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Climate scientists are shocked by the intensity and scale of floods in Germany. In the West and Pacific Northwest of the United States, we’ve had record-breaking heatwaves. In fact, June 2021 was the hottest June on record for the United States. It bears repeating that the seven hottest years in all of recorded history have occurred since 2014.
Very big social and economic changes are needed if we’re to respond to the growing burden of climate change. An analysis last month from a team of scientists with the World Weather Attribution “provides a strong warning: our rapidly warming climate is bringing us into uncharted territory that has significant consequences for health, well-being, and livelihoods.”
I wholeheartedly agree with UN Secretary-General António Guterres. Humanity is waging war on nature. We absolutely must heed the call of science and cut greenhouse gas emissions by 45% by 2030; reach carbon neutrality by 2050; and I would argue, we must actually limit the possible temperature increase not to 1.5°C, but to less than to 1.0°C by end of the century.
And although the US economy appears to be rebounding to normal activities, long-term projections suggest a slow erosion of employment and economic well-being over the next several decades. As we’ve suggested in previous blogs both the growing burden of climate change and a slow erosion of our economic well-being can be traced, in a very big way, to the hugely inefficient use of fossil fuels and other resources.
But where I do not agree with Secretary-General António Guterres? No, not a carbon tax to stimulate a big response and investment. . . But a climate-based economic development incentive!
We absolutely need to move “at scale and in climate time” if we are to positively address the growing burden of global warming; or dare I say, “global heating?” But the carbon price is the wrong way to get the job done [1]. The impact of a carbon price will be wholly inadequate, and it will be more a form of punishment than an incentive.
There are two things to consider in this regard. First, the scale of a transition investment is larger than the carbon price can deliver. In a separate analysis, I have estimated the needed investment in people and infrastructure to be on the order of $18 trillion—nearly one year’s GDP spent over the next two to three decades [2]. That scale of investment is beyond what the carbon tax might generate. And if we send out a signal in the form of a carbon price, and if “the market” is unable to help consumers, families, households or businesses immediately respond, that signal becomes a punishment.
Other the other hand, and second, I am working on a proposal to monetize the social cost of carbon and provide what we might call an “Energy-Water Benefit Certificates (EWBC).” Rather than use the social cost of carbon to set a price, let’s use it as a means to create an incentive that can be immediately distributed to consumers as they reduce greenhouse gas emissions in very big ways. I am now talking with a variety of investors, legislators, and other experts on how this might be done. I welcome feedback from my colleagues and the climate change community.
Following a social cost of carbon that might be on the scale of $417 per tonne (in 2005 dollars) found in a very good 2018 assessment provided by Ricke et al. [3], imagine if we were to monetize those costs to reward consumers with certificates which gave them $100 or more per annual tonne of emissions reduced – as long as those reductions were on the order of, say, 80 percent of baseline or better. Yes, that would be a program that would have to be administered; and yes, we would have to ensure the certificates are validated and equitably distributed.
I am frankly pleased by the positive response I am getting in my various interviews and conversations. The big question I am asked, of course, how do we monetize those benefits? I am still working through the details, but a short answer is some combination of: (i) quantitative easing, (ii) elimination of fossil fuel subsidies (which yes, will have a price impact but in a more positive way), (iii) a realignment of tax credits now on the books; and (iv) avoided costs and damages we would otherwise have to pay for. And here again, I welcome feedback. My hope is to have a more complete sustainability transition incentive in the next 60 days or less.
There is neither a law of physics nor economics that prevents us from quadrupling the productive use of energy and other resources. Rather, it is much more an issue of imagination and our political will to get it done.
– John A. “Skip” Laitner