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The future with a serious carbon tax: Pt. 5

European beech forest. Photo by Doronenko. Licensed under Creative Commons Attribution

This article originally appeared on the Centre for Global Development blog. To see the original, please click here. Comments are welcome and should be sent to LawrenceMacDonald@gmail.com.

It’s 2030 and instead of racing toward the brink of climate catastrophe the world has begun to back away. Annual global emissions of heat-trapping gasses have fallen two-thirds—faster than anybody had dared to hope as recently as a dozen years ago—with continued steep reductions ahead. Although carbon dioxide (CO2) concentrations in the atmosphere breached 450 parts per million (ppm) last year—the level believed to offer a 50 percent chance of holding global warming below 2 degrees Centigrade this century—the rate of increase has slowed dramatically. Atmospheric CO2 was increasing by 3 ppm per year as recently as 2020; today the annual increase has fallen to just 1 ppm, and attention and investment are shifting from the need for steep emissions reductions—a global goal that has largely been attained—to large-scale, low-cost biological methods for extracting carbon from the atmosphere.

Strikingly, all of this has coincided with improved economic performance and continued reductions in global poverty—despite the absence of a binding international treaty. Although the emissions fees imposed in the United States, China, Europe, and elsewhere raised energy prices, they also sparked a technology and job-creation boom. Revenue from carbon pricing has made possible dramatic rollbacks in other taxes—especially taxes on employment and investment—giving economies a further boost. As a result, growth rates have remained robust in the big emerging market economies, making possible rapid reductions in extreme poverty and the emergence of a global middle class. In the United States and Europe, growth has accelerated from the sluggish rates that prevailed until 2018, when revenue-neutral national emissions fees were put in place as part of a grand bargain that included cuts in middle-class income tax rates.

A fantasy? Of course. But perhaps more plausible than the slim hope that UN negotiations will lead to an ambitious, binding international agreement. Read on to discover an alternative path to averting climate catastrophe. (Everything in this future history up to the publication date is real.)

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An accelerating technological revolution

Charging for carbon pollution—what the economists called “getting the prices right”—unleashed a torrent of technological change that has built upon and far exceeded the economic and social transformations brought about by computers and the Internet in the late 20th and early 21st centuries. At the core, of course, was a long-overdue technological revolution in energy production, distribution, and use. Technology writers had long noted that energy production and distribution had been oddly immune to the sweeping transformations that had occurred in medicine, communications, music and the arts, and, of course, computing. While these and other fields were transformed during the late 20th and early 21st centuries, advances in energy production and distribution had been held back by a combination of outright subsidies and market distortions brought about by the failure to charge for emissions. Notwithstanding advances in drilling and mining techniques, the basic approach to energy production in the early 21st century was similar to that at the dawn of the electrical age: extract coal, oil, or gas from the ground, ship it to a power plant, and burn it to generate heat that creates steam to drive generators, with the resulting electricity distributed through a grid. Similarly, for transportation the basic approach of extracting oil, refining it into gasoline, and shipping it to service stations for pumping into cars and trucks was largely unchanged since the introduction of the internal combustion engine in the early 20th century.

The first and easiest responses to higher energy prices were changes in household and firm behavior, activities such as insulating homes and commercial and industrial structures, switching to lower-energy lighting fixtures, taking fewer and shorter car trips, and making greater use of public transport. These types of changes had been encouraged as early as World War I as a means to save energy and materials for the war effort. In the early 21st century they were seen both as a means of economizing and as an act of global citizenship, to reduce the individual or household carbon footprint. Nonetheless, charging for carbon emissions—and the knowledge that such fees were very likely to rise in the future—greatly accelerated such changes. Suddenly investments in low-emissions technology, such as the rooftop solar hot water heaters that had long been standard in places as different as China and Israel, made economic sense in the United States and other industrialized countries.

The second and more powerful wave of change came about due to increased investment in new technology for energy production, distribution, and use. Prices for energy production technologies such as wind and solar had been falling rapidly in the early 21st century but advances in fossil fuel extraction—especially the global natural gas glut that resulted from hydraulic fracturing (“fracking”) first in the United States and then increasingly around the world—meant that low-emissions renewable energy solutions were constantly chasing a receding horizon, always falling short of the tipping point at which they would become price competitive with high-emissions fossil fuels. Emissions fees changed all that. The change in relative prices attracted fresh investment into research, development, and deployment of low-emissions energy solutions, and that in turn led to the explosive rollout of variable energy pricing and smart meters, homes, and grids, new highly efficient batteries, decentralized power generation, lower-cost transmission, and high-efficiency electric cars that we are seeing today. In addition, the natural gas deal between China and Russia also led the majority of power plants in China to quickly shift from coal to natural gas. China’s remaining coal reserves were left underground, it being no longer economical to extract them because of the much-lower-cost natural gas. China also continued with its plan to build many nuclear power plants, to ensure abundant electricity for continued rapid economic growth.

A third wave, less visible to consumers, has been the surge of investment into carbon capture and storage (CCS) technologies for retrofitting existing coal- and oil-burning power plants. Whether this will ever be more than a niche market remains to be seen. Increased awareness of the nonclimate environmental costs of coal and the aging of the coal-fired power plants (the newest are now more than a dozen years old and many are decades old, approaching the age for decommissioning even in the absence of a carbon pollution fee) means that the demand for CCS associated with new emissions at the source is lower than many had expected. There is, however, a burgeoning new market for atmospheric extraction CCS, an area we discuss further below.

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Looking ahead 2030

With victory in the battle to cut emissions largely in sight, the focus has shifted to removing excess carbon from the atmosphere—and the windfall profits that could be achieved by selling the resulting credits to firms eager for lower-cost tax offsets on their remaining emissions. The natural gas industry in particular is eager for such low-cost credits, which hold out the promise of making natural gas a long-term component of the global energy mix rather than merely a transition fuel. The resulting surge of investment into atmospheric carbon capture and storage (ACCS) has led to some exciting technological advances that may eventually make it possible to bring atmospheric carbon back to preindustrial levels.

Today hardly a month passes without a Bloomberg.net story about investors ponying up money for a promising new ACCS technology, like the recent report about the Chinese-Australian joint venture that achieved a breakthrough in commercially viable atmospheric carbon extraction to produce building materials for ultra-high-efficiency construction. [71] With hundreds of trillions of dollars in sovereign wealth and pension funds chasing such opportunities, there is no shortage of capital. Indeed, the problem may be too much. Financial analysts in Shanghai, Mumbai, London, and New York are warning about the possibility of an ACCS bubble.

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Forest focus shifts to restoration and reforestation

Among the far-reaching impacts of carbon taxes has been greatly increased investment in forest protection and reforestation. Deforestation and degradation of intact forests, which had accounted for as much as 20 percent of emissions as recently as the turn of the century, had pretty much come to a halt by 2020. Today, billions are being invested in reforestation and land restoration, in some cases on land that was cleared as recently as a few decades ago, in others on land, such as that in northwestern China and the Sahel, that has been bare of trees for many generations.

As with other changes, many forces were at work. Nongovernmental organization (NGO) advocacy efforts and consumer demand for commodities produced in a sustainable manner prompted consumer-facing companies to push for changes in the supply chain for such products as timber, paper, and palm oil. Already in 2013 Wilmar International, Asia’s leading agribusiness group and the world’s largest trader of palm oil, had announced a “No Deforestation, No Peat, No Exploitation” policy in response to such pressures. [72] Improvements in satellite imagery and data processing, such as the Global Forest Watch launched by WRI in 2014, made it possible for NGOs to monitor such pledges—and for governments to dispatch law enforcement to areas of illegal deforestation.

Perhaps more important, the combination of widely available, near real-time monitoring at a very high resolution and the arrival of high and rising carbon pollution fees prompted private investors to contract with those who controlled forested lands (such as national, regional, and local governments, firms, indigenous peoples, and other forest communities) to underwrite preservation efforts in exchange for a share of the future revenue that could be generated from selling forest services—carbon sequestration in particular. Inevitably there have been disputes about these contracts, as the value of sequestered carbon soared well above the anticipated levels. Some have been renegotiated and others have been adjudicated in the courts. Even in those instances, however, all parties recognize that continued protection of the forests is crucial to maintaining the value of the disputed asset.

Oil-rich Norway had shown the way with early support for the United Nations Collaborative Programme on Reducing Emissions from Deforestation and Forest Degradation in Developing Countries (UN-REDD), offering pay-for-performance contracts to tropical countries for forest protection. Others included the World Bank’s Forest Carbon Partnership Facility, the Global Environment Facility, Australia’s International Forest Carbon Initiative, and the Collaborative Partnership on Forests. In 2016 the Gulf Cooperation Fund dwarfed previous efforts with a $10 billion program focused on Indonesia’s Aceh Province, which included a clause allowing the fund to share in the proceeds if the global price of sequestered carbon exceeded $250 per ton. Though we aren’t there yet, it’s looking increasingly like a good bet.

In any event, destruction of intact forests is largely a thing of the past, and the attention has turned in recent years to the reforestation of degraded lands. WRI’s 2012 estimate that some 2 billion hectares offered potential for restoration proved accurate, but by the time deforestation had come to a halt in 2020 the area had grown to an estimated 2.5 billion hectares. One pioneering effort was the Bonn Challenge, [73] a global movement launched in 2011 to restore 150 million hectares of degraded and deforested land by 2020. Though the target now seems laughably small relative to what is universally recognized as needed, the program pioneered financial instruments, mechanisms for sharing the benefits with local residents, and improved reforestation techniques all of which have helped to make possible the rapid scaling up in the past 10 years. Underpinned by carbon pollution fees, a de facto international price on carbon has unleashed a tsunami of investment and an ambitious new goal: reforestation of 1 billion hectares by 2050.

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The end of big oil

Few aspects of what has happened in the past 20 years would have been as difficult to foresee as the popping of the carbon bubble and the decline and fall of big oil as a political force.

Looking back, we can see the seeds of this startling transformation in the Fossil Fuel Divestiture Movement, which as early as 2012 was urging universities, faith-based institutions, and pension funds to divest of their shares in fossil fuel companies on ethical grounds. The model was the anti-apartheid divestiture movement of the 1970s, which began in universities and religious institutions, then grew to include pressure on publicly listed firms to disengage from South Africa.

There was an important difference, however. Whereas the anti-apartheid divestiture movement saw the companies as a lever to accelerate political change in South Africa, the fossil fuel divestiture movement sought transformation of the firms themselves. This was arguably a much heavier lift, given the vast wealth and power of the oil companies. Oil companies accounted for three of the top five firms in the 2013 Fortune 500 ranking of America’s biggest companies. Exxon Mobil, the world’s biggest nongovernment oil company, posted the second-highest annual profit in US history, surpassed only by its own 2008 record. Net income rose to $44.8 billion, a 9.3 percent jump from the previous year and only slightly below its 2008 record $45.22 billion. [74]

The industry wasn’t shy about using this wealth to extract public subsidies and other favorable treatment including tax breaks and giveaways, loans at favorable rates, price controls, and weak enforcement of environmental protections. Credible estimates of the size of annual US fossil fuel subsidies ranged from $14 billion to $52 billion in 2010. Not surprisingly, Congress was receiving massive contributions from these same interests. Oil Change International, a research and advocacy organization, estimated that in 2009 and 2010 fossil fuel industries spent nearly half a billion dollars on campaign contributions and lobbying in the United States, while receiving some $20 billion in various subsidies—a return of $59 for every dollar invested in politics. [75]

Against such wealth and influence, ethical arguments seemed unlikely to prevail. But the divestiture movement had a larger, not-so-hidden agenda: to draw attention to the fact that the value of the fossil fuel firms was based on a chimera, the belief that their biggest asset—fossil fuel reserves lying beneath the ground—would one day be extracted and burned. This assumption was incompatible with any scenario that averted runaway climate change, something that investors came to recognize first gradually and then very suddenly in 2015, with a stampede for the exits. All at once the oil company share prices started to resemble Wile E. Coyote when he runs off a cliff and hangs momentarily in the air before realizing there is no longer any ground below him and he comes crashing down.

Investors also became increasingly worried about the prospect of lawsuits against the big oil companies for willful endangerment of the public, much like the 1998 Tobacco Master Settlement Agreement between the four largest US tobacco companies and the attorneys general of 46 states. That agreement provided for payments of $206 billion over 25 years for the states to recover tobacco-related healthcare costs and exempted the companies from private tort liability regarding harm caused by tobacco use. In exchange, the companies agreed to curtail or cease certain tobacco-marketing practices, as well as to pay, in perpetuity, various annual payments to the states to compensate them for some of the medical costs of caring for persons with smoking-related illnesses. The settlement also dissolved the tobacco industry groups Tobacco Institute, the Center for Indoor Air Research, and the Council for Tobacco Research.

In the case of the fossil fuel companies, of course, the potential liability is in the hundreds of trillions rather than mere billions (what price a livable planet?). The legal battle is now well under way, and the results may not be known for years. But investors’ anticipation of a large adverse ruling, combined with the recognition that the bulk of the “assets” of the fossil fuel companies will never be extracted and burned sparked a stampede out of fossil fuel stocks even in the absence of an adverse ruling.

As with tobacco, there was plenty of evidence that the fossil fuel companies knew that their product, used as intended, was causing vast harm but that they continued to sow public doubt about the science, funding climate-change-denier groups and backing advertising campaigns that confused the issue with false claims about the link between the “energy” industry and jobs.[76] Columbia University’s Sabin Center for Climate Change Law was at the forefront of the effort to hold these firms accountable, developing legal techniques to fight climate change, training law students and lawyers in their use, and providing the public with up-to-date resources on key topics in climate law and regulation. [77]

Efforts to hold the chief executives of the big oil companies personally responsible for such actions—and thus create incentives for them to modify corporate behavior—gained momentum in 2015 with a campaign by a small NGO to identify the 52 “dirtiest men in America.” The campaign used an index that comprised such elements as proven fossil fuel reserves, share of corporate expenditure devoted to the search for new reserves, and share of corporate expenditures devoted to advertising and lobbying designed to delay sensible climate policies. The 52 men (and it turned out that they were all men) were then “honored” with inclusion on a deck of cards, those ranking highest being aces and kings, the lowest being the twos and threes. Activists were encouraged to confront the men when they appeared in public settings, take their pictures (for posting on a website as a “sighting” of one of the 52 dirtiest men in America), and hand them the card asking: “Why are you so dirty and what are you doing to clean up your act?”

The campaign was controversial, and in the end few executives were actually ever approached by activists. But the prospect that they might be publicly embarrassed in this manner heightened the sense that their actions made them a social pariah and that chief executive officers (CEOs) could eventually be held personally responsible for the actions of their firms. In turn, this accelerated discussions within the firms about the corporate response to climate change. Several big firms reduced or eliminated support for anti-climate-action lobby groups such as the American Petroleum Institute, the American Chamber of Commerce, and the American Legislative Exchange Council; cut back the share of investment devoted to the discovery of new reserves; and accelerated their diversification away from extreme fossil fuels—those that were the most costly and risky to extract, such as mountaintop-removal mining and deepsea drilling—and into renewable energy.

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Big oil dumps the climate change deniers, prepares for carbon pollution fees

The activist push to hold big oil CEOs personally responsible helped bring into the open a split between the large, publicly listed firms, which had privately accepted the inevitably of a carbon pollution fee and begun to include it in their business planning, and the smaller, highly ideological foundations and advocacy organizations that continued to insist that climate change was a leftist hoax and portray efforts to tax carbon as an excuse to expand government.

Businesses and private “charitable” foundations with strongly conservative views had amplified and played upon fears that carbon pollution fees would lead to higher energy prices, lower economic growth, and fewer jobs. In late 2013 the first peer-reviewed study of anti-climate-action funding shined light on these mostly hidden activities. [78] Robert Brulle, a Drexel University professor, mapped the links in a well-funded and organized effort to undermine public faith in climate science and block action by the US government to regulate emissions. The climate counter-movement, as he called it, involved a large number of organizations, including conservative think tanks, advocacy groups, trade associations, and conservative foundations with strong links to sympathetic media outlets and conservative politicians.

“The climate change counter-movement has had a real political and ecological impact on the failure of the world to act on the issue of global warming,” Brulle said when the study was released. “Like a play on Broadway, the counter-movement has stars in the spotlight—often prominent contrarian scientists or conservative politicians—but behind the stars is an organizational structure of directors, script writers and producers, in the form of conservative foundations. If you want to understand what’s driving this movement, you have to look at what’s going on behind the scenes.” [79]

Brulle identified 118 major climate-change-denial organizations in the United States, then examined financial data the organizations gave to the Internal Revenue Service and data made available by the Foundation Center, a nonprofit group that collects information on fundraising, philanthropy, and grant programs. He found that between 2003 and 2010, more than half a billion dollars was made available as grants to 91 organizations with an agenda of climate change denial.

“Money amplifies certain voices above others and, in effect, gives them a megaphone in the public square,” Brulle wrote. “Powerful funders are supporting the campaign to deny scientific findings about global warming and raise public doubts about the roots and remedies of this massive global threat. At the very least, American voters deserve to know who is behind these efforts.” [80]

Consistent funders of organizations orchestrating climate change denial included a number of well-known conservative foundations, such as the Searle Freedom Trust, the John William Pope Foundation, the Howard Charitable Foundation, and the Sarah Scaife Foundation. The Koch Affiliated Foundations and the ExxonMobil Foundation had been heavily involved in funding climate-change-denial organizations from 2003 to 2007, but after 2008 they were no longer making publicly traceable contributions. As traceable funding declined, the amount of funding given to denial organizations by DonorsTrust, a donor-directed foundation whose funders cannot be traced, rose sharply, to account for about 25 percent of all foundation funding used by organizations engaged in promoting systematic denial of climate change.

Brulle found that most funding for denial efforts could not be traced. Despite extensive data compilation and analyses, only a fraction of the hundreds of millions in contributions to climate-change-denying organizations can be specifically accounted for from public records. Approximately 75 percent of the income of those organizations came from unidentifiable sources.

But while financing to erode public understanding of climate change was substantial, increasingly it did not come from the big oil companies. The New York Times reported in December 2013 that, according to the nonprofit Carbon Disclosure Project, at least 29 companies, some with close ties to Republicans, including Exxon Mobil, Walmart, and American Electric Power, were incorporating a price on carbon into their long-term financial plans. More than two dozen of the nation’s biggest corporations, including the five major oil companies, were among the firms planning their future growth on the expectation that the government would require them to pay a price for carbon pollution as a way to control global warming. [81]Although that shift provided a welcome opening for the advancement of carbon pollution fees, it was too little and too late to save many of the big fossil fuel companies.

A striking example of how quickly things have changed: a recent exhibition at the National Climate Science and Education Center drawing on academic histories and recent NYT.com and WaPo.com investigations into who knew what when includes a rogues’ gallery of oil company CEOs and others who did the most to undermine the consensus for climate action and stave off carbon pollution fees. Most are now dead (two from suicide), and only a handful were ever charged and prosecuted in connection with their actions. But the companies they led—Exxon, Chevron, Peabody Coal—have either collapsed or been bought out by the burgeoning renewable energy giants.

Looking back today, it’s hard to imagine what these men were thinking when they competed to discover new “reserves” of extreme fossil that would never be burned, sponsored massive public disinformation campaigns to confuse people about climate science, and spent heavily on lobbying to delay the inevitable carbon pollution fees. Of course, back in 2013 their behavior was considered normal, and it seemed impossible that things would change as fast as they have.

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Afterword

The patient reader who has reached this point—or perhaps even the impatient reader who has skimmed the first few pages and then jumped to the end—will have soon realized that this essay is what might be called a future history, a work of imagination set in 2030 that looks back at one possible scenario for global climate policy. We are tempted to call it “policy fiction” or perhaps “political science fiction”—a tribute to science fiction—except that such terms seem to suggest that the scenario we have sketched could never come true. Our intention to persuade the reader that some rough approximation of the events we have described is indeed possible, and thus to increase the likelihood that something like it will come to pass.

The events described here may seem unlikely; if they were self-evidently probable there would be no need for such an essay. We contend, however, that they are much more likely than the scenario on which many in the climate policy community continue to pin their hopes: that the UNFCCC negotiations will lead to a binding agreement on emissions reductions in time to avert runaway climate change. We passionately wish that were true, but we doubt the prospects of success. We believe that the burgeoning climate action movement is badly in need of alternative stories. If not the UNFCCC and multilateral negotiations leading to a binding treaty, then what? If you find the scenario in this essay implausible, we hope that you will consider writing an alternative vision. For us, the one thing less plausible than a binding UNFCCC agreement of sufficient ambition is that the world will continue current inept climate policies long after we have passed the point of no return.

One of us, Lawrence MacDonald, was inspired to write this account by the 50th anniversary of the August 1963 March on Washington and Dr. Martin Luther King’s famous “I Have a Dream” speech. Sweltering in the August sun at the newly opened King Memorial in Washington, DC, he listened as a street actor delivered King’s moving address. He realized then that we in the climate action movement do not have a collective dream, only shared nightmares. We push for more sensible climate policies—restrictions on extreme fossil fuel extraction projects and support for higher fuel efficiency standards and renewable energy—on an ad hoc basis, all the while knowing that such measures will not be sufficient to avert catastrophe. We tell ourselves this is the best we can do given current politics. We work to change the politics, but toward what specific set of policies we are unsure. We hope that our misguided critics, the climate change skeptics, will miraculously turn out to be right, that the atmosphere will be more resilient and forgiving than climate scientists expect.

“High and rising carbon taxes, independently implemented by the United States and China, with other countries quickly following suit” lacks the soaring rhetoric of “I have a dream!” We hope that it is nonetheless an inspiring and plausible dream, one that will encourage people around the world, especially Americans and Chinese, to begin working toward such a day before it’s too late.

This is the finale of a five-part series.


 

[71] Such processes are not science fiction. The California-based firm Calerea (http://calera.com/site/beneficial-reuse-of-co2/process.html) is one example of efforts to commercialize such approaches. With a high and rising carbon pollution fee in place, many such emerging technologies would become commercially viable, attracting increased investment due to stronger demand and driving down prices through learning and economies of scale.

[72] Frances Seymour, “A Big Deal for Tropical Forests,” Global Development: Views from the Center (blog), December 16, 2013, http://www.cgdev.org/blog/big-deal-tropical-forests.

[73] “Bonn Challenge,” World Resources Institute, Forest and Landscape Restoration, accessed September 18, 2014, http://www.wri.org/our-work/project/forest-and-landscape-restoration/bonn-challenge .

[74] “Fortune 500 2013,” Fortune.com, http://fortune.com/fortune500/2013/.

[75] “Fossil Fuel Funding to Congress: Industry Influence in the U.S.,” Oil Change International, accessed September 18, 2014, http://priceofoil.org/fossil-fuel-industry-influence-in-the-u-s/.

[76] Roger Cox’s Revolution Justified (Planet Prosperity Foundation, 2012, http://www.amazon.com/Revolution-Justified-Roger-H-J-Cox/dp/9081797514), advocated a central role for the judiciary in responding to the climate change threat and the outsize role of fossil fuel money in preventing appropriate policy responses. It became a standard reference for a generation of judges, litigators, and legal scholars in the burgeoning climate law movement.

[77] Sabin Center for Climate Change Law, http://web.law.columbia.edu/climate-change/about-center.

[78] Robert J. Brulle, “Institutionalizing Delay: Foundation Funding and the Creation of U.S. Climate Change Counter-Movement Organizations,” Climatic Change 122, no. 4 (2014): 681–694, http://www.drexel.edu/~/media/Files/now/pdfs­/Institutionalizing%20Delay%20-%20Climatic%20Change.ashx .

[79] Ibid

[80] Ibid.

[81] Coral Davenport, “Large Companies Prepared to Pay Price on Carbon,” New York Times, December 5, 2013, http://www.nytimes.com/2013/12/05/business/e­nergy-environment/large-companies-prepared-to-pay-price-on-carbon.html?_r=0 .

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