Watt about pricing CO2 emissions?

Watts Up With That (WUWT) has a recent post called an evidence based approach to pricing CO2 emissions. It’s about a proposal by Ross Mckitrick, an economist at Guelph University.

The basic idea – presented here – seems to be that we tie a carbon tax to the rise in global surface temperatures. The basic premise – I assume – is that if global warming is happening, surface temperatures will rise and so will the carbon tax. If not, the tax will remain low.

There seems, to me at least, to be at least two – related – issues with this idea. One is that if it’s really about global warming, then tying it to surface temperatures alone means that you’re basing it on something that is only representative of a few percent of the global energy imbalance. The surface temperature evolution is also strongly influenced – on roughly decade long timescales – by natural variability, so is not always a good indicator of the underlying global warming. If the carbon tax is meant to be related to combating global warming, then basing it on the rise in Ocean Heat Content would seem more suitable. At least 90% of the excess energy goes into the oceans, so the rise in ocean heat content is a better representation of global warming, than the rise (or not) in global surface temperatures.

The other, somewhat related issue, is that even if you do think that the global surface temperature is what we should be worried about, there is a difference between the transient response and the equilibrium response. There is a lag between the addition of CO2 to the atmosphere, and the time at which we reach an equilibrium temperature. There is some evidence that the transient response (or Transient Climate Response) is maybe lower than we have previously thought, but this simply means that we have more time, not that the equilibrium value will be lower than we thought. Given that it is the equilibrium value that we should be concerned about, the carbon tax should not be based on the transient temperature (as I believe that it is), but on an estimate of the equilibrium temperature.

As an aside, it does seem as though there are a number of quite high-profile economists involved in the whole climate change debate. It does seem as though a number of them appear to be quite skeptical (to be polite) of the dangers of climate change. This whole proposal come across as a bit of a challenge. It’s as if they’re saying, “come one, you think temperatures will rise; we think they won’t. Put your money where your mouth is!”. To many, this proposal may seem reasonable. To me, it seems like something that is intended to seem reasonable despite those involved knowing – given the scientific evidence – that it is almost certainly not a particularly suitable proposal.

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6 Responses to Watt about pricing CO2 emissions?

  1. Tom Curtis says:

    A temperature indexed carbon tax would be a good idea, especially if it undercuts denier opposition to carbon pricing in general. While an OHC index would be less volatile, and hence technically superior, I would certainly accept a mean decadal temperature indexed carbon tax if it would get conservatives on board. The same also goes for a predicted equilibrium response indexed tax, which conservatives inclined to climate denial would never accept.

    That does not mean I would agree to McKittrik’s tax as proposed. First, he insists the tax should be revenue neutral for the government (I agree), but that this should be accomplished by reducing income tax rates. It is a mistake, however, to substitute carbon taxes for other revenue. That is because, by design, carbon taxes are intended to have a reducing tax base as other energy sources are substituted for fossil fuels. In the long run, if tax substitution is employed, this leaves the government with a reducing tax base. So, rather than substituting for existing taxes, the revenue generated by a carbon tax should be returned by a dividend.

    The dividend can take many forms. Politically I would prefer a flat rate dividend, but that institutes a wealth transfer that many conservatives would not accept. I would certainly accept a dividend indexed to the sum of assessed income tax plus government pensions received (including unemployment allowances and the equivalent). That would reduce the income transfer without disadvantaging the poor. I would not accept a refund indexed to assessed income tax alone, as that would leave the poor with no compensation for price increases from the tax, ie, it would represent a wealth transfer from the poor to the rich. I would also accept a dividend paid solely to electricity and transport providers indexed to kWh of electricity produced or passenger/tonne kilometer of travel. That would minimize the direct price impact, thereby obviating the need for compensation – but would build in a price signal for suppliers to shift from high carbon emissions.

    Further, he insists the temperature should the tropical midtroposphere temperature. He is undoubtedly aware that the satelite TMT channel includes a high proportion of stratospheric temperature in its measure, stratospheric temperatures being predicted to decline under global warming. This means the trend of the TMT channel is about 80% of the true midtroposphere temperature increase. Further, the tropical midtroposphere is significantly more affected by ENSO events than the surface, making it more volatile. Therefore a surface temperature index is far more suitable. If he wants an index that includes a significant global warming signal, he is welcome to use the Arctic temperature signal, but I see no reason to not use the global signal.

    Finally, he wants to set his rate to reach $200 for IPCC predicted BAU temperatures in 2100. To me, that is shutting the door after the horse has bolted. Setting it for the 2050 prediction would be far more sensible.

  2. Interesting, thanks. I had missed the subtlety that the tax base would reduce if the tax were effective. You’re probably also right that basing it on the mean decadal global surface temperature would probably be acceptable but setting it for the 2050 prediction would clearly be preferable to setting it for the 2100 prediction.

  3. Actually in his paper, McKitrick specified “the tropical troposphere: the vast region from near the surface up to 16 km altitude”. If I’m not mistaken, that’s the low, mid, and upper troposphere. On Twitter, GWPF claimed the IPCC says there’s no lag between emissions and tropical troposphere temps, which sounds like a bunch of BS to me (as Chris Hope noted in response).

    If anything you would want to choose the lower troposphere to avoid the contamination of stratospheric cooling in the mid and upper troposphere (or better yet, just use surface temps). But in any case, as you note, these short-term data are quite noisy. As Tom suggests, a long-term average could be used instead.

    Possibly the worst part about the proposal is that he arbitrarily chooses to start the carbon tax at $10/ton, which is way too low.

    At least it’s a step in the right direction though, accepting the need for a carbon price.

  4. Yes, I hadn’t appreciated until after I’d written this that he was proposing using tropical troposphere temperatures, rather than surface temperatures. Admittedly, it is a step in the right direction, but that might be the best that can be said about it.

  5. Lara K. says:

    I don’t understand your conclusion that it is not a “suitable” proposal. It is not supported by the argumentation. Are you saying that there should be a tax regardless because a particular temperature measure is not acceptable? And, if surface temperatures don’t matter for taxation, how could they matter for anything else?

  6. Maybe my conclusion is a little stronger than the post deserves. Also, as pointed out in the comments, the proposal is actually to base it on tropical troposphere temperatures, not surface temperatures. The main issue I have is that it ignores the lag and doesn’t compensate for natural variability. Firstly, temperatures can be quite variable even while global warming continues, so basing it on temperatures misses some important indicators of global warming. Could probably compensate for this by basing it on decadal average, rather than annual temperatures. The other issue though is the lag. As we add CO2 we expect surface temperatures to rise (although we do expect natural variability could produce periods where it appears flat). If we were to stop adding CO2, the temperatures wouldn’t stop rising. The would continue rising until the equilibrium temperature is reached. The proposal doesn’t take this lag into account, even though – I would argue – it is this final temperature that’s important, not the instantaneous temperature. So it’s not that I don’t think a tax could be based on temperatures, simply that these other factors should be considered.

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