His Theories on Pollution Won a Nobel. Why Can’t We Get Them Right?
Posted October 13, 2018 1:27 p.m. EDT
NEW HAVEN, Conn. — William D. Nordhaus, the Yale economist who shared the Nobel in economic science this week, has pointed words for some of the experiments that have used his theories on taxing polluters to fight climate change.
“It was a catastrophic failure in the European Union,” he said just days after not only being awarded the Nobel, but also seeing his life’s work embraced in a landmark U.N. assessment of the global threat of climate change. That document, approved by more than 180 nations, described Nordhaus’ ideas as essential for slowing the carbon dioxide emissions that are rapidly warming the atmosphere.
But in other places around the world — notably, parts of Canada and South Korea — politicians have adapted the idea in ways that not only show signs of working, but that also reframe it not as a tax, but as a financial windfall for taxpayers. Other governments, including China and some individual states in the United States, are also testing different ways to force companies to pay to pollute.
In short, the world is becoming a laboratory for theories that Nordhaus developed decades ago, when global warming was an abstract future threat. By contrast, this week’s U.N. report amounts to a stark warning of immediate risk.
The report, from the Intergovernmental Panel on Climate Change, said that if greenhouse gas emissions continued unabated, the atmosphere would warm up to 1.5 degrees Celsius, or 2.7 degrees Fahrenheit, by 2040, leading to irrevocable damage including severe food shortages, coastal inundations and the displacement of tens of millions of people as soon as 2040. If the planet keeps warming to 2 degrees Celsius, or 3.6 degrees Fahrenheit, the effects could include devastating floods and droughts and the permanent loss of the world’s coral reefs.
The Nobel, which Nordhaus shared with New York University economist Paul M. Romer, was widely perceived as a rebuke to President Donald Trump, who has called climate change a hoax and sought to roll back the United States’ existing climate change policies. It is also seen as a broader challenge to powerful Republican political voices in the United States, among them the libertarian billionaire brothers Charles and David Koch and the anti-tax activist Grover Norquist, who have attacked lawmakers who support a carbon tax, making it among the most volatile ideas in American politics.
On Wednesday, Nordhaus discussed his carbon pricing theories and the political landscape. The exchanges have been edited and trimmed.
Q: Why is carbon pricing seen as political poison in the U.S.?
A: It’s been caught up in the politics, and it just happens that this particular policy is one that has faced the wrath of a whole group of thinkers. Grover Norquist, energy companies, it’s the Koch brothers and their foundations, it’s people using fair tactics and foul tactics — it’s been caught up as one of the issues in the Great Divide.
This anti-tax movement has been so powerful and so harmful in the United States. There have been a large number of conservative economists in the United States who have endorsed the idea of a carbon tax.
Q: Where has carbon pricing been successful? Where has it failed?
A: We learned with the European Union that once you go beyond the simple, idealized version of carbon prices and into implementation, it’s a very different thing. One of the things we found out: One of the problems with cap and trade [a system in which governments place a cap on countries’ carbon-dioxide pollution and companies then pay for, and trade, credits that permit them to pollute] is that it is dependent on predicting what future emissions will be. But if those projections are wrong, the system fails.
With the EU, their projected carbon emissions were high, but the actual carbon emissions were low, and the carbon price fell drastically, from $30 to $40 per ton down to single digits. So the price was so low it did not have an effect in lowering emissions. It was flawed design. If the models had predicted too few emissions, and the price had gone to $1,000 per ton, we would have had a different problem.
The carbon tax has different problems, but not this one. The price of carbon is independent of the amount of emissions.
When I talk to people about how to design a carbon price, I think the model is British Columbia. You raise electricity prices by $100 a year, but then the government gives back a dividend that lowers internet prices by $100 year. In real terms, you’re raising the price of carbon goods but lowering the prices of non-carbon-intensive goods.
That’s the model of how something like this might work. It would have the right economic effects but politically not be so toxic. The one in British Columbia is not only well designed but has been politically successful.
Q: What went wrong when President Obama tried to implement a carbon price in 2009?
A: I did not talk to Obama about this directly, but I spoke with many of his advisers over the years.
One of my very, very few disappointments in Obama when he was president is that he did not come out in favor of carbon tax. I’m sure he did the political calculus on this. He should have come out and talked not just about climate change and its dangers but how to use a carbon tax to fix it. He was a great speaker a great educator but this is one where he let us down, I think.
Q: How do you think a carbon tax could get bipartisan support?
A: Things change over the long run. What is toxic or opposed in one generation gradually becomes accepted in the next. Social Security took a long time. It was opposed for many, many decades but since Reagan is has been widely accepted.
On carbon taxes, people’s views have changed from being very hostile, to conservative economists embracing this, to the IPCC saying, this is the approach.
I have to be hopeful that, if we continue to work on this, the public will get there on the science, and make an exception to the toxicity of taxes. It will help if it’s tied to something popular — if, as a result of the revenue from a carbon tax, you get a check in the mail, or it funds health care.
In terms of implementation, it’s not much more difficult to implement than a gasoline tax. Gasoline taxes are very easy to implement.
Q: But gasoline taxes are also politically toxic.
A: Only in this country! In other countries, people are grown-up, and they can live with taxes.
The problem is political, rather than one of economics or feasibility. It’s because it’s used as a weapon. At some point, I’m hopeful that grown-ups will take over and we will do what is necessary. I hope so. If we don’t, then things will just get worse and worse.
Q: Do we have enough time to avoid the warming that will bring severe and damaging effects of climate change?
A: It’s not going to happen in time for 1.5 degrees. It’s very unlikely to happen for 2 degrees. We’d have to be very pessimistic about the economy or optimistic about technology for 2 degrees. If we start moving very swiftly in the next 20 years, we might able to avoid 2 degrees, but if we don’t do that, we’re in for to changes in the Earth’s system that we can’t begin to understand in depth. Warming of 4, 5, 6 degrees will bring changes we don’t understand because it’s outside the range of human experience in the last 100,000 to 200,000 years.
We’ve been going backward for the last two years. Maybe we can stop going backward and start going forward.