By Nate Hagens: Carbon Fee and Dividend: It Won’t Work

I’ve had an uneasy feeling for a long time that a carbon fee and dividend policy proposed by many bright minds such as James Hansen will not work. My feeling was based on the fact that wealth is proportional to energy consumption and most of our energy is fossil carbon so unless you are reducing wealth you are not reducing CO2.

Proponents of carbon fee and dividend policies believe that it will drive consumption towards renewable energy but do not understand that renewable energy cannot generate the same level of wealth as fossil carbon. So the policy will cause an economic decline and risks a public backlash when it becomes clear that the policy was falsely advertised.

The following comments from the Google discussion group America 2.0 by energy/economy analyst Nate Hagens were made in response to Robert Marston Fanney’s post titled Climate Change Changes Everything — Massive Capital Flight From Fossil Fuels Now Under Way.

Nate makes a strong case against a carbon fee and dividend and makes some important points that I missed.

I suspect you’ll agree this post is horribly naive. Scribbler gets the [climate] science right, but the systems analysis/economics wrong. The reason Arch coal and other energy firms have enterprise values heading south isn’t because of divestment but because of global deflationary depression – started by a continual money machine that creates principal out of thin air but not interest – and the interest (and eventually principal) has to be serviced and paid back with growth based on energy and non-renewable resources flows, which (still) cheap fossil co-workers account for 90%+ of the planetary labor force.

“investors by the droves are now engaged in removing their assets from fossil fuel based companies.”

Unless they also change their lifestyles ‘by the droves’ it won’ matter one bit.

I gave a talk locally last week to the Citizen Climate Lobby, following James Hansen. Hansen is championing a ‘fee and dividend’, where carbon is taxed and the revenue is then given to the poor (or other areas of society – not the government). I paste below what I wrote to some friends after my talk:

Though debating Fee and Dividend was a small % of the total event, I thought I’d lay out the logic I presented to see what I missed, or if you all disagree or agree or other.

Here is their logic/detail on Fee and Dividend…

My main points:

1) I’m in favor of energy being more expensive as a transition to a different type of economic system, but taxing carbon by saying it will grow our economies is naive, ignorant and poses systemic risk.

2) Fee and dividend conflate the dollar value of carbon and the work value of carbon. When we tax say gasoline $1 and give that $1 to say, the poor, this is claimed by CCL to be ‘revenue neutral’ and the behaviors shift somehow so that the economies grow. This econometric-based analysis ignores the biophysical aspect of energy inputs. E.g. if we take 1 dollar of energy out of the economy and transfer it, we also are taking 90-100$ worth of ‘work’ done by that gasoline. So the dollars are the same, but the work is (much) less. Economies usually contract using this math, not grow.

3) The economy is a heat engine, requiring 7.1 milliwatts per $ (constant over time), but we now live in a world where financial claims far outweigh the natural resource and energy ability to service them. Any company or nation that reduces energy use (that can’t print their own currency) will be at severe disadvantage. 90% of global work force is carbon co-workers. We want to grow the economy but fire these workers. It doesn’t make any sense.

4) If we use $1 less of carbon, and give that $1 to someone who didn’t drive or use air conditioning etc., they will go spend that $ at a coffeeshop, at WalMart, at an amusement park, etc. There are extremely few activities in our world that are ‘carbon free’. Carbon free in our modern world is almost an oxymoron.

5) To distribute carbon fees as dividends to the poor as a combinatory climate mitigation and wealth inequality tool, risks a large backfire. The lowest 2 quintiles of our society spend 100% of their income. The top 5% spend 7% of their income. In a world with depleting oil fields (not 1 year view but 10 year view), a carbon fee with the money going to the poor quickly rebounds as a large call on more oil/gas/consumption as we are taking abstract wealth (digits in bank) and having them become an immediate call on natural resources.

6) British Columbia’s carbon tax is an excellent case study on why policy framed around climate action won’t ever work (in my opinion of course). Annual emissions declined from 2005-2013 but are now projected to significantly increase through 2020. This is happening because govt didn’t stick to the cost of accelerating carbon above $35 a ton, plus the carbon neutral projects were a colossal failure because developers just got $$ to develop property they would already destroy but just at a slower rate thanks to the carbon tax. And all this happened without accounting for the increase in carbon exported through BC through coal and shale oil.

7) As long as we optimize dollars (as in a market system), the dissipative structure that is the global economy will just get larger. So fee and dividend is just a feel good mechanism to shift where the heavy lifting is done. Arranging deck chairs without reducing emissions. And definitely without reducing emissions at the levels needed.

8) As long as there are one or more countries that don’t tax carbon, (and as long as goods that are made with coal are not subject to a special tax), then adding the carbon tax will tend to move manufacturing toward countries without such a tax. This will increase the advantage that these countries already have because of the use of low-priced coal in manufacturing and home heating. (Wages can be less with coal, too!)

9) The dividend likely increases demand for products from these countries, because of the mix of products poor people buy.

My talk was well received but this aspect of it was very unpopular as I hit a lot of emotional buttons on people who are already fully committed to fee and dividend outreach and activism. I suspect leisure is a great supporter of virtue and when the ‘economy is going south or souther’, there will be some switching of teams. I hope to be wrong about that as I do think the sapient thing is for energy [prices] to be gradually become much more expensive, in an accelerating manner.


Jay Hanson’s response:  Nice summation Nate. Fossil fuels are a dirty word on Scribbler’s site. Try commenting about their importance to the economy and the modern world on his site and you will be censored and banned from further commenting. He believes renewables can replace all fossil fuels without drastically changing our way of life. Many prominent climate scientists believe that we can innovate our way out of this mess as well. This is the major disconnect preventing any substantive discussion on root causes for human overshoot and the inevitable collapse to follow.

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