know-were-going-solar

Though an insightful counterpoint from December 2012 here:

http://theenergycollective.com/breakthroughinstitut/160711/let-them-eat-solar-panels

 

January 6, 2014    View Comment    

On What Happened to Carbon Markets in Warsaw?

Thanks, David--very useful summary of developments (or lack thereof) on market mechanisms at COP-19. There is risk as well as promise in UNFCCC involvement in structuring a pricing regime (as contrasted with a bottom-up evolution of national systems and linkage between/among them), but as you imply the key is to find the optimal balance between top-down and bottom-up.

January 6, 2014    View Comment    

On A Final Contribution From Warsaw

Thanks, David. I think the key will be whether and to what extent the 2015 agreement incorporates assessments/reviews of mitigation actions, conducted prior to and during the effective period (so 2015 to, as you suggest, perhaps 2030)  that have the potential for prompting parties to increase ambition over time.

December 2, 2013    View Comment    

On Rethinking the Role of Carbon Prices in Climate Change Policy

Thanks for the clarification, Devon. I understand the points about Pigouvian taxation, etc. (to a reasonable approximation; I'm not an economist), but seem to have misread Jesse's intent with regard to theory vs. practice. And thanks for noting that "...a politically constrained carbon price will tend to reduce emissions at the margin"--though I would quibble with the word "tend"!

Regarding your second point, my choice of words ("supply" and "demand") was unfortunate, as I was not making an economics argument. I intended to say merely that the availability of funds, even if they are earmarked in law, is no guarantee that they will be used--or used wisely--for innovation-related purposes. Whereas, demand driven by rising carbon prices *will* ensure *some* innovation (with higher prices driving more innovation). I don't dispute (as I note above) that government investment in the innovation cycle has produced some dramatic results (though I would note the economics argument that investment in more basic research, with less appropriability due to attendant knowledge spillovers, produces greater social benefit).

On further reflection, I believe that Jesse's core point deals with the double dividend. Not being familiar with the original economics argument, I can't say much on this, but I am sympathetic with his argument. I would note that Fullerton and Metcalf (apparently not in the bibliography to which Jesse links) conclude that one can't make any general statement about the double dividend (i.e., using proceeds to reduce distortionary taxes versus using them to invest in something that produces a social good); rather, one must looks at the specifics of each case. (Fullerton, Don, and Gilbert E. Metcalf. “Environmental Taxes and the Double-Dividend Hypothesis: Did You Really Expect Something for Nothing.” Chicago-Kent Law Review 73 (1998 1997): 221.)

On breakthroughs: We need some, for sure, and I fully agree that nothing we're doing now will produce any. However, I'm a big believer in the law of small beginnings. The various policies--market and non--that countries and other jurisdictions are putting in place--at an increasing pace, I might add, the U.S. notwithstanding--along with the innovation that *is* occurring, makes breakthroughs more likely in the future. I offer no references from either economics or political science for this opinion!

Still, I'm not sure I *do* agree with your last point. Innovation must be financed, certainly. But the purpose of emissions trading or a carbon tax is to raise the relative prices of carbon-intensive fuels and raw materials. I believe that choices about investment should be made separately, with due attention to technical financial considerations (whether public or private finance). If it turns out that the "best" source of funds is revenue from a carbon tax, fine.


 

August 6, 2013    View Comment    

On Rethinking the Role of Carbon Prices in Climate Change Policy


Thanks for this, Jesse. There’s much to like in your post, but I’ll focus on some points of concern.

 

 One of your central arguments is about market-based mechanisms (cap and trade or a carbon tax): “Yet for this kind of carbon pricing policy to work as designed, the price imposed by the carbon tax must exactly equal the estimated economic damages imposed by a ton of CO2 emissions, or the so-called ‘social cost of carbon.’” Elsewhere you conclude, “when we try to price carbon, we don't get the right price on carbon, we get the price we can get.”

 

 I guess my snide response is, “So?” One designs a cap and trade system to keep emissions at or below a certain quantity (the cap). One designs an emissions tax (say on CO2) to impose a uniform price upon emissions that do occur. There are a number of design considerations—especially for a trading system—but if these are addressed, the system will “work as designed.” And, it will do so at lower cost than “traditional” (“command and control”) regulatory approaches, through (approximately) equalizing the marginal abatement cost for covered facilities. “Lower cost,” all else being equal, means that there will be looser political constraints.

 

 I’m not sure why you’re insisting that the price correspond to the calculated social cost. No one who has designed a real-world system (EU ETS, California) has tried to do this. As you note, the social cost is uncertain (especially for climate-change damages), and political constraints would keep you from imposing that high a price at the start. (There are economic reasons for gradually tightening the cap or increasing the tax, as well—e.g., avoiding premature retirement of power plants and other capital assets).  Of course (as you imply), the price may be too low to achieve a specified GHG concentration or (though the relationship is more uncertain) global average temperature, but at least you’re moving in the right direction.

 

 To move on, Suzy Waldman asked, to which you responded positively: “So then the innovations driven by the revenue from the carbon tax are as important as the emissions control?” I disagree, because the supply of funds will never drive innovation as effectively as the demand generated by an elevated (and hopefully rising) price for competing technologies. Again, the innovation generated by a carbon price may not be sufficient to meet certain climate goals, and the relationship between the price and the innovation level may not be linear (I don’t know), but innovation will occur.

 

 Having said all this, I certainly agree that a government, with tax or auction revenues in hand, can leverage the innovation effects of a carbon price. And it can also stimulate demand through direct or indirect purchases. These are core points in your essay that are well taken. But government action in this regard will not be effective in the longer run without market support.

 

 As you and some respondents noted, the political constraint in the U.S. is, in any case, fully binding; there will be no market-based mechanism (or any type of legislated climate policy) at the federal level in the medium term. And “traditional” regulation (which President Obama is pursuing instead) brings in very little income to use for innovation. However, I thought it important to respond to the (apparently) all-or-nothing view of market mechanisms, as these are being adopted or considered in many countries (or sub-national jurisdictions) around the world.

August 5, 2013    View Comment    

On A New Climate Coalition: The Good and the Problematic

Excuse the several comments to my own post, but see an excellent 25 July 2012 update on the Coalition on UNEP's web site at: http://www.unep.org/newscentre/Default.aspx?DocumentID=2691&ArticleID=92...

Seven new government partners on 24 July (total now 21).

August 10, 2012    View Comment    

On A New Climate Coalition: The Good and the Problematic

See David Victor, et al.'s good post (6/21/12) on the same subject at:

http://www.thedailybeast.com/articles/2012/06/21/hillary-clinton-s-plan-...

July 27, 2012    View Comment    

On A New Climate Coalition: The Good and the Problematic

Let me add that the Institute for Governance & Sustainable Development has valuable material on this subject on its site: www.igsd.org

April 8, 2012    View Comment