Back in 2008 Nat Keohane, the director of Economic Policy and Analyst at the Environmental Defense Fun put out an article on the Congressional Budget Office’s(CBO) report. Then he got some phone calls from the CBO. And not just the media office or some low level member. First he got a call from a senior analyst. Later he got another call. That one was from the director. Now while these people are highly intelligent and knowledgeable about the subject, after talking with them Nat was more convinced than ever that he stood by his article and ended up writing another post about how he stood by his article and why. Mr. Keohane had put a paragraph in his article that wasn’t exactly stunning praise of the CBO report. He called it a theoretical exorcise and said the analyst had a faulty premise.
One of the major concerns Mr. Keohane had was that the report compared a carbon tax with as he said a “straw man”. His straw man was an inflexible cap and trade system. A system like this would preclude banking and borrowing. Nat contends that no one is actually proposing this type of system. The analysts at the CBO make the argument that they started with a simplified cap and trade to give something easy to understand without an economic background. While this is a normal and well excepted strategy for academic papers, Mr. Keohane points out that while it may work for an academic paper it is not a good use for a paper that will drive policy.
The second major concern is that the report builds its analysis on a faulty premise. The CBO report looks at annual emissions of greenhouse gases, but not the total accumulation in the atmosphere. The article points out that while annual emissions are something that we can manage, it is that total accumulation that drives global warming. And while it annual emissions build that total accumulation, the article makes the argument that since the total comes from many sources policy needs to focus on managing total accumulation.
This premise becomes very troubling when you start looking at the damages. If you think of the damages of a ton of greenhouse gas there is a given amount, so that each additional ton of gas would add a fairly constant amount of damage. If viewed in this way a carbon tax appears to be the most effective way to manage climate change. Since this is what the CBO is arguing for they don’t have any problems with this outcome. However scientists argue that the increase in damages from each additional ton of greenhouse gases is not a constant but each additional ton would add a non-linear amount of damage when you take into account the total accumulation of greenhouse gases in the atmosphere.
When you consider it framed in this manner you will find that the better way to manage all of this is that of a cap method not the carbon tax method. The CBO report does point out that eventually enough greenhouse gases would hit a tipping point that would change the analysis of the problem. If we were to hit that tipping point we would come to an irreversible process in which ice sheets would start melting. This could then cause the sea level all over the planet to raise just over 20 feet. When you consider all the major cities that would be either completely or partially covered with that rise, you would have a major problem for the planet, both in terms of human life but also in terms of economics.