Posted by Big Gav
Technology Review has an interview with Bill Gates, touching frequently on energy. While I disagree with some of his points, he's got a good handle on the "carbon tax" issue at least - Q&A: Bill Gates.
Let's talk about policy, then. The prospects for a strong climate bill in the U.S. Congress now look dim. And so do the chances for any binding international treaty. But almost everyone agrees that there needs to be a price on carbon--whether a Pigovian tax [a kind of tax levied on a market activity that generates negative externalities, named after the British economist Arthur Pigou] or a cap-and-trade system. Without a price, there's going be very little incentive to do the kinds of research, or create the kinds of technologies, or build out the kind of infrastructure, that we need.
No, that's not right. It's ideal to have a carbon tax, not just a price on carbon, which is this fuzzy term that includes cap-and-trade.
Well, ideally, you'd do a Pigovian tax--
No, not a Pigovian tax. A Pigovian tax is where you pay for the damage. Here, you're not paying for the damage--you can't pay for the damage. You're using the tax to create a mode shift to a different form of energy generation. You are not paying an amount that allows somebody to suck the CO2 out of the air. Let's just take the electric sector. If you imposed a 2 percent tax, you'd get the money for the R&D. And then you just take all the carbon-emitting plants, you look at their lifetime, and you say on a certain date this one has to be shut down, and when a new one is put in place, it has to be low-CO2-emitting.
That's a regulatory approach, and it's very clear. Remember what this is all about. This is about somebody who buys power plants, and who really buys power plants? Utility commissions really buy power plants. The utilities are really just middlemen who are given permission to actually do these projects. But the decision to get great recovery against rate payers, that's made by utility commissions. These are the people. And a federal law saying you can't buy plants that emit CO2 can force the hand of those utility commissions. This is all about plants, and the framework that exists for the 40 years that an energy plant exists. So when anybody that says that we need a carbon tax, if you really want to affect the behavior of the people that buy those plants, you've got to have certainty from years 10 to 50.
A tax and strong regulatory control are the only way to achieve--
No, no, you can do it. You have to do it with something that you believe will stay in place. If you said to a utility company executive, which is more likely to stay in place: a cap-and-trade thing, whose price will vary all over the map, that will have some international things that will be shown to be a waste of money? A regulatory thing about plant replacement over the next 50 years? Or something that's trying to work through price? Which looks more black and white to somebody deciding to build power plants? The price will have variability: all these schemes do, because they have escape clauses, and they give away free permits to the politically advantaged and create new requirements for governmental revenue. So I'm perfectly happy with the carbon tax. We should have a carbon tax. It has the advantage that it also immediately sends a signal for efficiency. What we owe the developing world is this: we're willing to pay high prices for energy plants above coal and drive prices down the curve so by the time they need to buy them, they don't have to pay the high price. What it costs to have them overpay for electricity is measured in lives. We need to invent electricity technologies that they'll be able to buy at super-good prices. There are some technologies that could get there. We need to pursue them all.
That sounds very rational, pragmatically feasible, and humane. It also sounds politically unlikely.
Which is more likely: a carbon tax with all sorts of markets and options and uncertainties about prices, and traders in the middle, and confusion about who initially gets the most advantage? Or a regulatory thing that says you mark every coal plant in the country with when it has to be retired, and a 2 percent tax to fund the R&D so that utilities know they can buy a plant that's emitting hardly any CO2? Because the innovators are designing things for the power-plant buyers 10 years from now, who are looking at the regulatory and tax environment for the next 40 years. So I don't know if anything will happen. I hope something does, but to be frank, there's so much money cycling in and out of Washington that a bunch of it goes to fairly inefficient things. I mean, just look at the House bill in terms of the various groups that got free carbon credits. Raising energy prices by 2 percent and sending it to R&D activities seems easier in a weak economy than raising them 20 percent and cycling it through Washington. Now, 0 percent is the easiest option of them all, but unfortunately that doesn't get us the solution to this problem, which is a long-term problem.