This week’s rant, a truly scary subject, the economics of Carbon pricing.
Last week I dabbled into the science of Climate Change by questioning the statistics of calculating the speed of change, as opposed to the veracity of the science itself. I gather from some of the comments of followers,that it still very dangerous to question the new elite on the dogma itself.
I feel far more confident in opining on the economics of carbon pricing since, at best it is not science but an educated guess. Just like projecting the behavior of consumers who are supposed to be rational in their decisions. We all know where this has led.
The theory of the new elite, is, that if you increase the price of Carbon, the backbone of most non-renewable energy sources, by artificial means (Taxation) consumption will fall and Climate Change will be slowed, or eliminated. The argument, as stipulated by the climate pundits, is apparently, based on a flat tax per ton of Carbon, that gives no effect to the elasticity of demand and supply evident in the present drastic reduction in oil prices.
The facts, as opposed to the theory, point in a very different direction. We know from actual experience that the price of energy is both cyclical and elastic. The demise of dreaded coal-fired power plants in North America is being driven by a drastic reduction in the price and an increase in the supply of Natural Gas. The glut in Natural Gas was caused by innovation (Fracking) not by taxation. Same with Crude Oil where the re-emergence of The United States as the largest producer of oil by means of fracking shale deposits is wrecking havoc with here-to-for pricing and taxation models.
Then we have China, the largest user of energy in the World, and about to become the biggest single factor in determining likely future World energy demand. A two percent drop in the anticipated growth rate in China has apparently recently caused a fifty percent drop in the price of coal. Again this change had nothing to do with taxation, but rather a change in monetary policy by the State Poobahs of the Communist Party. Longer term, it is a well-known certainty, that the Communist Party cannot afford to initiate any policy that will threaten the hegemony of single party rule, that is maintained by benign monetary policy and above normal growth rates in the economy.
So what we have right now, in North America and China, two hemispheres, that combined account for over fifty percent of World G.D.P, is falling carbon prices that will over time encourage consumption, and start the energy price cycle all over again.
So the hypothetical question for the new elite is would a carbon tax change any of this? This of course is a hypothesis only since there is zero chance of such a tax being instigated in the foreseeable future in the US or China.
I believe the answer is no. Any change would be marginal at best and would likely have very little affect on total carbon emissions.The current oil and gas glut was caused by high oil prices during the last ten years and ridiculous interest rates that have spurred an enormous new investment in production facilities. (Oil Sands and Shale Oil)
There is also a very big elephant in the mix. Easy money, or no cost money, has spurred the automobile Industry to build 16 million new vehicles in 2014, a figure not seen 2006. These vehicles are chock full of gadgets to increase fuel efficiency but do little to decrease emissions. They are also very expensive, but nobody seems to care.This might prompt the question as to how serious we are about reducing the carbon footprint, and how rational the decision-making process really is.
The problem with taxation for any purpose, other than funding government, is that it simply does not work. Just look at what has happened to income re-distribution by means of the graduated income tax, After years of futile effort the gap between the wealthy and the poor has grown rather than shrunk again because of easy money.
Would it not be far better to spur innovation that could be achieved at a fraction of the cost in money and human misery? The answer could well lie with the Hydrogen Molecule. We already have the fuel cell, where the by-product is water rather than CO2. The immediate problem is that hydrogen is expensive and difficult to store and transport but these are small problems compared to the disruption caused by punitive taxation.
In my mind innovation is the key to the survival of mankind. Time and again we have seen the profits of doom run out-of-town by innovation. The Peak oil Theory being one of the latest. It seems as though the elite make noise and grab attention by forecasting the continuation of a current trend way off into the future, without any regard to the science of innovation.
At various times the City of London has been forecast to be four feet deep in horse poop or blinded by perpetual coal inspired fog. As we all know neither happened, because of, first, the invention of the automobile and second the discovery of Natural Gas under the North Sea. Despite this history the profits of doom are busy once more, although such dire forecasts have done nothing to bring down the most expensive real estate in the world.
History has shown us that Innovation is inspired by opportunity and leadership rather than taxation.