How much carbon tax is enough?

At a Climate Desk Live event two weeks ago in Seattle, host Chris Mooney asked about the BC carbon tax. (See time marker 1:26:45 in the video.) David Roberts of Grist responded that the BC carbon tax “works” in that “it is not hurting the economy” and “there are mild carbon reductions happening” but that “if your definition of works is reduces carbon as much as we need to it’s nowhere close to working. So then you need to think about, well, what size of tax would produce those reductions. And then all of a sudden you’re talking about a very different political beast.”

Roberts’s response was unduly negative—a bit like complaining that an overweight dieter who’s lost 10 pounds hasn’t lost 50—but it got me thinking: What kind of a carbon tax would “reduce carbon as much as we need to”? If the tax of $30 per ton of CO2 in BC is not enough, how much would be enough?

And here’s my answer: $100 per ton CO2. A carbon tax of $100 per ton of CO2, implemented globally during the first half of this century, would put a sufficient dent in fossil fuel emissions.  In that light, the $30 tax in BC is a great start, roughly one-third of where we need to get in the decades ahead.

Before I defend this claim, here are two caveats. First, I’m ignoring deforestation and other non-fossil greenhouse gases. Second, I’m assuming a global policy because the point of regional or even national policies is to influence international policy.

Okay: Where does $100 come from? First let’s translate: a rule-of-thumb is that $100 per ton CO2 works out to about $1 per gallon of gasoline, about $0.10 per kilowatt-hour of coal-fired power, and about $0.05 per kWh of natural-gas-fired power.

Now, $1 per gallon of gasoline may not sound like a climate game-changer, and that’s true. But the farther you get from the Northwest the more climate change stops being about gasoline and starts being about electricity, especially coal-fired power plants.

And $0.10 per kWh of coal-fired power is a climate game-changer. It would more than double the price of coal-fired power and effectively eliminate coal from the global energy budget.

That’s huge. Hansen et al. 2013 (see figure 2) considers both conventional and unconventional fossil fuel reserves and estimates there that earth contains about 800 more gigatons of carbon in terms of oil, over 2,000 more gigatons of carbon in terms of natural gas and over 10,000 gigatons of carbon in terms of coal.

But $100 per ton CO2 wouldn’t just eliminate coal from the global energy budget. It would also do a number on natural gas: that number would be at least $0.05 per kWh of natural-gas-fired power, perhaps more if you also included fugitive methane releases.

As for oil, well, $1 per gallon would provide a stronger incentive for the development of alternatives like biofuels and electric vehicles. I have some confidence that those alternatives are coming, but the truth is that without them it’s not clear whether any carbon price (or for that matter any other policy short of decimating the global economy) would “reduce carbon as much as we need to”. After all, Europe already has gas prices on the order of $8 a gallon, so there’s clearly a strong global willingness to pay for petroleum. That demand is likely to overwhelm any carbon policy unless and until viable alternatives appear.

But forget about oil. Climate change is a global problem, and as such it’s only modestly about oil and only moderately about natural gas. It’s mostly about coal, and $100 per ton is more than enough to deal with coal.

Note: “How much is enough” is a reference to Alan Durning’s 1992 book by the same name).

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