The USA is the only country that is unwilling to participate in the Paris Climate Treaty. Sad. But all is not lost.
In fact, it might be a very good thing, but not for the reasons you're probably thinking.
Instead, even though the USA won't be part of the Paris Accord, we could still maintain the role we've had for the past twenty years: the world leader in reducing greenhouse gas emissions.
Huh? How could that be?
The USA has led the world in greenhouse gas reductions over the past 20 years, most likely because lots of people have been working on all kinds of possible solutions, both government and private sector based.
Let me suggest a couple of new ways we could maintain our role as the innovator in ways to solve the problem.
Economists generally maintain that the best way to deal with global warming is to impose some type of a tax on carbon released into the air. Assuming that carbon release into the air is a bad thing – in my mind, a more than reasonable assumption – then penalizing those who do it certainly makes sense.
The idea of a tax on carbon has been around for a number of years, yet few countries seem to want to implement such taxes. Among those few that have that are the United Kingdom, Ireland, Sweden, Australia, and Chile. Here's the complete list. Australia had a carbon tax, but then got rid of it.
As a solution to carbon emissions in the USA, the typical carbon tax is pretty much "dead on arrival". Republicans find tax increases, in general, to be distasteful, but your typical carbon tax is especially repugnant.
An alternative to a straight carbon tax is a carbon trading scheme. This has been tried out in various countries. Unfortunately, some of the trading schemes have been poorly thought through, and clever arbitrageurs have found ways to circumvent the intent of the schemes.
These ways to reduce carbon emissions haven't gained the desired traction, so what else might be considered?
How about instead of penalizing carbon emitters we find a way to reward them instead? Sounds ridiculous, but bear with me, because I'm going to propose a way to reduce carbon emissions by providing an unusual incentive to those who are presently the worst offenders.
Here's the basic idea. Take your typical coal burning power plant in the USA. In any given year, the power plant will burn a certain amount of coal to generate electricity. My proposal begins the same place that the typical carbon tax does: calculate the total greenhouse gas emissions of the plant over a given period of time, likely one year. A good estimate of this can be determined by taking the total megawatt hours generated by plant into a year, then multiplied by 1640.7. The 1640.7 factor was calculated by the US Environmental Protection Agency. Having calculated this, the next challenge is to place an environmental cost on each ton of CO2 emitted. That number is variously estimated to be between $ 37 and $ 200/ton. Having then determined that, the effective environmental cost of running the coal plant can be determined.
Let's say that the last calculation yields a total cost of $ 100 million for running the coal plant. Instead of penalizing the coal plant operator, I instead propose the following "reward". To continue running the coal plant, its owner will then be expected to build a renewable energy facility somewhere in the world that costs the same amount as the emissions from the coal plant. The coal power generator will own the new plant. The company can build the renewables plant on its own, or have it built by another party. Once complete, the coal power operator will be able either to operate the plant itself or sell it to another party.
It may be unrealistic to expect the coal plant operator to spend that much on a clean energy plant each year. Instead, I propose two possible solutions. In the first, to continue operating the coal plant, the owner must build a renewables plant that can generate at least 5% of the capacity of the existing coal plant. If the coal plant is operated for 20 years, it will mean the entire capacity of the coal plant will be replicated in renewables.
The second alternative is to require the coal plant owner to invest the same amount in a renewables plant that the coal owner claims in depreciation on the coal plant. A coal plant operator wants to claim as much depreciation as possible each year because that tends to reduce the tax burden without negatively affecting cash flow. The bargain could then be, Mr. Coal Plant Operator, claim as much depreciation as you want, but you must offset that with an equivalent investment in renewables capacity … every year.
What's the outcome of this? First of all, the world will have just that much additional renewables capacity available. It won't eliminate the original offending plant, but at least it will result in the addition of more clean energy. In a sense, it's a penalty for the coal operator, but the coal operator can turn it into a financial win.
Faced with this, the coal operator has an incentive to build the best possible renewables plant that it can. That's because if it chooses to sell the plant to a third party, it will want a very good plant so it can obtain the best possible sales price. If it chooses to operate the plant, it will also want the plant to be very efficient because the coal company will want to make as much money as possible on its new investment.
Let's try a real world example. Duke Energy, one of the USA's largest utilities, and a major coal plant operator, owns a coal power plant at Belews Creek, North Carolina, not far from where my family used to live. Belews Creek is rated to generate 2.24 gigawatts of power. In 2016, it reportedly generated a little over 14 million tons of greenhouse gases. If Duke is required each it operates Belews Creek to build a renewables plant, that means it will create a 112 MW solar or wind plant every year (i.e., a renwables plant that can generate 5% of the capacity of Belews Creek). Cost of new plant construction will vary around the world, but a 112 MW plant would probably cost $ 100 - $ 150 million, something that's very realistic for Duke to be able to finance. If the cost of the plant is $ 125 million, for example, that is equivalent to Duke paying approximately $ 7.81/ton of greenhouse gases emitted by the Belews Creek plant.
Some environmentalists will howl, saying that this isn't getting rid of the original bad coal plant, and it's providing some type of financial reward to the coal operator. Well, correct, the new plant won't get rid of the original coal plant, at least right away, but it will cause the coal operator to think very carefully about future coal plant investments. This is because it will direct at least part of the coal company's capital budget to renewables. It will result in greater renewables capacity, a definite benefit for all. It will also force the coal company to devote managerial resources towards a renewables plant. In effect, it will push the coal plant operator to direct future investments towards renewables.
The same principal might also be applied to other carbon emitting plants, for example, plants that burn oil: require the operator to invest in a renewables plant an amount each year equivalent to 5% of the generating capacity of the current plant, or the amount of depreciation claimed.
If plant operators have to make these renewables investments each year, they'll effectively replace all of those greenhouse emitting plants within 20 years. It will likely happen more quickly.
Assuming this is a good idea, how might it be implemented? It could be done on a state by state basis. Alternatively, it could be legislated by Congress and apply to plants all across the USA. Other countries could also employ the same strategy.
Conservatives should like this solution because it does not involve any forms of tax. It also doesn't stop companies from making decisions on their own. It merely forces companies to make investments in renewable capacity, but the companies will own the improvements themselves.
Environmentalists should also like it, for two reasons. First, it will force the companies creating greenhouse gases to make investments in renewables. The companies otherwise might not make those investments. Second, it will increase the overall base of renewables.
There's another interesting way to solve the problem, one that's more comprehensive than my idea. It looks like a carbon tax, but it actually is a giant transfer payment, meaning the money collected as a tax is then re-distributed to someone else.
The idea was developed by Ted Halstead and presented in his much watched TED Talk. Halstead's idea is to impose a carbon tax, beginning at about $ 40/ton of greenhouse gas, then increase the "tax" each year. You'd think that idea would be "dead on arrival", but there's an important twist. At the end of each year, the amount collected in carbon tax is distributed equally to every US citizen. Thus, it's not a tax, it's a giant transfer payment, much like Social Security. It is definitely a clever idea and could be a great solution to the problem.
There's something even more interesting about Halstead's plan. It's a Republican one.
Are either of these ideas panaceas? Definitely not, but then the Paris Climate Accord isn't a panacea either, though you'd never know that based upon the hype surrounding it. As Halstead noted in his TED Talk, even countries that are absolutely, totally committed the Paris Agreement – countries like Germany – are highly unlikely to achieve their greenhouse gas reduction goals. It isn't for lack of desire, it simply is that government imposed mandates aren't likely to solve the problem.
Which is why it isn't necessarily terrible that the USA won't be part of the Paris Climate Treaty. Apart from the Paris Treaty, the USA can pursue all kinds of alternative solutions, particularly market-based ones. It already is, and while some people don't like to acknowledge it, the USA IS the world leader in greenhouse gas reduction. As a government-based initiative, the Paris accord will likely lead to lots of top-down, government imposed solutions. Some of those government imposed solutions will work, but lots will likely be pretty bad.
Yes, the USA is the only country not part of the Paris Climate accord. But it could still lead the world in solving the greenhouse gas problem.
