What do people do when they voluntarily conserve energy? They save money, which they use to fly away on holidays or buy more stuff. Say goodbye to the environmental benefit. The only way to save the climate is with a global carbon tax. Environmental economist Jeroen van den Bergh can’t make the idea more palatable, but he can make it more convenient.
Imagine the ideal scenario: the Dutch business community and the government put billions to good energy-saving use. In 15 years, we’ll also make all Dutch homes energy-neutral, as we go neighbourhood-to-neighbourhood renovating all homes will solar roof panels and energy-generating windows. Other countries join us in this endeavour, keeping the global average temperature increase under two degrees, as they agreed in Paris. The endless tundra in Canada and Russia remain frozen, along with their methane gas. Through their combined efforts, they manage to avoid total climate chaos.
In reality, this is unlikely to happen, answers environmental economist Jeroen van den Bergh to an email asking about these developments. “Imagine that companies innovate to the degree that sustainable energy will become a serious competitor to fossil energy. In that case, Shell and the oil-producing countries would start pumping even more oil, because they see that it will be worth even less later. As the price of oil falls, we’ll emit more CO2 than ever before. That is the ‘green paradox’, and we can only avoid it by setting a global price for carbon, in order to guarantee a stable minimum price for oil.”
But what about the idea of reducing CO2 emissions through energy-neutral houses, more efficient petrol engines and other innovations. Van den Bergh: “If you have a fuel-efficient car, you’ll drive it more often. And if you save money by lowering your energy bill, after a few years you’ll have saved enough money for an extra holiday far away. Say goodbye to the environmental benefit. You also see this ‘rebound effect’ in developing countries that experience rapid economic growth: they switch to more energy-intensive lifestyles and production technologies. A carbon tax would limit rebounds like that by discouraging consumers from spending their savings on more carbon-intensive alternatives.”
Voluntary and lax
In 2015, 174 countries met in Paris to agree to limit global warming to 2°C. Van den Bergh: “But that is on a voluntary basis, and the commitments made vary widely from country to country. So polluting industries only have to move to a country with a relatively lax policy. The countries with stricter policies will then just import the carbon-intensive products from abroad, in fact exporting their emissions. We call that ‘carbon leakage’, and only global regulations can prevent it. But that wasn’t what they agreed upon in Paris.”
Businesses and politicians unwilling
Why isn’t a carbon tax a topic of social debate? “The business community resists that kind of regulatory policy, but it welcomes any government subsidy”, says Van den Bergh. It is also an unattractive idea politically: you don’t win votes by raising taxes. Voters are more easily charmed by stories about innovation policies, no matter how many billions they cost – see the request by Balkenende. A commonly heard objection is that a carbon tax would hit lower incomes harder, the environmental economist explains. “But the same applies to any other environmental policy. Plus: with the money earned from the carbon tax, you can shrink the gap between incomes, both nationally and world-wide. That’s not possible with other regulatory policies, such as technical standards. And they don’t put money in the government’s pocket.”
Cost of flying doubles
A global carbon tax is not just the only effective measure, it is also easy to implement. “Every producer, transporter or other party that emits greenhouse gases, whether directly or indirectly, can pass the carbon tax on to its clients. Barack Obama commissioned careful calculations that showed how CO2 emissions cost society 36 Dollars per tonne. An effective carbon tax would have to be at least 125 Dollars per tonne of CO2. We shouldn’t implement that all at once, but rather gradually over time.” Flying would be about twice as expensive as it is now. All of the items available for low prices at the Action, ‘made in China’, might also cost twice as much. But that would help us achieve what really needs to be done: “Transport of persons, raw materials and goods based on fossil fuels would decrease. That is the only water-tight way to make us reduce our CO2 emissions. We won’t get there through regulations like the prohibition on incandescent lights, which Europe implemented in 2009. That only resulted in the rise of unregulated LED lights. It’s like using a single cork to plug a dike full of holes. What we really need is a new, bigger dike.”
Van den Berg’s conclusion: “There is too much optimism and naiveite. You can’t save the climate just by rewarding good behaviour. Without a global carbon tax, the chance is extremely small that the world will be able to abide by the agreements made in Paris.”
Jeroen van den Bergh – endowed Professor of Environmental Economics at the VU Amsterdam – is one of the signatories of the open letter which 90 professors recently sent to the mediator charged with forming a coalition government, with the appeal to make the Netherlands a pioneer in a new, green economy. Van den Bergh is also Professor of Environmental Science & Technology at Barcelona University. More details about his argument are detailed in an accessible article that Van den Bergh and his colleagues published in late March: Carbon pricing in climate policy: seven reasons, complementary instruments, and political economy considerations.