Would you pay $2,000 per ton for your carbon footprint?

The other day, I used the fanciful example of $50,000 utility bills to illustrate how cap-and-rebate schemes can inspire energy efficiency and conservation. The numbers were deliberately exaggerated, but they highlight one of the features of cap-and-rebate that I like: the robustness of the system in the face of higher carbon prices.

The political battle over climate change legislation is mostly a battle over cost. Who pays and how much? Even the arguments that seem to turn on fine policy points (safety valves, offsets, circuit breakers, permit auctions, etc.) really boil down to cost. While a high price of carbon isn’t per se a goal of effective climate legislation, a high price may nevertheless be necessary to bring down carbon emissions quickly and steeply. A good system will accommodate high prices without exploding.

Americans have an average carbon footprint of 24 tons per year. As a thought experiment, imagine I offered you the following deal: every year, I’ll charge you $2,000 per ton of your personal emissions. I’ll also offer you a guaranteed $48,000 annual rebate. Would you take the deal?

I bet most Americans would. Think about the behavioral changes that would follow. Every gallon of gas now costs you about $20. Of course, you’ll be able to afford it because I’m handing you a huge check every year. But that Prius is starting to look a lot more attractive, to say nothing of your bicycle. A single cross-country flight is now going to set you back about $2,500. Again, you can swing the expense. But is there something else you’d rather spend $2,500 on? Maybe it’s really important for you to spend Christmas with your family. Or maybe you can send them an e-card.

Of course, we’re not going to see a $2,000 per ton carbon price in my lifetime, which is a good thing. For lots of reasons, such a high price would in fact cause the system to explode. But, at least in theory, most consumers could bear it pretty well under a cap-and-rebate system, and might even end up significantly richer. Given that $100 per ton of carbon might not be too far off, a rebate will not only ease the pain for taxpayers, it will also ease the pressure on our political system to sacrifice the environment for short-term relief.

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  1. Bobby Yates - March 25, 2009

    I have serious doubts about this working. The average per person in the USA might be 24 tons, the median is probably far lower due to assaults on the Earth by the ultra rich and their carbon rich lifestyle. Some of these enemies of the Earth probably have a higher carbon footprint than some small countries. Anyone know what the carbon footprint of entertainers like Sean Penn or Al Gore is? Or, politicians like Nancy Pelosi and Barack Obama? On the one side we have people rich enough to continue their assaults and on the other we have people that can make us pay for their destruction to the Earth.

  2. Adam Stein - March 25, 2009

    This is a thought experiment, not a proposal. But it’s worth noting that your own logic would seem to lead you in exactly the opposite direction. If the median footprint is far lower than 24 tons, then the large majority of people will do quite well under cap-and-rebate, and the people leading a carbon-rich lifestyle will be the ones who pay disproportionately.
    Of course, this stuff about the “ultra rich” is pretty much just a distraction from the real issues at hand. But if you happen buy into this worldview, then you should be a huge supporter of cap-and-rebate.

  3. richard schumacher - March 25, 2009

    I’d love it. My house uses 100% wind power and I have a short commute, so my carbon footprint is already smaller than average by a half or more. A rebate would be pure gravy to me.

  4. Jones - March 25, 2009

    Where does all this animosity towards “THE RICH” come from? Actors gleaning this tirade are only there because of the oxygen of publicity. If no-one (and I mean NO-ONE) paid them any attention, ignored their efforts and paid no heed to their attempts to act/entertain/amuse then they would wither and die. They’re only “rich” because people want escapism and pay them for that. Turn off that telly (poof! there goes a bit of your carbon footprint), skip that visit to the inane rom-com at the movies and turn a blind eye to the shenanigans of Lindsey Lohan et al and they will cease to exist.
    Remember, plants only blossom in the light. Take it away and they remain dormant or become extinct!

  5. John in Easton - March 25, 2009

    Adam,
    I just want you to know that at least one person out here (me) applauds you for your efforts to educate the public about the economic logic of carbon cap-and-rebate. Please do not be too disheartened by those who read what you write and then write back to malign you and others such as Al Gore who are doing their best to save the planet.
    An interesting tidbit: This weekend I had dinner with a friend who is a chemical engineer at Air Products, a Fortune 500 company with plants all over the world. She mentioned that in designing the chemical plants to separate the different components of air, they need to know the relative proportions of the different gases that make up air. In the 20 years she has been working there the calculations for plant design have had to be progressively adjusted, because the CO2 composition of air has been continuously rising.
    I verified what she said:
    http://en.wikipedia.org/wiki/File:Mauna_Loa_Carbon_Dioxide-en.svg

  6. Ray - March 25, 2009

    pretty soon we are gonna have to change our diets also stop eating beef because beef farms also is a major contributor to green house gasses.
    http://www.sciam.com/article.cfm?id=the-greenhouse-hamburger

  7. Tom Harrison - March 25, 2009

    I worry about thought experiments like this, as it leads the, um, less thoughtful reader to draw draconian conclusions about what might happen.
    And after hearing numerous Republicans getting back on the bandwagon of climate change deniers (e.g. Minnesota Congressman http://greeninc.blogs.nytimes.com/2009/03/25/michele-bachmann-seeks-armed-and-dangerous-opposition-to-cap-and-trade/), I feel like we’re slipping back into the dark.
    But having said that, I agree with John who applauded your ability to explain this issue in terms that people can understand. I studied Economics in college, and came to recognize that it is indeed a dark art — some delightful combination of statistics and sociology that make it often counter-intuitive and frequently arriving at the wrong conclusions.
    But it’s not all wrong, and there are some things that kind of just work — simple, clear monetary incentives are one example of things that work.
    What’s great about cap-and-trade is that it is self-balancing (which of course confused most reporters this winter when it seemed to “stop working”, but indeed was just correcting for the reality that in a time of crisis, the cost of everything, including carbon, needs to fall.
    I posted a link on my blog first to a great explanation of cap-and-trade on Environmental Defense Fund (EDF)’s site, and then another to your equally great explanation of cap-and-rebate. Google tells me one of the most frequent searches for which my blog shows up is “explain cap and trade”.
    People want to know the facts, and even just understand how it works.
    Keep up the good work!
    Tom

  8. Ed - March 25, 2009

    John:
    The Mauna Loa graphic is really telling. The curve showing the amount of carbon in the atmosphere is getting steeper, though not so dramatically to make the global warming naysayers change their tune. I extrapolated the graph to show around 450 parts per million in 20 years.
    The book “Six Degrees: Our Future on a Hotter Planet” by Mark Lynas uses data to show that a two degree Celsius increase in temperature is inevitable. Two degrees will have major repercussions, but if we can level off and then begin to lower emissions by 2015 we can limit the increase to two degrees. If the increase gets to three degrees – which will happen at 450 ppm – we’ll keep going to six degrees, at which we should be prepared to live underground. And this will be by the year 2100.
    If Mr. Lynas’s data and conclusions are correct – and there’s no Science to refute them – we have until roughly the end of a second Obama administration do what California’s been doing environmentally for the last 20 years: keeping CO2 emissions steady.

  9. Alan - March 31, 2009

    Hear, hear! A lot of people are using the Eco-fad as a means to vent frustration or push a political agenda! None of that is needed here, what is truly needed is truthful actions by truthful people! Cap-and-rebate plans would make the higher cost of a hybrid sound more appealing!

  10. Alan - March 31, 2009

    And you should be rewarded for the action you have so boldly taken! I say more wind power!

  11. Alan - March 31, 2009

    I don’t know? If you want to model the Nation after a bankrupt and corrupt State in the Union, Carbon Emissions will be the least of our worries! Wasn’t the movie Erin Brocovich about PG&E…. Her name is probably spelled wrong and PG&E is in California and I do believe the movie tried to get to some truths about industry! It’s the fundemental greedy and self-indulgence side of our human nature that is causing quite a few of our Environmental problems….

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