A Canadian economist proposes a very sensible way to neutralize the financial costs of global warming while accurately tracking its development.
Call their tax
Why not tie carbon taxes to actual levels of warming? Both skeptics and alarmists should expect their wishes to be answered
Ross McKitrick
Financial Post
Tuesday, June 12, 2007
After much effort, G8 leaders last week agreed to "stabilize greenhouse-gas concentrations at a level that would prevent dangerous anthropogenic interference with the climate system." This is the same wording as in Article Two of the UN Framework Convention on Climate Change, signed in 1992. In other words, after months of negotiations, world leaders agreed on a text they had already ratified 15 years earlier.
Global-warming policy is stuck in a permanent stalemate for very basic reasons. Important divisions of opinion still exist on the extent of humanity's influence on climate, whether or not the situation is a crisis, whether and how much greenhouse-gas emissions should be cut, if so how to do it, and what is the most we should be prepared to pay in the process.
With this stalemate in mind, I would like to propose a thought experiment about a climate policy that could, in principle, get equal support from all sides.
The approach is based on two points of expert consensus. First, most economists who have written on carbon-dioxide emissions have concluded that an emissions tax is preferable to a cap-and-trade system. The reason is that, while emission-abatement costs vary a lot, based on the target, the social damages from a tonne of carbon-dioxide emissions are roughly constant. The first ton of carbon dioxide imposes the same social cost as the last ton.
In this case, it is better for policy-makers to guess the right price for emissions rather than the right cap. Most studies that have looked at that the global cost per tonne of carbon dioxide have found it is likely to be rather low, less than US$10 per tonne. We don't know what the right emissions cap is, but, if we put a low charge on each unit of emissions, the market will find the (roughly) correct emissions cap.
Second, climate models predict that, if greenhouse gases are driving climate change, there will be a unique fingerprint in the form of a strong warming trend in the tropical troposphere, the region of the atmosphere up to 15 kilometres in altitude, over the tropics, from 20? North to 20? South. The Intergovernmental Panel on Climate Change (IPCC) states that this will be an early and strong signal of anthropogenic warming. Climate changes due to solar variability or other natural factors will not yield this pattern: only sustained greenhouse warming will do it.
Temperatures in the tropical troposphere are measured every day using weather satellites. The data are analyzed by several teams, including one at the University of Alabama-Huntsville (UAH) and one at Remote Sensing Systems (RSS) in California. According to the UAH team, the mean tropical tropospheric temperature anomaly (its departure from the 1979-98 average) over the past three years is 0.18C. The corresponding ing RSS estimate is 0.29C.
Now put those two ideas together. Suppose each country implements something called the T3 tax, whose U.S. dollar rate is set equal to 20 times the three-year moving average of the RSS and UAH estimates of the mean tropical tropospheric temperature anomaly, assessed per tonne of carbon dioxide, updated annually. Based on current data, the tax would be US$4.70 per ton, which is about the median mainstream carbon-dioxide-damage estimate from a major survey published in 2005 by economist Richard Tol. The tax would be implemented on all domestic carbon-dioxide emissions, all the revenues would be recycled into domestic income tax cuts to maintain fiscal neutrality, and there would be no cap on total emissions.
