I sat next to a distinguished climate scientist at a recent dinner, who told me point blank that “carbon markets have failed, which means one should give up on market based approaches to reducing emissions”. After the ecologist on my other side had heimliched a poached organic beet from my windpipe, I launched a vicious full frontal attack on said climate scientist’s blue-eyed dreams of a world that only gets 1.5 degrees warmer. We all have our fantasies. In my fantasy world, we aggressively tighten caps or raise carbon taxes to reduce emissions. In his world, we use lots of public funds to develop a vacuum, which sucks all additional carbon out of the atmosphere some time mid-century.
The chorus pronouncing cap and trade as a failure has become louder and is often echoed by my friends in the physical climate community. It’s not a song I enjoy. What’s the supporting evidence? It’s always the same: Prices are too low and emissions reductions have been too small. Well, duh. If you set a loose cap, prices will be low. Then there is grouchy mumbling of manipulation of markets and whining about offsets. Where there’s a will (for more emissions reductions), there’s a higher price. So let’s talk about more emissions reductions. The type of emissions reductions needed for limiting warming to 1.5 degrees Celsius.
My buddies over at Carbon Brief analyzed how many years of current emissions it would take to limit warming to below 1.5 degrees Celsius. To make a long and super nerdy story short, we will blow through the remaining carbon allowed to limit the “chance” of exceeding the 1.5 degree target to 66% over the next 5 years. If you are willing to lower the “chance” to 33% you might have 16.5 years. This means we need to go to zero emissions by as soon as 2021. Yes, fellow economists, I can hear you laughing. This is about as likely as Donald Trump picking Bill McKibben as his VP. We have 2 billion people without access to electricity, explosive growth in energy consuming durables across the rapidly developing world and some of the lowest fossil fuel prices in recent memory. Even if you double these timelines and give us 30 years, this economist is highly skeptical that we can get there.
This is where the vacuum in the sky comes in. The argument by my dining companion was that we should mobilize massive amounts of public (and possibly private) capital to focus most innovation in this space on developing a technology that removes CO2 from the atmosphere. This would prevent us from having to suffer the higher prices from those pesky carbon markets and we can get our 1.5 degree world. This vacuum won’t be free to install or operate of course. You will still want to engage in all mitigation efforts with lower marginal cost than the magical Miele. In fact, the way you would incentivize a carbon vacuum is probably by marrying it to a cap and trade system. To this rational economist and his even more rational friend Jim Sallee (who pointed this out), the vacuum and pricing should be complements, not substitutes.
To be fair, there are some ambitious efforts under way to develop such technologies and they might just come about. But, I am not willing to bet my planet on it. In fact I think this line of argumentation is just plain reckless. This is the equivalent of arguing that an obese person should continue eating Monte Christo sandwiches for breakfast, lunch and dinner, since surely weight loss science will provide a pill that will prevent reasonably bad long run health consequences. And, if you aren’t a fan of geo-engineering, this should make you worry too. Betting the farm on direct capture makes geo-engineering a Plan B (which, you know, is the second letter of the alphabet).
So what do we do? We economists will swallow our pride and admit that we live in a world that will in most places not go for pure price based approaches to reducing emissions. We will put a price on the heads of as many carbon molecules as we can, kill the rest by (gulp) using the least offensive versions of command and control policies. We should then get serious about R&D in all sorts of things, including that giant vacuum in the sky. We should do this with or without revenue from a carbon tax or cap and trade. I seriously hope that vacuum works. Because if it does, I am going out and getting myself one of those 1965 Shelby GT350s. That will probably be on my 130th birthday though. What a wonderful world that would be.