Just before Thanksgiving, Grist political blogger David Roberts posted a sharp challenge to carbon-tax advocates, contending that we were, in effect, ascribing “magical” properties to carbon taxes. Roberts spelled out 10 drawbacks to carbon taxes, with this bottom line: Any carbon tax legislation that could make it through Congress would likely be feeble and regressive, and perhaps even counterproductive.

David is arguably the green community’s most astute blogger, particularly on environmental politics. His qualms about pushing for a U.S. carbon tax deserve to be taken seriously.

Read David’s original post. Here’s our point-by-point response. Let us know what you think.

Thank you, David, for elucidating your reservations about placing a carbon tax at the heart of U.S. climate policy.

Until now, your many Grist posts critiquing carbon taxes have focused on political infeasibility. Now you’ve presented your policy objections. Thanks for bringing your concerns out into the open.

No surprise: The Carbon Tax Center indeed views a U.S. carbon tax as the sine qua non of effective climate policy — provided it builds toward a substantial price that rises steadily and predictably over time. With a ramped-up tax, the initial carbon charge can be modest, giving businesses and families time to adapt, while still broadcasting a clear price signal to begin shifting millions of decisions toward less energy and emissions — big decisions that determine design of vehicles and transport and that set the pace and nature of investment in low- and non-carbon energy; as well as the full gamut of household-level decisions, many of which can’t and won’t be touched without a carbon tax. Almost as importantly, a robust carbon tax changes the culture by broadening the definition of pollution and valorizing conserving behaviors with monetary rewards.

Here are our counterpoints to your 10 points.

1. A carbon tax is conservative and progressive.

We don’t think of a carbon tax as a market mechanism; there’s no need to create a new market. It’s a price mechanism. Call it a market corrective if you wish, but the term “market” is both a misnomer and a turnoff for carbon tax adherents (actual and potential) who don’t identify with market ideology.

A carbon tax would correct existing markets that systematically under-reward virtually every action, every device, every innovation that reduces fossil fuel use because the prices of those fuels omit the costs of climate damage (not to mention most of the other harms from mining and burning coal, oil, and gas).

We don’t accept your suggestion that economists and policymakers need to “get the social cost of carbon right” in order to set a carbon tax. For one thing, no two economists will ever agree on that number. More importantly, every climate-aware person already lives with the knowledge that the social cost of carbon is enormous: The likely descent of human civilization into chaos in the face of wholesale climate disruption. Our job as advocates isn’t to fix the “right” price of carbon but to maximize the internalization of carbon’s societal costs into the prices of fossil fuels. (Could any politically viable carbon tax capture the entire social cost?)

And we emphatically reject the insinuation that we’re beholden to a purist belief that complementary measures to control and reduce carbon are irrelevant or harmful. Like you, we’re painfully aware of the multitude of ways in which market barriers like split incentives, inadequate information, and path-dependence impede innovation and buy-in for energy efficiency and renewables. Therefore, like you, we strongly support regulatory standards, especially those that address inefficiency in product and building design. Still, let’s be realistic about their limits:

• Standards and regs tend to motivate threshold-meeting behavior but no more.
• Standards and regs provide no incentive to conserve on usage – by right-sizing new homes, for example; or driving less; etc.
• We can’t expect standards and regs to address more than a subset of the thousands of types of machines, appliances, and vehicles that collectively consume the world’s energy.
• Standards don’t catch up to new products until they’ve been adopted widely — and have “locked in” energy waste (e.g., plug loads).
• Standards and regs generate zero revenue and thus can’t figure in tax or fiscal “deals.”

As you note, David, there is no pristine “free market” in energy or anything else. But so what? By itself a carbon tax won’t level the playing field, but it will lower the tilt. And as the tax rises, the tilt will diminish, allowing clean energy and a conservation ethic to compete with dirty energy and an ethic of waste.

2. “Revenue recycle” will help the tax to rise.

We think you’ve got the revenue matter backwards. Revenue treatment is important, of course, as befits any new tax that puts hundreds of billions a year in play. But rather than fund cleantech R&D and green infrastructure, we need to direct the revenue to support productive economic activity and offset the hit to poor and middle-income families’ disposable incomes. Doing so will help win the political buy-in to legislate periodic renewal of the annual rises in the tax that will drive the needed changes in behavior, infrastructure, and R&D far better than subsidies.

This is why we frame carbon tax revenue treatment in macroeconomic rather than energy-policy terms. (We say more about this at No. 3, next.)

3. “Revenue-neutral” helps keep the carbon tax rising.

Like many carbon tax advocates, though not all, we (Charles and James) personally have progressive perspectives. Outside the Carbon Tax Center we advocate for robust government investment in education, public transportation, health protection, housing, and a broad spectrum of social services and support nets. Yet we ardently want carbon taxes to be close to 100 percent revenue-neutral (with minor and transitory exceptions for assistance for displaced workers and communities), for two reasons:

First, as you have detailed in many posts over the years, it’s next to impossible politically to direct carbon tax revenues to “good things” (e.g., green tech, mass transit) without also opening the floodgates for bads like “clean” coal, next-generation reactor loan guarantees, and biofuel boondoggles. Better to hold the line and continue to fund R&D from established pots of money.

Second, the carbon tax is going to have to rise steeply and steadily over a long time period to provide strong, ongoing incentives to phase out and finish off fossil fuels. Returning essentially all of the revenues to American households — whether through reductions in taxes like payroll taxes that discourage hiring and are distributionally regressive, or monthly electronic “dividends,” or a combination — is essential to winning support for the rising carbon tax. Indeed, we want Americans to find these revenue return mechanisms so appealing that they will welcome ongoing rises in the carbon tax level so as to expand their size (and, ultimately, sustain them in the face of the declining carbon tax base as fossil fuel use dwindles, as we discuss in No. 6, below).

4. A strong enough carbon tax will indeed drive investment to clean energy.

We don’t dispute Mark Muro’s assertion in his “Carbon Tax Dreams” post that we’ll never usher in massive cleantech investment or otherwise shrink fossil fuel use and carbon emissions to near zero with just the price signals from a carbon tax that starts at a mere $15 to $20/ton and rises only 4 percent a year faster than inflation. The Carbon Tax Center’s carbon tax spreadsheet model [Excel] yields the same conclusion. So does a pocket calculator: Assuming 3 percent annual inflation, a tax rising 4 percent a year faster than inflation would take a decade to double in nominal terms, and almost two decades to double in real terms. That’s way too slow a ramp-up, considering that a carbon price of $40/ton of CO2 would add a mere 36 cents to a gallon of gasoline and 1.5 cents/kWh to the average U.S. retail electricity price.

We need a carbon tax that quickly gets to much higher rates than that. It doesn’t have to start like gangbusters; indeed, it shouldn’t, since families, businesses, and institutions all need (and deserve) time to adapt to the new reality of higher fuel and energy prices. A steady and steep ramp-up rate is far more important and beneficial than a high starting point.

These considerations make the ideal carbon tax close to that embodied in legislation introduced in 2009 by Rep. John Larson (D-Conn.). Larson’s carbon tax starts at $15/ton and rises each year by $10-$15, with the actual increment depending on whether emissions are being driven down fast enough. In the 10th year of a carbon tax, the CO2 price would be between $100 and $145 per ton of CO2 under the Larson bill, vs. $28-$37 per ton for Muro’s scenarios.

That threefold to fourfold difference in the respective 10th-year carbon price would start to narrow eventually, though not until the start of the fourth decade, in absolute terms — indicating how fundamentally different the Larson tax scenario is from Mark Muro’s. The corollary, David, is that while your boldfaced assertions that “pricing alone won’t generate enough [clean-energy] deployment to get us where we need to go” and “broad economy-wide pricing strategies alone induce only modest technology change and deployment” may well hold for the undersized and only gradually rising tax levels you cited in your post, they don’t necessarily apply to the kind of robust tax presented in Rep. Larson’s bill.

We do take seriously Frank Ackerman’s caveat in the paper you cited [PDF], that “Price incentives alone cannot be relied on to spark the creation of new low-carbon technologies.” But recall that Ackerman, writing in 2008, was in part responding to an IMF report [PDF] published earlier that year whose year-2100 climate “targets” could have come from the Koch brothers playbook: a CO2 concentration of 550 ppm, annual declines in emissions of only 0.6 percent till then, and a carbon tax starting at around $1/ton of CO2 and rising by just 67 cents a year. We suspect Ackerman might have a more sanguine view of the “market pull” of a carbon tax whose rate, like Larson’s, is a full order of magnitude greater than what the IMF envisioned.

Our bottom line, then, is that we don’t believe that a small carbon tax used for subsidies and/or R&D would provide anything close to the sustained broad market pull toward innovation that is required to address the climate crisis, and that could result from a substantial and briskly rising carbon tax. In our view, starting with as close to 100 percent revenue return as possible is the best way to build growing political will for a robust and effective carbon tax, i.e., one with sustained, predictable, and sizeable increases from each year to the next. There, the market pull (including long-term price expectations) should suffice to elicit cleantech innovation and revolution. In that case, however, “revenue return” is mandatory — ethically, to offset households’ higher energy costs, and politically, to forge and maintain the constituency to keep the tax level rising.

5. Tax regressivity is an anathema … but curable.

No argument here, David, though we spin this issue a bit differently. We agree that (i) putting revenue use aside, a carbon tax has a greater proportional impact as household income declines, and (ii) progressive revenue treatment such as a revenue swap on payroll taxes, or pro rata dividends, or low-income support, can mitigate and eliminate the regressivity.

The Carbon Tax Center insists on such progressive treatment, though we concede that a final bill may be less than scrupulous on this score. (We also question the extent to which Waxman-Markey would have solved this problem, but we’ll save that discussion for another time.)

6. The eventual decline in revenue is a non-problem.

“The fact that a carbon tax is intended to phase itself out over time,” as you put it well, David, belongs in the class of problems that at this juncture should matter only to extreme policy wonks. The Larson Bill, which we discussed under point No. 4 above, and which certainly falls on the “aggressive” end of the carbon tax rate spectrum, doesn’t reach max revenue until year 18, when the annual intake is projected to plateau at just under $800 billion. (Note: That figure, which is drawn from our modeling of the Larson bill assuming annual rises of $12.50/ton, may change with revisions to the model now underway.) Long before then, there should be ongoing discussions about how to replace that revenue stream as it slowly and predictably shrinks. Indeed, given the amounts in question, we would expect those discussions to be a central feature of public policy in future decades.

7. EPA regulation of climate pollution may not measure up to its regulation of public-health pollution.

This issue should be straightforward. Greens should hold the line on health-and-safety rules pertaining to the energy sector — emission limits governing pollutants like NOx and mercury (e.g., Mercury and Air Toxics Standards); mining and combustion waste (aka Coal Combustion Residuals); fugitive emissions like methane; and “macro” regs like the Cross-State Air Pollution Rule. But prospective EPA rules directed at CO2 emissions may be another matter.

Based on the authoritative 2011 paper [PDF] by Burtraw et al. for Resources for the Future, new EPA regs will at best reduce greenhouse gas emissions (GHGs) in 2020 by only 13 percent (vs. 2005). Further reductions would be harder to come by, given that “a regulatory approach is likely to lead to less innovation … than would occur under a flexible incentive-based program” such as a carbon tax. Moreover, unlike a carbon tax, GHG regulations would generate zero revenue.

Symbols matter, and EPA authority on public-health pollution is vital. But EPA regulation of CO2 may be less valuable than you presume, David. (That EPA uses a $26/ton social cost of carbon in its analyses doesn’t mean that its regulations would bring the same reductions as would result from a $26/ton price.)

8. A robust carbon tax will do far more for clean energy than direct subsidies.

See No. 4, above, for our argument that a strongly rising carbon tax will drive investment to clean energy. In the limited space available here, we add that phasing out clean-energy subsidies would build political momentum to get rid of subsidies for fossil fuels and other forms of dirty energy.

9. Certainty in emission reductions is overrated.

That “no one can be sure in advance how much [a carbon tax] will reduce emissions” may well be the number one canard about carbon taxes. After all, what’s the use of knowing now how fast emissions will shrink, when we know that they have to shrink as fast as possible, which means faster than any carbon tax and/or other possible measures can deliver?

The climate calamity is many orders of magnitude more dire and global than the acid rain problem. So can we please stop grafting the acid rain model onto climate? The declining sulfur cap in the 1990 Clean Air Act Amendments was intelligently tailored to estimates by limnologists of Northeast U.S. lakes’ remaining capacity to withstand acid rain emissions. But we’ve already overshot the 350 ppm target for climate sustainability; atmospheric CO2 is at 390 ppm and rising. There’s no safe level for CO2 emissions now or in the foreseeable future. Any target — 17 percent less by 2020, 40 percent less by 2030, 80 percent less by 2050 — is no more than a talisman.

What happens, you ask, if the carbon tax isn’t reducing emissions enough? In some proposals, the tax would rise automatically, in others Congress would have to raise it. But either way it’s crucial to structure revenue return so that a majority of Americans come out ahead and will back increases in the carbon tax rate. (See points Nos. 2 and 3, above.) Built-in, recurring increases will not only obviate the need to return to Congress constantly; they will instill transformative price signals in America’s energy systems, infrastructure, land use, and culture that, collectively, will move us from fossil fuels to clean energy.

10. Summation: Climate advocates’ job is to maximize political incentives for a robust carbon tax.

All political incentives push toward climate inaction, period, and not just toward a poorly designed carbon tax. We can either give up … or we can keep working to break the impasse — primarily by building support from below, but also by choosing policy strategically. Since giving up isn’t an option, let’s start by reviewing what we’ve established about carbon taxing thus far:

• Carbon taxing has potential appeal on both sides of the political aisle. (Point No. 1)
• “Revenue recycle” can build the constituency to enable the tax to rise. (Nos. 2 and 3)
• A high enough carbon tax will spur investment in clean energy, without subsidies. (Nos. 4 and 8)
• Tax regressivity is anathema, but curable. (No. 5)
• Eventual revenue decline isn’t a problem. (No. 6)
• EPA regulation of climate pollution isn’t in the same league as a serious carbon tax. (No. 7)
• Emission-reduction certainty is overrated. (No. 9)

To these assertions, let’s add this:

• The ballpark magnitude of revenue from a carbon tax is knowable in advance — giving a carbon tax salience in fiscal and tax reform.

Unlike revenue from selling tradeable emission permits, which would be subject to the extreme price volatility that has characterized every carbon cap-and-trade system, the revenue from a carbon tax is sufficiently predictable to serve as a building block for tax overhaul. (Lags in responding to the price signal make this particularly true in the tax’s initial years, which happen to be the most politically germane.)

Earlier, under point No. 4, we referenced the carbon tax proposed by Rep. John Larson, which our modeling [Excel] suggests would reduce U.S. emissions by 30 percent within a decade while stimulating employment and economic activity. The Larson bill also includes border tax adjustments to protect domestic energy-intensive industries and to nudge U.S. trading partners to enact their own carbon taxes, leading to a global carbon price.

The Larson bill could be said to be patterned on the British Columbia carbon tax, which went into effect in 2008 at a rate of roughly $9 per ton of CO2 and was incremented annually to its current (2012) level of approximately $27. On every criterion — climate, macroeconomic, distributional, political — the tax appears thus far to be a resounding success. Consider:

• British Columbia’s carbon tax funds reductions in payroll, income, sales, and corporate income taxes [PDF].
• British Columbia has experienced strong economic growth and reductions in CO2 emissions [PDF], both absolute and relative to the rest of Canada.
• The British Columbia political party that instituted the tax was retained in power in the next election.

To be sure, there are big differences between British Columbia and the 50 U.S. states, including hydro-rich B.C.’s effective exemption of electricity from its tax. Nevertheless, these lessons are ours for the taking: First, it may be better to square up to the political pain of raising the carbon price than to hide it; and second, a tax with transparent and ironclad revenue recycling can build the political appetite for raising the tax level to the point where deep carbon cuts actually take place.

In sum: A carbon tax isn’t the whole answer, yet a transparent, briskly rising carbon tax will spur the development of many answers large and small that add up to a cultural transformation. Taxing carbon aligns everyone on the side of reducing emissions as fast and as far as possible. In reach, transparency, and affordability, no other policy tool comes close.

Price-elasticities — dimensionless parameters that express the extent to which a price increase triggers a usage decrease — are central to policies that aim to reduce a harmful activity by internalizing its damage into its price. The efficacy of carbon fees, congestion tolls, cigarette taxes, and the like turns on the proposition that the toll or tax will dampen consumption by more than a token amount.

If the price-elasticity is close to zero, then the fee devolves to a revenue-raiser that will never fulfill the purpose of reducing the harm. But if there’s at least a modicum of underlying price-responsiveness, then internalizing damage costs via a fee or tax can be a powerful and efficient way of combating pollution, while also raising revenue that can be invested and/or distributed to forestall regressive impacts on lower-income households.

As someone with a long-time orientation toward price incentives and cost internalization, particularly for major sources of environmental damage such as energy use and driving, I’ve made it my business to keep on top of the literature on price-elasticity. Several years ago, in the course of assembling a monster spreadsheet for modeling congestion pricing in New York City, I spent months combing empirical studies of driver responsiveness to changes in tolls, gas prices, and parking charges. Ditto to develop the Carbon Tax Center’s carbon-tax impact model, which subdivides energy use into four sectors — electricity, gasoline, aviation, and “other” — with different estimates of price-elasticity for each.

With this backdrop, consider the strange post this week by The Atlantic business and economics editor Megan McArdle.

McArdle’s piece, “Should We Re-Evaluate Carbon Taxes?,” began well enough:

I’ve long been an advocate of some form of carbon taxation — gas tax, source fuels tax, even cap-and-trade if nothing else is available. The tax seems like a three-fer: raise revenue, discourage use, and encourage innovation.

McArdle has indeed been a staunch carbon tax advocate. Back in 2007, in “The perils of buy local,” she noted the absurdity of making individuals track the carbon footprints of local vs. global food, and concluded:

[I]f we’re serious about cutting carbon dioxide emissions, we need a carbon tax, and not CAFE, or other sorts of piecemeal regulatory solutions.

While I wouldn’t have cast it as either/or, McArdle’s emphasis on a carbon tax is exactly right.

But McArdle’s new piece quickly leaves the rails:

Jim Manzi has been making a pretty compelling argument that [a carbon] tax will do much less than people like me have been anticipating. Even the long-term response to price increases is simply too low.

This is weird. For Manzi’s “compelling argument” turns out to be nothing of the sort. Rather than a considered examination of the vast body of studies of energy elasticities, Manzi’s “argument” is a lone table cherry-picked from the International Monetary Fund’s (IMF) new (April 2011) 242-page World Economic Outlook [PDF]. And lifted from the IMF not by Manzi himself but by Mother Jones political blogger Kevin Drum, in a post last Friday, “Everyone Loves Oil,” which in turn was built around a post the same day by peak-oil blogger Stuart Staniford.

OK, no crime in linking to someone else who linked to someone else who linked to someone else. For the goods, let’s go to the IMF table posted by Staniford, Drum, Manzi, and McArdle:

Hmm, looks like an elasticity-killer — on a quick glance. Over the period 1990-2009, the long-term price elasticity of oil demand shown for OECD countries — developed nations like the U.S., Western Europe, and Japan — is a meager 0.093. At that rate, a 40 percent rise in the price of oil would drop consumption by only 3 percent — a paltry impact, and far too small to justify putting a carbon tax at the center of climate policy.

But wait. The actual change in U.S. gasoline consumption over the past two decades tells quite a different story:

• From 1990 to 2010, the real pump price rose 40 percent (I’ve removed general inflation of 67 percent from the 133 percent nominal price rise from $1.22 to $2.84 per gallon; elasticities are calculated on real, not nominal, price changes).
• U.S. gasoline consumption grew by 25 percent over this period, from 7,235,000 to 9,034,000 million barrels a day.
• Real GDP grew by 65 percent.
• Let’s assume that, all things equal, each percent increase in economic activity is accompanied by a half-percent increase in gasoline use (i.e., an income-elasticity of 0.5). This mid-range assumption is more conservative than the 0.67 income-elasticity I’ve assumed for years.

With these inputs, the observed price-elasticity of U.S. gasoline demand over the past 20 years is around 0.20. The simplest way to see this is to observe that, absent price effects, the increase in gasoline usage would have been half of the GDP rise of 65 percent, or 32.5 percent. The actual increase, however, was 25 percent. Dividing the demand “shortfall” of 7.5 percent by the 40 percent real price increase yields an elasticity of around 0.20. (The true elasticity derived from these numbers is (negative) 0.23, since that’s the exponent to which 1.4, the price multiple, must be raised to yield 0.925, the quantity multiple (1 minus 7.5 percent).) That’s twice the long-term elasticity for OECD countries in the IMF table that McArdle et al. relied on.

But this correction to a 0.20 gasoline price-elasticity estimate is just for starters. As everyone knows, the long-term rise in gasoline prices has been more fluctuating than monotonic. Over the past eight years, the month-to-month price has fallen 43 percent of the time [see the "Volatility Graph" tab in this spreadsheet], obscuring the overall upward trend and giving drivers, car-makers and regulators alike a recurring “out” from the task of adapting to higher prices. Thus, the rough gasoline price-elasticity figure of 0.20 almost certainly understates the reductions in gasoline demand that a ramped-up, phased-in carbon tax, with its unambiguous price signal, could deliver.

To its credit, the IMF acknowledges this, in its Technical Appendix that McArdle et al. evidently overlooked:

To examine whether high oil prices are more conducive to substitution away from oil than low oil prices, we split the sample into periods of high and low oil prices … The results (Table 3.4) suggest that during periods of low oil prices, price elasticity is not statistically different from zero … In contrast, during periods of high oil prices, price elasticity is much higher, at 0.38. [p. 132/242. Note also that the figure of (negative) 0.038 in Table 3.4 is a typo; according to an IMF staffer I contacted, the intended figure, matching the text, is 0.38.]

As it happens, 0.38 roughly matches the 0.40 price-elasticity figure I inputted into my carbon-tax impact model. It’s also essentially the estimate of the long-run U.S. gasoline price-elasticity that the Congressional Budget Office proffered in its 2008 report, “Effects of Gasoline Prices on Driving Behavior and Vehicle Markets” [PDF]:

Estimates of the long-run elasticity of demand for gasoline indicate that a sustained increase of 10 percent in price eventually would reduce gasoline consumption by about 4 percent. That effect is as much as seven times larger than the estimated short-run response, but it would not be fully realized unless prices remained high long enough for the entire stock of passenger vehicles to be replaced by new vehicles purchased under the effect of higher gasoline prices-or about 15 years. Over that time, consumers also might adjust to higher gasoline prices by moving or by changing jobs to reduce their commutes-actions they might take if the savings in transportation costs were sufficiently compelling. Those long-term effects would be in addition to consumption savings from short-run behavioral adjustments attributable to higher fuel prices. (p. XI)

It’s also helpful to keep in mind that gasoline is both a minority factor in CO2 emissions (21-22 percent of the U.S. total) and the least-elastic large consuming sector. Gasoline demand is considered less price-sensitive than aviation, for which fuel accounts for a larger fraction of the overall cost than it does for driving; less price-sensitive than electricity, for which efficiency upgrades and behavioral changes provide rich opportunities for conservation; and probably less price-sensitive than home heating, manufacturing, trucking, etc., which my model subsumes under the rubric of “other.” The model assumes price-elasticities of (negative) 0.70 for electricity, 0.60 for aviation, and 0.50 for other, along with 0.40 for gasoline.

To see what these numbers mean, let’s select the (negative) 0.50 elasticity for “other”: A carbon tax that raised the price of heating oil, manufacturing fuels, etc. by 50 percent would be expected to reduce usage by 18-19 percent, since the assumed price multiple of 1.5 (that’s 1 + 50 percent) raised to the negative 0.50 power (that’s the elasticity) is 0.816, which is one minus 18.4 percent. As the carbon tax kept kicking in, a doubled price would reduce usage by nearly 30 percent, since 2 (reflecting the doubled price) to the negative 0.50 power is 0.707. Now we’re getting somewhere.

So McArdle, take heart. And Manzi, Drum, and Staniford, take note: There’s nothing wrong with price-elasticities, and little that a robust carbon tax couldn’t do, in conjunction with smart policies to remove institutional barriers to efficiency and renewable. Stop kvetching, and get on board.

Postscript: As I was posting this piece, a colleague directed me to an April 27 post by Adam Ozimek, “Of carbon taxes and price elasticities“, that makes many of the points offered here … and more elegantly.

One of the most penetrating critiques of energy-efficiency dogma you’ll ever read is in this week’s New Yorker (yes, the New Yorker). “The efficiency dilemma,” by David Owen, has this provocative subtitle: “If our machines use less energy, will we just use them more?” Owen’s answer is a resounding, iconoclastic, and probably correct Yes.

Owen’s thesis is that as a society becomes more energy efficient, it becomes downright inefficient not to use more. The pursuit of efficiency is smart for individuals and businesses but a dead end for energy and climate policy.

This idea isn’t wholly original. It’s known as the Jevons paradox, and it has a 150-year history of provoking bursts of discussion before being repressed from social consciousness. What Owen adds to the thread is considerable, however: a fine narrative arc; the conceptual feat of elevating the paradox from the micro level, where it is rebuttable, to the macro, where it is more robust; a compelling case study; and the courage to take on energy-efficiency guru Amory Lovins. Best of all, Owen offers a way out: raising fuel prices via energy taxes.

Thirty-five years ago, when the energy industry first ridiculed efficiency as a return ticket to the Dark Ages, it was met with a torrent of smart ripostes like the Ford Foundation’s landmark “A Time to Choose” report — a well-thumbed copy of which adorns my bookshelf. Since then, the cause of energy efficiency has rung up one triumph after another: refrigerators have tripled in thermodynamic efficiency, energy-guzzling incandescent bulbs have been booted out of commercial buildings, and developers of trophy properties compete to rack up LEED points denoting low-energy design and operation.

Yet it’s difficult to see that these achievements have had any effect on slowing the growth in energy use. U.S. electricity consumption in 2008 was double that of 1975, and overall energy consumption was up by 38 percent. True, during this time U.S. population grew by 40 percent, but we also outsourced much of our manufacturing to Asia. In any case, efficiency, the assertedly immense resource that lay untapped in U.S. basements, garages, and offices, was supposed to slash per capita energy use, not just keep it from rising. Why hasn’t it? And what does that say for energy and climate policy?

A short form of the Jevons paradox, and a good entry point for discussing it, is the “rebound effect” — the tendency to employ more of something when efficiency has effectively cut its cost. The rebound effect is a staple of transportation analysis, in two separate forms. One is the rebound in gallons of gas consumed when fuel-efficiency standards have reduced the fuel cost to drive a mile. The other is the rebound from the reduction in car trips after imposition of a road toll, now that the drop in traffic has made it possible to cover the same ground in less time.

Rebound effect one turns out to be small. As UC-Irvine economics professor Ken Small has shown, no more than 20 percent of the gasoline savings from improved engine efficiency have been lost to the tendency to drive more miles — and much less in the short term. Rebound effect two is more significant and becoming more so, as time increasingly trumps money in the decision-making of drivers, at least better-off ones.

Rebound effects, then, vary in magnitude from one sector to another. They can be tricky to analyze, as Owen unwittingly demonstrated in an ill-considered 2009 Wall Street Journal op-ed criticizing congestion pricing, “How traffic jams help the environment.” He wrote:

If reducing [congestion via a toll] merely makes life easier for those who drive, then the improved traffic flow can actually increase the environmental damage done by cars, by raising overall traffic volume, encouraging sprawl and long car commutes.

Not so, as I wrote in “Paradox, schmaradox. Congestion pricing works”:

When the reduction in traffic is caused by a congestion charge, life is not just easier for those who continue driving but more costly as well. Yes, there’s a seesaw between price effects and time effects, but setting the congestion price at the right point will rebalance the system toward less driving, without harming the city’s economy.

More importantly, as Owen points out in his New Yorker piece, a narrow “bottom up” view — one that considers people’s decision-making in isolated realms of activity one-by-one — tends to miss broader rebound effects. On the face of it, doubling the efficiency of clothes washers and dryers shouldn’t cause the amount of laundering to rise more than slightly. But consider: 30 years ago, an urban family of four would have used the washer-dryer in the basement or at the laundromat, forcing it to “conserve” drying to save not just quarters but time traipsing back and forth. Since then, however, efficiency gains have enabled manufacturers to make washer-dryers in apartment sizes. We own one, and find ourselves using it for “spot” situations — emergencies that aren’t really emergencies, small loads for the item we “need” for tomorrow — that add more than a little to our total usage. And who’s to say that the advent of cheap and rapid laundering hasn’t contributed to the long-term rise in fashion-consumption, with all it implies for increased energy use through more manufacturing, freight hauling, retailing, and advertising?

Owen offers his own big example. Interestingly, it’s not computers or other electronic devices. It’s cooling. In an entertaining and all-too-brief romp through a half-century of changing mores, he traces the evolution of refrigeration and its “fraternal twin,” air conditioning, from rare, seldom-used luxuries then, to ubiquitous, always-on devices today:

My parents’ [first fridge] had a tiny, uninsulated freezer compartment, which seldom contained much more than a few aluminum ice trays and a burrow-like mantle of frost … The recently remodeled kitchen of a friend of mine contains an enormous side-by-side refrigerator, an enormous side-by-side freezer, and a drawer-like under-counter mini-fridge for beverages. And the trend has not been confined to households. As the ability to efficiently and inexpensively chill things has grown, so have opportunities to buy chilled things — a potent positive-feedback loop. Gas stations now often have almost as much refrigerated shelf space as the grocery stores of my early childhood; even mediocre hotel rooms usually come with their own small fridge (which, typically, either is empty or — if it’s a minibar — contains mainly things that don’t need to be kept cold), in addition to an icemaker and a refrigerated vending machine down the hall.

Air conditioning has a similar arc, ending with Owen’s observation that “access to cooled air is self-reinforcing: to someone who works in an air-conditioned office, an un-air-conditioned house quickly becomes intolerable, and vice versa.”

If Owen has a summation, it’s this:

All such increases in energy-consuming activity [driven by increased efficiency] can be considered manifestations of the Jevons paradox. Teasing out the precise contribution of a particular efficiency improvement isn’t just difficult, however; it may be impossible, because the endlessly ramifying network of interconnections is too complex to yield readily to empirical, mathematics-based analysis. [Emphasis mine.]

Defenders of efficiency will call “endlessly ramifying network” a cop-out. I’d say the burden is on them to prove otherwise. Based
on the aggregate energy data mentioned earlier, efficiency advocates have been winning the micro battles but losing the macro war. Through engineering brilliance and concerted political and regulatory advocacy, we have increased energy-efficiency in the small while the society around us has grown monstrously energy-inefficient and cancelled out those gains. Two steps forward, two steps back.

I wrote something roughly similar five years ago in a broadside against my old colleague, Amory Lovins:

[T]hough Amory has been evangelizing “the soft path” for thirty years, his handful of glittering successes have only evoked limited emulation. Why? Because after the price shocks of the 1970s, energy became, and is still, too darn cheap. It’s a law of nature, I’d say, or at least of Economics 101: inexpensive anything will never be conserved. So long as energy is cheap, Amory’s magnificent exceptions will remain just that. Thousands of highly-focused advocacy groups will break their hearts trying to fix the thousands of ingrained practices that add up to energy over-consumption, from tax-deductible mortgages and always-on electronics to anti-solar zoning codes and un-bikeable streets. And all the while, new ways to use energy will arise, overwhelming whatever hard-won reductions these Sisyphean efforts achieve.

I wrote that a day or two after inviting Lovins to endorse putting carbon or other fuel taxes front-and-center in energy advocacy. He declined, insisting that “technical efficiency” could be increased many-fold without taxing energy to raise its price. Of course it has, can, and will. But is technical efficiency enough? Owen asks us to consider whether a strategy centered on technical and regulatory measures to boost energy efficiency may be inherently unsuited for the herculean task of keeping coal and other fossil fuels safely locked in the ground.

I said earlier that Owen offers an escape from the Jevons paradox, and he does: “capping emissions or putting a price on carbon or increasing energy taxes.” It’s hardly a clarion call, and it’s not the straight carbon taxers’ line. But it’s a lifeline.

The veteran English economist Len Brookes told Owen:

When we talk about increasing energy efficiency, what we’re really talking about is increasing the productivity of energy. And, if you increase the productivity of anything, you have the effect of reducing its implicit price, because you get more return for the same money — which means the demand goes up.

The antidote to the Jevon paradox, then, is energy taxes. We can thank Owen not only for raising a critical, central question about energy efficiency, with potential ramifications for energy and climate policy, but for giving us a brief — an eloquent and powerful one — for a carbon tax.

Yikes. Just the other day I was trying to get across to my teenage sons precisely why we were hanging the wash on the line instead of firing up the clothes dryer. You know: trade fossil fuels for sunlight, save money, avoid emissions — not to mention, get outdoors.

But today two New York Times blogs, Green and Dot Earth, are flogging a new study that chides energy-conserving Americans for succumbing to a set of “myths” prioritizing behavioral changes over efficiency upgrades. One supposed myth is that line-drying saves more energy than washing the clothes in cooler water.

Huh? Avoiding an hour’s worth of electric or gas drying doesn’t save more Btu’s than running the washing machine with the thermostat turned down? How can that be?

Well, it can’t be, as I confirmed with a couple of calculations, and as the study authors — a team from Columbia University’s Earth Institute, Ohio State, and Carnegie Mellon — could have seen for themselves if they had stopped to ponder the physics of clothes washing and drying.

The study, which has just been published in the Proceedings of the National Academy of Sciences, examined Americans’ perceptions of lifestyle changes vs. tech upgrades in 15 different household arenas. Line-drying vs. cool-water washing was one arena; others concerned turning off lights vs. converting to compact fluorescents, bicycling vs. buying a hybrid, and so forth. (Though … why cast these as either-or choices? Why not dump incandescents and turn off the CFLs when you leave the room? Why not bike in town and rent a hybrid for longer trips, of which you’ll make fewer now that you’ve geared into a cycling lifestyle?)

My corrective calculations are straightforward, but to spare readers the gory details I’ve off-loaded them here. Basically, according to Department of Energy, a dryer consumes power at a rate between 1.8 and 5 kW, while a washing machine runs between 0.35 and 0.5 kW. Compounding this 5-to-10-fold difference, a load of laundry takes longer to dry than wash. Since energy equals power integrated over time, bypassing the dryer for a clothesline probably saves 10 or more times as much energy as fractionally lowering the wash temperature.

What the study authors billed as a myth, then — the notion that line-drying trumps cool-water washing in saving energy — is fact!

(I’ve emailed my calculations to the lead author, who hasn’t yet replied. The outsize figures for energy savings from washer-thermostat turndown that appear in the study’s supporting document are sourced to a Rocky Mountain Institute study that doesn’t appear to be retrievable from the link provided. Could the authors have inadvertently applied an RMI annual energy savings figure to a single washload?)

“Delusions Abound on Energy Savings, Study Says,” the Green blog proclaimed. “Misperceived Paths to Energy Savings,” Dot Earth chimed in. But in this one case, it appears the delusions belong to the study authors, while Average Joe & Jane have their energy caps on straight.

The Dot Earth post concludes with a call to boost energy literacy. Sure, but it brings to mind that old saw about people in glass houses.

Al Gore’s eminence in the global climate movement is on impressive display in his full-throated defense of climate science in Sunday’s New York Times. His essay, “We Can’t Wish Away Climate Change,” is triple the paper’s standard length for op-eds. Only Gore could command such a bully pulpit, and probably no one else could so powerfully restore the sense of urgency that has seeped out of climate policy over the past year.

In Gore’s essay, the triple debacles of Climategate, Copenhagen, and Congress fall into perspective, and the moral high ground is regained for a renewed U.S. legislative effort to place a stiff price on carbon pollution. From his stage-setting opening lines,

It would be an enormous relief if the recent attacks on the science of global warming actually indicated that we do not face an unimaginable calamity requiring large-scale, preventive measures to protect human civilization as we know it.

To his calling out climate change deniers for misappropriating this winter’s East Coast snowstorms,

[S]cientists have long pointed out that warmer global temperatures have been … causing heavier downfalls of both rain and snow in particular regions, including the Northeastern United States. Just as it’s important not to miss the forest for the trees, neither should we miss the climate for the snowstorm.

Mr. Gore demonstrates his mastery of both science and metaphor that animated the documentary An Inconvenient Truth and invigorated the citizens’ climate movement during the long darkness of the Bush administration.

The former vice-president also presents a reasonable, if backhanded, explanation of the demise of cap-and-trade legislation, the approach long anointed by the Big Green groups (though not by Gore himself, a carbon taxer since the early 1990s), which Lindsey Graham, a rare G.O.P. Senator who “gets climate,” reportedly just pronounced “dead.”

Some analysts attribute the failure to an inherent flaw in the design of the chosen solution — arguing that a cap-and-trade approach is too unwieldy and difficult to put in place. Moreover, these critics add, the financial crisis that began in 2008 shook the world’s confidence in the use of any market-based solution.

Which makes it both perplexing and frustrating that Mr. Gore’s response to cap-and-trade’s manifest failure is to repeat not only his endorsement of cap-and-trade before Congress last year, but his latter-day criticism of a carbon tax:

[T]here is no readily apparent alternative [to cap-and-trade] that would be any easier politically. It is difficult to imagine a globally harmonized carbon tax.

This is dreadfully wrong, both substantively and politically.

Mr. Gore’s substantive error lies in presuming that a cap-based approach could be harmonized globally. Perhaps this is a legacy of his having championed cap-and-trade in the 1997 negotiations that produced the Kyoto Protocol. Yet now, as then, there are no clear grounds for translating a possible U.S. cap on carbon emissions into limits for other countries. Per capita, Americans generate 4 times as much greenhouse gases as Chinese and 14 times as much as Indians. Why, then, should a U.S. commitment to reduce emissions by, say, 2 percent a year, carry any moral authority in China or India? Indeed, India’s per capita emissions could increase by 2 percent a year for more than 60 years and still not match U.S. emissions declining at the same rate.

A carbon tax, in contrast, is wholly fungible across borders. A fee that raises the price of coal or natural gas by so much in one country will do the same in another. If one country is more efficient in turning energy into goods and services, or enjoys a greater abundance of carbon-free water- or wind-power, then that is an incentive to other nations to step up their efforts and achieve parity. A carbon tax thus creates no unfair comparative advantage. While these facts can’t guarantee global harmonization of a carbon tax, they provide a strong basis for it.

Politically, Mr. Gore’s dogged support of cap-and-trade sounds tone-deaf. The financial crisis hasn’t merely shaken the world’s confidence in market-based solutions; it has provoked a profound revulsion among Americans against financial speculation, market manipulation and legislative complexity. Yet all of these are intrinsic to cap-and-trade systems built on trillion-dollar markets in volatile emission permits. It is this political reaction, even more than media-driven denial of climate science, that has turned Congress against cap-and-trade. Mr. Gore underestimates its staying power at his own risk.

There is an alternative to both cap-and-trade and inaction, and it is the very instrument that Al Gore bravely backed for almost two decades: a carbon tax. This is not a market-based approach to be administered by Wall Street insiders, but an incentives-based one applied to all fossil fuels by the U.S. Government. With the revenues redistributed to Americans as monthly carbon checks and the tax rebranded as a carbon fee — as proposed by Mr. Gore’s climate mentor, climatologist James Hansen — a carbon “fee-and-dividend” would be everything cap-and-trade cannot: simple, transparent, effective and, above all, equitable.

With fee-and-dividend, a majority of us would get back in dividends more than we would pay in the tax, and all Americans would have equal incentives to transition to low-carbon ways of life. Industry would have what it needs to steer the transition: clear, unmistakable price signals to drive investment from dirty coal and imported oil to clean energy and green jobs.

The carbon tax (or fee) movement has missed Al Gore’s participation this past year. Yet it has maintained its presence in the grassroots and is gaining a toehold in Washington. Mr. Gore’s op-ed essay today shows again how vital his voice is. We carbon taxers call upon him to rejoin the fold and lead the political drive to pass a revenue-neutral U.S. carbon tax this year.

A stone marker in Rugby, N.D. identifies the town as the “Geographic Center of the North American Continent.” No marker identifies the state as one of America’s top two or three in wind-power potential. Yet North Dakota’s vast expanses and steady winds endow it with the capacity to generate more than half as much electricity as all 50 states currently produce from all sources combined, according to a recent Harvard study of U.S. wind energy potential.

Indeed, that potential, equivalent to 2.6 trillion kilowatt-hours annually, is almost 100 times greater than the current output of the state’s coal- and lignite-fired generators. And while tapping a goodly share of that capability would require a great many giant turbines — as many as one per several square miles across the state — each tower would only occupy a small footprint, leaving the land largely intact for agriculture and other complementary uses. Jobs erecting the towers and servicing the turbines would be another plus.

So how come wind power accounts for just 2 percent (XLS) of North Dakota’s electricity generation — barely matching wind’s national share? One obvious reason is lack of transmission capability to reach load centers. But another is the extraordinary cheapness of coal.

In 2007 (the last year for which we have data), the coal and lignite burned in North Dakota power plants cost just under a dollar per million Btu, on average. Picture 12 cent a gallon gasoline, and you get a sense of just how inexpensive that coal is, in equivalent-energy terms.

That’s why coal accounts for 93 percent of the state’s power production, and why North Dakota is able to export almost two kilowatt-hours of electricity for every one it consumes — mining, delivering, and burning the stuff is dirt cheap.

Transitioning from coal to wind-powered electricity is probably the biggest single step we can take to dial back our CO2 emissions, and North Dakota and other High Plains states are well-positioned to lead the charge. The best way forward is not to further subsidize wind farms — Washington already does this through the 2.1 cent/kWh production tax credit — but to level the playing field with coal by adding an emissions charge to fossil fuel prices.

You have to marvel, then, at the passivity of the state’s senators in the ongoing debate over climate legislation. As Bill Chameides of Duke’s Nicholas Center on the Environment reported recently, Sen. Kent Conrad has been far more focused on preserving jobs in the state’s oil, gas, and agricultural sectors than in helping wind energy compete with dirty coal. His fellow Democrat, Sen. Bryan Dorgan, has inveighed against the cap-and-trade architecture in the Kerry-Boxer bill, warning that “the Wall Street crowd can’t wait to sink their teeth into a new trillion-dollar trading market in which hedge funds and investment banks would trade and speculate on carbon credits and securities.” Yet Dorgan has offered no alternative means of putting a price on carbon emissions, without which development of wind farms and other clean energy will remain at a snail’s pace.

There is a path to a carbon price without Wall Street speculation, of course, and that’s a carbon tax that’s raised steadily and predictably over time. Distributing the revenues raised by the carbon tax to households on an equal, per capita basis, as Alaska has done for decades with its North Slope oil revenues, would protect families against the rise in energy prices and also ensure that “big government” gets no bigger — both major concerns in the Plains States as elsewhere.

A revenue-neutral carbon tax, or carbon fee-and-dividend as some prefer to call it, would seem to be just the ticket for Senators from wind-rich states who rightly fear climate change and market speculation. North and South Dakota both celebrated their 120th anniversary last week as members of the union. What better way to harken back to that independent pioneer spirit than to spit in the face of the special interests and help a revenue-neutral carbon tax win a place in the national climate policy debate?

The similarly supersized Waxman-Markey bill couldn’t be more different – not just in genre, but in attitude. Where Brown gave his life to abolish slavery, the “American Clean Energy and Security Act of 2009″ seems intent on postponing Americans’ day of reckoning with climate-damaging fossil fuels.

In a bid to pick up support from coal state Democrats, Waxman and Markey this week pruned their cap-and-trade “20% by 2020″ greenhouse gas (GHG) reduction target to 17%. The actual reduction will almost certainly be even less, thanks to the bill’s generous “offset” provisions and the economic collapse that has pushed emissions way below levels from the 2005 base year.

Worse, if a larger share of the GHG reductions comes from “other” greenhouse gases such as methane and nitrous oxide, then reductions from fossil fuel burning will be disproportionately smaller. While that won’t necessarily hurt the climate, it will mean that many of the ancillary but vital benefits from reducing carbon emissions, such as reduced oil dependence and diminished environmental destruction from coal mining, will be watered down.

To make my points, I’m going to go quantitative and speak of emissions in “CO2 equivalent terms,” in which emissions of methane and other GHG’s are scaled up to reflect their true heat-trapping capacities. All figures are in millions of metric tons (“Tg” or trillion grams). Ready?

Total U.S. GHG emissions in 2005 were 7,130 Tg, of which 6,074 Tg was carbon dioxide. A 17% reduction (Waxman-Markey’s 2020 target) requires trimming that by 1,033 Tg to reach 5,042 Tg. But I estimate that due to contractions in driving, flying and use of electricity, CO2 emissions this year will be just 5,770 Tg, or roughly 300 Tg less than in the 2005 base year. Hence, the required reduction from 5,770 to 5,042, which is 728 Tg, is just 12.6% of current emissions. That’s one-fourth less than Waxman-Markey’s advertised 17%.

Worse, non-CO2 emissions, which accounted for 1,056 Tg in 2005, are probably fertile territory for quick and cost-effective fixes. If that component could be shrunk at twice the overall target rate, i.e., by 34%, it would contribute 359 Tg of the necessary 1,212 Tg total reduction. This would allow a mere 853 Tg of CO2 to be cut from the 2005 base year, or only 549 Tg to be cut from this year’s estimated CO2 emissions of 5,770 Tg. The latter drop, a paltry 9.5%, could be gotten with annual reductions averaging just 0.9%. And of course the use of offsets will dilute those reductions even further.

Let’s round that 0.9% annual CO2 reduction rate from 2009 to 2020, to 1%, and take it out to 2050. At that rate, in 2050 CO2 emissions would have fallen from today’s levels by only one-third. Even if non-CO2 GHG emissions were completely eliminated, total U.S. emissions of greenhouse gases in 2050 would still be down by less than half (46%) from those in the 2005 base year. There’s a world of difference, alas, between that and the ostensible 80% reduction.

I ran a few of these numbers past a journalist I know who follows climate policy. He replied that “The political deal was to eviscerate short-term drivers [reductions and price rises] in order to get a long-term framework in place.” Maybe so, but what’s troubling is that the first GHG reductions are supposed to be easier to get than the last. Not to mention that U.S. environmentalists once had pretensions of making our country a model for the world, and weren’t going to settle for anything less than science-driven reductions.

I know, I know, investments take time to bear fruit, and the bulk of the reductions to mid-century will come via economies of scale and tech breakthroughs and societal tipping points. But at this stage that’s a matter of faith as much as of empirical evidence (as well as a subject for a separate post). And, last time I checked, Congress had not abolished the Law of Diminishing Returns and its corollary about low-hanging fruit.

Some say that Waxman-Markey, while imperfect, is at least a step on the road toward ridding society of fossil fuels. With the anemic numbers shown here, it smacks more of accommodation than abolition. Our atmosphere still awaits its John Brown.

Carbon emissions pricing met its first big electoral test this week, as British Columbia voters rewarded BC premier Gordon Campbell, who last July instituted North America’s first major carbon tax, with a third four-year term.

News service AFP reported that with more than 60 percent of the votes counted, Campbell’s Liberal Party held a 46-42 lead over the opposition New Democratic Party, whose leader, Carole James, denounced the carbon tax throughout the two-month campaign and promised to replace it with a cap-and-trade scheme.

Elections aren’t referenda, as I hastened to note when the Liberals were routed in Canada’s national election last fall. But that outcome was tied to the Liberal candidate’s hapless campaign style, compounded by his backing away from the carbon tax plank in his party platform. In the BC campaign Campbell stood squarely behind his carbon tax. Indeed, voters appear to have rewarded the Liberals for sticking to principle as much as for the substance of the carbon tax itself.

Here’s how AFP put it (emphases added):

The Liberals and New Democrats, the province’s two main parties, had sparred during the campaign over issues including the economy, homelessness and several local scandals. But the environment — and especially the carbon tax — became the key election issue.

The tax, the first straight carbon tax in North America, was introduced by the government of British Columbia Premier Gordon Campbell in 2007 [correction: 2008] to help fight climate change. The tax is revenue neutral — the collected tax money is paid once a year to provincial residents.

The New Democrats, led by Carol James, fiercely opposed the carbon tax, arguing that it especially hurt rural residents. But the party’s opposition to the tax cost them the support of almost all environmental organizations, which sided with Campbell solely on the issue, while the nonpartisan Conservation Council launched a campaign telling voters to choose “anybody but James.”

The election win gave Campbell a third term – a rare occurrence in the province -with his party holding a majority of British Columbia’s 85 legislature seats.

The contrast with the U.S. is stark. Not a single governor here publicly backs a carbon tax. Few of the major environmental organizations have anything positive to say about a national carbon tax, and most are still cheerleading for the carbon cap-and-trade alternative no matter how loose the cap or polluter-friendly the trading.

The BC carbon tax that took effect on July 1, 2008 is modest, equating to just $7.50-$8.00 (U.S.) per ton of CO2. However, it is to rise each year through 2012, reaching the U.S. equivalent of around $11.75/ton on July 1 and, in July 2012, around $23.50.

A U.S. carbon tax at that level would raise petrol prices by approximately 23 cents a gallon and national-average electricity prices by around 1.7 cents a kilowatt-hour. (Virtually all power generation in British Columbia is hydro-electric, so their carbon tax effectively exempts electricity.) The BC tax is revenue-neutral, with revenues returned to taxpayers through personal income and business income tax cuts.

In a recent e-mail to the Carbon Tax Center, American climatologist and climate campaigner James Hansen said, “The important thing is to get on the right policy track at the beginning – the policy must attack the fundamental problem, that dirty fossil fuels are the cheapest energy because they are not made to pay their costs to society.”

Yes, carbon taxes must reach high levels and go global quickly. But for now let’s celebrate that the first major jurisdiction – and party – to choose the right policy track has seen its vision recognized and its courage rewarded.

Environmental taxes have worked well to raise revenue, but without a cap they inevitably become a license to pollute in unlimited amounts. No air pollution problem has ever been solved except by imposing a legal limit on emissions. (emphasis added)

This is a little like the Pope complaining that sex isn’t enough fun: how would he know? Pollution taxes have seldom been tried. But in the few cases where they’ve been tried, they’ve worked rather well.

One example is from the dawn of my own career, in early 1973, when I was a junior economist with the New York City EPA, and the City was almost entirely dependent on fuel oil to generate electricity and heat offices and apartments. A local law requiring a switch to low-sulfur oil had just gone into effect. Swearing that supplies of the cleaner fuel were drying up, the oil companies began jawboning city officials for variances to keep selling the dirtier (and cheaper) fuel.

The city was about to cave, until an EPA lawyer channeled Adam Smith and suggested granting the variances with a condition: that each barrel of dirty oil be “surcharged” at a rate slightly greater than the price premium for the clean fuel. After researching market conditions, the City settled on a surcharge of 75 cents to $2.00 a barrel of higher-sulfur oil, depending on the sulfur content.

Guess what? The Invisible Hand carried the day. With the surcharge canceling the profit from polluting, the oil companies discovered ways to get more clean fuel from their refineries and otherwise re-allocate supplies. For the rest of that year’s heating season, the dirty stuff amounted to a tiny fraction of the total granted in the variances. A simple, market-correcting tax probably saved hundreds from succumbing to emphysema and other pulmonary diseases while keeping the lights on.

Another pollution-tax success story is the global phase-out of chlorofluorocarbons and other ozone-destroying chemicals. While this landmark achievement is often ascribed to the cap-and-trade system built into the 1987 Montreal Protocol, the fact is that emissions barely dropped until a U.S. tax on CFC’s took effect on Jan. 1, 1990.

The rate of reduction in emissions in 1990, the first year with the tax, was at least five times greater than in the preceding period with the cap alone. While a more aggressive cap might have worked by itself, the fact is that, contrary to Krupp, a pollution tax did the job quite well.

Krupp’s hostility to pollution taxes represents a retreat from good sense on the part of EDF, which used to be a conspicuous – and prescient – advocate of price incentives. For example, it was EDF that hired economist William Vickrey to testify for social-cost-based pricing in regulatory proceedings on electricity and rail transit in the mid-1970s – 20 years before Bill’s work on peak-load pricing won him the Nobel Prize.

Back then, EDF understood the simple idea that when something becomes more expensive to do, people do less of it. Even granting the group’s allegiance to cap-and-trade, is it really necessary for them to turn up the rhetorical heat against pollution taxes?

True, price internalization isn’t the sole answer to everything, including slashing carbon emissions. Institutional barriers like split incentives and unequal access to capital need to be addressed by complementary policies. Regulatory standards, technology-forcing measures and pollution limits all have a part to play. But without fuel prices that clearly convey the real price of pollution to the purchaser, the transition from fossil fuels won’t happen until most of the carbon still underground has moved into the atmosphere.

On the other hand, if human nature is anything like what it was in Adam Smith’s day, then a phased-in, upward-adjustable and largely revenue-neutral carbon tax, such as proposed last month by Rep. John Larson (D-Conn.), is the best tool for the job.

The market insiders lined up at the cap-and-trade trough will gnash their teeth. But in some celestial think-tank, Mr. Smith will be smiling.

I’m a fierce carbon tax advocate, as Grist readers know. But what most upset me about the interview with Stephen Chu in last Sunday’s New York Times magazine wasn’t the energy secretary’s disavowal of an Obama carbon tax:

Q: Many environmentalists believe that a permanent carbon tax would be the most efficient means of spurring carbon-reducing technologies.
A: Well, we’re not talking about a carbon tax. President Obama and I are not talking about a carbon tax.

Chu (center) with cycling colleagues at the Lawrence Berkeley National Laboratory.We all know Secretary Chu has to toe the party line, which, for now, is cap-and-trade. No, what hurt was this:

Q: Is it true you don’t drive a car?
A: My wife does, but I no longer own a car. Let me just say that in most of my jobs, I mostly rode my bicycle.
Q: And now?
A: My security detail didn’t want me to be riding my bicycle or even taking the Metro. I have a security detail that drives me.
Q: How do you feel about adding carbon emissions to the air?
A: I don’t feel good about it.

“I don’t feel good about it”? The guy is in agony over it! Chu is an avid, lifelong bicyclist — the interviewer didn’t have to ask, Chu volunteered that fact — and now he’s sealed up in a Chevy Tahoe. Ouch!

What followed was even worse:

Q: I guess the President wants to keep you alive.
A: My wife is in favor of that as well.

Double ouch. Chu knows — he must know — that all those years he was cycling to work, nothing kept him alive as well as bicycling.

That’s right. Phone-addled SUVers may rule the roads, but Chu, like the rest of us getting around on two wheels, is extending his longevity every minute he spins the pedals. The cardiovascular exertion, the mental acuity, the sheer engagement with the world that cycling demands add more to the cyclist’s statistical life span than the risk of a fatal or disabling injury-accident takes away.

British researcher Mayer Hillman was the first to calculate, in the early 1990s, just how much the health benefits of regular cycling outweigh the actuarial loss of life from road accidents. In his breakthrough report for the British Medical Association, Cycling: Towards Health and Safety, Hillman found that even in Britain’s anti-cycling road environment, each minute of lost life expectancy from the elevated probability of crash injury or death to some cyclists was offset at least 10-fold by the increased longevity from improved health of other cyclists.

More recently, a team of epidemiologists who monitored the health of 30,000 Danish adults over a 15-year period found a 28% lower mortality rate among cycle commuters.

Let’s translate that Danish finding to the U.S. From standard life-expectancy tables, a 61-year-old non-cycling American adult, like Chu, has a 1.0% chance of dying in the next 12 months — meaning that among 130,000 such people, 1,300 will die. Whereas, according to the Danish study, if those same 130,000 61-year-olds were cycle commuters, 28% fewer of them — 364 less — would die. Yet in New York City, where I live and am one of an estimated 130,000 daily cyclists, “only” 20 of us are killed in crashes each year.

For relative oldsters like Chu (I’m five months older than the secretary, so I can call him that), we could double the cyclist deaths to 40, and still have 9 times less extra mortality attributable to cycling as avoided by it (40 vs. 364). And that’s not counting the crash risks from other ways of getting around – let alone the safety “dividend” each cyclist confers on others through the safety-in-numbers phenomenon (with more cyclists, the risk to each is diminished).

What to do? Simple. Mrs. Chu should march her husband into the Oval Office and say, “Mr. President, we ran the numbers, and sitting in that SUV is bad for Stephen’s life expectancy. Please let him ride his bike to work.” Mr. Obama, for good measure, can add a “carbon tax now” sticker to Chu’s helmet.