How Economists Can Slow Climate Change

Even most climate change skeptics acknowledge the planet is warming. And when pressed, they agree our actions are contributing. But disagreement arises when possible solutions are proposed. A sudden switch from carbon based-fuels to renewables would be disruptive for our economy. But doing nothing carries risk, too, even if the most pessimistic scenarios fail to materialize.Into this environment, a call has been made by some of the country's leading economists and policymakers on a possible solution. Plan supporters include Republicans, Democrats, former Federal Reserve chairmen, Treasury secretaries and Nobel prize winners, as well as some of the world's largest firms including oil and gas producers. The proposal is ambitious and has the potential to exceed the carbon reductions envisioned by Obama-era regulations.It uses the power of the market, a conservative principle, where price signals determine financial success. Currently, the negative effects of burning fossil fuels are not reflected in their price. Economists call this an externality. When a product is sold that creates a cost to society, but that cost is not borne by the market, some action is needed to bring about an efficient solution.Rather than regulations, the plan calls for a gradually increasing tax imposed on each ton of carbon emissions. Revenue from this tax would be returned to the public in the form of "carbon dividends." The tax raises the price, so the negative effects of using carbon-based fuels are now reflected in the market. This increased price motivates buyers to search for alternatives, shifting our energy use away from fossil fuels. The recommended initial carbon tax is $40 per ton. Carbon dividends complete the circle back to the public, mitigating the higher price of fuel.For a few years, increases in carbon emissions stalled as the global economy began to slow down. This slowing of emissions made it appear that climate change was not as bad as feared. But the United Nations Emissions Gap Report, released in November, shows that emissions increased in 2017. The report further says that for the world to reach the goals of the Paris climate accord, emissions must peak by 2020, one year from now. However, their analysis suggests that emissions will not likely peak until 2030.Enacting policies when the effects are expected far into the future is challenging. But the impact of climate change is already here. Climate change didn't cause the historic hurricane year of 2017, but it did exacerbate the events. Warmer ocean temperatures create stronger hurricanes, according to the Union of Concerned Scientists. And a warming climate, according to NASA, also increases rainfall. It's little wonder that 2017 produced over $300 billion in damage from natural hazards, most from Harvey, Irma and Maria. Heatwaves and wildfires are also made worse by changes in the climate.As time goes on, the costs will simply keep going up. The Fourth National Climate Assessment, also released in November, documents extreme economic costs of climate change that can be expected in the 21st century. They estimate that the U.S. economy could have a permanent decline of 10 percent. That's more than double the temporary decrease in GDP experienced during the Great Recession of 2008-09. Overall, a new study in Nature Climate Change estimates that the social cost of climate change for the U.S. is $48 per ton of emissions, one of the highest in the world.Climate change is real and our use of carbon based fuels is a major contributor. We can and must do something to arrest this trend. This bipartisan proposal offers a real chance to change our trajectory without the political costs of added regulations.Economics is often referred to as the dismal science. Few topics are more dismal than considering a future of worsening natural disasters and a declining economy. But economics also offers solutions by making use of simple market mechanics. Let's use the incentive structure of properly pricing carbon to motivate consumers to make efficient choices.Kevin Simmons is an economics professor at Austin College. He wrote this column for The Dallas Morning News.  Continue reading...

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