I see carbon credits as doing two things: (1) financially incentivizing corporations to control their emissions. I see carbon credits as a tax where the money goes to carbon negative organizations instead of the government. Would we be better off if this "tax" were funneled elsewhere? Probably. But, organizations like the Mass Audubon are not a terrible place for it to go. I'd be curious what the research shows on whether the laws in California have incentivized corporations to reduce emissions below the prior trajectories they were on. (2) producing a lot of data on carbon sources and carbon sinks that we did not have before. What can the field do with the additional data? Are the corporate and forest survey data made sufficiently public to enable researchers and innovators to get additional value out of it?
The other problem with these carbon schemes is they in effect, prevent the restriction or prohibition of certain technologies. For example, why ban supersonic transport due to their carbon emissions when the aviation industry would argue that the whole carbon schema will effectively take society to the same place?
It's a ridiculous argument though, because if supersonic transport were banned, the entire pie would be smaller to begin with, and there would be fewer carbon credits created for the marketplace as a whole. Same argument for bitcoin mining, and NFT.
Credits should only apply to valuable economic sectors in which it may be cost-prohibitive to otherwise achieve net-zero emissions. And even then, credits should be rare and hard-to-get, scrutinized like a 100 carat diamond, and verified only by a government agency impervious to political influence.
I think you’re saying that carbon credits should be expensive, and that there should be a well functioning risk-management framework around them and all the potential ‘defects’ that could occur, and that the purchasers should bear the risk of defects (unless they buy insurance). But the key point is that the price of carbon needs to be expensive.
Yes, but I'd add that they should only be allowed for essential business activities, not just anything. For example, why allow them for bitcoin mining, which a recent study suggests could take us beyond the 2 degree threshold, or supersonic aviation (which frankly, isn't essential but is on the drawing board for the aviation industry right now), or timber in the Western US, which is at extraordinary risk of devastating wildfires, or drought-related dieoffs in the next 10, 40, or even 80 years.
Hmm. As a devotee of economics I just don’t know where to draw the line at what is truly “essential”. I’m not against values being embedded in economic policy (arguably a progressive tax system or any form of social safety net is values embedded in an economic system). I’m not against saying that some things should be eliminated by policy because we have (by which I mean governments globally, cf Nathaniel Rich’s wonderful but terribly sad book Losing Earth) dawdled for so long that we need to do some things not that are efficient to have a chance of meeting Paris 1.5 or 2.0. I won’t be shocked if fossil fuel cars get banned in some countries in the next decade or 2, and cement construction massively curtailed. But all that is effectively implied by a high enough carbon tax, so I tend to think of them as functionally equivalent. I’m less concerned about policy detail so much as effect.
I agree in principle. But in reality, there are a lot of challenges. For example, global water resources are under tremendous pressure and desalinization plants will likely be built on a staggering scale in the next 100 years. Desalinization is already cost- and-carbon intensive (up to 6.7 tons of Co2 per thousand cu. meters of H2o).
If a carbon scheme is effective, it will force expensive credits on all industries including desalinization, and by extension, these higher water rates will hit local government and citizens. Desalinization will need to be given special baseline credits at a low cost (which undermines the scheme), or be exempted from credits but forced to use wind/solar to power it, with government funding from Day 1. The same holds true for ever-expanding bitcoin mining, future supersonic transport, and other growth sectors.
Some are clearly essential, some less so, and some are frivolous (such as fuel use of personal mega-yachts, as opposed to say, fuel use by small commercial fishing vessels -- should struggling fishers providing protein sources to a population really pay the same for carbon?).
We need to distinguish between these sources in a rigorous way so that the scheme has a chance to succeed, with sensitivity to the social justice issues involved as well.
I think we’ll have to agree to disagree on this one. The marginal warming impact of a ton of CO2 is the same whatever geography it comes from, whatever cause it is from. We have to stop them all. We can power desalinization with renewables (in fact, many places it’s needed are great candidates for solar). Revenues from carbon taxes can pay for important social projects. But bitcoin shouldn’t not exist because it’s a heavy user of energy - it should pay the same tab per ton of emissions as driving an ICE or a mega yacht or powering a desalinization plant. I think an even harder part will be the eventual taxation at the same level in countries with different GDP/capita. Poorer countries will need massive transfers from richer countries to be able to fund their transitions and pay for the taxes on their harder-to-mitigate emissions. But your point about “righteous causes” is the same in my mind - if these are important, we should fund them. But the prices on carbon need to be (a) the same on every ton everywhere no matter what geography or source, and (b) high enough that wealthy people / countries with (as you term it) frivolous uses can no longer afford these uses. Personally, I expect there to be 100% electric mega-yachts and private “jets” fairly soon, and except for the embedded carbon of construction (which would be equally effected by a carbon tax) I’m fine with that. I don’t believe we will get good policy if we combine moralizing with doing whatever we need to do to get emissions down really fast - regardless of source. That doesn’t mean that carbon pricing can’t be highly progressive - the costs of the carbon price are regressive (because lower income people typically spend a higher % of their income on food & transportation which are CO2 intensive), but if paired with a dividend / redistribution as Canada has done it can be very progressive in net and still impact emissions.
I admire your faith in those who would administer a carbon scheme, and wish I could share it. But I've seen a lot of well-intentioned environmental initiatives get gamed and watered-down, including emissions trading schemes for SOx and NOx, not to mention early EU carbon credits with absurdly inflated benchmarks.
Industry lawyers are invariably a few steps ahead of regulators, and it can cost decades for them to catch up. From a risk-standpoint, it makes sense to eliminate the worst variables rather than open Pandora's box a little wider (with credits for all who want them in any sector, for any use).
Coal mines are an example -- if we shuttered them altogether without a provision for credits to keep them open, global emissions pie would shrink on day 1, giving us one less arena in which to worry about gaming.
But in a pure world when every player is honest and well-intentioned, and regulations were not subject to political influence, an unfettered carbon scheme is the way to go.
Great post. I'd just say in particular for approaches that are not directly capturing carbon... it's actually a much harder problem than an A/B test on a website.
For example, the Brazilian study you reference uses synthetic controls, which are A COUNTERFACTUAL but not the only one. How well they work depends entirely on how well you believe those controls were constructed. And synthetic controls (as opposed to other techniques, like matching) are tough to investigate because they don't actually exist :-P .
Shameless plug: I wrote about some related issues surrounding evaluations (called SUTVA violations) in a recent post.
I see carbon credits as doing two things: (1) financially incentivizing corporations to control their emissions. I see carbon credits as a tax where the money goes to carbon negative organizations instead of the government. Would we be better off if this "tax" were funneled elsewhere? Probably. But, organizations like the Mass Audubon are not a terrible place for it to go. I'd be curious what the research shows on whether the laws in California have incentivized corporations to reduce emissions below the prior trajectories they were on. (2) producing a lot of data on carbon sources and carbon sinks that we did not have before. What can the field do with the additional data? Are the corporate and forest survey data made sufficiently public to enable researchers and innovators to get additional value out of it?
The other problem with these carbon schemes is they in effect, prevent the restriction or prohibition of certain technologies. For example, why ban supersonic transport due to their carbon emissions when the aviation industry would argue that the whole carbon schema will effectively take society to the same place?
It's a ridiculous argument though, because if supersonic transport were banned, the entire pie would be smaller to begin with, and there would be fewer carbon credits created for the marketplace as a whole. Same argument for bitcoin mining, and NFT.
Credits should only apply to valuable economic sectors in which it may be cost-prohibitive to otherwise achieve net-zero emissions. And even then, credits should be rare and hard-to-get, scrutinized like a 100 carat diamond, and verified only by a government agency impervious to political influence.
I think you’re saying that carbon credits should be expensive, and that there should be a well functioning risk-management framework around them and all the potential ‘defects’ that could occur, and that the purchasers should bear the risk of defects (unless they buy insurance). But the key point is that the price of carbon needs to be expensive.
Yes, but I'd add that they should only be allowed for essential business activities, not just anything. For example, why allow them for bitcoin mining, which a recent study suggests could take us beyond the 2 degree threshold, or supersonic aviation (which frankly, isn't essential but is on the drawing board for the aviation industry right now), or timber in the Western US, which is at extraordinary risk of devastating wildfires, or drought-related dieoffs in the next 10, 40, or even 80 years.
Hmm. As a devotee of economics I just don’t know where to draw the line at what is truly “essential”. I’m not against values being embedded in economic policy (arguably a progressive tax system or any form of social safety net is values embedded in an economic system). I’m not against saying that some things should be eliminated by policy because we have (by which I mean governments globally, cf Nathaniel Rich’s wonderful but terribly sad book Losing Earth) dawdled for so long that we need to do some things not that are efficient to have a chance of meeting Paris 1.5 or 2.0. I won’t be shocked if fossil fuel cars get banned in some countries in the next decade or 2, and cement construction massively curtailed. But all that is effectively implied by a high enough carbon tax, so I tend to think of them as functionally equivalent. I’m less concerned about policy detail so much as effect.
I agree in principle. But in reality, there are a lot of challenges. For example, global water resources are under tremendous pressure and desalinization plants will likely be built on a staggering scale in the next 100 years. Desalinization is already cost- and-carbon intensive (up to 6.7 tons of Co2 per thousand cu. meters of H2o).
If a carbon scheme is effective, it will force expensive credits on all industries including desalinization, and by extension, these higher water rates will hit local government and citizens. Desalinization will need to be given special baseline credits at a low cost (which undermines the scheme), or be exempted from credits but forced to use wind/solar to power it, with government funding from Day 1. The same holds true for ever-expanding bitcoin mining, future supersonic transport, and other growth sectors.
Some are clearly essential, some less so, and some are frivolous (such as fuel use of personal mega-yachts, as opposed to say, fuel use by small commercial fishing vessels -- should struggling fishers providing protein sources to a population really pay the same for carbon?).
We need to distinguish between these sources in a rigorous way so that the scheme has a chance to succeed, with sensitivity to the social justice issues involved as well.
I think we’ll have to agree to disagree on this one. The marginal warming impact of a ton of CO2 is the same whatever geography it comes from, whatever cause it is from. We have to stop them all. We can power desalinization with renewables (in fact, many places it’s needed are great candidates for solar). Revenues from carbon taxes can pay for important social projects. But bitcoin shouldn’t not exist because it’s a heavy user of energy - it should pay the same tab per ton of emissions as driving an ICE or a mega yacht or powering a desalinization plant. I think an even harder part will be the eventual taxation at the same level in countries with different GDP/capita. Poorer countries will need massive transfers from richer countries to be able to fund their transitions and pay for the taxes on their harder-to-mitigate emissions. But your point about “righteous causes” is the same in my mind - if these are important, we should fund them. But the prices on carbon need to be (a) the same on every ton everywhere no matter what geography or source, and (b) high enough that wealthy people / countries with (as you term it) frivolous uses can no longer afford these uses. Personally, I expect there to be 100% electric mega-yachts and private “jets” fairly soon, and except for the embedded carbon of construction (which would be equally effected by a carbon tax) I’m fine with that. I don’t believe we will get good policy if we combine moralizing with doing whatever we need to do to get emissions down really fast - regardless of source. That doesn’t mean that carbon pricing can’t be highly progressive - the costs of the carbon price are regressive (because lower income people typically spend a higher % of their income on food & transportation which are CO2 intensive), but if paired with a dividend / redistribution as Canada has done it can be very progressive in net and still impact emissions.
I admire your faith in those who would administer a carbon scheme, and wish I could share it. But I've seen a lot of well-intentioned environmental initiatives get gamed and watered-down, including emissions trading schemes for SOx and NOx, not to mention early EU carbon credits with absurdly inflated benchmarks.
Industry lawyers are invariably a few steps ahead of regulators, and it can cost decades for them to catch up. From a risk-standpoint, it makes sense to eliminate the worst variables rather than open Pandora's box a little wider (with credits for all who want them in any sector, for any use).
Coal mines are an example -- if we shuttered them altogether without a provision for credits to keep them open, global emissions pie would shrink on day 1, giving us one less arena in which to worry about gaming.
But in a pure world when every player is honest and well-intentioned, and regulations were not subject to political influence, an unfettered carbon scheme is the way to go.
Great post. I'd just say in particular for approaches that are not directly capturing carbon... it's actually a much harder problem than an A/B test on a website.
For example, the Brazilian study you reference uses synthetic controls, which are A COUNTERFACTUAL but not the only one. How well they work depends entirely on how well you believe those controls were constructed. And synthetic controls (as opposed to other techniques, like matching) are tough to investigate because they don't actually exist :-P .
Shameless plug: I wrote about some related issues surrounding evaluations (called SUTVA violations) in a recent post.
https://databetter.substack.com/p/what-kermit-got-right-carbon-credits
Great post, Jacob. Enjoyed it, learned from it, and thought you got it exactly right. Thanks for sharing it!