215 Comments

Matt, the part about deadweight loss is a bit off.

The point of Pigovian taxes (taxes on negative externalities) is to *eliminate* deadweight loss by internalizing the externalities of the transaction. As things stand, fossil fuel consumption *produces* deadweight loss because we overconsume relative to the socially optimal level. Buyers don't have to pay the full costs that their consumption induces, so they consume more, and we're all left worse-off.

A properly-tuned Pigovian tax has no deadweight loss. That's what makes them so appealing.

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This is just what he means by saying "the deadweight loss can be a positive" even if you dislike that framing. You're speaking from a perspective that includes the externality, he was speaking from one that doesn't, then adding the externality on.

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Yeah, I see that. I think it's off because that uses "deadweight loss" in a way that one wouldn't in an econ textbook (and the section was coming from "what would you learn in econ 101"). And it's confusing, because it loses sight of the net effect on society, which is the whole point of such a tax. Hearing "there's a deadweight loss if you leave out externalities, but if you include them it can be good" doesn't bring you all the way to "if you fully tax the externalities deadweight loss is zero"

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founding

I think it depends on how you conceptualize deadweight loss. I think usually, the assumption is that every voluntary transaction provides net social benefit. So if you do something like putting on a tax or capping supply, you prevent voluntary transactions and thus reduce net social benefit. Similarly, if you subsidize purchases at some cost to third parties who have no choice in the matter, then you get excess voluntary transactions and get some net social harms when you take into account those third parties. You have to eliminate these taxes and subsidies in order to eliminate deadweight loss. Negative externalities are these subsidies, and so you have to impose a tax equal to them to eliminate them and bring the deadweight loss to zero.

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"I think usually, the assumption is that every voluntary transaction provides net social benefit."

I think we need to revisit this assumption.

As a first approximation, all transactions rely on fossil fuels, and, therefore, all transactions have negative externalities. Note that this is true even without climate change, because by consuming fossil fuels now, we take away from future generations the possibility to consume fossil fuels later.

Then, of course, are the negative externalities related to climate change, which are already hitting supply chains.

Moreover, does anybody here know how much calories of fossil fuels we need to produce one calorie of food? (I tried to find exact numbers recently, what I found was between 3 and 10).

And then there is declining biodiversity.

And the list goes on. In summary, even under moderate estimates of negative externalities, we need to rethink how we can create markets that do increase wealth instead of decreasing it.

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founding

Yes. This is what I take to be the basic idea of good neoliberalism - understand the sources of market failures, and price them in in such a way that the resulting markets will no longer fail.

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I am not an economist, but from what I have seen mainstream economics is not coping very well with externalities. I remember that a highly esteemed economist once said to me "Externalities are the exception". Upon which I tried to find examples of transactions free from negative externalities. It is really difficult. I still don't remember whether I could come up with a single example.

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Economists understand externalities plenty well, including those from climate change: https://www.econstatement.org/

The problem is getting voters and politicians to also understand--and act on that understanding. Even so, there are 5 carbon pricing bills in Congress, https://www.rff.org/publications/data-tools/carbon-pricing-bill-tracker/ , one of which has 95 cosponsors, HR 2307:

https://energyinnovationact.org/how-it-works/

As many skeptics of the usefulness of economics in solving climate change point out, trying to put a number on all the costs of climate change is really hard. Economic thinking is essential to the solution but the usual measure of losses, GDP, has limitations: some things aren't counted by GDP (a nice cool breeze on a summer evening, hiking without having to worry about deer ticks virtually year-round), some things that do affect GDP are hard to measure (how precisely can you measure the reduced output of manual laborers in extreme heat? Never mind their increasing discomfort, which goes in the first category to the extent it doesn't reduce their productivity), and some problems actually add to GDP despite reducing the quality of life relative to pre-warming (e.g., air-conditioning houses in the Pacific Northwest; building sea walls). Here's an alternative approach that works backward from the assumption that the costs of climate change are going to be very high and tries to find what carbon price is necessary to get us to net zero by 2050 to keep the lossses manageable:

https://www.nature.com/articles/s41558-020-0880-3

As for "transactions free from negative externalities," how about your subscription to Slowboring? There are tons of explanations of the concept on the Web; here's one from the Berkeley prof who writes about inequality with Piketty:

https://eml.berkeley.edu/~saez/course131/externalities1_ch05.pdf

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I agree that putting a number on externalities is hard. But putting no number on it is also putting a number on it, namely zero. So we have to face it. And economists and politicians should lead the debate.

If I understand your question about my subscription to Slowboring correctly, then it highlights one of the problems, namely that lowering our carbon footprint is not an individual problem but a collective one. After all, markets only work if we prize externalities in. We need to do this together and a carbon fee and dividend is one measure that is easy to do and helps us getting there.

And thanks for the links to the Nature article and the lecture notes of Prof Saez. I didnt know him, but he seems to have plenty of interesting material on his homepage.

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I have a book I've already read, you want to buy the book from me. You give me $3 I give you the book.

What's the negative externality? I spent calories handing you the book?

I could have recycled the book instead (although the book can still be recycled)

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Jun 13, 2022·edited Jun 13, 2022

You send the book by mail, fossil fuels get burned.

But otherwise, yes, that has a chance of coming close.

But most transactions in our economy are not like this.

Another area for possible examples is education. I love to teach, my students get to learn sth, that should be positive sum. But then the buildings are airconditioned, running on fossil fuels, teachers and students have long commutes all driving in their own car, etc

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Let's suppose I send the book by UPS(leaving out the federal post office to simplify subsidy questions). I paid for postage. To the extent that fossil fuels are burned and there's a negative externality, that's in the me<-->UPS transaction, not the book sale.

The UPS transaction should include the externality of those shipping costs. But... even then not directly. They pay for fuel, and that fuel use puts carbon in the air that nobody is charged for (there's the externality) and that's one.

If you want to call my transaction responsible for an externality at least 2 transactions away that then.... of course basically nothing is free of them, but I think that's stretching the point.

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What is important in this debate is to recognize that the invisible hand only works in our favour if prizes do include negative externalities. Without including negative externalities, economic transactions lower our wealth (even if we refuse to acknowledge this).

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founding

I think there are three groups related to climate change and that leads to difficulties in reaching good policy options:

Group 1 are the climate change deniers. These folks used to be dominant in the Republican party, and they still make up a too-large percentage of people. It would be nice to ignore them, but they vote. Actual (rather than forecasted) data is reducing their numbers, though slowly. I have no idea how to reach these people.

Group 2 consists of those who believe climate change is happening but the effects will be mixed. Some places better off, some not. Humans and the environment will adapt and we'll all learn to live with the change. Anyway, it happens over a long time period and people want to enjoy their lives now. This group thinks we should do things to reduce carbon, but not at very much expense to today's economic situation.

Group 3: Those who believe climate change is real and the effects will be catastrophically bad. I think this encompasses most climate change journalism, activists like Dave Roberts and most of the Democratic Party. For these folks, high oil prices are acceptable, production is to be discouraged by any means possible and there is no level of economic pain that is too great to forestall the species-ending outcomes of climate change.

A solution is to have group 3 and group 2 find common ground similar to what Matt Y suggests. But when "the future of the planet" is at stake, I don't see a path to compromise. Which is very discouraging. The downside risk is the group 1 and 2 folks find common ground.

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Your categories are obviously, purposefully reductive, so I won’t fault you too much for this, but I think you’ve failed to capture a key group for this blog in particular: people who think that climate change is much worse than the Group 2 folks you describe, but are also realistic about what the political system will bear and want to encourage as much decarbonization as is politically sustainable.

I don’t believe “our planet is on fire” catastrophe porn, but I also think the situation is much worse than “meh, we should probably try to do something, but we’ll be fine in the end.”

Put me in group 2.5. I think Matt is in group 2.5, too. He writes a lot about heat pumps! And just as REF says we should create a home for former group 1 folks who have seen the light, we should also create a home for people who (correctly!) think climate change is really really bad but so far have only found common cause with the DO SOMETHING activist cabal.

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"The downside risk is the group 1 and 2 folks find common ground."

They don't even need to find common ground... group 1 simply needs group 2 to be frustrated and demoralized by whatever group 3 is saying.

And what group 3 is saying, of late, lends itself to very little other than frustration and demoralization.

I cannot tell how many times I've wanted to shake someone talking about climate change or handing out fliers on the street corner and say "no one who already lives a decent life wants to hear about misery, so sell them on a positive vision!"

The only people who find the current mode of talking about climate change attractive are either too young to be thinking about how their adult lives will play out or already members of the "over-educated, under-employed" demographic that wants everyone else to be forced to live in the state of mild material deprivation they do.

And the stupid thing is, for all that you and I bicker about timing, the technology is already either extant or within sight to support today's developed world standard of living (if different in details) for everyone without destroying the planetary ecology.

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So I haven't yet read Matt's post but I want to thank you for alerting me to The History of the Americans! I was winding down, and going insane from, my covid isolation and desperate for something new and interesting to listen to. It's great, and it reminded me to read 1491 and 1493, books that have long been on my list! Thanks so much!

Having admitted that I haven't yet read the post, but speaking of Charles Mann, I encourage you to read The Wizard and The Prophet, which touches on the dynamics your comment refers to, as well as The Spirit of Green by William Nordhaus, which gets into them quite deeply, if you feel like it.

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It seems disingenuous to say "effects are mixed" in group 2. "Sure, Joe has nicer weather and John and his family have to flee their country because they can no longer grow food. Seems mixed to me." Most of group 2 think that it is bad but far from catastrophic.

If you are trying to help out the refugees fleeing group 1 who are still looking for a way to assuage guilt over their previous position, please just add an "it's mixed" group.

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I don’t think it is surprising that supply-side climate activists will take both sides of the argument on the impact of domestic oil production on price. Because, as Roberts explains, the activists are not incentivized towards increasing the price of oil to decrease carbon emissions. Instead, they’re primary focus is on fundraising and volunteer recruiting. At times their best marketing strategy is to sell the argument for increasing prices by strangeling out domestic supply. At other times that argument is less palatable. This is no different from car manufacturers highlighting their fuel efficiency when gasoline prices are high and shifting to marketing other features when consumers aren’t focused on prices of gasoline.

At the end of the day, we need to accept that activists of all stripes are first and foremost focused on fundraising. I actually think there is a productive line of attack against counterproductive lefits NGOs based around this truth. Rather than attacking supply-side climate activists for their poor approach to limiting emissions, we should instead praise them for their innovative and effective marketing campaign. We should compare and contrast their marketing strategies through a capitalistic lens no different than how McKinsey would critique Coke’s branding. We should offer advice on how they can create a better product to sell to their donors and suggest books on corporate marketing.

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As you suggest, revenue capture is the primary goal of just about everyone: doctors, lawyers, pharmaceutical companies, solar panel manufacturers and dog catchers.

One wrinkle is many grass roots activists truly don’t care about making money when they are being activists, just as I dont care about making money when I am playing pickleball. Some amateur activists think professional activists are sellouts for collecting salaries. They have a point.

However, unpaid activists are querulous and very difficult to organize. Full time, unpaid activists are either drifters or trustifarisns. These types are not great at cooperating or discerning the desires of the median voter. They rarely get results.

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As someone who spends time talking to strangers in public places about why we need to price carbon, I think you are being overly cynical about activists. I'm sure the heads of the Sierra Club (which fights solar farms and transmission lines when they annoy enough people and nuclear all the time) and other big environmental groups think about what policies will be popular with the foundations and wealthy donors but the average person simply does not think in economic terms about pretty much anything, least of all climate change. And to the extent that they do, those who are interested in climate tend to have adopted Elizabeth Warren's nonsense (especially if they're under 40). However, those who are not ideological do-nothings (mostly because of negative partisanship--owning the libs) can sometimes be convinced that raising fossil fuel prices is the most efficient way to reduce their consumption, but it takes a while.

I don't know about converting the groups themselves. Most of them would lose their reason for being the moment Congress passed a significant and steadily rising carbon fee. Evergreen, for instance, was founded on the belief that carbon pricing is politically impossible and therefore will never assist in helping it become possible.

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It's fair to say that green activists shift their arguments, but rather than 'sell[ing] to their donors' what you could consider them to be doing is simply 'ensuring green issues stay at the top of the agenda'. If you believe climate change is a serious problem that requires a significant amount of effort from political elites to resolve, then this 'shifting emphasis' or whatever we want to call it is a greater good, even if it isn't completely honest.

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When you need to convince people of a ‘threat’ that will impose costs on them and must be taken on a certain amount of faith (I haven’t personally reviewed any ice core samples have you?) it’s very destructive to be so openly deceptive. Climate activists really need quite a bit of social and institutional trust to ever move forward. Very shortsighted when they beclown themselves.

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All the hysteria about 1.5 degrees or death has made me very cynical. If they lie to me about that, won’t they also lie about the efficacy of sea walls, air conditioning, and gradual migration towards cooler regions?

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If you still doubt the seriousness of climate change after the past few years' weather events you may be overly cynical. By the way, from a global perspective, the US is one of the cooler regions. As a Slowboring subscriber you may be a fan of 1 Billion Americans but even its author won't like the way it happens under extreme climate change.

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over the past few years, cold has caused more human misery than heat. even during some of the hottest years since the last interglacial period, covid infections shot up during the winter and killed millions

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climate change can cause cold too. I was in Texas when it froze over last winter. 250 people died.

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Don't know how you've calculated that. Covid spreads much more indoors than outside. People in hot areas go inside when it's uncomfortable outside, which is pretty much all the time now in places like Phoenix. People in cold areas do the same. So there may be an opposite seasonal factor in hot and cold areas. But it's hard to look at a map of deaths per capita (click on that) and conclude that, at least in the US, cold climates are more dangerous than warm ones:

https://www.nytimes.com/interactive/2021/us/covid-cases.html

Focusing on ambiguous effects of Covid rather than heat waves, floods, hurricanes, and tornadoes is a tad selective. If I may ask, how old are you and where do you live (I'm in my 60s and live in the northeast)?

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Who is lying to you? And why do you assume it's a lie?

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Who's to say warming will magically stop at 1.5 degrees. 1.5 degrees is a completely arbitrary figure based on the expected temperature increase by a completely arbitrary date. If climate change keeps on going and going, eventually the entire planet is at boiling temperatures, and all life on earth goes extinct.

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You say it's 'openly deceptive' but I strongly doubt most people have noticed this shift in emphasis on the part of green activist groups; normal people don't engage with political arguments on this deep level. Most people pay attention to their wallets, and to the last 3 or 4 things they heard people say.

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I mean if no one pays attention to what anyone interest in climate is saying than whatever I guess? Nothing they do matters?

To the extent people are paying attention and what they do does matter, the strategy outlined above will only be effective on a very short time horizon and will long term undermine credibility. But climate action will require longer term consensus and action. So it is not a good idea.

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So to be clear, is it your argument that there is a long-term *reward* in politics for rigid intellectual consistency, even when it involves short-term admissions that things you absolutely don't want to happen (eg from Roberts' perspective, more drilling for fossil fuels in the US, a deprioritisation of environmental issues)?

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Some things are amenable to a short term coalition. Passing a bill to expand heathcare for example: the beneficiaries will receive a new benefit if you do it and they will (or should) know they are and become a constituency for defending it. Climate is an ongoing problem where the credibility of the relevant experts and activists is paramount.

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In which case, these organizations are, in the main, stupid instead of mendacious.

I fail to understand how this is better.

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You need to think in terms of effectiveness, not in terms of intellect or virtue.

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Jun 13, 2022·edited Jun 13, 2022

For instance, I'm pretty strongly pro-action on climate change.

However, whenever I hear some dire report on the consequences if we don't achieve X by 20YY, I automatically assume it is hyperbole and/or lying-by-statistics.

If even I do that, then most of the rest of society (i.e. everyone but True Believers) is probably going to be even more skeptical.

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What evidence do you have to 'assume it's hyperbole?'

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The history of massive amounts of hyperbole on the topic.

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I think he is.

Being blatantly deceptive and hypocritical is dumb precisely because it will impede effectiveness.

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I am thinking in terms of effect.

So let me rephrase: If these organizations say that their tactics and framing are effective, they are either stupid or mendacious.

I happen to subscribe to Matt's theory that their incentive structures are fucked and therefore they're (the senior people at least) mostly acting mendaciously.

But if what you say is true and their motives are genuinely altruistic, then they are simply stupid and bubbled, because their actions are not effective.

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Some activists are in favour of a carbon fee and dividend, which is not interested in fundraising, but putting money into the pockets of every citizen.

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This take is rational- too rational. Opposing domestic oil production is not a rational proposal, it's an emotional one. (To be clear, I think there is value in both emotion and rationality, generally speaking.) Activist groups are not purposely advocating for something they know is ineffective in order to keep raking in dough. They simply think oil is bad, so we should leave more of it in the ground. Something like if someone is opposed to pornography, they think people should stop producing it, even if someone else will pop up and fill the demand anyway. Tweets like the one from Roberts are just a post-hoc rationalization of one's emotional opposition to oil, period.

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You are spot on about much objection to domestic oil being emotional. Emotional reasoning also seems to lead to more motivated reasoning so activists are going to find some way to reason that cutting domestic oil production will have a big difference and that if oil prices go up people won’t start voting for politicians that will lower gas prices and don’t care about climate change

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I recognize this was primarily an economic and supply/demand argument, which I think is correct on the merits, but there is also a reasonable climate argument to be made for continued (and ever cleaner) US production.

Russian gas is among the dirtiest in the world when you add the vented/leaked methane from it's production and transportation. Not too mention the wasted flaring volumes that still produce CO2. Places like Iran and Venezuela are also quite bad purely in climate terms. Basically anyone who is not the Saudis/US/Canada is making a dirtier marginal barrel of oil/gas, often in systems with little regulatory interest in emissions.

Much like pricing, modeling precisely is hard, but it certainly makes sense that if you are going to burn carbon, you might want to do it as cleanly as possible - having the marginal barrel come from us, as opposed to Iran, actually has real climate consequences for the better (not to mention the geopolitical side).

https://www.iea.org/data-and-statistics/charts/total-methane-emissions-and-methane-intensity-of-production-in-selected-oil-and-gas-producers-in-2020

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This is a very good point and should probably be stressed more

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many smart points here but a quibble: this is not as many EVs as "can" be made..it's as many as can be made now given the industry's previous investment decisions about capacity and previous failures to assure supply of components. And also "oversupply" is the same as back-up redundancy which is no sin except under the unfortunate regulatory paradigm for electricity.

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Nice article Matt! 👏 This is an example of why after 4 months of free riding I finally stepped up to an annual membership last week.

I may not agree with you very often, but you try to address topics honestly as they are without infusing unicorn dust to make everyone feel better. And when you advocate for a dream or vision you usually label it as such. Thank you for trying to address issues from the left of center honestly.

I am all for addressing the carbon issue in a responsible way and I agree that we will eventually come to see that some type of carbon tax will need to be involved to wean us off of the oil/coal pipelines. Now for the disagreement. Where we probably disagree is how that tax is implemented and trusting government to use the revenue responsibly (ex: what happened to all of the smoking settlement money??). I have no confidence that the revenue generated will be used to address climate change.

You could say money is fungible and that specific tax revenue doesn’t need to be tied to carbon reducing environmental actions. I would counter, looking at our $30T debt with yearly $1T budget deficits, what makes you think government can spend money effectively? Any new revenue would cause the health care, childcare, college, UBI, advocates to step out of the shadows farther.

My specific grumbles with your article are toward the end. You mention the greenhouse gas reductions that started under Obama by listing his wind and solar initiatives first then segueing into the NG boom. Even with the massive subsidies wind and solar have received, our total generation percentage from them is only around 10%. In raw numbers, the increase in BKw hours generated from the NG boom (mostly driven by market forces, not government) is about double what the wind and solar added (based on numbers from 2006 – 2021). BTW, that NG increase is largely due to fracking which is the devil incarnate to the environmental movement.

I have nothing against wind and solar and no love for oil. I think all government subsides should be eliminated for all energy production, including oil. But pretending that we are anywhere close to eliminating fossil fuels in the next 50 years is a dream. Especially while ignoring the only true always on, zero carbon energy source – Nuclear. Over that same 2006-21 time span the raw BKw hours from nuclear has stayed steady and is now on the decline due to plant shutdowns and lack of new sites.

I’m not a nuclear freak either, I just want to encourage discussion of reality. Speaking of reality – electric cars – their cost and performance still cannot compete with gasoline. Even if they were equivalent, we are nowhere near ready to produce the number of batteries required to make a dent in the demand for oil anytime soon (and the electric push assumes we have converted electricity generation away from oil).

I would prefer the government spend it’s time and our tax dollars on targeted carbon projects that are hard to justify in the market (ex: solar powered carbon capture farms??) instead of subsidizing the upper classes’ virtue signaling with $7,000 rebates on Teslas. If carbon tax dollars could be credibly promised to be spent on actual carbon addressing projects, it would be easier to get conservatives like myself to support more government revenue (taxes).

Again, great article and if I was in the Denver area, I would definitely stop by tonight!

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"I have no confidence that the revenue generated will be used to address climate change." There is a solution to this. It is called the carbon fee and dividend. (There is a quite detailed discussion somewhere in the comments,)

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> cost and performance

Can you clarify what you mean here?

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An equivalent electric car is (I don’t have any real numbers) like 20% higher in sticker price than a gas powered. Admittedly, if battery production achieved full scale, electric would become more cost competitive because they are less complex to manufacture. I also know there is a long term payback in fuel cost savings, but when do typical Americans use long-term thinking in buying a car (it’s all about the monthly payment, thus the ridiculous expansion of leasing expensive trucks and Cadillacs).

The range/charge/refuel times are not equivalent. The current range numbers (250-300 miles) are really lacking when you factor in power for air conditioning & heat for the climates in much of the highly populated areas of the US.

And Matt alluded to the electric challenge in supporting the US addiction to trucks. I am not advocating against electrics, I just want everyone to be realistic with their expectations and appreciate that it will take more than a few decades to eliminate gasoline vehicles (especially globally).

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Jun 13, 2022·edited Jun 13, 2022

> The range/charge/refuel times are not equivalent

I see this a lot, but it's not really a relevant comparison, because a) the vast majority of people who are in the market for an EV can charge at home, where the time doesn't really matter, and b) the number of trips per year where you'd even max out the range of an ICE car are, what? 2-3? If you're someone who makes a lot of multi-hundred-mile car trips, then, yeah, maybe you're not in the market for an EV, but for everyone else, they're great. And with DC fast charging, you can get to 80% of full in 15 minutes, which is maybe slightly longer than the stop you'd make on the highway, but not by much.

The downsides of range and charging-time are often wildly overstated. The bigger problem, and one that doesn't get a lot of press because all this stuff is still pretty new, is that the _state_ of public charging equipment varies wildly and it's not uncommon to pull up to a charger and find it doesn't even work. That's the #2 problem to solve with EVs, #1 of course being rolling out way more charging stations.

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"a) the vast majority of people who are in the market for an EV can charge at home, where the time doesn't really matter, and b) the number of trips per year where you'd even max out the range of a ICE car are, what? 2-3? If you're someone who makes a lot of multi-hundred-mile car trips, then, yeah, maybe you're not in the market for an EV, but for everyone else, they're great. And with DC fast charging, you can get to 80% of full in 15 minutes, which is maybe slightly longer than the stop you'd make on the highway, but not by much."

I'm sorry, people don't really think like this just yet. It would be more rational to rent a pickup the 4 times a year you really need one. No one did that even before the rental market went to hell, they bought pickups.

You can talk about the range being fine all you want, but unless people have a second gas car they do think about the two times a year they drive to Grandma's and their driving vacation in the summer.

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I agree with the spirit of your comment here. I will note that DC fast charging is *currently* not widely-available enough to be a real solution. A situation which is quickly resolving.

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It's available along interstates, which should be good enough for most people.

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My comments about electric cars were geared toward total replacement of gas cars, not good use/second car arguments. My point is going away from gas cars is going to be a long, difficult, costly path, not a 10- or 20-year process.

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I wasn't making "second car arguments". It is entirely possible *right now* to replace your gas car with an EV, it's just slightly less convenient for long road trips.

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Jun 13, 2022·edited Jun 13, 2022

Yes, how much extra, if any, an electric car costs is quite arguable. The "performance" part of your comment is still arguable, but less so. It depends on what your priorities are. In many ways, electric cars *significantly* out-perform ICE cars, but in other ways they underperform.

My point is that your assertion about cost and performance was kind of...overstated.

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I am not an electric car/battery engineer. I do not have confidence in either direction other than what comes from looking at the sheer numbers of gasoline cars in existence and the wide variance in performance requirements. My point is that electric cars are not a silver bullet a mere decade or two away as many advocates like to pretend.

Just look at the simple case of golf carts. 100% conversion to electric golf carts seems like a no-brainer solution. I know it is on an upswing like everything else electric, but if electrification was as simple as some like to pretend, it would have been completed a long time ago.

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Jun 13, 2022·edited Jun 13, 2022

> My point is that electric cars are not a silver bullet a mere decade or two away as many advocates like to pretend.

That may be your point, but it's different from what you originally stated and which is what I was reacting to.

Also, if that is your point, you haven't yet really made a cogent argument for it yet. (Though I do agree we won't have total replacement of gas cars within 10-20 years)

(I'm not an electric car advocate. I do not own one, and I probably won't for at least a few years.)

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I thank you for the engagement and don’t want to drag this out any further, but my original comment included:

“Even if they were equivalent, we are nowhere near ready to produce the number of batteries required to make a dent in the demand for oil”

I’m sorry if that was unclear but what I had in mind was that we would be fantastically successful if the US car fleet was even 50% converted in twenty years. To say nothing about the global requirements for energy outside of the US. So, I have not changed my point, only clarified. I am also not trying to prove anything in a 10-minute post on a good article. The electric car stuff was a side note to my original intent.

We cannot linearly scale up the 8% power generation we have gotten from wind (solar is just a 2-3% blip) over the last 15 years and it is also not an always on solution. If we are serious about carbon, it needs to be an all hands-on-deck scenario that includes nuclear and curbing consumption. And Matt is right, vilifying oil or cutting off their capital is not a solution.

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Jun 13, 2022·edited Jun 13, 2022

The supply-side climate activists' biggest success hasn't been defeating any single project. It has been convincing Wall Street not to finance hydrocarbon exploration and extraction. US oil companies aren't doing much exploration for new oil currently. They don't want to have any new, expensive projects on their books, because when the price of oil drops they won't have anyone to finance them during the downturn. The oil industry has been told they are a dying industry, and dying industries don't invest money in new projects, they return it to their shareholders. If the Democrats were seriously concerned about how gas prices will affect them electorally, Biden, Schumer, and all the regulatory appointees would signal to Wall Street that it is okay to finance oil companies. Or, they would pass legislation that provides *a lot* of funding to CO2 capture and sequestration research, and would start directly funding the burial and sequestration of CO2. This would tell oil companies (and Wall Street) that they will still exist in 20 years, and it is okay to begin new projects right now.

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Honestly, any time someone says "cabal" these days its a huge red flag that you're about to read a terrible take.

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I used to think "a carbon tax can't really be that unpopular, can it?"

Then the American people were like "we will send an army of wife-beaters to the Senate if that's what it takes to lower gas prices" and it all made sense to me...

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Jun 13, 2022·edited Jun 13, 2022

I am more and more convinced any (at least center-left or more right) climate change policy that does not include a carbon tax is just a fig leaf to not have a real policy. (A cap and trade is a carbon tax in disguise, with the side benefit of being a better vehicle for corruption and a worse carbon price, further left and they would do it all by regulation but actually mean it).

A slow, stable but slowely rising but known well in advance carbon tax is the best method of influencing investment decisions where they are not easily prescribed through regulation.

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Regardless of climate activist actions, I think it will be incredibly difficult to encourage substantially more private investment in domestic oil production and refining projects. I just think that there is too much uncertainty and downside risk as we transition to green energy.

Afterall, how many of us would be willing to invest a non-trivial portion of our networth into a new domestic fossil fuel project that doesn’t plan to start generating cash for 2 to 10 years? Putting aside the morality concerns around investing in fossil fuels (a la ESG investing), does it look like a lucrative bet? What is the risk we end up in another oil boom and best similar to the 2015 shale financial implosion? Could OPEC+ choose to increase production to again strangle out the US oil industry? What does the regulatory future look like? To what extent will green energy get increasingly cheaper and crowd out fossil fuels even without government action?.

I personally can’t see domestic fossil fuels being a good investment without some massive changes in market factors. We could implement Yglesias’s idea for decreasing oil volatility by massively expanding the strategic petroleum reserve to soak up domestic oil when it’s cheap and sell it into the market when it gets expensive. [1] But I just don’t think the political calculus will work out.

Climate activists will be outraged by this plan to encourage more domestic fossil fuel production through what is essentially an industrial subsidy. Voters may like the idea in theory, but right wing populists will criticize the plan to artificially raise the price of oil when supply is abundant. They’ll call it a backdoor carbon tax, which is not inaccurate. Worse of all, if the US government introduces a mechanism to control the price of oil then there will be political pressure to keep the price low. Now that the president actually has a lever to control the price of gasoline they’ll always be compelled to shift the prices lower.

[1] https://www.slowboring.com/p/america-needs-an-actual-plan-to-boost?s=r

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To some extent, industry is already grappling with your questions which I'll summarize as: will people bother investing into a new domestic fossil fuel project that doesn’t plan to start generating cash for 2 to 10 years?

It's true that cash flow and balance sheets have been the focus because of all the risks you mention - although I'll argue that fear of another 2 to 6 years of the current regulatory environment (with ??? After that) does chill investment.

At the same time, even before the Ukraine crisis happened and permits for LNG terminals got "unstuck", people were investing billions and billions in new LNG capacity even before the tone changed and those permits became easier to get.

The offshore leasing sale (now vacated by a court) in the Gulf of Mexico brought in $192M in upfront bids, for projects that are probably 8 to 14 years out.

Pipelines are having a tough go off it in the regulatory environment, but people still want to build them (and places like Columbia University's climate change center is calling for more of them to reduce emissions faster!).

Sure, investment is looking at downturn risk, their bad returns of the last 15 years, etc, but the economic models of the most optimistic climate change scenarios still have us using lots of fossil fuel (plastics/petrochem/ccus industry/etc) out past 2050. This requires continued investment and the oil companies know it. It's more of a question of where will that get produced, who will get the money, and how cleanly (relatively) will it be done.

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We shouldn't "encourage" additional production, just not restrict it. The Strategic Petroleum Reserve and its operation is a good idea if, like any other project, its NPV > 0.

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Should we look into ending sanctions on Venezuela and Iran? Maybe we should focus on the most dangerous geopolitical foe save the second tier players for later?

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Jun 13, 2022·edited Jun 13, 2022

This may be a dumb comment, but I don't get the idea behind a carbon tax. If gas prices or heating costs go up because of a carbon tax (putting aside the complicated idea of redistribution for now), I as a consumer am supposed to do . . . what? Go out and buy a Ford F-150 Lightning that doesn't exist because it takes years for production capability to go up? Switch my electricity sourcing from fossil fuels to renewables (assuming I have that tool at hand) where the renewables are dependent on new wind/solar/etc capacity being built, with all the attendant transmission and grid issues that need to be worked out?

Sure, price signals work over time, at least to some degree. But what's the logic of imposing large costs now on consumers that won't yield benefits for years and years? Unless it's only to reduce consumption -- don't go on that family trip and move your thermostat down in the winter. In other words, vote Republican.

Maybe I'm missing something here, but I just don't get it.

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A carbon tax should start small and slowely ramp up to give you time to do these things before the cost gets too steep. Basically so that you have the incentive to replace with more efficient when you were going to replace anyway instead of forcing a premature change, but you know higher prices are coming so you should be willing to pay a bit more now, knowing the return will be there. And if you don't, don't complain then about the higher prices.

Also a rebated carbon tax does not remove any money from the economy, unlike higher priced imports.

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I don't get this. (Again, I'm going to put aside the rebate question; my belief is that people will feel the taxes a lot more than they'll appreciate any check they get from the government.)

If the initial tax is very small, I as a consumer won't do very much, except feel somewhat irritated. Now maybe on the margin I might decide to get an electric induction stove rather than a gas one, but if the electricity is still dirty my doing so has no benefit and I guess I'm somehow continuing to pay the carbon tax on that dirty electricity. How is my choice of an electric stove pushing the grid away from fossil fuels?*

As for paying dollars now so I'll be incentivized down the road to change my behavior and to seek out lower-carbon alternatives. . . well, that doesn't accord with any human psychology I'm familiar with.

* What will change that, as many jurisdictions are doing, is to forbid gas hookups in new construction, and mandating a higher % of renewables in future electricity generation. But there's no tax and there's no assumption that consumer behavior is having some long-range and delayed effect on these types of decisions.

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Jul 6, 2022·edited Jul 6, 2022

Re: "if the electricity is still dirty my doing so has no benefit and I guess I'm somehow continuing to pay the carbon tax on that dirty electricity. How is my choice of an electric stove pushing the grid away from fossil fuels?"

Yes, the short-term price elasticity of energy use is much lower than the long-term price elasticity. But utilities will be paying the same carbon tax as you and if the tax has scheduled annual increases (as all sensible carbon taxes do, such as the carbon fee and dividend plan of HR 2307), then they will alter their long-term investments to minimize total generating costs, which means using much less fossil fuels than without a carbon tax. Likewise for industry, housing (whether owner-occupied or rental), transportation, etc.

You're not "paying dollars now so I'll be incentivized down the road to change my behavior and to seek out lower-carbon alternatives," you're paying a small fee now, that will probably only reduce your emissions a little, but it's the larger fees in the future that are your incentive to change your future behavior. If that "doesn't accord with any human psychology I'm familiar with," why do market economies outperform command and control economies all over the world?

https://www.rff.org/publications/reports/waiting-for-clarity-how-a-price-on-carbon-can-inspire-investment/

Banning gas hook-ups in new buildings is good where it's politically possible but only an economy-wide carbon tax will efficiently reduce emissions in every sector. Mandating an increasing percentage of renewables in electricity generation is much less efficient than a carbon tax (and most of the politicians that are vehemently against pricing carbon are just as vehemently against such mandates).

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I do not have the statistics on this but an important thing to consider is that households are not the entirety of energy usage. Large entities think more long-term, have liquidity to finance investments in reducing their energy expenditures, etc.

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yes, like the utility that generates the electricity to power his induction stove. People underestimate the efficacy of even modest carbon taxes to reduce emissions from the power sector:

https://ceepr.mit.edu/challenges-and-opportunities-for-decarbonizing-power-systems-in-the-us-midcontinent/

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Then if you don't react the first time, you will the next time when it is steeper.

Electrifying demand is neccisary to reduce FF use. Even if thebelectrical supply is not shifted at the exact moment the demand is, it will be ready as it is. Electrical demand has to be there to be able to decarbonise current non-electrical users.

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How do people that rent cope with a carbon tax if they don't control their appliances or HVAC method?

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The biggest benefit of renting is that you're much more mobile than if you own. So renters could, for example, move somewhere with more efficient heating or appliances. Or they could move for a shorter commute.

I've only owned a house for a few years now, and I actually think it would be a lot easier for me to become more efficient as a renter. Now that I own a house, if I want more efficient appliances, I need to go out and buy them. When I rented, I could have just moved to a newer apartment. (For whatever reason, I kept ending up in old buildings. I got pretty good at installing window wrap...)

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Why it is slow, when people rent a place they will take into account utilities when figuring what rent is worth. Thatbisnalso an area regulation would have leverage over. "Rental appliances shall be energy star rated if utilities are charged to tenant's" would probably work. Landlord can either upgrade or inrnalize the cost by including utilities.

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If your natural gas heating costs are high enough, then you’re incentivized to switch to a heat pump.

Similarly for your water heating, stove, gas dryer, etc. Home electrification is a practical and helpful step for folks, especially if we incentivize it.

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"If gas prices or heating costs go up because of a carbon tax (putting aside the complicated idea of redistribution for now), I as a consumer am supposed to do . . . what?" There is a solution to this, the carbon fee and dividend. It puts the tax back into consumers pockets. To get started you will probably spend the dividend on gas and heating. But carbon-free products will now be cheaper. So the carbon fee and dividend incentivizes using less carbon. So you get the best of two worlds: The right incentives and long-term consequence from the tax, but without hurting consumers due to the dividend.

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If gas prices or heating costs go up because of a carbon tax (putting aside the complicated idea of redistribution for now), I as a consumer am supposed to do . . . what?"

I don't know about you in particular (Do you own a home or rent? What's your commute like? Do you have the option to work from home?), but people in general would do the same things they already do when prices go up. The simplest is to consume/travel less since that doesn't require buying anything. That's basically the short-term effect.

For longer term, it does impact people's purchases. That doesn't necessary mean running out and buying an electric car (altho that is an option). For people who own houses, it could mean getting a home energy audit (which is subsidized by many utilities --- at least in the US) and doing some air sealing/insulating on their house (likely much less expensive than a new car). Renters don't have as many options for increasing heating/cooling efficiency (there are some --- e.g. window wraps/films), but renters have mobility that could help in other ways (e.g. moving closer to work for a shorter commute, moving to a newer or more efficient apartment, etc.)

As others pointed out, getting more efficient appliances or HVAC is another option. In most cases, this probably means buying something more efficient when the existing appliance breaks. (Replacing a working appliance probably isn't cost effective unless it's super inefficient.)

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We have amazingly different views of what the American voter would ever sign up for.

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I made no comment on what American voters would sign up for. Those are some actions that reduce energy usage in general. If energy prices go up, those actions can save money regardless for the reason of higher energy costs.

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Sure, my question that you quoted seemed to be centered on how would consumers respond to higher prices and it's true that they would respond to them by, e.g., doing some of the things you lay out.

But that's in the abstract. What's key is that the voters would never never never willingly sign up for that regimen.

Imagine a politician campaigning on the pledge to raise gas taxes five cents.

IOW, let's look in a different solution set than carbon taxes until we can replace the American electorate with another one more amendable to carbon taxes.

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Yes: you, Matt, and I all agree that voters won't go for it. If you wanted to make that point in your post, it would have been useful to mention voters at least once --- and how they won't go for it --- instead of asking how consumers could respond to increased prices.

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I thought I did that pretty explicitly.

The whole "drive voters to the Republicans " thing.

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Relating is helpful in this regard, and not at all complicated. Take total tax receipts, divide by total eligibility number of people = rebate. Maybe a slight adjsutment for pop density etc.

The idea is yes, you do all those things, but by knowing the expense is coming you don't buy efficient things only if you happen to replace it during a spike in energy prices.

The flat rebate should ensure you as a lower than average user have some extra resources to mitigate the cost increase. Yes it is tough if you are an above average energy user with below average income. Maybe in certain circumstances a separate program could target those rural areas to help a bit. But if not, maybe your lifestyle is unsustainable.

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Dave is wrong. And he got very angry and blocked me because he did not like me explaining in detail why he was wrong. That didn't change the facts of course. He remains wrong. Probably one of the dumbest things any environmental activist proposes is the whole idea of "keeping it in the ground". Apparently they are under the impression that all extracted oil and gas is burnt. It is not. A huge and increasing percentage is used to make pretty much everything. And if you keep it in the ground you are not simply eliminating CO2 you are also eliminating synthetic fibers (most of our clothes), plastics, rubber and every other thing made with petrochemicals. Almost nothing that is made today does not include those very petrochemicals.

Mind you Matthew was also wrong to assert that domestic production would make the US independent of Middle East or any other kind of oil. What's in a barrel of oil you ask? Depends on grade of course but primary distillation dictates what you can extract or make downstream from those fractions. It does not matter whether or not the US produces more barrels of oil than it uses in aggregate. When it comes to gasoline it matters that the extracted fraction that the US needs to make gasoline matches supply to demand. And it hasn't done that for a long time. The last major refinery built in the US with full downstream processing capabilities was built in 1977. Now the industry has labored to increase the throughput of existing facilities with amazing success. But they are at their limit. When you see a utilization graph that says they're consistently above 95 percent utilization that should tell you something. Barring imports you are one or two unanticipated shutdowns away from a severe gas shortage. And those imports come from the international markets. There is no way to insulate yourself from the world.

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The environmental problems with oil production are not just about CO2!!! Your whole "case" is written with the assumption that CO2 is the only environmental cost, but think about, e.g., ANWR, or Deep Horizon, or Valdez etc. We have a very finite number of protected natural environments on Earth, and oil production, unlike, say, timber production, continues to destroy those few remaining environments.

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