Has Hell (And High-Water) frozen over?

The National Journal reports today:

In a step that may help crack open the partisan impasse on climate change, Grover Norquist, the influential lobbyist who has bound hundreds of Republicans to a pledge never to raise taxes, told National Journal that a proposed “carbon tax swap”—taxing carbon pollution in exchange for cutting the income tax—would not violate his pledge.

Norquist’s assessment matters a lot, and could help pave the way for at least a handful of Republicans to support the policy. Over the past six months, a growing number of conservative voices, including former Republican officials and renowned economists, have amped up pressure on their party to finally address climate change.

Lots of folks have been jumping on the carbon tax band-wagon (see “Bipartisan Support Grows for Carbon Price as Part of Debt Deal“). The Washington Post editorial board boarded this weekend.

Even a modest carbon tax can deliver serious revenue (see “20 Dollar Per Ton CO2 Tax Could Reduce Deficit By $1.2 Trillion In 10 Years“). The two key questions are:

1. Is a tax politically feasible?
2. Is the politically feasible tax environmentally meaningful?

I’ll address the second question in detail in a later post. But for now I’ll point out that any tax in the $15 to $25 a ton of CO2 range (together with other policies already enacted, such as the fuel economy standards) would almost certainly achieve a CO2 cut greater than 17% by 2020 (compared to 2005 levels). That 17% cut was Obama’s pledge going into the Copenhagen climate talks. I think that any such U.S. carbon tax would have a transformational effect on global climate talks. Indeed I imagine a significant fraction of the nations of the world would probably seriously consider adopting whatever carbon tax the United States adopts.

It’s been fairly clear that the only way you could get a carbon tax is if you could give Republicans something they wanted more in return. That is, the carbon tax has to make the debt and tax reform deal easier not harder — since obviously that deal is monumentally difficult already, without introducing the climate issue. So, some sort of swap made sense.

The biggest obstacle has been Norquist’s infamous “no new taxes” pledge taken by the overwhelming majority of Republican members of Congress:

The problem is that creating a new “energy tax” would be viewed by some as political suicide. And Republicans who have signed Norquist’s pledge would be barred from supporting it.

That’s where the “swap” side of the policy comes in: The new carbon tax would be paired with a cut in the income tax—something Republicans have long sought. The idea essentially would be to cut the tax on income and move it over to carbon pollution—keeping the proposal revenue-neutral.

“It’s possible you could structure something that wasn’t an increase and didn’t violate the pledge,” Norquist told National Journal.

That qualifies as a bombshell.

Norquist himself doesn’t like the tax, but he misunderstands the politics I think:

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Year-to-date temperatures for the contiguous U.S. through October, compared to the previous record warmest years in U.S. history. The year-to-date period (thick black line) is 1.1°F warmer than the previous record, set in 1998. Even if the remainder of 2012 ranks historically in the coldest one-third of November – Decembers on record (dark blue line), 2012 will beat out 1998 for the warmest year on record. The data for 2012 are preliminary. Image credit: NOAA/NCDC.

Dr. Jeff Masters via WunderBlog

For the first time in sixteen months, the contiguous U.S. has had a month with below-average temperatures, with October 2012 ranking as the 44th coldest (73rd warmest) October since record keeping began in 1895, said NOAA’s National Climatic Data Center (NCDC) in their latest State of the Climate report…. Despite the cool October temperatures, the year-to-date period of January – October was the warmest such period on record for the contiguous U.S.–a remarkable 1.1°F above the previous record. Even if the remainder of 2012 ranks historically in the coldest one-third of November – Decembers ever seen, 2012 will beat out 1998 for warmest year. The first ten days of November have been warmer than average, and the next two weeks are predicted to also average out on the warm side, so it appears likely that we will have to have our coldest December on record in order to keep 2012 from setting the new mark. The November 2011 – October 2012 period was the warmest such 12-month period on record for the contiguous U.S., and the seven warmest 12-month periods since record keeping began in 1895 have all ended during 2012.

Texas had their 9th driest October on record last month, and Washington, Michigan Ohio, Maine, and Maryland had top-ten wettest Octobers; Delaware had their wettest October on record, thanks to rains from Hurricane Sandy. The area of the U.S. experiencing moderate-to-exceptional drought shrank from 65% at the beginning of October to 59% by November 6, with drought conditions improving across parts of the Midwest and Northeast, but worsening across portions of the Northern Rockies.

Second most extreme January – October period on record
The year-to-date period was the second most extreme on record in the U.S., according to NOAA’s U.S. Climate Extremes Index (CEI), which tracks the percentage area of the contiguous U.S. experiencing top-10% and bottom-10% extremes in temperature, precipitation, and drought. The CEI was 38% during the year-to-date January – October period. This was exceeded only in 1998 (41%), and was nearly double the average value of 20%. Remarkably, 85% of the contiguous U.S. had maximum temperatures that were in the warmest 10% historically during the first ten months of 2012, and 76% of the U.S. of the U.S. had warm minimum temperatures in the top 10%. Both are records.

The percentage area of the U.S. experiencing top-10% drought conditions was 28%, which was the 7th greatest since 1910. Only droughts in 2002, 1954 – 1956, and during the Dust Bowl years of 1931 and 1934 were more extreme for the January – October period.

NOAA’s U.S. Climate Extremes Index (CEI) for January – October shows that 2012 had the second most extreme first ten months of the year on record, with 38% of the contiguous U.S. experiencing top-10% extreme weather.

by Kevin Kennedy, via WRI Insights

With President Obama’s re-election, he has the opportunity to extend his legacy and take on big challenges. Climate change stands high on the list of issues that need to be addressed. As the President said in his acceptance speech:

In the final days of the campaign, Hurricane Sandy provided a wake-up call about the impacts of climate change. Recent extreme weather and climate events make clear that ignoring climate change will be costly in human, environmental, and economic terms for the United States and the world. How President Obama addresses climate and energy issues will help define his legacy.

As America recovers economically, we can–and must–also protect the environment and safeguard people’s health. The economy, environment, and public health are not in conflict, but complementary–they cannot be sustained over time without each other. America needs to get on a path that builds economic strength through investment and policy decisions that reward clean energy and enhance climate resilience.

3 Steps to a More Sustainable Future

In the last four years, America has made some progress to address climate change, particularly in working with auto companies to establish strong vehicle rules that will significantly reduce emissions and our reliance on foreign oil. However, much more needs to be done. Here are three key pieces of an agenda for the second Obama administration to address climate change:

1) Use the Bully Pulpit

Hurricane Sandy’s devastation provides the President with a teachable moment—if he takes the opportunity to show strong public leadership on climate change. The devastating extreme weather and climate events of recent years show that we are already experiencing the escalating effects of climate change. Heat waves, drought, and wildfires are becoming more severe; rain and snowfall events are becoming heavier and more intense; and sea-level rise is making us more vulnerable to catastrophic coastal flooding. We have every reason to believe that these impacts will continue to increase if action is not taken to cut harmful carbon pollution.

The President should use the bully pulpit to help Americans “connect the dots” and better understand the rising costs of inaction. The President needs to engage the country in an all-hands-on deck strategy to quickly implement solutions that reduce the pollution that causes climate change. He also needs to publicly explain to decision-makers–from the 113th Congress to governors to local officials–that they have a moral and fiscal responsibility to protect the country from climate change’s growing impacts and proactively reduce the dangerous emissions that exacerbate it.

2) Establish an American Plan for Climate Action

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by Jessica Lawrence, via Institute for Market Transformation

The requirement to benchmark energy use and report that information to various stakeholders, including the general public, is a relatively new responsibility for U.S. real estate owners.

While leading cities and states such as Seattle, New York City, and California have pioneered required benchmarking in the U.S., the bulk of the real estate market’s energy use remains outside of public scrutiny. That, however, is changing.

Benchmarking and public disclosure policies are gaining momentum, and the number of cities that require disclosure of building energy use is expected to sharply increase over the next ten years. Is all this new data – the data on building energy use that is the outcome of benchmarking and disclosure polices – the groundwork for disruptive innovation?

The concepts of sustaining innovation and disruptive innovation, coined by Clayton M. Christensen in 1997, were originally applied to the march of progress in the technology world. Technological advancement has caused rapid cycles of change in how we interact in an increasingly digital world, and this cycle of displacement is disruptive innovation: cell phones displacing landlines, for example.

Contrast this with a sustaining innovation: the touch-tone phone replacing the rotary phone. It was an advancement, no doubt, and greatly decreased the time it took to make a call, but a whole new market? – a new way of using phones in our lives? – hardly.

The core principle of disruptive innovation is that it creates a new market and value network that eventually disrupts an existing market and value network. The real estate industry may be on the brink of a disruptive innovation renaissance when it comes to how energy is used in buildings.

A key ingredient, actual building energy consumption data, is finally becoming widely available for thousands of properties, with more on the way. We have already seen a surge in benchmarking and auditing jobs that coincides with the rollout of policy.

Looking forward, many more individuals and companies will be competing to combine this wealth of data with various technologies and business models to create new markets, new methodologies for constructing and renovating buildings, and new types of ownership structures.

Christensen’s disruptive innovation theory tells us to look to the fringes of the market to see whether a new market is on its way, or simply a refinement of the old. For real estate, that means the less traditionally desirable properties, the small owners and asset managers, and the new types of service providers.

One radical and definitely disruptive idea that could change the business model for real estate is creating a building that generates rather than uses energy. As technology advances, a savvy business person could use building benchmarking data to identify buildings that have low energy use profiles, acquire them, perform deep energy retrofits, and equip them with energy generating flooring and cladding, thereby creating an entirely new income stream.

This may sound far-fetched, but does it seem as unlikely as a telephone market dominated by cell phones seemed 40 years ago?

Jessica Lawrence is Program Manager for Building Energy Performance Policy at the Institute for Market Transformation. This piece was originally published at IMT’s Current and was reprinted with permission.

by Robert Stavins, via An Economic View Of The Environment

The recent demise of serious political consideration of an economy-wide U.S. CO₂ cap-and-trade system and the even more recent resurgence in interest among policy wonks in a U.S. carbon tax should prompt reflection on where we’ve been, where we are, and where we may be going.

Lessons

Almost fifteen years ago, in an article that appeared in 1998 in the Journal of Economic Perspectives, “What Can We Learn from the Grand Policy Experiment?  Lessons from SO₂ Allowance Trading,” I examined the implications of what was then the very new emissions trading program set up by the Clean Air Act Amendments of 1990 to cut acid rain by half over the succeeding decade.  In that article, I attempted to offer some guidance regarding the conditions under which cap-and-trade (then known as “tradable permits”) was likely to work well, or not so well.  Here’s a brief summary of what I wrote at the time:

(1)  SO₂ trading was a case where the cost of abating pollution differed widely among sources, and where a market-based system was therefore likely to have greater gains, relative to conventional, command-and-control regulations (Newell and Stavins 2003). It was clear early on that SO₂ abatement cost heterogeneity was great, because of differences in ages of plants and their proximity to sources of low-sulfur coal. But where abatement costs are more uniform across sources, the political costs of enacting an allowance trading approach are less likely to be justifiable.

(2)  The greater the degree to which pollutants mix in the receiving airshed or watershed, the more attractive a cap-and-trade (or emission tax) system will be, relative to a conventional uniform standard. This is because taxes or cap-and-trade can – in principle – lead to localized “hot spots” with relatively high levels of ambient pollution. Some states (in particular, New York) tried unsuccessfully to erect barriers to trades they thought might increase deposition within their borders.  This is a significant distributional issue.  It can also be an efficiency issue if damages are nonlinearly related to pollutant concentrations.

(3)  The efficiency of a cap-and-trade system will depend on the pattern of costs and benefits. If uncertainty about marginal abatement costs is significant, and if marginal abatement costs are quite flat and marginal benefits of abatement fall relatively quickly, then a quantity instrument, such as cap-and-trade, will be more efficient than a price instrument, such as an emission tax (Weitzman 1974).  With a stock pollutant (such as CO₂), this argument favors a price instrument (Newell and Pizer 2003).  However, when there is also uncertainty about marginal benefits, and marginal benefits are positively correlated with marginal costs (which, it turns out, is a relatively common occurrence for a variety of pollution problems), then there is an additional argument in favor of the relative efficiency of quantity instruments (Stavins 1996).

(4)  Cap-and-trade will work best when transaction costs are low (Stavins 1995), and the S0₂ experiment showed that if properly designed, private markets will tend to render transaction costs minimal.

5)  Considerations of political feasibility point to the wisdom of proposing trading instruments when they can be used to facilitate emissions reductions, as was done with SO₂ allowances and lead rights trading, less so for the purpose of reallocating existing emissions abatement responsibility (Revesz and Stavins 2007).

(6)  National policy instruments that appear impeccable from the vantage point of Cambridge, Massachusetts, Berkeley, California, or Madison, Wisconsin, but consistently prove infeasible in Washington, D.C., can hardly be considered “optimal.”

Implications for CO₂ Policy

In the same article, I noted that many of these issues could be illuminated by considering a concrete example:  the “current interest” in applying cap-and-trade to the task of cutting CO₂ emissions to reduce the risk of global climate change.  Some of the points I made in this regard in my 1998 article were:

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by Michael Conathan

Hurricane Sandy’s terrible toll in lost lives and decimated communities is still being measured. But as we start to sort out the pieces, it’s also worth noting that the storm sent shockwaves through the mid-Atlantic region’s fishing industry. Harbors and infrastructure were pummeled and in some cases destroyed along the New York and New Jersey coastlines, and the Garden State Seafood Association has already asked Gov. Chris Christie (R-NJ) to formally request a federal fisheries disaster declaration.

In the aftermath of the storm, the link between our changing climate and increasingly extreme weather is coming into greater focus and being called out by an increasingly large caucus. (For more on the link between climate and extreme weather events in North America, see this new column by the Center for American Progress.) New York Gov. Andrew Cuomo was among the first to link Sandy’s fury to the “reality” of climate change. Bloomberg Businessweek ran a cover story under the banner headline, “It’s Global Warming, Stupid,” which called out the increasing spate of corporate voices accounting for climate change in their business models. And the magazine’s namesake, New York Mayor Michael Bloomberg, cited climate change as the tipping point that led to his much-ballyhooed endorsement of President Barack Obama for reelection.

Just as Sandy’s fury cannot be separated from the effects of global climate change, fishermen have already noticed the effects of global climate change on their work. As our last wild capture industry, fishing businesses are arguably more reliant on natural forces than any other profession. It’s a centuries-old vocation, inherently dependent on knowledge passed down from one generation to the next, so when species distribution patterns evolve, even subtle change becomes readily apparent.

As ocean waters have warmed, fishermen have been finding some species that their grandfathers and even their fathers never dreamed of seeing. A 2009 report by the National Oceanic and Atmospheric Administration’s Northeast Fisheries Science Center found that about half of the species it studied were shifting their range further north or into deeper water in search of colder water, including Atlantic cod, haddock, and hake species—the keystones of New England’s iconic groundfishery. The commercial lobster fishery has all but disappeared in the waters of southern New England. And on the Pacific northwest, oyster farming is threatened by ocean acidification, a phenomenon caused by higher carbon concentrations in seawater.

In the Businessweek story, Eric Pooley, senior VP of the Environmental Defense Fund, adapted an old analogy first articulated by National Center for Atmospheric Research scientist Jerry Meehl. “We can’t say that steroids caused any one home run by Barry Bonds, but steroids sure helped him hit more and hit them farther,” Pooley said. “Now we have weather on steroids.”

A similar theory can be applied to climate change’s impact on fisheries. Not that ocean warming and acidification has led to fisheries on steroids—the general decline in world fish populations certainly counters that interpretation, and we should be careful not to blame climate for the decline in populations. Overfishing, coastal pollution, and habitat degradation are far and away the greater factors there. Rather, climate change is increasing the degree of difficulty fishermen and regulators face in rebuilding depleted fish stocks now that the overfishing has, at least in the United States, largely been ended. We can’t say climate change has prevented any one species from rebuilding, but climate change sure made it harder and take a lot longer.

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