Monday, October 22, 2018

A Conversation with Nordhaus, the first Nobel for work in Environmental Economics.





                                                         Comments due by  Oct. 29  , 2018

 William D. Nordhaus, the Yale economist who shared the Nobel in economic science this week, has pointed words for some of the experiments so far with 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 United Nations assessment of the global threat of climate change. That document, approved by more than 180 nations, described Professor Nordhaus’s 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 Professor Nordhaus developed decades ago, when global warming was an abstract future threat. By contrast, this week’s United Nations 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 Professor Nordhaus shared with the New York University economist Paul M. Romer, was widely perceived as a rebuke to President 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, Professor Nordhaus discussed his carbon pricing theories and the political landscape. The exchanges have been edited and trimmed.
Why is carbon pricing seen as political poison in the United States?
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.
Where has carbon pricing been successful? Where has it failed?
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 E.U., 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.
What went wrong when President Obama tried to implement a carbon price in 2009?
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.
How do you think a carbon tax could get bipartisan support? 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 I.P.C.C. 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.
But gasoline taxes are also politically toxic. 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.

16 comments:

  1. Professor Nordhaus is the most recent recipient of the Nobel Prize in Economics. He stated that the tax on emissions was a catastrophic disaster in the European Union even after 180 nations approved his writings as being instrumental to slowing carbon emissions and halting the rapid rate of climate change. A tax to allow pollution is how some countries like Canada and South Korea as well as states in the US have framed it. Where some see it as a left vs right issue with the likes of president Trump and the Koch brothers, Nordhaus has a different vision.

    The cap and trade system has been based on theories that suggest emissions will be at a certain level at a certain time when in reality it is impossible to tell what the future holds. British Columbia was said to be the leading example thus far in a 100 dollar increase in electricity prices while also having a 100 dollar dividend that lowers internet prices. President Obama it seems calculated the political costs of embracing a carbon tax thus not finding it feasible to implement. This movement can get bipartisan support potentially but it will take time. Here it is compared to the negative outlook when Social Security was first introduced compared to how it is looked at today as a positive. With taxes being used as a weapon in our country the thought is that hopefully people will grow up and understand that the taxes are in fact necessary.

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    1. Hi Declan,
      I like your summary on Professor Norhaus' idea about where carbon taxation has been well designed and where it is flawed. I think that the U.D. should take a similar approach to Canada's implementation by raising the price of higher-carbon goods and decreasing the cost of goods that are not as carbon intensive.
      Since taxation is used as a weapon, people are not as open to the idea of carbon taxation even though it is necessary for reduction of environmental damages.
      -Christine Lin

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  2. In this class, as well as others, we have learned that a great technique to limit negative externalities is to create a cap and trade system. It is interesting to see that it is not as easy as the textbook implies to apply it to real world situations. Even Nordhaus, who worked endlessly on these theories, admitted that it was a "catastrophic failure" in Europe. I never even thought about outside influences on the impact of the tax. If the cost of carbon were to drop, the tax would become insignificant to companies. This is because the price of carbon is not inherently connected to the amount of emissions it gives off.

    It is worrisome that climate change and a carbon tax are a point of contention in such a divided nation. Currently in America, the parties are so polarized that, regardless of evidence, many people would choose a side of the debate based on their political parties opinions. Trump openly denying global warming is extremely dangerous considering it has now become an urgent issue. Mass food shortages and uncontrollable weather are a bigger problems than one country's taxation policy. We would need to stop some of our actions immediately in order to try to reverse some of the damage we created, and that might not even be enough. While under Trump's presidency it is almost impossible for this to happen.

    This leads me to wonder whether reframing the term of "carbon taxation" would be enough to make it a more acceptable concept. I think the "taxation" part of the phrase brings in a majority of the political discussions. Using a different framing might open the conversation up a little more and allow people to argue for this change.

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  3. Carbon taxes is certainly a very controversial topic, but in the end, as mentioned in the end of the blog, we need to be grown-ups, look at the bigger picture, and think about the future consequences of not doing anything about the carbon emissions.
    During the recent Swedish election, I looked at all the political parties’ standpoints on different topics, and it was really easy to distinguish parties with micro politics and macro politics. Unfortunately, as micro politics is basically driven by fear, people voted for these parties, and the parties with macro perspectives, such as solid environmental conservation agendas, did not capture as many votes. The result was about the same as in the US, we voted on conservative parties with no focus at the climate change, but more on human differences, immigration, and pension. So the question I asked myself was; why is differences, immigration, and pension important when we will probably in the end live together in a small area not devastated by climate change, probably without any pension funds? My point being, voters does not put enough pressure on politicians to implement more environmental conservation policies, such as carbon tax, and politicians only care about satisfying the voters to stay in office.
    I think that we need carbon taxes yesterday, and I think we also need at least as much subsidies to renewable energy. it is really understandable though that people working, for example, in the industry of producing electricity with coal, will get furious if politicians implement taxes on their industry. But as we all know, things change and we need to accept that. The world is moving forward, new industries emerge, and old ones expire.

    // Nils Erik Molin

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  4. It is definitely funny how the world works. You come up with an amazing groundbreaking idea then decades later people think of It and It takes off. Professor Nordhaus's theory of taxing polluters to fight climate change consists of companies paying a tax high or low depending on their pollution habits in hopes that they will stop the pollution so they can stop paying the carbon tax. The article mentions that recently Professor Nordhaus's theory took off and "The world is becoming a labratory for theories Nordhaus developed decades ago, when global warming was an abstract future threat." Global warming is now creeping up on us quickly and most countries have began the carbon tax. With the help of our new President Donald Trump, we can count on the carbon tax not being implemented in the United States -- well, as long as he is in office. Being that Donald Trump thinks climate change is a hoax and sought to roll back the USA existing climate change policies, we can count on more companies polluting our economy and getting away with It. I can not say I am surprised, Donald Trump is a business man, a successful one at that, and will always be on the side of big businesses and corporations. Because if we think about It, I am sure Trump would be one of the businesses paying a very high carbon tax because of the pollution his company causes. I totally agree with the fact that there would or will have to be some type of incentive to signing off and saying yes to the carbon tax. There would definitely have to be some type of revenue from the tax that goes somewhere beneficial to us. Im sure we would all love a check in the mail every month/year or free health care. We need to hop on the bandwagon before It is too late. It is sad that It is so hard to do something simple for the good of our economy (carbon tax) , but we have gasoline taxes that are equally as easy to implement as carbon tax , yet , Gasoline taxes are politically toxic. As a country, we have to do better. It looks like It has to start with our current president.

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  5. Prof. Nordhaus theory of carbon tax to fight climate change should be considered by governments all over the world. Some believe that pollution is a future problem and we should not go to the extent of “paying to pollute” yet. Although- these businesses are causing the most pollution to our environment and if we allow for this to continue- eventually it will be too late to just increase taxes.
    I was surprised to see that in 20 years, scientist expect that the planet will suffer from food shortages and destruction if we don’t take this action.
    President Trump making remarks about climate change being a hoax is the complete opposite of what we should be working towards. Everyone should be informed and aware of the existence of the environmental pollution and work together to help this problem. President Trump should focus on finding environmentally friendly alternatives to the oil industry instead of supporting their growth and high, devastating pollution

    -Almira Ardolic

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  6. Professor Nordhaus's interaction between nature and knowledge proves that there really is no other way to aid the climate change issue that we are facing without adding in policies that can help the paradigm shift. The carbon tax shows the economic consequences on the climate. He presented to us that there can be a substantial growth in the economy well also presenting to aid the climate so that we do not see our Earth lose its value.
    Prof. Nordhaus presented to us how the issue lies in the fact that in America we have created the climate issue as a political issue rather than seeing it as what it really is; an issue of climate change that needs to be attacked sooner rather than later. However, he brings into light how the EU is attacking the issue using the cap and trade. What sparked my interest was how the EU's projected carbon emissions was much higher than what is really was. Therefore, the price dropped dramatically. This proves that the system was flawed however they are working to improve it and work with it. This shows that the possibility of there being a tax on carbon can in the end show an increase in improvement.
    Reviewing his work, I wanted to learn more on what he had to say and why this all mattered. I figured out that the reasons why this was important that the EU's projections were flawed was that it was giving a bias to the side that does not favor lowering the carbon levels. IN other words, with the false projection, businesses were not improving on saving the climate. It also sparked to me that it was truly unfair that businesses were letting out these toxins but in return not being taxed on it. Whether their levels meant the cap or not, it did not matter. Therefore, I am happy to hear that Nordhaus was finally awarded on this and as a country we should move towards being like the EU and finding our medium.

    Martha Krawczynski

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  7. Professor Nordhaus's theory towards taxing polluters to fight climate change consists of companies paying a tax high or low depending on their pollution habits. This would hoepfully cause these people to decrease the amount of pollution they execute into our environment. Professor Nordhaus's stated that the tax on emissions was a catastrophic disaster in the European Union. In America we have created the climate issue as a political issue. We are attacking our own environment and we don't accept the fact that we are the cause of it. People are so stuborn to admit that we are ruining our health and the health of our environment. This theory should be worked on a lot more and applied maybe a little differently in America. This theory was applied in Europe and didn't have such a postive turn out as expected. President Trump is not helping the environment in any shape or form especially with his role in leadership. Yet, there is so much to consider as well and plan out then just propose an idea and work from that. We need to really consider our environment in this country and it's something that the President has to pay attention as well. To make a difference , people need to open their eyes and see what is occuring and how we can help this problem and create and safe solution.
    - Nicole Katsnelson

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  8. It is obvious that the increase in carbon emissions will lead to an increase in temperature. This climate change will lead to many natural disasters, such as floods and food shortages. It is not so much a natural disaster as a man-made disaster. The activities of human activity have led to a sharp rise in carbon emissions, and if left unchecked, will pay for it in the coming decades. Carbon taxes are considered a good way to reduce carbon consumption, but this approach does not seem to be valued by Obama or Trump. Increasing the price of carbon commodities will reduce the price of non-carbon intensive commodities due to the existence of substitution effects. So maybe the carbon tax is actually not very meaningful.
    I think that instead of limiting the use of carbon commodities, it is better to break through the technology and reduce carbon dioxide emissions based on meeting human needs.
    ma xue

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  9. William Nordhaus has spent approximately 40 years trying to persuade governments to address issues with climate change -- most notably by imposing a tax on carbon emission. The government should require polluters pay for damages cause to the environment and public health, which can be calculated through the Dynamic Integrated Climate-Economy model (DICE). His model assesses the costs of climate change through the consequences of climate policy interventions.
    Nordhaus' work can guide policymakers on the costs and benefits of limiting carbon emission to decrease the threat of global warming. However, the U.S. has yet to instill a carbon tax due to the anti-tax movement. He stated that this taxation failed in the EU due to a flaw in the design since taxation was dependent on predictions of future emissions that were much higher than actual emissions. Canada's implementation shows promise; by raising the price of carbon goods and lowering the price of non-carbon intensive goods, the government was able to decrease the production of carbon emission.

    -Christine Lin

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  10. In conjunction with Paul Romer's analysis, Nordhaus and Romer were able to design "methods for addressing some of our time's most basic and pressing questions about how we create long-term sustained and sustainable growth" (The Royal Swedish Academy of Science). Romer developed the endogenous growth theory, which shows how governments could foster innovation through investments in research and create regulations and policies that encourage new ideas of long-term prosperity (but not to an excessive amount).

    -Christine Lin

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  11. Professor Nordhaus’s work has helped discover, plan and acknowledge the threats of global warming for years. In the past decade, I believe global warming/climate change has become more of a threat than any before, and any other. It seems as though storms, hurricanes, and natural disasters are happening every other week. Through all else, I believe that a tax/ gap on pollution for companies at least, would help control the effects of pollution.
    A basic knowledge/ definition of climate change would have one belief or learn that climate change is real and inevitable because of the population of the earth. However, some people might not believe that climate change is real because they have not seen the effects that it has hands-on or in their environment (possibly called a bubble). And possibly because they can’t see it, they do not want to pay taxes on it. However, if 180 other countries have enforced similar taxes on the matter, it is likely that it is in fact real.

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  12. Professor Nordhaus’ theory and idea surrounding the taxing of pollutants caused by many major corporations is one sounds very interesting and achievable if managed properly. With much more focus on the environment and our impacts to the environment it is very obvious that steps need to be taken in order to preserve the world around us for the long term. This taxing of pollutants has a relatively strong backbone to it because it goes to the source of most of the world’s pollution, major companies. By holding these titans of industry responsible it demonstrates more of humanity first approach as opposed to focusing solely on capital gain. It was also very alarming to know that in a short 22 years we could see major earth catastrophes because of our negligence. This fact should give more incentive for governments to address the problem now and work toward finding a solution as opposed to simply pawning off the issues to later officials to have them find a solution. Even though it is mentioned that the theory is not perfect, steps need to be taken to help work to find a solution that is perfected. Theories such as the ones posed by Professor Nordhaus get the conversation started and help push the envelope to a more sustainable way of life. Companies and corporations should also be aware that these taxes are necessary in order in sustain their businesses for the long term. Short term capital gain must be reevaluated with this method to find us better solutions to a looming problem.

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  13. I think carbon tax is a good idea. Carbon tax corrects the negative externalities associated with carbon emissions. As we learned earlier this semester, “negative externality” is the cost associated with a good that is not reflected in the price of the item and must be paid for by someone else or in another way. However, I can see how those not in favor of carbon tax can argue carbon tax is a bad idea. Many people believe that a carbon tax or reduction in carbon emissions must come at the cost of economic growth. According to the Institute for Energy Research, carbon taxes are taxes on 85% of the energy we use. “A carbon tax would impose a new tax on the vast majority of our nation’s economic activity” (instituteforenergyresearch.org). Fossil fuels power our nation and produce 85% of the energy we consume in the U.S.
    The benefits of a carbon tax far outweigh any negative effects. The money gained from the tax and then returned to American citizens will stimulate spending, contribute to the national GDP, and create jobs. Additionally, the tax will also correct the negative externality of carbon and associated pollutants and decrease mortality, providing additional economic benefits.

    “A carbon tax is straightforward, requires very little additional bureaucracy, and is predictable” (http://citizensclimatelobby.org/laser-talks/carbon-fee-vs-cap-trade/). Furthermore, sometimes cap-and-trade doesn’t work; as in the case of the European Union, which set up a cap-and-trade system that has largely failed due to excessive permits in the system, leading to low prices on the permits, meaning that companies have little incentive to invest in other sources of energy.

    We are well aware of what carbon emissions have done to climate change and the environment. Corporations like power plants contribute to the sacrifice of ecosystems in the United States. Carbon is heavily relied on in this country, and the carbon tax is a great way to minimize use while keeping efficiency. If firms will not take actions to explore new clean energy sources such as wind and solar energy, carbon taxes must be implemented. The carbon tax will set incentives to use less of what is creating the pollution. The carbon tax and the cap-and-trade are both good methods, however, I believe the carbon tax is the best route. Although extra taxes are usually not favored, they are what gets corporations rethinking their decisions. With this tax, we are moving in the right direction for a cleaner world.

    -Jennifer Torsiello

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  15. Carbon tax is aimed to protect the environment and hopes to slow down the global warming by cutting carbon dioxide emissions. Although the implementation of carbon tax can help reduce environmental pollution, enterprises in the country where the measure is implemented may transfer to countries with loose environmental policies for this reason, which may lead to the outflow of domestic capital. Carbon tax can harm the industrial areas, compared with some high-tech industries, the emission of pollution gas in the industrial areas is much higher. This policy may even affect its normal business operation. Since, the carbon tax is not mature enough in some way. There is another solution to the problem, which is to carry out industrial reform. If they spend a lot of money to clean up the atmosphere, reduce poverty, improve production technology and reduce production pollution. In doing so, more people will feel that they are the real winners.

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