Why Biden’s Carbon Pricing and Electric Vehicle Plans Won’t Avert Climate Crisis

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Yves here. It should come as no surprise that the key Biden Administration measures to tackle climate change, carbon taxes and accelerating the conversion to electric vehicles, are tantamount to rearranging the deck chairs on the Titanic. Unfortunately, being honest about the degree of lifestyle and economic changes needed to avert the worst climate outcomes is a political career limiting move. And the sad thing is that people assume that sacrifice means misery. Despite her parents losing 97% of their savings and their house to the Great Depression, my mother does not recall it as a bad period: “People pulled together and helped each other.”

Consumption-and-status addled Americans have also lost sight of the fact that once a certain, and not high standard of living has been attained (enough to pay for necessities, some leisure activities, and have a buffer for emergencies), more money does not make individuals happier. In fact, some very poor countries like Nigeria regularly are at or near the top of global happiness indexes.

By Gregory Wilpert, Deputy Editor for the Institute of New Economic Thinking. Originally published at the Institute for New Economic Thinking website

The Biden administration recently announced that it hopes to achieve so-called “net-zero” carbon emissions by 2050, to contribute to the goal of keeping global temperatures at no more than 1.5 degrees Celsius above pre-industrial levels. But how to get there?

The policy proposals vary, but there is widespread agreement that a carbon tax or price on carbon emissions should be part of the policy mix. The idea is to raise the cost of emitting the greenhouse gas carbon dioxide (CO2) into the atmosphere, thereby encouraging consumers and producers to switch to alternative non-greenhouse gas emitting energy sources. Such a policy, though, raises a number of questions. The most important is how high would the carbon tax have to be to incentivize a strong transition to renewable energy that could actually reach the goal of net-zero carbon emissions by 2050.

New School economist Lance Taylor recently looked into precisely this question from a macroeconomic perspective. He has worked on climate change for many years and is well known for his view that it does indeed pose serious problems for economies. (See, for example, his recent discussion in Nature Climate Change.)

His most recent study for the Institute of New Economic Thinking looks closely at how effective a carbon tax might be compared to alternative approaches, for example, programs that set technical standards and aim directly to develop new technologies. Non-fossil fuel primary energy supply will have to play a central role, e.g. much less use of oil, coal, and natural gas and much more electricity production based on wind and solar sources.

He found that carbon taxes, as they are currently being proposed, as well as a parallel increase in the use of electric vehicles, would not achieve these goals. A key problem is that two-thirds of primary energy output does not feed into economically useful services, to a large extent because of the laws of thermodynamics. Petroleum accounts for one- third of primary production, most of which is used for transportation. This petroleum demand is relatively “inelastic.” That is, people need to drive a certain amount and to consume gasoline, no matter whether the cost is high or low. As a result, a proposed 50 percent surtax on gasoline would have only a minimal impact on actual gasoline demand. Taking into account the amount of primary energy that is wasted, the same goes for petroleum demand.

Using gasoline as an example, Taylor calculates that a 50 percent tax (a high-end of the tax currently proposed) would yield only $52 billion in reduced spending and a reduction of only 3.4 million tons of CO2 emissions per year – an insignificant amount relative to the problem. Currently the US emits approximately 1.4 billion tons of CO2 per year. In other words, a 50 percent carbon tax on gasoline would lead to a reduction of a mere 0.25 percent in CO2 emissions.

Part of the problem is that one of the ideas behind the carbon tax is that there should be a dividend that would flow back to consumers, so that the program does not to hugely burden average citizens. Not long ago, even Republican elder statesmen James Baker and George Shultz came out in support of such a plan. Taylor calculates that approximately $450 billion dollars per year could return to citizens as a dividend, much less than the income transfers associated with the COVID pandemic. While this might sound like a lot, “this transfer produces an ‘income effect’ stimulating demand for all goods, including gasoline,” comments Taylor.

But the hope is that a high price for gasoline would also incentivize some consumers to transition from gasoline-powered vehicles to electric vehicles. However, as long as the electricity supply depends mostly on CO2-emitting fuels – mainly natural gas and coal – transitioning to electric vehicles, even on a fairly large scale, will have a negligible impact on CO2 emissions. According to Taylor, even if one third of all energy used for transportation is transferred from petroleum-powered vehicles to electric vehicles (EVs), “Of total carbon emission of 1.39 billion tonnes in 2019, the reduction that EVs might permit is … 160 million tonnes [of CO2]. This is a significant number but less than 12% of total emissions.”

In effect, “In the short- to medium-run, raising carbon prices within a politically acceptable range may be efficient at inducing macroeconomically small changes in the structure of the economy and level of emission. But the move will not be effective…” argues Lance Taylor. “Higher carbon prices at most could be a necessary but not sufficient condition,” for reducing the US contribution to global warming. To reach the goal of “net zero” emissions, most efforts should be directed toward new standards and technologies.

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  1. Larry

    The pandemic has shown there is no global community. The US could and should vaccinate the world at very little cost, and yet is playing politics with a virus that doesn’t respect borders or embargoes. Changing the global economy is a much, much harder problem. Nothing will be done to avert catastrophe.

  2. Linden S.

    I believe the other pillar of Biden’s plans are the CES (Clean Electricity Standard), which would mandate net-zero electricity generation emissions across the United States by 2035. There has been tons written on how you pass it through reconciliation (it’s possible) but very little written about why conservative Dems would allow it anywhere close to a final vote. For example.

  3. Rod

    To reach the goal of “net zero” emissions, most efforts should be directed toward new standards and technologies.

    I’ve heard this most of my life. Isn’t it a ‘worded up’ expression that means ‘Later’ ??

    “Of total carbon emission of 1.39 billion tonnes in 2019, the reduction that EVs might permit is … 160 million tonnes [of CO2]. This is a significant number but less than 12% of total emissions.”

    I’d take 12% —to get started with this in 2021.
    Where and How to start??
    ie: Qualifying for the EITC??–Uncle Sam has got a plan to get you into a new ride(and the Local Infrastructure to support it)

      1. Rod

        Well, I was thinking more of a subcompact EV with the infrastructure— no loan—free
        w/ EITC qualifier— or something like that
        Get some empowerment to where lack of public transport hobbles opportunity or old rides nickel and dime your payday away…
        We’ll be needing a lot of tools…

        Just trying to get the imagination for solutions past the logjam of ‘Later and it’ll be better’

        1. tegnost

          It will be good for uber, and I expect some kind of grift to that effect in the highly secretive pending infrastructure legislation also the eitc is give or take $3000. What is the political reality surrounding giving serfs free money added on top of that, unless there were some kind of condition attached…

    1. Yves Smith Post author

      I believe “standards” is actually a code for “prohibitions”. So in that context, “new technologies” means “Maybe you can function with the prohibitions”.

  4. The Rev Kev

    I sometimes think that it should be a requirement that any economist should do a course in Humanities with an emphasis in History while learning their trade. So let us take his example of a 50% tax on gasoline and I will try to think of five problems with this idea straight off the bat. Now think of all the goods and materials that is transported by vehicles using gasoline. That would hike the prices of all those goods and materials and their related services and I suspect that that would push up inflation more than what is happening at the moment. That’s one.

    A tax on gas is really a tax on transport and as in rural areas places are more spread apart, that will make it more expensive for those who live in rural areas versus those that live in a city. And in America, to a large extent, you are talking about Republican versus Democrat territory so it would be partisan warfare. That’s two.

    A gas tax is also a tax on poor people as wealthier people will be able to claim distances traveled off their taxes as will companies. I had a job once that cost a small fortune in transport fares and as I walked through the car park, I would notice my well to do boss arrive and write down in his notebook his distance traveled after driving to work in his high-priced car. With so much of people’s meager wages now going into fuel, they will have to cut down on other items right across the board which I bet will show up in a large decrease in consumer demand. That’s three.

    Returning approximately $450 billion dollars per year to citizens as a dividend sounds good in theory but how would it be done? Americans saw the fiasco in trying to get lousy $2,000, ahem, $1,400 cheques to average people and no doubt there would be negotiations on who would be “worthy” to get a dividend, which banks get a cut for “delivering” these dividends, etc. and neither party has demonstrated any such ability. Unless it is for wealthy people in which case it automatically goes into their accounts the very next day. That’s four.

    And the last? As a voluntary exercise I would ask people to remember how exactly the Yellow Jacket Movement got their start in France and this would be exactly the same. For those who can’t remember, here is a clue at https://en.wikipedia.org/wiki/Yellow_vests_movement#Diesel – And that’s five.

    1. tegnost

      Returning approximately $450 billion dollars per year to citizens as a dividend sounds good in theory

      yeah this runs counter to the more dominant “pile of money” theory where scoundrels (as is the case with CalPERs, up to and including literally bags of cash for access to said pile of money) want the money for themselves, so 450 billion becomes just another sinecure

    2. Grumpy Engineer

      You said, “So let us take his example of a 50% tax on gasoline and I will try to think of five problems with this idea straight off the bat.“.

      Oh, how I wish this were done more broadly. Not just by economists, but also by lawmakers and regulators. We have a number of terrible policies out there today that are doing much harm because nobody bothered with such exercises. Like ultra-low interest rates, which hit the afterburners on income inequality and oligopoly consolidation. Or opening up the student loan fire hoses without lending standards or bankruptcy protection, which buried an entire generation of students in excess debt. It’s like nobody bothered to ask what might go wrong with these grand new schemes.

      Of course, the US isn’t the only country to seriously botch new initiatives. China tried some hard enforcement of carbon emission laws back in 2010 by imposing rolling blackouts. It was hugely disruptive, and they never did it again. Their ill-conceived coal burning restrictions of 2017 met a similar fate.

      1. juno mas

        Wasn’t it Joe Biden(D) that led the “no bankruptcy option for you” provisions in the Senate legislation?

      2. d w

        wasnt ultra low interest rates in response to the great recession, trying to avoid the greatest depression which was on rushing? and it might not have mattered what the FED did, rates were to collapse, as demand did too.
        course that student disaster, was supposed to address problems with education caused in most part by the cut backs states had been doing fund universities (along k-12 too. short termism in the extreme). and then of course the private sector (looking like loan sharks ) fell in love with those loans, and dont want any one messing with the gravy train.

        another example of botch public policy, Brexit. and its just getting started
        oh and lets not forget the worst, pandemic response, in the US, and mostly world wide.
        or the almost collapse of the Texas electric grid (which the state in infinite wisdom isnt going to fix) but let hope the feds will (and here i thought there was interest in secession, again, and that Texas goes it alone…seems that only if they dont want to fix the problem

        1. Grumpy Engineer

          And for another international example of botched energy policy, there’s Germany’s Energewiende: https://spectrum.ieee.org/energy/renewables/germanys-energiewende-20-years-later. Key quotes:

          The average cost of electricity for German households has doubled since 2000. By 2019, households had to pay 34 U.S. cents per kilowatt-hour, compared to 22 cents per kilowatt-hour in France and 13 cents in the United States.

          Meanwhile, during the same 20-year period, the United States reduced the share of fossil fuels in its primary energy consumption from 85.7 percent to 80 percent, cutting almost exactly as much as Germany did.

    3. Mike Smitka

      Ah, but you also demonstrate the weakness of a liberal arts education in arguing from numerical data. How much would that change the cost of a bag of potato chips delivered in truckload quantities, factoring in of course the cost of moving potatoes to factory?

      A big rig gets about 8 miles per gallon (they’d get more with expensive fuel). Diesel averages $3 per gallon. So we’re talking about an increase of $1.25/8 = 15¢ a mile. Assume 50,000 bags per truck (20 per carton, 8×8 stack, 40 row of those). Treble the cost for moving potatoes and cooking oil, round up for 1/1000¢ per mile. Make it 500 miles (empty backhaul, higher fuel efficiency, ignore). That gets you to 0.1¢ per bag.

      I wouldn’t be so dreamy as to think the farm lobby won’t get an exemption, we still have 2 senators for every state. Still, increase my numbers ten-fold and you’ve a penny on a $3 bag of chips.

    4. BlakeFelix

      Well, I think that prices reflecting the externalities in the upstream production and transport is a good feature, not a bug. We WANT people to buy less of polluting products, and for sellers to move to less carbon intensive supply chains. It won’t be free, but it should be cheaper than the climate change it averts. It does hurt rural people who drive big trucks more, but again, that is an accurate reflection of rolling coal 200 miles a day being bad for the world. I have a big truck with no emission controls, and live in a rural area, so I am no saint here, but I have a bicycle and a more economical car, so I only use the truck when I need it to do truck stuff. And an electric unicycle which is about as elegant as vehicles get. But I am a rural person because I like the environment, so I support protecting it even if it’s inconvenient for me.
      We shouldn’t have miles traveled be tax deductible, you are right that that is regressive and insane.
      That our government is better at giving money with few strings to rich people is certainly true, but I don’t think that it is a good argument for doing that, or a good argument against giving money to everyone. The check handing out went roughly speaking well enough, although for sure I would have preferred less means testing and overpromising and such nonsense.
      The yellow jackets had some good points and some bad points in my opinion. Taxing gas and not other forms of carbon is stupid and unfair, and to my understanding the taxes they were protesting exempted air fuel and the government and all kinds of other carbon emissions, so that it was definitely a tax on the little people while letting the big fish off the hook. I would have been mad too.

  5. d w

    i dont really have a problem with a more aggressive plan (since climate change seems to already be happening….inspite of what some would say). we just have to figure out how to do it without impacting every one, and Congress supplying money to do the deed. are both possible? sure, just have to replace 20 or so senators next year, and 50-60 representatives. the other is much more difficult, but possible. and maybe start out with a carbon tax on older equipment (such as old coal power plants…etc….) plus a higher gas tax (it hasnt been changed in over 20 years…even a dime more phased in is less than what mr market does…in a week) ..plus maybe taxes or reduced tax deductions for businesses in the fossil fuel industry…
    maybe slow…but its better than the plan pushed by some…do nothing till the disaster is here…which isnt that far off..course i am sure they have watched from afar…the UK….and how their government deals with shocks

  6. Ernie

    In order to live within modern standards, every person born needs to use more energy than natural systems can provide, hence, the use of burnable renewable materials to the point of unsustainability and the use of fossil fuels and other more noxious and dangerous energy generation systems, such as nuclear power generation. In order to install enough renewable energy in the shortest period possible, we will need to continue the use of environmentally and socially destructive nonrenewable and unsustainable fossil and nuclear fuels. The reason for this is the human overpopulation, which became unsustainable a generation or two ago. The fact that governments and corporations want continued growth is because currently few can imagine economies that do not depend on perpetual growth. Half steps like carbon caps and electric vehicles will do nothing in the long run without global population control, and sustainable energy and resource use. These things are possible – difficult – but possible, with enough imagination and will.

    1. Steven

      Ernie sums things up well but to gild the lily RE: EVs and standards. In the real world, you ain’t going to get there. Unless the numbers have changed, Yves and Lambert sumed things up years ago, e.g. https://www.nakedcapitalism.com/2019/07/mining-and-electric-vehicles-lithium-nickel-cobalt.html But short of cultural reeducation camps to help people whose religious beliefs motivate them to fill the world with more human souls before end-times amount to self-fulfilling prophecies, let’s talk EVs and renewable energy. One thing that could be done is persuading committed environmentalists (sarcasm) like Elon Musk to stop making Powerwalls and start building bidirectional charging into his cars. This could save a lot of cobalt and the child lives (labor) required to mine it.

      1. d w

        seems EV car companies took notice, and started work on replacing some of most problematic materials with less problematic
        course there is a choice, with ICE you have drilling for oil, refining it (big electricity user), transporting it and and its refined products (pipelines,trucks etc), then you have to have electricity to power the gas stations.
        and as far as i can tell there is no perfect replacement for vehicles (in the days before ICE cars, you had pollution from horse feces,pee, and some of that got into the food, plus it wasnt like when horses died that the remains were promptly removed, that was rarely done (at the time no matter knew that it had to be done…so dead horse lay where they died, where ever that was)

        is this a case of wanting to wait for a perfect solution?

        1. steven

          is this a case of wanting to wait for a perfect solution?

          If Yves’ and Lambert’s numbers are still relevant – and I suspect they are – the problem is ‘you can’t get there from here’, i.e. EVs are not going to be a solution to the climate problem. There are just too many gas burners out there and not enough raw materials to make batteries for their replacements. That said, if we are really serious about even trying we shouldn’t allow huge quantities of cobalt, lithium, etc. to be tied up in home and even grid-scale battery backup systems designed for once in a black swan use. Vehicle to home with bidirectionally capable EVs would allow all that stuff to actually be used. Some studies suggest that keeping lithium batteries at half-charge is actually better for extending their life than keeping them fully charged all the time.

    2. d w

      hm…you did realize that multiple countries (US, Japan, and others…even China)…are actually experiencing or will be soon…population shrinkage

      in some cases, there is the possibility that the country could actually become depopulated?

        1. d w

          in Japan’s case, it started long before climate change’s impact started to appear in Japan. most of that was because of the long semi depression that Japan has been in.
          in the US it seems to be related to great recession, where many young people put off starting a family. before that it was because there wasnt a need for large families any more (wasnt unheard for families to be much larger than today.

          China had that long law restricting number of children, which may have become integrated into society so that even though the law is no more, its still works that way

          other countries seem to shrink once there is better medical care, and more technology (not just computers…but of all sorts). as the family farm no longer needs a lot of hands to work it, which of course lead to an exodus of young people, since they no longer are needed on the farm. that has been going a lot longer, it just wasnt a world wide phenomenon before

          1. Ernie

            Yes, many countries have low population growth. But the leaders of those countries are now all advocating population growth. Even the governor of everyone’s favorite eco-state, Vermont, is advocating “repopulating” the state (despite the fact that we only lost about 2000 people over the last decade. The state advocates electrification of automotive transport (I advocate electrification of transport, but it is only the tiniest possible step forward in protecting the planet’s environment). This is an incredible lack of vision.

  7. Pelham

    I wonder whether these calculations include the massive amount of embodied carbon required for the production of new electric vehicles to replace the current fleet. If that figure is significant, might it not be better strictly for CO2 emissions if we adopted a model like that of Cuba, tenderly preserving ancient cars whose carbon emissions from production were introduced into the atmosphere decades ago? These could even be modified to run on hydrogen — if we manage to figure out a green way to produce it.

    1. juno mas

      Maybe electric bikes are the better solution to the environmental costs of making new electric cars. They are exploding in use in my community; even when riding a bike aound a relatively flat coastal town doesn’t require much human pedal power. It appears it is the increased speed (20 MPH) and subsequent reduction in travel time that is the prime attraction. Bikes (and their smaller batteries) would require much less energy to produce.

      (Radical conservation?)

      1. juno mas

        . . . and the US could bring electric bike manufacture back to the states and create jobs for the GND. Training new bike mechanics and production of bike consumables (tires, rims, brakes) could be added to the newly employed in solar, wind installation/maintenance and home energy conservation (insulation, window, nat. gas conversion). What’s not to like?

        1. d w

          sure why not. until you find out that its about 10-15 miles one way to work. and you have to do that weather its -10 or 110+, or snow, or ice, or rain, or all of these at one time. and its takes longer to get there. which will either force you to move a lot closer to work (if you can afford it…or even if cant) , or try to find a new job else where, if there is one.

          1. BlakeFelix

            I love my electric unicycle, and it easily rides along with me in a car or on public transit, so if it’s raining I can call a Lyft. I probably wouldn’t be using it at all if it was – 10 though. The shortage of affordable housing closer to where people work is largely a zoning issue to discourage school integration or some nonsense, so build efficient housing for lower income people to live in. IIRC governmental allergies to building affordable housing were what made Howard Roark flip out and blow things up, so our current policies on that stuff are mean to poor people on a level that would infuriate Ayn Rand.

        2. juno mas

          There is a large contingent (peloton) of lycra, lean riders in town as well. Most ride for fitness and not to work/store. I, too, believe that pure pedal power is essential to fitness, but it is clear that electric bikes are fast becoming a preference for regular folks. I don’t own one, but recognize that if more folks will use bikes instead of their car then that’s radical conservation.

          Using an electric cargo bike (or bike and trailer) to go to the store or to work in protected bike paths may be an opportunity to change transportation caused CO2, maybe nor.

    2. d w

      and since the car fleet turns over about every few years, you get the choice of internal combustion engines, with their need for gasoline/diesel derived from oil, with all of its drilling, transport of oil (with its hazards,..pipelines any one?), the need for lead batteries. never mind that the number of fires from gas/diesel cars exceeds the number of any other vehicles by several magnitude. or their pollution
      now the EVs are really doing one thing, putting pollution in one place (as opposed to millions of different sources, some in good shape, some not so much)

    3. d w

      actually the best solution for transport, is work from home. take the millions (or 100 of millions) of the road every day.

      1. Tom Pfotzer

        Yes. And not just “work” from home, but also use the home (underutilized resource #1 in the US) as a food, energy, and knowledge production center.

        This is one of those “root and branch” changes which Yves mentioned the other day.

  8. Mikel

    I call “conversion to electric vehicles” whistling past the excessive mining graveyard.

    Like drilling into the earth? You’re going to love all the mining!

    And the accelaration to electric vehicles is also an acceleration of things like plastics production and tires. More oil.

    but they have to cash in on those EV stocks, don’t they?

    All of this vaccine production going on…isn’t oil a bit used by pharmaceutical companies too?

  9. Michael McK

    FWIW, while interviewing a biochar expert we made a rough back of the envelope calculation of how much of a tax would be needed on a gallon of gas to employ people at $20 an hour to do fuel load reduction fire safety work in western forests which sequestered a gallon of gas’s worth of CO2 as biochar.
    About $20 per gallon. Double that to make 50% of funds collected a feebate so as to incentivise being in the least consuming half of the population.
    There could be some technical improvements in gear but it is hard work located far from where most people in need of gainful employment are. BTW I speak of not only the ‘unemployed’ as in need of gainful employment but especially most tech and financial types whose work causes so much loss for the rest of us.
    Overpopulation times overconsumption (a word my Capitalist spell checker balks at) equals extinction.

    1. BlakeFelix

      Ya, I agree. Not necessarily with the calculations exactly, but the general direction. I think that you can even produce gasoline or diesel as a byproduct of the pyrolytic process, and you can use the pyrolytic process to generate heat as well.

      1. Michael McK

        In my vision biodiesel is generated closer to most people’s homes from hemp field biochar (and seed oil which leaves great protein seedcake as a byproduct) in rotation with other food (details vary widely based on climate etc,).
        Many forests are too far from roads to easily get the fuel out so I envision low-tech kilns hiked in and forest health, Carbon sequestration and green jobs, not extra biofuel, would be the benefits.
        https://rodaleinstitute.org/blog/whats-biochar-how-to-stabilize-carbon-in-your-soil/ about half way through this they talk about lidded kiln systems for low water areas.
        Of course politically we can’t even get Medicare for All…

        1. BlakeFelix

          Ya, I am trying to build such a kiln now, out of stone, so it’s not getting hiked anywhere, but it would be quite possible to make a metal one that would fit on a trailer I think. And my truck isn’t finicky about what it burns, so if I can get anything resembling biodiesel out I’ll be all set with a Carbon negative fuel cycle, but I will be satisfied if I just get charcoal and waste heat to harvest.

  10. Susan the other

    It might help to make all legislators take lie detector tests on questions regarding their own special interests. A lot of the mess we are in was caused by grift and graft. We need a good, verifiable set of “sustainability standards” to use as guidance to avoid serious mistakes which have a tendency to compound exponentially. If we rationed gasoline all the disorganized driving around would automatically be reduced. If we switched to very small cars the same. Those are just common sense measures we have failed and continue to fail to do because of politics. Can anyone imagine Joe Biden doing a press conference to tell us all that we are switching to very small cars and rationed gasoline? Long cold day in hell first.

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