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Carbon Price Distorts

September 13, 2013

Putting a price on carbon distorts all economic calculations wherever the carbon price is used1.

The higher the price on carbon, the greater the distortion.

For example:

There is no question, using accepted accounting practices, that electricity generated using coal is less expensive than electricity generated using wind, but, by assigning a price of $15 per ton of CO2 emissions, the EIA has established that electricity from wind costs the same as from coal.

Now the administration has determined that the price of carbon should be $36 per ton.

Using this new price, electricity from wind will be cheaper than electricity generated by coal — a complete distortion of economic reality.

The DOE and EPA introduced this new price when establishing guidelines for microwave ovens.

This was done without public notice or hearings. It was slipped in, under the radar, until it was noticed a month or two after the ruling was announced. The EPA’s rationale was to refer to Executive Order 12866 that requires economic evaluation of regulations, including the Social Cost of Carbon (SCC) in the evaluation as the result of Executive Order 13563, issued by the current administration.

Executive Order 12866 is worth reading because it outlines some of the criteria used for establishing the price on carbon, such as damage caused by sea level rise2. Damage from sea level rise (SLR) is absurd, because even the IPCC has established that sea levels won’t rise any faster than in the recent past few hundred years.

It should be noted that the SCC is determined by computer models. These models vary in their estimates of the correct social cost, i.e., carbon prices from $12 to $129 in the year 2020.

In other words, the models don’t agree, and have, what can only be described, as huge discrepancies. There’s no reason why the EPA can’t choose $129 rather than $36 for the price of carbon.

Once again, GIGO3 is the basis for government policy on climate change.

The new higher price on carbon will allow the EPA to establish regulations on everything from power generation to the use of air-conditioning.

Suddenly, the cost of electricity from natural gas-fired power plants will increase, so that solar and wind become cheaper than electricity generated by natural gas power plants.

Regulations governing refineries will result in higher gasoline prices as they are required to install new equipment to capture CO2.

Any price on carbon can affect investment decisions and stock prices. Suddenly bad decisions become good decisions — and vice versa. A price on carbon will distort the stock market.

It’s conceivable that the EPA could establish regulations for lawn mowers, based on the fuel they use, e.g., biofuel, gasoline with oil mix, gasoline alone or electricity.

Again, it should be noted that the Waxman-Markey cap & trade legislation, rejected by Congress, envisioned regulations on lawn mowers.

Establishing a price on carbon has been the objective of extreme environmentalists for the past few decades, and is now becoming a reality under this administration.

Pinocchio. Photo by D. Dears

Pinocchio. Photo by D. Dears

A price on carbon distorts economic decisions. It supports the Pinocchio effect, where economic truth is turned upside down.

Note:

  1. People refer to it as a price on carbon, where in fact it is a price on carbon dioxide (C02). It is stated as $ per metric ton of CO2
  2. Technical document supporting using SCC is at http://www.whitehouse.gov/sites/default/files/omb/inforeg/social_cost_of_carbon_for_ria_2013_update.pdf
  3. GIGO: Garbage In Garbage Out.

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20 Comments leave one →
  1. VACornell permalink
    September 13, 2013 2:26 pm

    Donn….good article….what’s the best way to get Congress to recognize Climate Change is not influenced by CO2…Vern

    Sent from my iPad Vern Cornell

    • September 13, 2013 2:59 pm

      Great question, but I don’t know the answer. I would hope that some people running for Congress would make CO2 and global warming the heart of their campaign. Abbott did it in Australia and won in a big way. If Americans really understood the issues: Does CO2 cause climate change, and is it possible to cut CO2 emissions 80% by 2050, they would vote for the candidate opposing carbon taxes, etc.
      My book, Carbon Gauntlet, will be published in the next week or two on Amazon Kindle eBooks, and it gets to the heart of these issues.

  2. September 13, 2013 7:26 pm

    Looking forward to your book, Donn. I, too, just published a book on Amazon Kindle (quite an experience!).

    Anyway, I plugged your comments into my research-collecting page on Carbon Taxes:

    https://sites.google.com/site/freemarketsolarpower/home/carbon-taxes

    • September 13, 2013 7:42 pm

      Thanks for the comment about the book. I’m still working through the Amazon Kindle process. I’ll look for your book.

  3. September 14, 2013 10:48 am

    Donn, I like your articles and I read them carefully.

    As a discrete subject, Coal, regardless of its outcome, it can be cheaper than other fuels. No special genius. As you said:

    “….There is no question, using accepted accounting practices, that electricity generated using coal is less expensive than electricity generated using wind…..”

    But Donn!, is it enough? It seems to me there is always a hidden point behind your subjects. Suppose Carbon is the main factor in all human woes, well, what do you do? The problem here is that you probably believe that carbon is not a problem maker. This is the main subject. If this idea prevails, there must be something wrong with energy policy, and we should sit and enjoy wind as a beautiful natural phenomenon.

    Wind energy has recently been addressed on a global scale. And anyway, surely the world’s energy strategy determines the final answer. I agree with you that policy makers add to the cost of fossil fuels in favor of renewable energies. Why? Are the States inherently aggressive?

    And also I, as one of your readers, do not think that this is “Falsification”.

    Regards,
    Mack.

    • September 14, 2013 11:07 am

      Thanks for your comment and reblog.
      You are correct, in that I believe the sun is far more likely to cause global warming, i.e., climate change, than are CO2 emissions.
      Even if someone accepts that CO2 emissions are dangerous, the IPCC and EPA have said the United States must cut its emissions 80% by 2050 or there will be a climate catastrophe. But, the fact is, there is no way CO2 emissions can be cut 80% … the technologies do not exist. And, cutting CO2 by only 20% won’t do any good; there will still be a climate catastrophe.
      Because of this fact, which I will explain in a Kindle book, we are incurring major problems to our economy as a result of attempting to do something that isn’t scientifically possible to do.

      • September 16, 2013 7:47 am

        Donn,
        Thank you for your reply.
        Climate change issues as you know are very broad.
        My job is burning Natural Gas and Convert this chemical energy to Electricity.

        But believe me Donn; I am not convinced about what I am doing though NatGas is clean and very clean. Personally, I am incredibly not worried about CO2 in the atmosphere imminently leading to an Armageddon Scenario. But that does not mean we should not research the issue at hand, the better to understand any future potential complications at play.

        Carbon dioxide is produced under certain conditions.
        In practice, sources of carbon dioxide, including that resulting from natural or human factors, they do not produce pure carbon dioxide. CO2 mainly is associated with soot and aerosols.

        However, the formation of soot or Black Carbon (BC) seems to be influential in climate change. Black Carbon gives a short-term, but powerful boost to heating the planet. It is a “short-term” Climate Forcer, acting for a few days in the atmosphere and a few months on snow and ice. So, reductions in BC have immediate, but not long-term effects on climate change. Each CO2 molecule continues to block heat loss from the Earth for YEARS Maximum ‘Residence time’ of Atmospheric CO2 that it stays in the atmosphere. That is why sometimes CO2 is known as the Biggest Control Knob for the climate.

        I believe that fossil fuels are not just “fuel”; they are the political, economic and social infrastructures of human civilization.

        Of course there are subtle hints referring to is helpful. Interactions of soot from fossil fuels, volcanoes, and devastating wildfires are important. Here one cannot separate the effects of the sun and soot. The principles of mutual influence are undeniable. On the other hand, fossil resources are limited. In the distant past, human was able to pass the Stone Age, without using all the stones available on earth. As we see there are still stones in nature.

        Now, we live in an Age where humanity and civilization are in conflicts. This means that, even if we believe that fossil fuels are probably great threat to humanity, still, we are unable to decide on the appropriate time.

        However, that 80% reduction in carbon emissions in short period is a fairy tale. You are right.

        Here I would like to refer you to a lecture held by Dr Mark Jacobson and Christina Archer at Stanford University. Please just look at statistics. It is a long road ahead of course. But…. watch it please.

        1-Evaluating energy solutions to climate change-Dr Mark Jacobson professor of Civil and Environmental Engineering at Stanford University, discusses proposed energy solutions to climate change, air pollution and energy security.

        2-The future of wind power- (April 16, 2008) Christina Archer, consulting assistant professor of Civil and Environmental Engineering at Stanford University

        Regards,
        Mack

      • Gail Combs permalink
        September 16, 2013 5:34 pm

        Donn,
        You can cut emissions by 80% however that requires a technology rollback to the 1700’s a massive cut in population and about 90% of the population living a short nasty and brutal life scratching out a bare bone living on a farm.

        The average for the USA is 335.9 million BTUs per person with a total population of 246,081,000.

        The U.S. in 1800 had a per-capita energy consumption of about 90 million Btu. with a total population of 5,308,483.
        If the USA reduces its energy consumption by 80% it equals 45.18 million Btu. per person IF THE POPULATION STAYS THE SAME.

        I did the calculations a while ago showing we have to go back to a primitive technology.

        http://wattsupwiththat.com/2013/06/30/the-grand-prize-in-obamas-war-on-coal/#comment-1351329

        So what does this sacrifice in living standard buy us?

        MAKING IT SIMPLE TO UNDERSTAND

        If the US would entirely cripple its economy for the next hundred years, it would avert, according to the direst 3.5C IPCC sensitivity, about 0.1C in warming, the climate difference between two points about 5 miles apart

        Deindustralizing the US completely, no cars, no electricity, would avert the climate difference half of the length of the Fifth Avenue.

        If the whole industrialized world would deindustrialize, become North Korea like, the difference would be, in 100 years, 0.25C, the climate difference between the two ends of the Fifth Avenue.

  4. September 14, 2013 10:49 am

    Reblogged this on SMIPP Ltd..

    • September 16, 2013 10:32 am

      Thanks for your comments and the interesting videos.
      I watched most of both. Unfortunately they weren’t being played in your comment and were replaced by some “STOP GLOBAL warming” videos.
      The wind presentation got cut off in the middle and I didn’t have time to go back to it. Here are some quick comments about the videos.
      With respect to CO2 and global warming, I disagree that reducing particles will increase temperatures. He ignores water vapor. This is one of the same mistakes that the computer programs make.
      Life cycle costs he used are a quagmire. Much is based on opinion.
      Some of his sources of electricity, like tidal and wave, are unrealistic.
      Calculate the leakage rate of CO2 that’s been sequestered is naive.
      We have no idea how much it will leak, and don’t even know how much can be sequestered.
      Using the carbon from the burning of cities after a nuclear exchange seems somewhat extreme to me.
      There’s no question that sun light and wind can produce large amounts of electricity, but that’s meaningless when you get down to actual installations.
      Hydrogen fuel cell vehicles would cut CO2 emissions, but they are currently a pipe dream: Something my articles have covered.
      The wind presentation was somewhat more realistic, in that it does explain wind energy in factual terms. However, she believes that CAES is becoming more popular when only two installations have ever been installed over some 60 years … at great cost.
      These environmental professors provide provocative talks, but they are far removed from reality.
      I’m sorry, but these presentations, are all theory and little experience.
      It would require multiple pages to refute or put into perspective everything in these two videos.
      What’s scary is that their students accept what they are being told, largely without question.

      • September 16, 2013 5:09 pm

        Donn,
        Sorry about the video problem. I had the same case after I received your comment. I could go on by clicking on the video bar right after the point of stop playing. If you like it is possible to watch it.
        I agree with you in some cases of the videos. Jacobson defined energy resources properly. That was my exact point. I think we have to be more serious about the future of energy. Today, we cannot find any relation between The Wright Brothers plane and a Jumbo jet. Today flying is much cheaper than traveling by train or automobile. There is no doubt that the rate of energy from major existing resources will not remain as cheapest in the near future. This is not naive. There is a big gap between fossil fuel industries and other technologies. This gap must be filled up by any available solutions ASAP. If not, it is malicious end. Unlike some people I am optimistic because science and economical issues would say what to do. Here is the example:

        http://focusfusion.org/

        Despite nuke energy and its high risks, with long time table contracts, there are still hopes to receiving abundant energy from latent resources. This can be a revolution in energy. Focus Fusion.
        And about carbon emission fee or any other tax on energy; this is the worst solution one can ever suggest.
        I have something for you to watch when you feel free. it is from HouseResourceOrg:

  5. September 16, 2013 6:44 pm

    Gail:
    Thanks for your comment and calculations.
    I agree 100%. I will take a similar approach in my forthcoming Amazon Kindle book, Carbon Gauntlet, to show it is impossible to cut CO2 emissions 80%.

    • Gail Combs permalink
      September 17, 2013 7:31 am

      Donn,
      You are very welcome to use anything I say or any of my ideas.

      To put it very bluntly we can not feed the billions of people in this world without carbon based fuel. We can not even mine, smelt and form the metals we need for our present society without RELIABLE energy 24/7/365. Heck wind and solar won’t provide enough energy for a 17th to 18th century life style that uses metal horse drawn equipment. The only non-carbon based sources that are reliable enough to run smelters are nuclear and hydro which are also under attack. (Wild and Wonderful Rivers act plus the pulling down of dams in the USA.)

      By 4th century the Chinese were using coke, a fuel with a high carbon content, usually made from coal, to smelt metal. In 1589 a patent was granted in Britain for smelting with “earth-coal, sea-coal, turf, and peat”. Problem is peat has also become ‘Protected’ in the UK. These activists have not knowledge of the history of science and technology. They do not see the paradise on earth we are currently living in, they only see it is not absolutely ‘perfect’ by their view point.

      The naive apartment dwellers living in the cocoons of a city that provides all their needs at the wave of a credit card, has absolutely no idea of the amount of energy and technology that supports their luxurious life styles. They have no idea of what it is like to clear land, cultivate and plant it with simple STEEL hand tools much less the more primitive stone and wood tools….

      They think their ‘Simple Life’ can be had using fairy dust, unicorn farts and the speaking of the magic words “I WANT!”

      • September 17, 2013 9:31 am

        Thanks.
        City dwellers, for the most part, have no clue as to what it takes to provide the modern day comforts they enjoy.
        I hope many people read your comments, they are right on target.

  6. September 16, 2013 6:57 pm

    SMIPP:
    Fusion would be a huge breakthrough. ITAR is working on it. I’m not familiar with focus fusion, and it isn’t widely discussed. If it works, fine. I suspect that fusion, which has been around the corner since the 1950s, will continue to be around the corner fifty years from now. Maybe not, and that would be good.
    The attached video is very old, and outdated. Markey, the Markey of Waxam-Markey Cap & Trade legislation is always pushing climate change from CO2. He gets people to testify who support his views, but fails to get people who are highly credible and oppose his views.

  7. September 17, 2013 12:49 pm

    Wow! Congratulation Donn!

    Your blog is very rich now. I am glad to see Gail Comb here.
    Yes, fusion would be a huge breakthrough.
    what is focus fusion?

    http://focusfusion.org/index.php/site/category/C36

    http://focusfusion.org/index.php/site/article/24

    Lawrenceville Plasma Physics, Inc. (LPP) is currently conducting experiments to demonstrate the feasibility of Focus Fusion in overcoming these challenges.

    The fusion outcome is huge, so that there should be given enough time to other conventional industries to adapt themselves to new conditions.

    I do not think it will continue to be around the corner fifty years from now. It depends on the future of energy policy.

    Regards,
    Mack.

    • September 17, 2013 1:06 pm

      Thanks.
      I looked at the focus fusion web site after reading your earlier comment.
      I’m not sure it’s been updated recently.
      As their site said, more energy needs to be produced than used to create the reaction. So far, this has been a daunting task.

  8. September 18, 2013 7:04 am

    Thanks for visiting the web site.
    Your article was perfect and informative. I enjoyed it very much.
    As my last word in this article, I have the following expression:
    1. As you mentioned correctly the problem is that there is no appropriate technology for substitution of fossil fuels with reliable material/system. In reply to this reality as we can see, and based on existing general conditions, the only probable Meritorious and Superior Technology is Fusion in the close future.
    2. Focus Fusion Society (FFS) says that “Nuclear energy has the potential to be weapons and radioactive waste free, but that depends on what process you use. Your choices are:
    Fission – Neutronic Fusion – Aneutronic Fusion
    The ideal choice is aneutronic fusion. (A new…what?) “A” means “without”; “a-neutronic” means without neutrons as a byproduct.”
    3. Just to see the latest report as an example:

    http://focusfusion.org/index.php/site/article/LPP_May_14_2013_Report

    http://focusfusion.org/index.php/site/article/fusion_takes_focus_at_google_solve_for_x

    Regards,
    Mack.

    • September 18, 2013 9:54 am

      Glad to do it, as I’m always looking for new information on energy issues.

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