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A Thoughtful Introduction to Carbon
on October 30, 2012
A GOOD INTRODUCTION
I had high expectations for this book after reading most of the book. But as I got to the end, I decided I needed to scale back my expectations. Helm never really got out of the "Introduction to the Carbon Crunch" mode, though his "Introduction" is thoughtful.
HOW HELM HIT THE MARK
Helm is refreshingly critical of the cap-and-trade movement, though he never calls it that. He refers to the two ways of reducing CO2 pollution as: 1) carbon-consumption taxing (i.e., levying taxes on each product consumed based on how much carbon is consumed in the production of that product) and 2) CO2-production permitting (i.e., cap and trade). He maintains that the last twenty years of Europe's attempt at regulation of CO2 production (cap and trade) has been a dismal failure since it has simply led to exporting the carbon consumption to cheaper manufacturing countries like China. On p. 234 he says:
"Europe's carbon consumption continues to increase.... Lots of money has already been spent; much more spending has been committed to the cause; and all with no apparent impact on global emissions. ... In the hall of political mistakes, this must stand out as a pretty unique failure."
The reason for the failure is that while Europe has reduced CO2 pollution at home by reducing coal consumption in favor of natural gas, the pollution due to their consumption of artificially cheap global goods, especially from China where coal consumption has exploded, has more than offset any domestic savings.
Discussing these issues on p. 70, Helm packs quite a bit into a couple of paragraphs, so pay attention:
"Between 1990 and 2005, whilst [direct] carbon production fell by 15% [in Britain], carbon consumption went up by over 19% [in other countries that manufactured goods for Britain]. In other words, the British were causing an increase in global emissions, masked by the amount produced in Britain. It is this carbon consumption that matters in terms of global agreements and national burdens.
"Europe and the US made matters even worse from a climate change perspective by encouraging excessive consumption (and hence import demand) through the loose monetary policy after the stock market crashes in 2000. This led to rapid growth in debt-financed consumption in developed countries, notably the US and Britain, which spilled into global trade. This in turn boosted exports from China, which in turn boosted demand for oil, gas, coal, and minerals, sparking a commodities boom. The commodity boom led to a greater exploration and production in a host of resource-rich countries, including Australia, Indonesia, and Canada. These countries emissions rose as a consequence. ... The Great Recession that followed when the debt-fueled bubble burst after 2006, had its carbon impact when the US and Europe reduced demand for China's carbon-intensive exports. But its effects were short term, and within a very short period emissions growth returned. This was due to a combination of stimuli applied by many governments, the now more self-driven growth of a number of Asian and other rapidly developing countries, and domestic demand in China."
He briefly leveled his guns at the Federal Reserve Bank, the Bank of England, and both governments. He could have said much more about these four entities' stimulation of global pollution and could probably have written a whole book on that topic alone. See my "Digression on the Role of Money" at the end of this review.
HOW HELM MISSED THE MARK
--The War Economy
Having made the correct assessment that cap and trade doesn't work and raising the price of carbon via consumption taxes does, Helm then makes a tactical error. On p. 240 he says, "Less consumption means lower standards of living. ... decarbonization cannot be done with zero pain. ... Tackling climate change does mean lowering our standard of living from its current unsustainable levels."
He repeatedly compares decarbonization to a wartime economy and its pain. But wartime efforts are short and very inefficient. What we need is a shift in our consumption paradigm from global, cheap, and disposable to local, quality, and smart. That's a long-term, efficient economy-- just the opposite of wartime. Fighting a war is what government is good at since efficiency is less important and propaganda is critical. But efficiently satisfying the consumer needs of large and diverse populations is what free enterprise has shown itself to excel at. It is easy to imagine the kinds of actions and sacrifices we need to make to bring common sense and energy efficiency back to both our political and consumption decisions. The good news is that our western life style in both the US and Europe is so wasteful of energy and so rich in non-essential consumption that it would be easy for us to substantially slash our consumption with minimal pain. By the same token, our political election processes are so user friendly that it is easy for us to re-direct our governments--once we realize that no beneficial change can ever come from mainstream candidates.
We consume too much stuff because stuff is too cheap. That is an obvious economic truth along with its corollary truth--stuff is too cheap because of government subsidies. Just name a resource, and it is likely that the United States Government and/or many other governments contribute heavily to the resource's production via direct contributions of money, land, and legal rights; plus free or subsidized military protection, subsidized agriculture and drugs, market promotion, employee health care and education, R&D, transportation, environmental cleanup, assassinations, coups, loans, tax breaks, central bank manipulations, and so on. The maintenance of cheap prices of labor and mineral resources in third world countries has been the successful principle focus of American foreign policy for well over a century. For example, several economic studies have found that the real cost of oil in the US considering all subsidies at all levels of government and society is anywhere from three to six times the sticker price.
--Using the Free Market
Helm insists that taxation of the consumed carbon is the only way to bring carbon price closer to parity with carbon costs. I maintain that we should first remove as many of the government-granted subsidies as possible to see how much that achieves before we assess taxes. In addition, if we made the taxes revenue-neutral to government and cost-neutral to the consumer, the pain could be reduced even more. This can be done by offsetting some other tax in the aggregate by exactly the amount of the carbon tax revenue. Thus those consumers who reduce consumption the most will achieve more consumption savings and get just as much alternate tax relief as those who continue consumption as before. Presumably wealthy people would continue more of the old consumption habits, while lower-income consumers would opt for the savings. The free market really can be used to manage economic pain rather than simply defaulting to government coercion.
--Conservation and Standard of Living
The taxes on gasoline in Europe are about ten to twenty times what they are in the US. This has not led to a collapse of the European economy as the critics of raising gas taxes in the US have asserted would happen here. I wish Helm had covered this gas tax issue in "The Carbon Crunch" as an example of minimal pain government action. Another example of dramatic energy conservation was the California brown-outs of the early 2000s. During a three month period in 2002, Californians voluntarily reduced their electricity consumption by 20%. All I noticed were some car lots not blazing so brightly all night and many stores and homes a little warmer and dimmer than usual. I sure didn't see any pain. After the brown-out danger subsided, we quickly reverted to our cheap-energy consumption habits.
One final note on conservation and pain. I see little pain and standard-of-living decline in the following:
-Buying three pair of shoes instead of six pair each year.
-Walking the half mile to the market instead of driving.
-Not buying the stuffed toy that your grandchild will discard the next day.
-Playing tennis and softball during daylight instead of under the lights.
-Turning off the front-yard accent lights.
-Buying vegetables and meat from local or regional producers instead of from Argentina and Australia.
-Not having a perfect lawn, and sweeping dirt instead of blowing it into everyone's lungs.
THE DETAILS OF CARBON-CONSUMPTION TAXATION
--European Gasoline Tax
I wish Helm had discussed the European gasoline tax, how it is so different from that of the US, what effect it has had on gasoline consumption in Europe, and what lessons one can learn about a carbon-consumption tax. There is no international replacement for local transportation, so a gasoline tax has a strong impact on local transportation habits. But if a carbon-taxed price of a domestic shirt gets too high, a shirt imported from a country with a less-strict adherence to a carbon tax will be substituted. This does exactly what Helm criticized Europe for doing in their failed attempt at CO2-production permitting. It shifted consumption toward global goods. Helm calls this carbon leakage.
Helm also failed to discuss how the price of bunker fuel for ships and jet fuel for planes factors into the price of global commodities, and thus the over-consumption of global commodities. International common-carrier usage is probably about as sensitive to fuel price as is automobile usage. The UN says that there are 100,000 cargo boats using international waters and that their CO2 output is greater than that of the country of Germany. If we increase the price of domestic goods via a carbon-consumption tax without increasing the price of international transportation, then we will be shifting even more consumption to the global market.
In a perfect world, we could solve the whole problem by imposing some tax on the fuel at the point where it is extracted from the ground. That seems impossible since most fossil fuel is ultimately consumed in a different country from its source.
--The Helm Solution
The international taxing of anything is difficult to impossible. Thus the carbon-consumption tax would be difficult to levy on a product to product basis. It would require that we determine the CO2 content of each item in our economy, for example, a domestically made shoe versus a Chinese-made shoe. Helm admits that this is undoable, so his solution is this on p. 191:
"It turns out that a very small number of industries are responsible for the bulk of carbon imports--steel, chemicals, aluminum, cement, and fertilizers, for example. If we could find a rough and ready way of taxing these, then the problem of carbon leakage [substituting a global, high-pollution shoe for a domestic, low-pollution shoe] would be much reduced.
"The obvious way to do this is to set up some broad categories and make some assumptions."
Helm then talks in wishes and generalities until he arrives at: "Once other countries introduce a carbon price, more would probably join, since the border tax [tax imposed by the country trying to reduce carbon consumption on the basic commodities and their derivatives from other countries] undermines incentives to free-ride. Gradually an international approach could emerge. The crucial difference is not only that the carbon border tax does not need an international agreement, but also that the Europeans and others can get on with tackling climate change--for which their responsibility is far greater than the 11% of global emissions that their leaders are so keen to quote--without waiting for a possible Kyoto framework agreement that might apply from 2020."
Although this leaves me wondering whether I, like Jack, have just bought the magic bean, Helm has written some worthwhile ideas that need to be expressed and considered before we can actually take a step toward solving CO2 pollution. It is necessary to speak of wishes and generalizations before one gets serious about a solution. But I still think the book title should have been "An Introduction to the Carbon Crunch."
--The Missing Analysis
Helm needs to do some hard analysis to see just how practical his ideas are. What I have found in my career of experimental physics is that it is easy to talk yourself into how good your idea is, but when you put pencil to paper and start doing rigorous analysis with real numbers, you find the holes in your ideas. This encourages a revision of the good idea. After several such iterations, one may in fact, have a really good idea. Or one may have to go back to square one. I don't think Helm ever got to the point where his ideas could actually be claimed as good.
SHORT DIGRESSION ON THE ROLE OF MONEY (as promised above)
Excess US dollars, which fueled the consumption excess, existed because of two things: the Federal Reserve Bank and fractional reserve banking. Both of these were brought to us by the United States Government--the Fed by an act of Congress (Federal Reserve Act of 1913) and fractional reserve banking as a tradition of the Bank of England and mandated in the Federal Reserve Act. The bottom line is that the Fed, created as a creature of Government, has subsidized economic growth and corporate profits with cheap and abundant credit for a long time. In addition, federal and state governments have been the biggest long-term growth sector in the US economy, and the Fed has provided abundant funds for that also. The abundance of cheap credit reached an absurd level before the 2007 financial crisis and has even risen since then.
One corrective action that would at least shed some daylight on the presently secret acts of the Fed is an act in the US House of Representatives that simply requires that a full audit of the Fed be performed--the Federal Reserve Transparency Act (H.R. 459). A similar bill died in committee last Congress, and this new bill likely will do the same this year since mainstream Republicans and Democrats do not want to threaten the source of cheap money for their benefactors.