Category: Climate Change
About The Author
Chetan Hebbale is currently a graduate student at the Johns Hopkins School of Advanced International Studies (SAIS) in Washington, D.C. focused on international economics, climate change, and sustainability.
Prior to this, he spent over 4 years at Deloitte Consulting working on technology and strategy projects at the CDC and U.S. Treasury Department.
He is a native of Atlanta, GA and attended the University of Georgia.
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Read the article published by the Brookings Institution here.
A version of this memo was published in the SAIS Perspectives here.
Executive Summary
Developing countries and cities account for more than 60% of global GHG emissions[1] but represent less than 25% of carbon pricing systems globally[2],[3]. The Green Climate Fund (GCF) can strategically leverage climate finance to incentivize carbon pricing in developing countries by conditioning mitigation and adaptation aid on instituting a minimum price for emissions.
The GCF should provide more aid and compensation for developing countries with higher carbon prices. There are two benefits to this approach. First, it provides an incentive for countries to pursue increasingly ambitious carbon prices – thus increasing trust and coordination in the global climate regime as developed countries know their donations are driving higher emission reductions. Second, the domestic revenues from carbon pricing schemes will help developing countries finance investments associated with the costs of mitigation and enable a just transition to a low-carbon economy.
By establishing carbon pricing systems in developing countries, GCF can help establish international carbon markets that open additional revenue streams. Getting involved in carbon pricing efforts gives GCF an opportunity to shape Article 6 negotiations for global carbon markets where a portion of the sale of carbon credits and emission reductions are required to go to developing countries, thus channeling additional revenue for global mitigation and adaptation efforts.
Why Focus on Carbon Pricing?
Carbon pricing is a uniquely powerful mitigation solution due to its ability to influence energy use and investment decisions across all sectors of the economy as well as being tied to emission targets which guarantee that they are met. A well-designed carbon tax or cap-and-trade system will create incentives for cost effective emission reductions in the short run and cost reducing innovation in the long run[4]. One analysis found that on its own carbon pricing could deliver almost a third of the emission reductions necessary to avoid a rise of 2°C[5]. Unfortunately, GCF has no official policy or involvement in driving this vital policy mechanism while the developing countries it supports are on pace to account for ~70% of global energy demand in the next 20 years[6].
Carbon pricing has several advantages for developing nations:
- Economy-wide Impacts: It’s a technology neutral way to incentivize economy-wide decarbonization by making it more expensive to pollute than to find lower carbon alternatives.
- Revenue Generation: It generates revenue through tax collection or permit auctions that can be used by governments to support an equitable clean energy transition through R&D, job re-training, and investment in the poorest, most polluted areas. The revenue could also be used to support U.N. Sustainable Development Goals (SDGs) or directly compensate populations affected by the shuttering of energy intensive industries.
- International Cooperation: It can serve as a focal point for international carbon pricing coordination resulting in additional revenues through the sale of carbon credits and emissions reduction that can go towards adaptation and mitigation costs.
How Climate Finance Can Spur Carbon Pricing In Developing Countries
International climate cooperation requires mutual commitments and stable incentive structures – coordinating national carbon prices is an efficient solution to achieve this. A major gap in the current Paris regime is that nations are only held to voluntary commitments which are not legally binding. If one country perceives that their decarbonization efforts are not being complemented by similar efforts in other countries, then the ambition and political will to ratchet up mitigation efforts will weaken. This dynamic has the potential to play out between developed and developing countries as the global share of emissions from developed nations continues to decrease[7]. National carbon prices are transparent and easily comparable, thus setting a floor for international cooperation and negotiations.
Conditioning climate finance aid to developing countries based on establishing a carbon price would incentivize adoption of carbon pricing systems globally. Developing countries lack the capacity and expertise to introduce carbon pricing systems and are disincentivized due to the high costs of mitigation. Indeed, even small changes to the prices of basic commodities because of a carbon price can have a significant impact on underprivileged groups. However, if they are compensated by richer countries then developing nations would be more willing to set carbon prices. The GCF should leverage its transfer payments for adaptation and mitigation on the condition that countries set a minimum carbon price. GCF can use existing funds to help establish tax collection or permit auctioning and allocation infrastructure.
Climate aid should be allocated to go more to countries who increase their carbon price over time, thus increasing ambition and trust in the climate regime. As countries start with different minimum carbon prices the hope is that they will rise and converge over time. However, GCF can accelerate this process by allocating increasing amounts of aid to those countries who increase their carbon price. In this way, developing nations continually pursue more ambitious carbon prices and developed nations will have increased trust and confidence that their transfer payments are achieving higher emission reductions.
Supporting Global Carbon Markets Offers New Revenue Streams for Mitigation and Adaptation
Establishing carbon pricing systems globally can facilitate the rules for international carbon markets under Article 6 of the Paris Agreement. Nearly half of the initial Nationally Determined Contributions (NDCS) include the use of international cooperation through carbon markets[8]. Enabling countries to effectively trade emission reductions and carbon credits across borders will be critical to the overall effort of global decarbonization. By helping establish carbon pricing systems, GCF will earn a seat at the table to ensure that carbon market rules are structured appropriately to benefit developing countries and to mitigate against the risks of double counting.
Successful international carbon markets will catalyze additional revenue streams for GCF to funnel to global mitigation and adaptation efforts. Under the Kyoto protocol a fee was levied on international emission trading and carbon credit purchases through the Clean Development Mechanism which funded nearly 30% of the U.N. Adaptation Fund[9]. Article 6.4 of the Paris Agreement would effectively replace the Kyoto Standard by ensuring that this “share of the proceeds” shall “assist developing country parties that are particularly vulnerable to the adverse effects of climate change to meet the costs of adaptation” in addition to “covering administration expenses”[10]. By involving itself in Article 6 negotiations, GCF has an opportunity to open a large pool of public and private climate finance contributions to further scale its mission.
[1] Center for Global Development, “Developing Countries Are Responsible for 63 Percent of Current Carbon Emissions,” August 18th, 2015, https://www.cgdev.org/media/developing-countries-are-responsible-63-percent-current-carbon-emissions.
[2] United Nations Development Programme, “Human Development Reports – Developing Regions,” 2020, http://hdr.undp.org/en/content/developing-regions.
[3] World Bank Group, “State and Trends of Carbon Pricing 2021,” May 2021, https://openknowledge.worldbank.org/handle/10986/35620
[4] James Boyce, “Carbon Pricing: Effectiveness and Equity,” 2018, https://www.sciencedirect.com/science/article/abs/pii/S092180091731580X.
[5] Harvey, et. al, “Designing Climate Solutions,” 2018, pg. 253, https://islandpress.org/books/designing-climate-solutions.
[6] Stephen Eule, “A Look at IEA’s New Global Energy Forecast,” Global Energy Institute, November 29th, 2018, https://www.globalenergyinstitute.org/look-ieas-new-global-energy-forecast.
[7] UNFCC, “Most Developed Countries on Track to Meet their 2020 Emission Reduction Targets, but More Ambition Needed by Some,” November 23rd, 2020, https://unfccc.int/news/most-developed-countries-on-track-to-meet-their-2020-emission-reduction-targets-but-more-ambition.
[8] Kelley Kizzier, Kelly Levin and Mandy Rambharos, “What You Need to Know About Article 6 of the Paris Agreement,” December 2nd, 2019, https://www.wri.org/insights/what-you-need-know-about-article-6-paris-agreement.
[9] Carbon Brief, “In-depth Q&A: How ‘Article 6’ carbon markets could ‘make or break’ the Paris Agreement,” November 29th, 2019, https://www.carbonbrief.org/in-depth-q-and-a-how-article-6-carbon-markets-could-make-or-break-the-paris-agreement.
[10] Carbon Brief, “In-depth Q&A: How ‘Article 6’ carbon markets could ‘make or break’ the Paris Agreement,” November 29th, 2019, https://www.carbonbrief.org/in-depth-q-and-a-how-article-6-carbon-markets-could-make-or-break-the-paris-agreement.
About The Author
Chetan Hebbale is currently a graduate student at the Johns Hopkins School of Advanced International Studies (SAIS) in Washington, D.C. focused on international economics, climate change, and sustainability.
Prior to this, he spent over 4 years at Deloitte Consulting working on technology and strategy projects at the CDC and U.S. Treasury Department.
He is a native of Atlanta, GA and attended the University of Georgia.
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This report sets out to answer the question – when it comes to climate adaptation, are engineering-based solutions (e.g., sea walls) more effective and economical than ecosystem-based approaches (e.g., coastal revegetation)?
I first look at the environmental drivers of adaptation, current international efforts, and dive into a case study of a town in the Fiji Islands that’s specifically wrestled with these competing approaches to adaptation.
The goal of this work is to help institutions like the U.N. Adaptation Fund and Green Climate Fund prioritize which adaptation approaches have been most successful to inform their financing decisions as the world has little time to plan for how they will brace for the inevitable environmental impacts of a 1.5 to 2C rise.
About The Author
Chetan Hebbale is currently a graduate student at the Johns Hopkins School of Advanced International Studies (SAIS) in Washington, D.C. focused on international economics, climate change, and sustainability.
Prior to this, he spent over 4 years at Deloitte Consulting working on technology and strategy projects at the CDC and U.S. Treasury Department.
He is a native of Atlanta, GA and attended the University of Georgia.
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Accelerating The Transition: Comparing Renewable Portfolio Standards in Texas and CaliforniaDownload
The Biden administration has pledged to achieve a 50-52% reduction from 2005 levels in nationwide greenhouse gas (GHG) emissions by 2030. As part of this goal, the administration has stated that they would like to see 100% of the nation’s electricity come from renewable sources by 2035 – up from roughly 20% right now.
The signature policy support mechanism for renewable energy in the U.S. has been state-wide renewable energy portfolio standards, hereby called RPS. The goal of an RPS is to increase the use of renewable energy in electricity generation by requiring electricity suppliers to provide consumers with a minimum share of electricity from eligible renewable resources (e.g. 20% of electricity generated needs to come from renewable sources).
The two states that generate the most renewable energy in the U.S. – Texas and California – have made an RPS a central part of their renewable energy policy strategy. However, the two states differ quite substantially in their implementation philosophies and supporting policies.
California has a much more hands on approach with increasingly ambitious RPS targets over the years with a plethora of diverse, and targeted statewide policies for specific renewables, while Texas has a more hands-off approach, setting a low renewable target and providing comparatively fewer state-wide incentives and regulations.
This paper seeks to explore the differences between Texas and California and assess changes in each state’s overall CO2 emissions from the electricity sector and generation of renewable energy since their RPS went into effect. The paper concludes with lessons learned and recommendations for how RPS policies can be improved nationally to ultimately achieve Biden’s goal of a carbon-free electricity system.
About The Author
Chetan Hebbale is currently a graduate student at the Johns Hopkins School of Advanced International Studies (SAIS) in Washington, D.C. focused on international economics, climate change, and sustainability.
Prior to this, he spent over 4 years at Deloitte Consulting working on technology and strategy projects at the CDC and U.S. Treasury Department.
He is a native of Atlanta, GA and attended the University of Georgia.
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Executive Summary
China is the world’s largest emitter of CO2 emissions, by far. It represents nearly a third of all emissions by itself – more than double the U.S. and the next seven nations combined[1]. As a result, China is under intense pressure to meet its emission targets set out in Glasgow at COP26. Achieving these targets will hinge on the ability for the central government in Beijing to influence a sprawling network of provincial and sub-provincial governments to make emission reductions in their local areas.
China’s emissions come from three primary sources: industrial production (50%), the power sector (40%), and the transportation sector (8%)[2]. Here, we lay out a roadmap to inform diplomatic negotiations on how the Chinese government can reduce emissions from these sectors through center-local coordination on policy reforms in energy investment, production, and consumption. These reforms include stronger permitting rules against coal plants, synchronization of their national emissions trading system, and incentives for electric vehicles (EVs).
Background
By some fiscal measures, China is the most decentralized country in the world[3]. Its “quasi-federal” system was born out of decentralization reforms in the late 1970s which have created a constellation of central and local institutions with varying, sometimes conflicting, responsibilities and mandates for energy and climate decisions[4]. The strength of these mandates largely depend on which agency is issuing and enforcing them.
Historically, regulating GHG emissions originates with China’s most salient environmental concern – air pollution. This fell under the purview of the National Development and Reform Commission (NDRC) until 2018 when the government transferred its climate related responsibilities to the Ministry of Ecology and Environment (MEE)[5]. In July 2021, China reinstated the NRDC as the primary planning body on climate change and has tasked it with creating a roadmap for how China can meet its emission targets.
Since 2007, China had established energy intensity reduction targets whose enforcement has been handed down to local governments and are factored in their performance evaluation[6]. There has been significant geographic variation in local enforcement due to competing incentives for economic growth and development.
Reform Recommendations
In its roadmap, the NRDC should recommend that the central government:
Reclaim authority on permitting rules for new coal-fired power plants. Authority to permit new coal plants was decentralized to the provinces in 2014 which resulted in a rapid increase in coal permits across the country[7]. China is now the world’s largest consumer and producer of coal[8]. By reclaiming permitting authority, Beijing can restrict new plants and set capacity reduction plans in line with the global pledge to “phase down” coal[9]. China can expect resistance from coal mine owners and provinces with coal dependent economies as they are highly dispersed and enjoy autonomous control – the central government will face substantial difficulty without credible punishments for permitting violations.
Harmonize local emissions trading system (ETS) pilots to transition into the new national carbon market. In 2013, China launched seven provincial/municipal ETS pilots in preparation for the rollout of their national carbon market in 2020 which is to be run by the national MEE department. In these pilots, local governments found ways to bypass fees and lessen the impact of carbon prices on their preferred investments like coal. Thus, in rolling out the national market, MEE will need to contend with those local governments skirting the rules by standardizing and closing loopholes around carbon allowance allocations, compliance, and data measuring, reporting, and verification (MRV) systems.
Require local governments to expand license plate quotas to encourage uptake of electric vehicles. Local governments have broad control over the transportation sector which they have used to limit emissions by forbidding certain types of cars from entering city centers each day through license plate requirements[10]. The central government can require provinces to expand the scope of these requirements in two ways – (1) only allowing cars with EV license plates at certain times, days, and lanes and (2) allowing cities to waive license plate restrictions all together for EVs so they’re not subject to any driving restrictions compared to gas-powered cars[11]. Beijing could complement these regulations with expanded central tax incentives to further increase uptake of EVs on China’s roads.
Taken together, these reforms give China a significant boost in their efforts to slow climate change as they directly take on local resistance to cutting major sources of emissions. At Glasgow, China pledged to peak its CO2 emissions before 2030[12], thus it has roughly eight years to course correct the diverging local interests of the world’s largest population. Failure to do so will likely sink global efforts to avoid a 2°C rise which will precipitate severe environmental deterioration.
[1] BBC, “Report: China emissions exceed all developed nations combined,” May 7th, 2021, https://www.bbc.com/news/world-asia-57018837.
[2] Columbia University In The City Of New York, “Guide to Chinese Climate Policy: Emissions by Sector and Sources,” https://chineseclimatepolicy.energypolicy.columbia.edu/en/emissions-sector-and-source.
[3] Michael Davidson, “Creating Subnational Climate Institutions in China,” Harvard Project on Climate Agreements, December 2019, https://www.belfercenter.org/sites/default/files/files/publication/davidson-china-paper%20designed-version-3.pdf.
[4] Ibid. Davidson
[5] David Stanway, “China shake-up gives climate change responsibility to environment ministry,” Reuters, March 13th, 2018, https://www.reuters.com/article/china-parliament-environment/china-shake-up-gives-climate-change-responsibility-to-environment-ministry-idUSL3N1QV23P.
[6] Ibid. Davidson.
[7] Ibid. Davidson.
[8] Sara Schonhardt, “Energy crunch raises questions about China’s devotion to coal,” E&E News, October 13th, 2021, https://www.eenews.net/articles/energy-crunch-raises-questions-about-chinas-devotion-to-coal/.
[9] Connor Perrett, “World leaders at COP26 strike agreement to ‘phase down’ unabated coal and call on wealthy nations to double funding to vulnerable nations,” November 13th, 2021, https://www.businessinsider.com/cop26-concludes-with-agreement-to-phase-down-coal-2021-11.
[10] Wang, Rui, “Shaping Urban Transport Policies in China: Will Copying Foreign Policies Work?” Transport Policy, 17(3), 147–152, 2010, https://doi.org/10.1016/j.tranpol.2010.01.001.
[11] Sandalow, David, “Guide to Chinese Climate Policy,” Columbia University Center on Global Energy Policy, 2018, https://energypolicy.columbia.edu/sites/default/files/pictures/Guide%20to%20Chinese%20Climate%20Policy%207-27-18.pdf.
[12] Climate Action Tracker, “China,” November 3rd, 2021, https://climateactiontracker.org/countries/china/targets/.
About The Author
Chetan Hebbale is currently a graduate student at the Johns Hopkins School of Advanced International Studies (SAIS) in Washington, D.C. focused on international economics, climate change, and sustainability.
Prior to this, he spent over 4 years at Deloitte Consulting working on technology and strategy projects at the CDC and U.S. Treasury Department.
He is a native of Atlanta, GA and attended the University of Georgia.
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Key findings from a paper published in the Journal of Environmental Economics and Management
About The Author
Chetan Hebbale is currently a graduate student at the Johns Hopkins School of Advanced International Studies (SAIS) in Washington, D.C. focused on international economics, climate change, and sustainability.
Prior to this, he spent over 4 years at Deloitte Consulting working on technology and strategy projects at the CDC and U.S. Treasury Department.
He is a native of Atlanta, GA and attended the University of Georgia.
Read More:
What is Carbon Pricing and Why Do We Need It?
Time is running out to prevent a 2°C rise in global temperature. The world has 29 years to make annual carbon emissions 40 – 70 percent lower than they are today[1]; otherwise, 190 million people will be exposed to extreme droughts, and more than 70 percent of Earth’s coastlines will be flooded[2]. While there are several avenues to reduce emissions, carbon pricing is a uniquely powerful mitigation solution. One analysis found that on its own, carbon pricing could deliver almost a third of the emission reductions necessary to avoid a rise of 2°C – more than any other mitigation option available.[3]
Carbon pricing is an economic tool that discourages pollution by imposing monetary costs on CO2 emissions. When faced with a price tag on carbon, industries will pursue emission reduction opportunities that are cheaper rather than paying the price. The price of carbon can be set through two vehicles: a carbon tax or a carbon cap.
A carbon tax directly prices carbon through a fixed, per-unit charge for each ton of CO2 emitted. While the level of emissions may fluctuate, the tax is set according to a projected amount of emissions at that price.[4]
A carbon cap indirectly prices carbon through a quantity-based approach. It sets a quota of carbon allowances, or permits, for emitters which represents their emission target. A carbon cap is often called “cap-and-trade” or an “emissions trading system” because the cap limits the number of allowances that businesses can have, but there is a market which enables the emitters to buy and sell their permits, effectively setting a price for emitting CO2.
The primary advantages of carbon pricing are that its effects radiate across all sectors of the economy, it’s technology neutral, it provides a transparent price/quantity, and it generates revenue that can be used by governments to support an equitable clean energy transition.
Here, we argue that carbon taxes are preferable to cap-and-trade schemes due to offering price certainty, a simpler implementation and administrative cost, and a comparatively lower chance of corruption and rent-seeking behavior.
What are the Economic Assumptions Behind Carbon Pricing?
At its core, carbon pricing seeks to address the market failure of pollution control. In a market economy, firms have no incentive to restrict the negative externalities from greenhouse gas emissions like sulfur dioxide and particulate matter or dumping toxic waste.
The burning of coal is responsible for 800,000 premature deaths in the U.S. every year [5] while the byproducts of fracking have known links to asthma, childhood leukemia, cardiac problems, and birth defects in surrounding communities[6]. Yet companies rarely pay for these harmful impacts unless through successful litigation or penalties imposed by government authorities like the EPA. Carbon pricing attempts to impose a cost on these firms for their polluting activities by determining a socially efficient level of pollution.
The socially efficient level of pollution is determined through a cost-benefit analysis that balances the marginal social benefits (MSB) from pollution control with the marginal social costs (MSC). While striving for zero pollution would be ideal in the context of combatting climate change, the costs of achieving this would be astronomical and may not even be possible. At the same time, cleaning up the last few units of pollution would likely not provide that much additional marginal benefit.
As indicated in Figure 14-3[7], where the MSB and MSC curves intersect at Point E is considered the socially efficient level of pollution because the emissions rate maximizes the net social value of production.[8] The marginal private benefit (MPB) curve represents the benefits to the firm of cleaning up its pollution. As is evident from the graph, the firm does not achieve that much benefit compared to what the community receives and if left to its own devices would abate emissions at point I, far below Point E. Thus, to abate emissions at a socially efficient level an external intervention is needed.
Carbon pricing analyzes this market dynamic and attempts to compel firms to abate emissions at a socially efficient level. At Point E, the carbon tax would be set at the price on the Y axis, while cap-and-trade would set the emission cap based on the quantity on the X axis. Both schemes rely on foundational ceteris paribus, or all-else-unchanged, economic assumptions about the MSC and MSB of abatement. If these assumptions change, then the economic rationale for these policies also changes.
The first assumption is that the marginal social benefits curve is downward sloping. This implies that the first few units of abatement provide a lot of social benefit, but this benefit decreases over time as more emissions are cut. The logic is that as more emissions are cut the end products those emissions are created for – be it electricity, consumer goods, or transportation – get further reduced which diminishes your quality of life. But what if the MSB curve was upward sloping? In this case as more emissions are reduced, then the positive environmental externalities of cleaner air and water and preserved forests improve your quality of life more than carbon-intensive goods becoming more expensive. In that scenario, the tax price would be a lot higher, and the emissions cap a lot lower since the marginal social benefits are increasing the more pollution is reduced and everyone is better off if emissions can be abated more aggressively.
The second assumption is that the marginal social costs curve is upward sloping. This implies that the more emissions are abated, the more expensive it gets for the firm and society to do so. While some emission reductions could be easier and cheap to achieve early on, after the low hanging fruit are addressed then more expensive technology and product substitutes are needed to achieve additional reductions.
A carbon cap uses a quantity based approach by allocating a fixed amount of carbon allowances tied to an emissions target. A carbon cap is often called “cap-and-trade” or an “emissions trading system” because while the cap limits the number of pollution allowances that businesses can have, there is a market where emitters can buy and sell their allowances, effectively setting a price for emitting CO2.
However, this relationship is likely not linear. As firms begin reducing emissions, there will be improvements in energy efficiency and technology along the way which will decrease the cost of abatement over time. As a result, the marginal social cost curve can be thought of as an initially upward sloping curved line that then begins to flatten and move downward. Consequently, the price of a carbon tax would likely be lower and the emission cap higher. This is because as the abatement cost decreases, then the socially efficient pollution point is further down the marginal social benefits curve so a higher amount of emissions can be curtailed (cap) at a lower price (tax).
The third assumption is that the carbon price or emission quantity at the socially efficient pollution level is sufficient to avoid the impacts of climate change. There is no guarantee that the point where the MSC and MSB curves intersect is the exact quantity which prevents a rise of 2°C. Indeed, there is still considerable uncertainty as to the exact amount of emission reductions that are needed to avoid this fate. If a tax or a cap is placed at the socially efficient pollution level and the planet continues to warm beyond the target 2°C benchmark, then carbon pricing schemes can no longer be set at socially efficient pollution levels and instead need to be set at a higher amount, economically inefficient level in the hopes of achieving the reductions necessary.
Which Carbon Pricing Scheme is Preferable?
There are several advantages and disadvantages when choosing between a carbon tax or cap-and-trade system, but in theory both will create incentives for cost effective emission reductions in the short run and cost reducing innovation in the long run.[9]
Based on years of real-world results, a carbon tax is preferable to cap-and-trade for three reasons[10]: more effective revenue collection, lower risk of corruption, and carbon price stability.
First, carbon taxes can capture revenues more easily than cap-and-trade with lower administrative cost. Cap-and-trade systems are more complicated to implement due to the need to determine the pricing of permit allocations as well as developing trading infrastructure so firms who reduce more emissions than required can sell their additional reductions to firms that are behind. This complexity is compounded by the need for some degree of free permits needed to be given to energy-intensive industries where fossil fuel substitutes don’t exist, like in the creation of cement or steel. Carbon taxes are a comparatively easier and more straightforward way to collect revenue since they are evenly applied across all industries and at a flat rate based on the quantity of emissions released.
The ease of revenue collection under a carbon tax connects to our first assumption – what if the marginal social benefits curve is actually upward sloping, not downward? In that scenario every unit of emissions reductions gets converted into revenue that the government can use to accelerate mitigation and adaptation efforts. This improves your quality of life more than the negative effect of certain products being more difficult or expensive to consume, especially if you’re living in a coastal community affected by sea-level rise, or in the American West that’s been ravaged by wildfires. Thus, choosing a carbon tax which can more effectively collect revenue is preferrable to increase the marginal social benefits of abatement.
Second, carbon taxes provide less opportunity for corruption which can occur through rent-seeking behavior with cap-and-trade permits. Cap-and-trade systems create a new valuable asset in the form of pollution permits. It also creates a scarcity where one previously did not exist. As a result, scarce permits can be exploited by politicians and corrupt administrators who can sell off permits to certain favored industries and pocket the fees. A carbon tax provides less opportunity for corruption because it doesn’t create artificial scarcities, monopolies, or rents.[11] The tax cannot be sold to other entities and there are no new rent-seeking opportunities.
This benefit of carbon taxes connects to our second assumption – that the marginal social costs of abatement is assumed to increase over time but may actually be decreasing. Carbon taxes help drive a decrease in social costs because the fees are not being diverted by corrupt economic agents like could potentially happen in a cap-and-trade system. Rather these funds can be re-invested to bring down the cost of expensive technology that’s needed to achieve additional reductions after easy decarbonization steps are taken.
Third, a carbon tax offers price certainty as opposed to quantity certainty which limits volatility in the market price for carbon. Under a cap-and-trade system only the quantity of emissions is fixed, thus allowing the price to fluctuate as economic agents shoulder their own individual costs in order to meet that emission limit. For example, in 2006 the carbon prices the European cap-and-trade system ranged from $44.47 to $143.06 per ton of CO2.[12] While cap-and-trade provides greater emission reduction certainty and is more environmentally effective, the price uncertainty of this approach may make the gains short lived. Uncertainty in the price of carbon will slow investments in clean energy, disrupt energy markets, and may become extremely unpopular with the public if the price fluctuates frequently causing instability in the price of everyday consumer goods.
This drawback of cap-and-trade connects to our third assumption – even if we have quantity certainty about the emissions we’ll reduce, how do we know that’s sufficient? If the assumption changes that the quantity of emissions at the socially efficient pollution point is not enough to mitigate against climate change, then carbon taxes provide a preferrable alternative since they drive market behavior through prices not quantity and can achieve progressively higher emission reductions through higher prices.
The Way Forward
Ultimately, carbon pricing is a crucial tool for reducing CO2 emissions as the environment continues to deteriorate. Currently, four-fifths of global emissions are unpriced, and the global average emissions price is only $3 per ton[13] – far too low to induce substantial emission cuts. As policymakers continue to explore avenues to decarbonize their economies, pricing carbon at the socially efficient pollution level presents a market-driven opportunity to act on this existential crisis.
Introducing carbon taxes as part of international climate negotiations at COP26 is one viable path forward to increase their uptake. For example, negotiations are continuing on how much money developed countries will donate to developing countries to help with adaptation and mitigation costs. These transfer payments could be conditioned on developing countries instituting carbon taxes with more aid going to countries with higher carbon taxes. This approach would incentivize more ambitious carbon pricing globally and increase trust in the system that climate aid is tangibly going towards higher amounts of abatement.
Works Cited
[1] Hal Harvey, Robbie Orvis, and Jeffery Rissman, “Designing Climate Solutions: A Policy Guide for Low-Carbon Energy,” pg.2, November 2018, https://islandpress.org/books/designing-climate-solutions.
[2] Alan Buis, “A Degree of Concern: Why Global Temperatures Matter”, NASA, June 19th, 2019, https://climate.nasa.gov/news/2865/a-degree-of-concern-why-global-temperatures-matter/.
[3] Hal Harvey, Robbie Orvis, and Jeffery Rissman, “Designing Climate Solutions: A Policy Guide for Low-Carbon Energy,” pg. 253, November 2018, https://islandpress.org/books/designing-climate-solutions.
[4] Sanjay Patnaik and Kelly Kennedy, “Why the US should establish a carbon price either through reconciliation or other legislation,” The Brookings Institution, October 7th, 2021, https://www.brookings.edu/research/why-the-us-should-establish-a-carbon-price-either-through-reconciliation-or-other-legislation/.
[5] EndCoal, “Health,” https://endcoal.org/health/.
[6] NRDC, “Reduce Fracking Health Hazards,” https://www.nrdc.org/issues/reduce-fracking-health-hazards.
[7] Paul Samuelson and William Nordhaus, “Economics: 19th Edition,” pg 275, https://www.mheducation.com/highered/product/economics-samuelson-nordhaus/M9780073511290.html.
[8] Paul Samuelson and William Nordhaus, “Economics: 19th Edition,” pg 273, https://www.mheducation.com/highered/product/economics-samuelson-nordhaus/M9780073511290.html.
[9]James Boyce, “Carbon Pricing: Effectiveness and Equity,” 2018, Ecological Economics, https://www.sciencedirect.com/science/article/abs/pii/S092180091731580X.
[10] William Nordhaus, “To Tax or Not to Tax: Alternative Approaches to Slowing Global Warming,” Review of Environmental Economics and Policy, Volume 1, Number 1, Winter 2007, https://www.journals.uchicago.edu/doi/abs/10.1093/reep/rem008.
[11] William Nordhaus, “To Tax or Not to Tax: Alternative Approaches to Slowing Global Warming,” Review of Environmental Economics and Policy, Volume 1, Number 1, Winter 2007, https://www.journals.uchicago.edu/doi/abs/10.1093/reep/rem008.
[12] William Nordhaus, “To Tax or Not to Tax: Alternative Approaches to Slowing Global Warming,” Review of Environmental Economics and Policy, Volume 1, Number 1, Winter 2007, https://www.journals.uchicago.edu/doi/abs/10.1093/reep/rem008.
[13] Kristalina Georgieva, “Launch of IMF Staff Climate Note: A Proposal for an International Carbon Price Floor Among Large Emitters,” The International Monetary Fund, June 18th, 2021, https://www.imf.org/en/News/Articles/2021/06/18/sp061821-launch-of-imf-staff-climate-note.
About The Author
Chetan Hebbale is currently a graduate student at the Johns Hopkins School of Advanced International Studies (SAIS) in Washington, D.C. focused on international economics, climate change, and sustainability.
Prior to this, he spent over 4 years at Deloitte Consulting working on technology and strategy projects at the CDC and U.S. Treasury Department.
He is a native of Atlanta, GA and attended the University of Georgia.
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MEMORANDUM TO THE NATIONAL SECURITY ADVISOR
FROM: Chetan Hebbale
SUBJECT: U.S. – China Disaster Response Cooperation After COVID-19
Executive Summary
COVID-19 has opened a window to understand the crisis management strategy of the modern Chinese Communist Party (CCP). As climate change exacerbates natural disasters as well as infectious diseases[1], China will likely deploy their successful pandemic response tactics of regional containment, mass mobilization, and population control to deal with these issues. However, the CCP will also likely continue a tactic that was unsuccessful – the suppression of information domestically and internationally about the severity of the crisis.
The U.S. has an opportunity to improve its relations with China with a package of policies that establish mutual support mechanisms for dealing with future emergencies. These policies could include establishing emergency hotlines to improve transparency, deepening institutional collaboration and best practices for developing health technologies and rapidly scaling up new infrastructure, and promoting public-private environmental stewardship.
Background
The first “unknown pneumonia case” was documented in Wuhan on December 8th, 2019. On January 20th, 2020, Chinese president Xi Jinping declared that China was experiencing a disease outbreak from a novel coronavirus[2]. In those intervening 43 days, the number of suspicious cases began increasing exponentially with doctors in Wuhan warning friends on social media about the emerging threat.
The authorities of Wuhan and Hubei Province attempted to suppress these reports and punished eight doctors for “rumor-mongering.” They deliberately provided the public with false information on the number of cases and that no human-to-human transmission was occurring[3]. It was only after the first case appeared outside of China in Thailand on January 13th,2020, that leaders in Beijing were compelled to recognize that they may be dealing with a possible pandemic.
Once emergency measures were activated, the government quickly marshalled resources from the civilian and military sectors on a massive scale to dispatch medical equipment, construct overflow hospitals, and enforce lockdowns on nearly half a billion people[4]. In addition, state-owned enterprises like Sinopharm were given substantial resources to begin developing a vaccine. China’s aggressive measures were a global success with less than 5,000 deaths, the second lowest deaths per 100,000 people in the world[5], and producing half the vaccine doses delivered globally[6].
Discussion
Lesson #1: Information authoritarianism will be an enduring feature of the Chinese state. The U.S. should establish lines of transparency with Chinese citizens.
- Local Chinese officials will continue to have an incentive to suppress negative information, not only regarding disease outbreaks, but natural disasters, financial frauds, and industrial accidents[7], because of the CCP’s performance evaluation and responsibility attribution pressures in the cadre management system[8]
- Recognizing the vulnerabilities of this approach, the Chinese government has an incentive to prevent future disasters from affecting the global community. The U.S. could work with China to establish encrypted digital hotlines whereby Chinese citizens can anonymously report disasters and hot spot events to avoid retribution by local officials for revealing damaging information.
Lesson #2: The Chinese state is capable of quick mobilization on massive scales. The U.S. should conduct joint exercises with China to exchange best practices on rapidly standing up emergency infrastructure and scaling medical breakthroughs.
- At the beginning of the response, China established a leadership small group (LSG) to be the nation’s top decision-making body for COVID-19 prevention and control[9]. The LSG enabled swift, decisive, and coordinated national action to deploy military and medical staff to quickly build makeshift hospitals and distribute medical supplies. While state-owned enterprises were directed to develop therapeutics, the Sinopharm vaccine has overall seen lower efficacy than the American-made vaccines[10].
- The U.S. can learn from China’s organizational mobilization and China can learn from U.S. medical innovations. Joint exercises to prepare for rapidly building sea walls, flood shelters, and fire-proof infrastructure will be mutually beneficial for both countries to improve their disaster resilience. Facilitating more medical and academic collaboration on vaccine and therapeutics research from leading U.S. institutions will enhance the speed and efficacy of future medical treatments.
Lesson #3: China has a cooperative citizenry that’s willing to make shared sacrifices for the greater good. The U.S. should work with China to leverage this public cooperation into community environmental action to reduce carbon emissions
- Most of the world faced severe challenges in enforcing social distancing and quarantine measures both due to civil resistance as well as weak administrative coercive capacity. In contrast, China faced little resistance to their rigid lockdown measures. The collectivist values and communist ideologies of the Chinese people have conferred a remarkable degree of social discipline as well exercising self-restraint when personal interests clash with collective ones[11].
- Today, China is the world’s largest emitter of CO2 emissions – more than all developed nations combined[12]. The U.S. could help establish public-private partnerships with civil societies in China to leverage the spirit of collectivist values to install solar panels on homes, conserve and protect ecosystems, and reduce household fossil fuel use.
[1] Renee Cho, “How Climate Change Is Exacerbating the Spread of Disease,” Columbia University Climate School, September 4th, 2014, https://news.climate.columbia.edu/2014/09/04/how-climate-change-is-exacerbating-the-spread-of-disease/.
[2] Alex Jingwei He, Yuda Shi & Hongdou Liu, “Crisis governance, Chinese style: distinctive features of China’s response to the Covid-19 pandemic,” Policy Design and Practice, July 19th, 2020, https://www.tandfonline.com/doi/full/10.1080/25741292.2020.1799911.
[3] Chunyan Ding and Fen Lin, “Information Authoritarianism vs. Information Anarchy: A Comparison of Information Ecosystems in Mainland China and Hong Kong during the Early Stage of the COVID-19 Pandemic,” China Review, February 2021, https://www.jstor.org/stable/27005556.
[4] Emily Feng, “Restrictions And Rewards: How China Is Locking Down Half A Billion Citizens,” NPR, February 21st, 2020, https://www.npr.org/sections/goatsandsoda/2020/02/21/806958341/restrictions-and-rewards-how-china-is-locking-down-half-a-billion-citizens.
[5] Johns Hopkins University Coronavirus Resource Center, “Mortality Analyses,” https://coronavirus.jhu.edu/data/mortality.
[6] Smriti Mallapaty, “China’s COVID vaccines have been crucial — now immunity is waning,” Nature, October 14th, 2021, https://www.nature.com/articles/d41586-021-02796-w.
[7] Associated Press, “China exonerates doctor reprimanded for warning of virus,” March 19th, 2020, https://apnews.com/article/virus-outbreak-accidents-ap-top-news-international-news-arrests-6f2e666485e9abae4bb112251eca77be.
[8] Ran Ran and Yan Jian, “When Transparency Meets Accountability: How the Fight against the COVID-19 Pandemic Became a Blame Game in Wuhan,” China Review, February 2021, https://muse.jhu.edu/article/784425.
[9]Alex Jingwei He, Yuda Shi & Hongdou Liu, “Crisis governance, Chinese style: distinctive features of China’s response to the Covid-19 pandemic,” Policy Design and Practice, July 19th, 2020, https://www.tandfonline.com/doi/full/10.1080/25741292.2020.1799911.
[10] Sui-Lee Wee, “They Relied on Chinese Vaccines. Now They’re Battling Outbreaks.” The New York Times, September 16th, 2021, https://www.nytimes.com/2021/06/22/business/economy/china-vaccines-covid-outbreak.html.
[11] Alex Jingwei He, Yuda Shi & Hongdou Liu, “Crisis governance, Chinese style: distinctive features of China’s response to the Covid-19 pandemic,” Policy Design and Practice, July 19th, 2020, https://www.tandfonline.com/doi/full/10.1080/25741292.2020.1799911.
[12] BBC, “Report: China emissions exceed all developed nations combined,” May 7th, 2021, https://www.bbc.com/news/world-asia-57018837.
Chetan Hebbale 