I’m somewhat stealing this from Stoat, but it’s an interesting topic, and it really originates from a tweet by Gavin Schmidt anyway 😉
In retrospect, this seems obvious, but I don’t think I’ve seen this explictly pointed out. The basic point is that a carbon budget tells you how much we can emit if we want some chance of keeping warming below some level and, consequently, avoiding the impacts of warming beyond that level. The Social Cost of Carbon (SCC) is an estimate of the future cost of emitting CO2 into the atmosphere, typically discounted to today. The SCC can then be used as a carbon tax, so that we then pay the full price of emitting CO2 into the atmosphere.
In some sense, they don’t even really seem like comparable concepts. A carbon budget is simply some information (how much can we emit to have some chance of keeping warming below some level). It doesn’t provide any information as to how to do so. A carbon tax, on the other hand, is actually a policy instrument; if properly calculated, it would mean that we were paying the full price of CO2 emissions and the market could then respond in some optimal way.
A couple of recent papers have argued against carbon budgets, but I still quite like the basic concept. It tells us, quite simply, how much we can still emit to have some chance of not warming above some level. There, are, however some obvious problems. How do we define the level? How do you partion the budget and how do you decide when to start and how fast to reduce emissions? What do you actually do to meet the budget?
A carbon tax, on the other hand, is simply something you add to the cost of energy based on how much CO2 is emitted into the atmosphere. The market can then respond accordingly. If fossil fuels (with emissions into the atmosphere) were still the cheapest way to generate energy, we’d carry on doing so. If there were alternatives that were cheaper, we’d presumably switch. There would be no specifically trying to pick winners and losers; the market would, ideally, evolve in the most efficient way that it could. A key point, though, is that a carbon tax is not based on a carbon budget; it is simply based on the future cost of emitting CO2 into the atmosphere.
So, even though I like the idea a carbon budget because of the basic information it provides, I don’t see how this information actually generates any action. A carbon tax, on the other hand, would actually influence emissions and, ideally, in some optimal way.
I should, of course, acknowledge that I’m simply a physical scientist, so may have not have explained some of the above properly. Happy to be corrected if I have blundered in some way. However, to potentially generate some discussion, and to possibly illustrate my ignorance, there is one aspect of a carbon tax that has always bothered me.
A carbon tax is not paying to avoid some future damage, it is actually paying for the future damage (discounted to today). In terms of the global economy, simply applying a carbon tax might still be the optimal way to influence future emissions. The problem, though, is that someone will eventually pay for the damages. In principle, the global economy will have grown in the most optimal way and so those in future will be best placed to cover these costs. In reality, however, there is no guarantee that those who pay the costs will have benefitted from this growth. In principle, wealthy parts of the world could simply decide to pay now for damages that will, in future, impact parts of the world that are far less wealthy and that have not benefitted in a way that makes covering these costs viable.
To be clear, maybe I’m wrong about the above and there is some subtlety that I’m missing. If so, would be keen to better understand this. On the other hand, maybe I’m right but there is still not a better alternative. Thoughts?
Why are carbon taxes so low? (Post of mine discussing a Joseph Heath post on carbon taxes.)
Politically informed advice for climate action. (Nature paper by Oliver Geden.)
Beyond carbon budgets. (Nature paper by Glen Peters.)