Home Energy Consumption and Emissions

Posted on • 4 minute read

Change begins at home. Having come home due to coronavirus, I figured it was time to look at my home’s energy usage and its emissions. For context, I’m currently staying in a 1500 sq ft townhouse in the SF Bay Area with two occupants. Based on our utility bills from the last four years, we’ve used an average of 175 kWh of electricity and 14.5 therms of natural gas per month.

How do we compare to the average?

The US Energy Information Administration (EIA) occasionally conducts a Residential Energy Consumption Survey (RECS) household energy usage patterns. The most recent RECS is from 2015, for which they sampled 5,600 households out of the 118.2 million households in the US.

Based on the 2015 RECS, the average household in the US consumes 893 kWh of electricity and 48 therms of natural gas per month. Apparently, our household footprint is far lower than the national average: one-fifth of the electricity and one-third of the natural gas! That’s good, but that’s quite an easy bar to beat, given that:

  1. Our house’s square footage (1500 sq ft) is 25% lower than the national average of 2008 sq ft.
  2. Our household size or occupancy (~0.9 due to travel) is much lower than the average household size of 2.5.
  3. California households use 31% less energy than the US average, among the lowest in the nation. One big reason is that California’s mild climate reduces the need for heating and air conditioning.

On top of this, beating the US average isn’t something to be proud of, as the average American uses more than double the energy of the average European, and nearly four times as much energy as the average person on earth. And one big reason is that Americans love big houses, and space heating and air conditioning use a lot of energy.

Nonetheless, PG&E, our regional utility company, tells me that our household still has lower energy usage than other houses in our neighborhood. That’s certainly a good thing, but much of the different must be due to the fact that the occupancy in our home is much lower than other homes here.

Emissions

PG&E reports that in 2018 their CO2 emissions rate was only 93 grams of CO2 per kWh of electricity generated. I found this astounding, as the national average is 449 grams of CO2 per kWh! It appears that PG&E generates 69% of its electricity from nuclear and renewables, 17% from natural gas, and none from coal or oil (the dirtiest sources). The remaining 14% is marked as “unspecified,” meaning it cannot be traced to its source. That’s intriguing. Based on this figure, our household emissions from electricity amount to 0.54kg CO2/day or 195.3kg CO2/year.

The EPA reports that burning one therm of natural gas releases 5.3kg of CO2. Thus our household gas usage results in 2.56kg CO2/day or 922.2kg CO2/year, bringing our total emissions to 3.1kg CO2/day or 1,117.5kg CO2/year.

For comparison, the average American emits about 17 tons of CO2 per year (not including other greenhouse gases, such as methane) of which 6.1 tons come from electricity and natural gas. Europeans emit about 8 tons in total per year and the global average is about 5 tons.

The most interesting result here is that natural gas makes up 82.5% of our household emissions! The fact that PG&E generates most of its electricity from nuclear and renewables means that our natural gas usage has an outsized carbon footprint.

Reducing our footprint

If we wanted to reduce the carbon footprint of our home, it seems the most effective solution would be to switch our heating sources (central heating, water heating, and stove) to electric alternatives. However, most people prefer gas heating because it’s considered to be cheaper to operate. What would the cost difference be for us, with PG&E?

For the sake of simplicity, let’s just assume all the natural gas we currently use is for central heating. We currently use an average of 14.5 therms of natural gas per month. One therm contains 29.3 kWh of power, so that comes out to 5098 kWh of energy per year. Compare that to 2100 kWh of electricity that we use per year. Our central heating furnace has a annual fuel-utilization efficiency (AFUE) of 80%, basically meaning that it’s 80% of the 5098 kWh of energy contained in the natural gas is actually being converted into heat. In contrast, electric furnaces have higher efficiency, as high as 100%.

We currently pay $0.24/kWh for electricity and $1.41/therm for natural gas. Over the course of a year, the $245 we currently pay for natural gas would be replaced by a $988 bill for the added electricity. In reality, the bill would likely be more than that, due to the fact that the rate of electricity increases to $0.30/kWh when we cross a baseline threshold that we currently do not cross but would likely be crossed on days we use central heating. The exact numbers will depend on a variety of factors, but the overall point is that the cost of heating would roughly quadruple from switching to electricity.

Of course, there are many other ways to reduce our overall carbon footprint significantly without having to pay more. Reducing flying, eating less meat and dairy, and driving less would all have a substantial impact on our carbon footprint. In particular, for those of us who do fly more than a few times a year, flying is likely to make up the majority of our individual carbon emissions.

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Are fossil fuel divestment campaigns actually effective?

Posted on • 8 minute read

Two weeks ago, climate activists [celebrated][stopmoney] the news that former Exxon CEO Lee Raymond would not be returning as Lead Independent Director of JPMorgan Chase's Board of Directors next term. Lee Raymond has long been vilified by the environmental movement as one of the key architects of climate denialism throughout his long career in oil and gas. Although it's unclear to me whether this change is substantive or decorative (as he still retains his board position and other board leadership roles, no doubt in great part due to his 33 years of tenure on the board), activist groups such as the Stop the Money Pipeline Coalition, touted the victory as a result of "pressur[ing] Wall Street Institutions to stop financing fossil fuels." [stopmoney]: https://stopthemoneypipeline.com/raymond-gets-demoted/ This episode highlights the antinomy between the twin tactics of shareholder activism and divestment campaigns. It seems to me that the "demotion" of Lee Raymond is more likely due to shareholder activism than divestment, although it's hard to say what the real causes were. The [_Wall Street Journal_][wsj], [_Reuters_][reuters], and the [_FT_][ft] all emphasized the central role of the [New York City pension funds][nyc], holder of 2.4 million shares, which had launched a campaign to urge other shareholders to vote against Lee Raymond at the upcoming annual shareholder's meeting. Credit was also given to Majority Action, a shareholder activism group, which submitted a [presentation][ma] arguing against Lee Raymond at the upcoming annual shareholder's meeting. [nyc]: https://comptroller.nyc.gov/newsroom/comptroller-stringer-and-pension-fund-trustees-launch-vote-no-campaign-against-lee-raymond-at-jpmorgan/ [wsj]: https://www.wsj.com/articles/new-york-city-pension-funds-urge-jpmorgan-shareholders-to-oust-lee-raymond-11587591444 [reuters]: https://www.reuters.com/article/us-jpmorgan-climate-idUSKBN22E00P [ft]: https://www.ft.com/content/843205f9-6785-4b79-b4be-f1d114b5e826 [ma]: https://www.sec.gov/Archives/edgar/data/19617/000138713120003979/mja-px14a6g_041720.htm Let's suppose that it was shareholder activism that led to this outcome. This mechanism runs directly counter to Stop the Money Pipeline Coalition's divestment goals. It is precisely because NYC pensions funds and others held shares of JPMorgan Chase that they were able to exert some influence over the company, something that wouldn't have happened if [activists have their way][youth]. In theory, shareholders have a direct, legitimate, institutionalized process through which they can influence the company, even as a minority. Divestment involves abdicating those channels of influence in favor of a vague, financial pressure that only seems to really work once the vast majority of financial capital participates. Because until then, any money divested from fossil fuel companies can easily be replaced by new investment from other neutral investors. Indeed, there are ["vice funds"][vice] which invest exclusively in companies involved in "sins" such as alcohol, tobacco, and gambling (but not fossil fuels as far as I can tell). Such funds would likely see divestment as an opportunity to earn greater returns. [youth]: https://insideclimatenews.org/news/14052020/divestment-new-york-pension-plans-fossil-fuels [vice]: https://en.wikipedia.org/wiki/Vitium_Global_Fund What, then, is the real impact of divestment campaigns? Do they actually make a difference? I am no expert on this issue, but I did find an excellent 2013 [report] on the impact of fossil fuel divestment from Oxford University. The first major conclusion is that divestment campaigns are unlikely to have any direct financial impact on fossil fuel companies due to the limited size of outflows and the likely response from neutral investors who would be happy to pick up new shares at a discount. In general, a company's market capitalization reflects its long-term cash flow, which is unaffected by divestment. [report]: https://ora.ox.ac.uk/objects/uuid:f04181bc-8c4f-4cc1-8f01-cafce57975ae/download_file?file_format=pdf&safe_filename=2013.10.08_SA_in_FF_Div_Campaign.pdf&type_of_work=Report ## Size of Divestment Let's get a sense of the numbers. A 2014 [Bloomberg report] stated that the market value of the 1,744 publicly listed oil, gas, and coal companies were collectively worth $4.88 trillion. The [Fossil Free] movement currently reports divestment commitments from institutions managing a total of $14.14 trillion. But that number is not representative of actual divestment. First, it represents the total value of all investments managed by those institutions, not the value of fossil fuel investments. The Oxford report states that endowments and pension funds invest about 2-5% in fossil fuel related equities and about half of that in fossil fuel related debt. For instance, US university endowments have 2% of assets committed to fossil fuel equities, whereas the CalPERS, the California state pension fund, in 2012 had 5.2% in fossil fuel equities. So if we take an average of 3.5%, then those $14.14 trillion of commitments translates into $495 billion, or just over 10% of the total market value of the fossil fuel industry. That's certainly quite an achievement, but probably still not big enough to make a big dent. Second, the actual amount of money divested is lower than the $495 billion we just calculated, because many institutions are only partially divesting. Several institutions are only divested from companies involved in coal or tar sands, often considered to be the most environmentally harmful. The Bloomberg report stated that coal firms make up less than 5% of the total fossil fuel industry, meaning that divestment only from coal is only a tiny step toward full divestment. However, it seems that only 96 of the 1198 institutions tracked by [Fossil Free] are committing to coal or tar sands only, suggesting that the vast majority of institutions are going further. [Fossil Free]: https://gofossilfree.org/divestment/commitments/ It's also worth noting that most of these institutions have only committed to divestment, but may not have actually gone through with them yet. Fossil Free [distinguishes] between institutions that have made a binding commitment to divestment and those that actual have zero investments. Only 58 are currently categorized as totally fossil free, whereas another 920 institutions are classified as having made a binding commitment toward full divestment. Granted, it is likely that many of these institutions are already fully divested, but just have not announced it. [distinguishes]: https://gofossilfree.org/divestment-commitments-classifications/ [Bloomberg report]: https://data.bloomberglp.com/bnef/sites/4/2014/08/BNEF_DOC_2014-08-25-Fossil-Fuel-Divestment.pdf ## Indirect Effects of Divestment In any case, the Oxford report states that the real impact of divestment campaigns comes from indirect social and political effects. The bottom line is that anything that can affect expectations around future cash flows would have a durable effect on equity prices and interest rates for fossil fuel companies. Divestment would have little effect on this, unless so much of the market becomes antagonistic to fossil fuel companies that their cost of capital increases. (The Oxford reports note that this is more likely to happen for coal companies and companies in countries with lower availability of debt financing.) The first mechanism of indirect impact is stigmatization, whereby customers, employees, suppliers, and others opt not to do business with a firm for non-economic reasons. While I can see how this mechanism functions for consumer-facing companies and even B2B or B2G companies, I have a hard time envisioning how this would function for oil and gas companies, who seem so many layers removed from most people's decision-making but also deeply woven into our lives and thus difficult to excise. Perhaps another challenge is that oil and gas are commodities, which aren't subject to the risks or benefits of a brand (with the exception of gas stations). The Oxford report is not much help, as its examples of stigmatization, such as Motorola's divestment from its defense business and Revlon's divestment from its South Africa operations, are for consumer-facing businesses. The report does note that the Exxon Valdez and Deepwater Horizon oil spills triggered some changes, but I don't think that these are the right examples to use for stigmatization, as they were the result of acute disasters followed by investigations and litigation, rather than the accumulation of stigmatization through sustained campaigning. The second mechanism of indirect impact is through the threat of restrictive legislation, such as a carbon tax or tightened regulations. The Oxford report points out that such legislation does not even need to be enacted to have an impact, as the mere increased probability of such legislation is enough to reduce expectations about future oil and gas revenues, or at least increase their uncertainty. The report states that past divestment campaigns have often been successful in lobbying for restrictive legislation. While there's no doubt that divestment can only help the cause for restrictive legislation, it's unclear how effective they were compared to other parallel campaigns. For instance, the only concrete example given in the Oxford report is the Public Health Cigarette Smoking Act of 1970, which is frequently attributed to the 1964 Surgeon General report on the health effects of tobacco. Health research played a clear role, but it's unclear what role divestment campaigns in particular played in generating the political pressure to legislation. I would add a third mechanism of indirect impact left undiscussed in the Oxford report. Fossil fuel campaigns may have been one of the more effective vehicles for getting people involved in climate issues and climate activism. It might be one of the main ways that many college students in particular learn about climate impacts and start thinking about climate solutions. Divestment campaigns benefit from a simple narrative ("stop funding destruction") and political battlegrounds located at universities. Endowments and pension funds are good political targets, because they are large enough to generate the excitement of an audacious goal, not as politicized as legislative politics, and they have the spirit of serving a group of people, even if there may not always be a formal mechanism for democratic influence. Because the impacts of climate change are so diffuse and probabilistic, it can be quite hard to generate political energy and activism. Divestment campaigns might be one of the most effective ways to frame the climate crisis in a way that gets people energized to fight rather than feel overwhelmed. Political narratives need an enemy, and fossil fuel corporations and their financiers can play that role, even as we are also complicit in our fossil fueled lifestyles. All this suggests that if you are an individual in control of personal or institutional funds, simply divesting from fossil fuels won't make any difference unless you tell other people. Ironically, as a institutional fund manager, you might have a larger impact by dragging out the divestment process in a way that allows the divestment movement to grow and achieve milestones at regular intervals so that they feel empowered and encouraged. Giving into divestment too quickly could collapse your local divestment campaign, which may be serving as a crucial organization that provides political training and experience to its members and climate communication to the broader community. Perhaps we should start a covert campaign to get institutional fund managers to divest, but slowly!

Links 2020/05/11

Posted on • 1 minute read

Majority Action's [submission][ma] for the JPMorgan Chase annual shareholder meeting (to be held May 19, 2020) titled "Vote AGAINST Lee Raymond For Independent and Climate Competent Governance at JPMorgan Chase (JPM)." The first time I've personally seen a sample of shareholder activism, something I've learned a bit about in the last couple days. [ma]: https://www.sec.gov/Archives/edgar/data/19617/000138713120003979/mja-px14a6g_041720.htm Fantastic [report][divest] from Oxford from 2013 on the impact of fossil fuel divestment, for being extremely informative, clearly presented, and combining financial and sociological insights into markets. In short, direct impacts from divestment campaigns (i.e., literal money divested) is probably minimal, but indirect effects of stigmatization and increased likelihood of restrictive legislation can lead to increased uncertainty of future cash flows which can cause greater financial impact. [divest]: https://ora.ox.ac.uk/objects/uuid:f04181bc-8c4f-4cc1-8f01-cafce57975ae/download_file?file_format=pdf&safe_filename=2013.10.08_SA_in_FF_Div_Campaign.pdf&type_of_work=Report Short (13-page) [pitch][cfad] on carbon fee and dividend by James Hansen and Daniel Miller, presented for the House of Representatives in November 2019. [cfad]: https://drive.google.com/file/d/14XypWkRWvX8CDPAPUBC3g28oDMo9ijXz/view Good overview in [NYRB][biomass] on context around use of biomass for electricity. I suppose it serves as a case of how legislation and regulations that are environmental and sustainable in name can contain loopholes and exceptions that lead to environmentally destructive outcomes. Another example would be the exempting of fracking fluids from multiple environmental protection laws in the [2005 Energy Policy Act](https://en.wikipedia.org/wiki/Energy_Policy_Act_of_2005). [biomass]: https://www.nybooks.com/daily/2019/10/14/the-great-biomass-boondoggle/ Great [powerpoint][ubi] from _interfluidity_, a blog I've only just recently discovered, on the benefits of UBI from a highly economistic perspective. [ubi]: https://www.interfluidity.com/uploads/2015/09/ethereumsv-ubi-talk-light-reedit.pdf [Wikipedia's Lamest Edit Wars](https://en.wikipedia.org/wiki/Wikipedia:Lamest_edit_wars)

Following a citation in The Will To Improve

Posted on • 6 minute read

While reading Tania Murray Li’s book The Will To Improve, I came across an interesting quote.

A third dimension to improvement might also be labeled antipolitics: the design of programs as a deliberate measure to contain a challenge to the status quo. In Britain in 1847, for example, an observer argued for special programs for paupers because they were “the class of men injured by society who consequently rebel against it.” Another argued, “Assisting the poor is a means of government, a potent way of containing the most difficult section of the population and improving all the other sections.” (p. 8)

I found this quote interesting because for some time I’ve been interested in collecting concrete examples and primary source material that provide insight into how the “ruling class” thinks and what they believe. A range of political discourses make frequent reference to some notion of a ruling elite, whether that’s the capitalist class (Marxists), the 1% (Bernie and Occupy), or the deep state (Trump). There is some truth to some versions of this, especially in America, where I live. Indeed, I often think of Gilen & Page 2014, which showed that “economic elites and organized groups representing business interests have substantial independent impacts on U.S. government policy, while average citizens and mass-based interest groups have little or no independent influence.”

But I have many issues with the simplistic way in which the ruling elite is often described as a monolithic, prescient, competent cabal which consistently and skillfully acts in their own interests.

  1. The ruling elite is not a monolithic group, and will oftentimes be uncoordinated, have divergent interests, and have disagreements.
  2. Many political and economic outcomes that benefit the ruling elite may not be the result of intentional action, but could be the result of happenstance or an emergent structural outcome—the result of many interacting forces, interests, institutions, etc. rather than any single will or vision.
  3. The ruling elite cannot always be perceiving the present state of affairs or anticipating the future with perfect clarity.
  4. Even when the ruling elite has clear foresight (e.g., anticipating that the current state of affairs will lead to social unrest), they may not arrive at the right or best course of action in their own interests.
  5. Even if the ruling elite decides to undertake the right actions (for their own interests), they may have the capacity or the competence to implement it successfully.

The debacle that has been the American government response to the coronavirus pandemic (as well as many other government responses) is one case to consider when thinking about the ability of the ruling elite to act in their own interests. With the benefit of hindsight, we can see that an earlier and more aggressive response to the coronavirus would have benefited the ruling class both economically and politically. However, they failed to act accordingly. Of course, they are taking the opportunity of the crisis to benefit themselves in various ways, such as rolling back environmental regulations or bailing out corporations. But it’s unclear to me whether these outweigh the general economic losses suffered from a disastrous government response. It’s even less clear to me that the elite would think about this tradeoff and deliberately choose to delay the pandemic response in order to capitalize upon a partially manufactured crisis.

Anyway, back to the original quote from Li. I was excited by this quote because it provided concrete examples with direct quotes showing how the ruling elite thought about welfare in terms of social control (i.e., framed in terms of elite interests) rather than magnanimity. I was reminded of the Marxist perspective on state welfare, which cynically views welfare programs as a tool of social control and of maintaining capitalist exploitation. In the Marxist view, state welfare is a perfect example of how (a) the state acts in capitalist interests and (b) the capitalists are able to act in their own interests as a class, and not just individually. State welfare pacifies the working classes by preventing those extreme forms of wretched indigence that can lead to social unrest and disorder. Healthcare and education also provides for a productive labor supply. In other words, the welfare system helps fine-tune the optimal degree of exploitation and maintain the status quo. As Georg Simmel puts it,

The goal of assistance is precisely to mitigate certain extreme manifestations of social differentiation, so that the social structure may continue to be based on this differentiation.

So, I thought that I’d dig a bit deeper into the context behind these quotes, to get a sense of the degree to which it was representative of elite views at the time. Both quotes were quoted in the essay “Social Economy and the Government of Poverty” by Giovanna Procacci, published in The Foucault Effect, a collection of essays on the Foucauldian concept of governmentality.

The first quote is originally from a 1847 French book titled Du progrès social au profit des classes populaires non indigentes by a French politician named Francois Félix de Lafarelle, a man important enough to have a French wikipedia entry but not an English one. Li ascribes this quote to an observer in Britain in 1847, but Procacci gives no such context. In fact, Procacci uses the quote without any context at all, using it as one of three quotes to make a point about how the discourse of the time frames “pauperism” as a “social danger” distinct from poverty that must be eradicated lest the social order be threatened or perverted. I found it suspicious that a French politician writing a book in French would be commenting on British social policy, and the lack of any context given by Procacci did not help. Amazingly, I found a scanned copy of the book on Archive.org, which makes me all the more impressed and grateful for their work. I even found a copy of the book for sale on Amazon. Procacci cited the quote from page 7, but I could find nothing on that page that matched what Procacci had written. It appeared to be a discussion of Adam Smith, but without any reference to contemporary British policy. I was also disappointed that Procacci did not mention that the quote was translated. This first quote felt like sloppy referencing on the parts of both Li and Procacci. Disappointing.

The second quote is actually the epigraph to Procacci’s essay, and similarly is not given any context or explanation. It is attributed to Firmin Marbeau’s book Du paupérisme en France et des moyens d’y remédier ou principes d’economie charitable, also published in 1847. Unfortunately Procacci provided no page number, so even though I managed to find a scanned copy from the Bibliothèque Nationale de France (National Library of France), there’s no way I would be able to verify the reference. At least the title of the book indicates it’s on the right topic. But another dead end.

This was a disappointing exercise. A perennial but empirically intractable question that arises in politics and sociology is whether politicians and other elites really believe the things that they say. Did they really believe in trickle-down economics, reducing the government deficit, or austerity, or was it just an ideological cloak for policies they knew would ultimately benefit the ruling class? Obviously some really believe what they say and others don’t, but unfortunately the evidence to show who really believes what is hard to come by. That’s why I was excited to dig into these quotes, even though they were about a different (but closely related) country 170 years ago. But I ended up uncovering some slipshod work.

I’m not disappointed because I didn’t find what I wanted. I’m disappointed because my estimation of the quality of these works and their authors has diminished significantly. If these two references turned out to be of such poor quality, what I am to think of other references, or the authors’ rigor and attention to detail? I also worry that the reviewers and editors did not catch this, and I worry that this is more broadly indicative of relatively poorer academic rigor in this area of academic writing, which already gets mocked by the more analytical and quantitative spheres of social studies. Alas, I know not to excessively generalize. I remain disappointed.

Carbon Fee and Dividend Is Not As Simple As It Sounds

Posted on • 8 minute read

The climate crisis is upon us, and the primary cause is clear: carbon in the atmosphere. How are we going to reduce carbon emissions? Appealing to our sense of responsibility to this earth and to future generations just doesn’t seem to be cutting it. In today’s individualistic, short-termist, market-oriented society, we’re going to need to use a market-based mechanism to reduce the use of carbon in our economy. It’s simple: Make carbon increasingly expensive so that people stop using and emitting it!

This is the motivating idea behind a range of carbon-related economic policies, that have been proposed and implemented in various forms across the world. Perhaps the best known such policy in the US is cap and trade, which has been successfully used to regulate sulfur dioxide and nitrogen oxide emissions—the main causes of acid rain. However, a national cap and trade scheme for carbon famously failed to pass through Congress under the Obama administration.

For years, renowned NASA climate scientist James Hansen has been arguing that he has a much better policy known as carbon fee and dividend (CFAD) It’s meant to be simpler to implement than cap-and-trade and to be revenue-neutral for the government, which ought to appeal to conservatives. CFAD legislation has been introduced into Congress a few times, including by Bernie Sanders in 2013, but it has failed to make any progress thus far.

The basic idea sounds quite simple: levy a fee (don’t use the word tax, because it’s politically suicidal) at the point where carbon enters our economy. Those who take coal, natural gas, and oil out of the ground will have to pay a fee based for every ton of carbon contained in those fossil fuels, and this fee will consistently increase year over year. This fee goes straight back to the American people in the form of a flat dividend, similar to the oil dividend received by residents of Alaska. The fee will make goods and services more expensive based on how much carbon they use, thus discouraging carbon-intensive consumption.

CFAD is meant to be simple because it’s easy to tax carbon at the source: coal mines and oil wells are easier to identify and regulate than the innumerable sources of emissions. And it’s progressive because the rich will end up bearing more of the costs than the poor, but everyone receives the same dividend.

However, my brief investigation into CFAD suggests that it’s actually far more complicated to get this policy right than it initially appears. The problem involves the import and export of carbon in its various forms. If we could implement CFAD uniformly across the entire globe, I think CFAD would work out well. But alas, we must deal with an anarchic web of sovereign states in a globalized world. Carbon will cross many borders and change through many forms in its journey from the earth to its final consumption, and that poses serious challenges to a carbon policy that can only be implemented within one state’s territory.

Dealing With Imported and Exported Carbon

If we didn’t deal with imports and exports, then only domestically produced carbon would be come expensive, with the result that domestic production would quickly collapse, but American consumption would shift to foreign imported carbon with relatively little drop in overall consumption. US reserves of oil, coal, and gas may stay in the ground forever (no small feat!), but US fossil fuel consumption, second in the world only to China, would likely continue unabated.

Of course, Hansen and others have anticipated this with a border adjustment. Incoming products would be subject to a tariff based on their carbon content. The proceeds from the tariffs would be distributed to exporters in some manner to compensate for their increased costs, allowing them to stay competitive with other foreign producers and exporters.

This would actually be quite hard to implement in practice, because we import a lot of different goods, and not just barrels of oil and bars of steel. The carbon fee isn’t based on just the amount of carbon within a given item, but on the entire amount of carbon emitted from its production, from beginning to end. That presumably includes transportation and manufacturing energy. How is that to be measured?

Hansen believes that one of the greatest advantages of CFAD over alternatives like cap and trade is that CFAD is “simple and comprehensive,” whereas cap and trade is “political and prone to graft,” eventually leading to a “large government bureaucracy” (Hansen 2019, “Fire on Planet Earth”, p. 16). The issue of imports unfortunately dashes Hansen’s hopes for a simple policy implementation.

Seeing as a strict evaluation of the carbon footprint of every single imported good is practically impossible, the bill put forth by the Citizen’s Climate Lobby, known as H.R. 763, The Energy Innovation and Carbon Dividend Act, addresses the issue by defining a shortlist of “carbon-intensive products” (such as iron, steel, cement, etc.) and only covering these products with the carbon tariff. While this does greatly simplify the calculation of the carbon tariff, it introduces several new problems.

First, it’s unclear how much of America’s imported carbon footprint would be covered by this shortlist of carbon-intensive products. For instance, imported cars would not be subject to any carbon tariff under these rules. I expect that a substantial portion would be left uncovered, thus reducing the comprehensiveness of CFAD.

Second, this policy becomes vulnerable to precisely the kind of political graft that Hansen had hoped to avoid. The shortlist is subject to the discretion of political appointees and thus not only vulnerable to changes to lobbying and changes in administration, but also reintroduces precisely the kind of political risk that makes long-term investment decisions difficult.

Third, a shortlist would also impact manufacturers that use imported carbon-intensive products on the shortlist, but produce and export goods that are not on the shortlist. As a result, they would not receive the refund provided for exporters and thus be at a severe competitive disadvantage to foreign manufacturers. This is not just a matter of minimizing the social and economic impact upon domestic businesses. It also potentially introduces new political hurdles to a CFAD bill, as it could generate opposition from Congresspeople whose constituencies are negatively impacted by the bill.

It seems like we’re stuck with a difficult choice. Whether we cover all trade with a carbon tariff or only a subset, it seems inevitable that politics and bureaucracy are going to play a major role.

What About Other Countries’ Carbon Policies?

Hansen likes the carbon tariff also because he believes that it could be designed to incentivize other countries to implement their own carbon policy. The carbon tariff is reduced by the “foreign cost of carbon”: the carbon fee already levied abroad. So if a country wanted to reduce how much they were paying the US in carbon tariffs, they would need to implement some kind of carbon fee so that they could collect it themselves.

But how would this foreign cost of carbon be computed? It’s not at all easy to calculate this, especially if some foreign country’s policy is not designed a way to make such computations straightforward. Suppose that Coalistan’s carbon policy involves taxing its coal production by the weight of the coal, rather than the carbon content of the coal. Then the cost of carbon of steel, for instance, would depend on the quality of coal used in the coking process. If there were a tax on air conditioners or a subsidy for electric vehicles, should these count toward a decrease in the carbon tariff?

A further complication arises when we note that in today’s globalized economy, supply chains criss-cross through dozens of states in a complex web of manufacturing and trade. The foreign cost of carbon could be split across several different countries, with the correct breakdown and attribution impossible to determine. Was the electricity used in manufacturing generated by domestic coal subjected to a carbon tax, imported gas from a country without any carbon policy, or solar?

I wonder whether we would also need to assess the implementation quality of these carbon taxes abroad. Having lived in India in the last 4 years, I know well that the laws in effect hardly match their implementation on the ground. Around the world, poorer countries with weak states generally struggle to monitor and collect tax from their populations; a carbon tax wouldn’t be an exception. There would also be a clear incentive to falsify the amount of carbon tax already paid in order to reduce the US carbon tariff. Despite US legislation against the import of goods produced by child labor or containing conflict minerals, we know that these practices continue today.

In practice, I suppose we would not just be passively monitoring other countries’ carbon policies and unilaterally deciding on the appropriate carbon tariff. We would end up in direct negotiations with our largest trading partners so that we can be clear and transparent about how our carbon tariffs are being set, and so that they understand our response would be to future changes in their carbon policies. But the point here is that tariffs cannot be set unilaterally lest there be a trade war. A trade war might not be the worst thing for reducing global consumption and long-term transport of goods, but it’s not a democratic, controlled process of degrowth either, and thus would be likely to negatively impact certain communities without their consent.

I am no expert in many of the topics I’ve touched upon here. I don’t have any particular proposal for how to approach these issues. All I want to say is that carbon fee and dividend is not the simple policy solution that James Hansen and others make it out to be. There are many political and economic consequences of this policy that aren’t obvious at first glance, and I hope that CFAD’s proponents are well aware of them. Otherwise, they may find unintended harms and unexpected sources of political opposition which undermine the promise of this bill.