Climate Prizes: Everybody Wins

[Jim Manzi]

Sen. John Barrasso (R-WY) has introduced a bill to provide government prizes to anyone who can demonstrate practical technologies to remove carbon dioxide from the atmosphere.  I have written extensively in support of such a program as one component of a research-based policy to address the risk of global warming, and obviously think it’s a great idea.  Here’s why, in a nutshell:

I have written a lot about the fact that if (and it’s a big if) our climate and economics models are correct, then rapid, aggressive measures to reduce carbon emissions are not a good idea.  The big question, of course, is what would happen if our models turn out to underestimate the impacts of emissions by a huge margin.

Consider such a case in which we learn 40 years from now that our predictions were wrong – and not just by a little, but so wrong that they are outside the probability distribution of model forecasts in a so-called “black swan” event.  Suppose further that we had implemented the often-proposed ideal policy of a perfectly-implemented, globally-harmonized carbon tax on February 21, 2008 that ramps up over time to reflect the estimated external costs of carbon.  Under a typical implementation of this policy the optimal tax burden would be relatively low for the next several decades and then ramp up over time. In everyday terms, the gasoline tax, for example, would be about 9 cents per gallon through 2010, and would then ramp up to about 25 cents per gallon by 2050. To put this in perspective, the typical US state already has about a 40 – 50 cent per gallon gas tax, and a typical Western European country has gas taxes of several dollars per gallon. We are not going to transform our economy with such a tax; major changes really start in the latter half of the upcoming century.

In the disaster scenario I have described, which would you rather have: the lowered emissions and associated technological change created by a 10 – 20 cent per gallon increase in fuel prices, or decades of directed research to build technological options?  Investing in technology is lower-cost, and actually provides greater protection in a disaster than emissions reductions.