Nibbling at the Edge of the 'New Normal'

Nibbling at the Edge of the 'New Normal'

It is with no small trepidation that I embark on this effort to outline a course toward New Normal. Not only is this my "lucky" 13th column, but also by any reasonable measure, this undertaking violates Miss Piggy's Third Law, which is "Never eat more than you can lift."

Two weeks ago, I listed 12 leverage points that I believe could represent effective mileposts toward the state of New Normal. I shamelessly lifted these leverage points wholesale from Donella Meadows' seminal piece published by the Sustainability Institute, "Leverage Points: Places to Intervene in a System."

This week, I will talk about the weakest of the 12 leverage points, which is to change "Constants, parameters, numbers (such as subsidies, taxes, standards)."

As with typical Ego-nomic analysis of green building investment decisions, changing these constants falls prey to what I call the 90/10 Syndrome. I use this term to describe the pitfalls weak-minded people fall into when evaluating green building investments by basing their investment decision solely on energy and water savings, which, while not zero, represent not much more than 10 percent of the benefits of green.

No doubt in the short run on the way to New Normal we will be deep into the 90/10 Syndrome, wasting the bulk of our time in the weeds, tweaking numbers whose influence on the macro scale will be negligible, if they could even happen. Let's take a couple of "real world" examples: a gasoline tax and a carbon tax.

First the gas tax. Last year, oil hit $140 a barrel, which translated into over $4-a-gallon gasoline. Sales of Priuses soared (relatively speaking), Hummers were treated with the opprobrium they deserve and people changed their behavior by driving less and using alternative forms of mobility. So, how much did these "radical" changes in price and behavior reduce our energy consumption, hence our CO2 emissions?

Consumer energy prices have increased almost 50 percent since 2000, yet national energy use and carbon emissions remained flat, although energy use per unit of economic production declined by 15 percent during this period.

In spite of oil prices rising by 158 percent between 2004 and 2008, total oil consumption only decreased by 8 percent, and highway miles hit an all-time high in 2007. The vehicle travel data aren't in for 2008, but anecdotal evidence suggests that when gasoline hit $4 a gallon people really did start to change their behavior. A recent Brookings Institute study found that per-capita vehicle miles travelled decreased about 5 percent between 2005 and September 2008, with over half of the reduction occurring in 2008.

Another mechanism to send price signals might be a carbon tax. Although it will have much broader macroeconomic impact, we will continue our effectiveness thought experiment with transportation. Since cars emit about 20 pounds of CO2 per gallon (19.4 pounds/gallon per EPA), a rough calculation shows that 100 gallons of gas equals about 1 ton of CO2. So, another way to get the equivalent of $4 gasoline from today's $1.50 is a carbon tax of $250 per ton of CO2.

On a side note, I think that all of the arguments over carbon taxes vs. cap-and-trade are stupid. We need both because each does different things. The carbon tax sets a floor price to govern longer-term investments and cap-and-trade will stimulate innovation at the margin. The synergy between regulatory and market mechanisms is well established, not that we can ever learn from experience.

My old friend Charles Komanoff at the Carbon Tax Center calculates that a tax of $10 per ton of CO2 escalating at $10 per ton per year would reduce U.S. CO2 emissions by nearly one third by 2030 (the 2030 carbon tax would be $230 per ton, nominal). This is an impressive, if perhaps wishful, result but it only achieves about 40 percent of the carbon reductions we need to hit by 2050.

To see the full chart, click here.Source: Green Car Congress Green Car Congress Obviously, gasoline taxes of $2.50 a gallon or carbon taxes of $250 a ton are more than just "tweaks," which is precisely why they won't happen. These figures are in Alice-in-Wonderland territory politically, so it's pretty clear that anything produced using the conventional political process will not even begin to reach the weak impact these price increases produced in recent history.

To be sure, intelligent number-tweaking in the short run will be much better than doing nothing. However, we can't fool ourselves that adding a few cents a gallon gas tax or slapping on a few dollars of carbon taxes will do anything more than reduce our rate of acceleration into the wall of unmanageable climate change. In two weeks, I'll take a stab at No. 11: "Manipulating buffers in the system."

Rob Watson is the executive editor of You can reach Rob at [email protected]

Image by FrenchByte.