The Unbound Economy
Can Good Emerge From the BP Oil Spill?
Kenneth Rogoff
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CAMBRIDGE – Perhaps it is a pipe dream, but it is just possible that the ongoing BP oil-spill catastrophe in the Gulf of Mexico will finally catalyze support for an American environmental policy with teeth. Yes, the culprits should be punished, both to maintain citizens’ belief that justice prevails, and to make other oil producers think twice about taking outsized risks. But if that is all that comes out of the BP calamity, it will be a tragic lost opportunity to restore some sanity to the United States’ national environmental and energy policy, which has increasingly gone off track in recent years.
Why should there be any reason for hope, especially given that US environmental policy has been predicated on the unrealistic belief that relatively small subsidies to new energy technologies can substitute for tax-induced price incentives for producers and consumers?
The fact is, the BP oil spill is on the cusp of becoming a political game-changer of historic proportions. If summer hurricanes push huge quantities of oil onto Florida’s beaches and up the Eastern seaboard, the resulting political explosion will make the reaction to the financial crisis seem muted.
Anger is especially rife among young people. Already stressed by extraordinarily high rates of unemployment, twenty-somethings are now awakening to the fact that their country’s growth model – the one they are dreaming to be a part of – is, in fact, completely unsustainable, whatever their political leaders tell them. For now, it may only be black humor (e.g., the New Orleans waiter who asks diners whether they want their shrimp leaded or unleaded). But an explosion is coming.
Might a reawakening of voter anger be the ticket to rekindling interest in a carbon tax?
A carbon tax, long advocated by a broad spectrum of economists, is a generalized version of a gas tax that hits all forms of carbon emissions, including from coal and natural gas. In principle, one can create a “cap-and-trade” system of quantitative restrictions that accomplishes much the same thing – and this seems to be more palatable to politicians, who will jump through hoops to avoid using the word “tax.”
But a carbon tax is far more transparent and potentially less prone to the pitfalls seen in international carbon-quota trading. A carbon tax can help preserve the atmosphere while also discouraging some of the most exotic and risky energy-exploration activities by making them unprofitable.
Of course, there must be better (far better) and stricter regulation of offshore and out-of-bounds energy extraction, and severe penalties for mistakes. But putting a price on carbon emissions, more than any other approach, provides an integrated framework for discouraging old carbon-era energy technologies and incentivizing new ones by making it easier to compete.
Advocating a carbon tax in response to the oil spill does not have to be just a way of exploiting tragedy in the Gulf to help finance outsized government spending. In principle, one could cut other taxes to offset the effects of a carbon tax, neutralizing the revenue effects. Or, to be precise, a carbon tax could substitute for the huge array of taxes that is eventually coming anyway in the wake of massive government budget deficits.
Why might a carbon tax be viable now, when it never has been before? The point is that, when people can visualize a problem, they are far less able to discount or ignore it. Gradual global warming is hard enough to notice, much less get worked up about. But, as high-definition images of oil spewing from the bottom of the ocean are matched up with those of blackened coastline and devastated wildlife, a very different story could emerge.
Some say that young people in the rich countries are just too well off to mobilize politically, at least en masse. But they might be radicalized by the prospect of inheriting a badly damaged ecosystem. Indeed, there is volatility just beneath the surface. Modern-day record unemployment and extreme inequality may seem far less tolerable as young people realize that some of the most cherished “free” things in life – palatable weather, clean air, and nice beaches, for example – cannot be taken for granted.
Of course, I may be far too optimistic in thinking that the tragedy in the Gulf will spur a more sensible energy policy that attempts to moderate consumption rather than constantly seeking new ways to fuel it. A great deal of the US political reaction has centered on demonizing BP and its leaders, rather than thinking of better ways to balance regulation and innovation.
Politicians understandably want to deflect attention from their own misguided policies. But it would be far better if they made an effort to fix them. A prolonged moratorium on offshore and other out-of-bounds energy exploration makes sense, but the real tragedy of the BP oil spill will be if the changes stop there. How many wake-up calls do we need?
Kenneth Rogoff is Professor of Economics and Public Policy at Harvard University, and was formerly chief economist at the IMF.
Copyright: Project Syndicate, 2010.
www.project-syndicate.org
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Rogerlg 10:42 07 Jul 10
Robert Kessler writes: “wind turbine, solar panels... we have no clue how to supply the country's energy needs with them.”
To Robert Kessler,
The energy revolution already happened, sorry you missed it.
Jon Wellinghof, Chairman of the Federal Energy Regulatory Commission in the U.S., said on April 22 2009, that renewables and grid technology have advanced to the point where the U.S. may never need new coal or nuclear plants ever again.
No doubt, when he said that, he was well aware that global investment in renewables surpassed investment in coal, nuclear, and gas power all together.
But he was also well aware of the cost-effectiveness of cogeneration and the related technology of generating power with captured industrial waste heat; both of which are far less polluting than coal, and less dangerous and expensive than nuclear.
Since then, all these developments have come out, improving the outlook for solar and other renewables.
Storing green electricity as natural gas
http://www.sciencedaily.com/releases/2010/05/100505113227.htm
Researchers at MIT find yet another way to store solar energy when the sun isn’t shining.
http://web.mit.edu/newsoffice/2008/oxygen-0731.html
A team at the University of Texas finding ways to make solar panels more efficient:
http://www.businessgreen.com/business-green/news/2265144/solar-researchers-point
The International Energy Agency says that solar power could produce enough electricity to meet one-quarter of global demand by 2050.
Rogerlg 10:48 07 Jul 10
Robert Kessler writes: "The carbon tax is a fraud."
Hi Robert,
You wouldn't by any chance be speaking of the cap and trade schemes, would you? If so, then I heartily agree with you.
Lots of other people also recognize the dramatic differences between cap and trade, and the carbon tax; and they prefer the tax. That would include the CEOs of ExxonMobil, FedEx, Caterpillar, British Airways, Dynergy, and the former CEO of Duke Energy, Paul Anderson.
The list also includes Annie Leonard, star of The Story of Stuff. Here she is in The Story of Cap and Trade:
http://www.youtube.com/watch?v=pA6FSy6EKrM&feature=player_embedded
And here's a husband and wife team of lawyers, with over 4 decades combined experience at the EPA, warning Americans about cap and trade in The Big Mistake:
http://www.youtube.com/watch?v=uSNQzSjb38g
RobertKessler 06:31 07 Jul 10
Mr. Rogoff,
The carbon tax is a fraud, unless it's clearly stated purpose is to drive up the cost of energy to force consumers into government-favored supply technologies. Your article ignores the damge that will be caused by artificial maniplulation of supply costs. The reason that coal and oil are so carbon heavy is because they are so energy productive. They are abundant, concentrated, portable, and cheap. Our use of them is become more efficient every year. The attack on these legacy energy sources is an effort to drive consumers into alternate technologies that are being sold as viable alternatives, when the fact is that although we know how to make a wind turbine, and we know how to make a solar panel, we have no clue how to supply the country's energy needs with them. You are selling an empty box.
Secondly, the Deppwater Horizon disaster only exists because the environmental movement has successfully blocked access to onshore and near-shore drilling. Here is a perfect example of the consequences of your type of energy policy politicization. Environmentalists want to protect the environment, so they force drilling 100 miles offshore, and now we have one of the worst ecological disasters in history.
Finally, your appeal to young people in an appeal to an easly manipulated audience that feels their way to answers, as opposed to thinking their way. Young people looking at the Deepwater Horizon can't be expected to connect the dots back to the environmentalists. You, on the other hand, should be able to. And as the ethanol debacle should have taught us, picking favored technologies is an extreme hazard; harmiing existing technologies to game the outcome is courting disaster.