Dealing with climate change is the ultimate long game

Melting Ice due to climate change
Climate and Energy

To decarbonize on a timescale necessary to avoid the worst of climate change, business as usual is not going to cut it. We need policies to give ourselves the necessary boost, policies that drive deep emissions reductions. And there’s an abundance of evidence that carbon pricing can do exactly that. Done right, it is most powerful in the long-term, even if those long-term impacts are the hardest to get our heads around.

Rapid response

From the moment we put a price on carbon, we are nudging ourselves in the right direction. The short-term impacts are the easiest to understand. Faced with a carbon price, some of us will immediately start to change our behaviour. It can be as simple as turning off a few extra lights in our homes, checking tire pressure to save gas, or hanging our laundry. Not only will these actions reduce emissions—they’ll save us money.

Now maybe you’re saying, “That’s very nice, Brendan. But there’s a carbon price where I live and I’m not changing my behaviour,” and that’s a fair observation that deserves an explanation. When analyzing the impacts of carbon pricing, we need to look at the overall impact, not the individual impact. Some of your neighbours are changing their behaviour even if you aren’t changing yours. When we aggregate everyone’s behaviour, carbon prices—even lower ones—move the needle. As prices rise, more individuals (perhaps even you!) will start changing their behaviour to reduce emissions.

The not-too-distant future

In the medium-term, carbon pricing will also change what we buy. Sometimes purchases are cheap and quick. Others are significant investments that need to be made at the right time. Replacing a filter in your furnace so it runs better is a weekend purchase. But if you’re buying a new high-efficiency furnace, you’ll save up and wait until your old one requires replacement.

Over time, carbon pricing can affect the purchases that people and businesses will make. All else equal, you might buy the cheapest furnace available, even if it uses the most energy. But a carbon price can change the economics of that choice. Instead, you might buy a high-efficiency version to save energy and avoid paying some of that carbon price.

The distant future

Of course the most efficient furnace on the market today won’t be the most efficient furnace on the market tomorrow. Keeping a carbon price in place and slowly increasing the price over time will help accelerate and compound demand for tomorrow’s heating system (and other low-carbon goods). In other words, the price creates incentives for manufacturers to design and build better furnaces, because we will demand lower-emissions technologies.

It might be the hardest to define, but it’s this last mechanism that might be the most powerful one. Because who knows what the furnace of 2030 looks like? Human ingenuity is a powerful force. Carbon pricing gives those forces of innovation a little nudge.

Keeping our options open

There’s a working assumption underlying most climate policy: many of the solutions we need to drive deep decarbonization are not widespread. Many of them likely haven’t been invented yet.

It’s tempting to imagine a very specific future powered by 100% renewable energy, where everyone owns an electric vehicle, every building pushes power into the electricity grid instead of drawing from it, and every factory scrubs every gram of greenhouse gas it produces. But we shouldn’t lean too hard into that vision; it’s limited by our current understanding of what the solutions are. If dealing with climate change is a race against time, we should be agnostic about what innovations get us to our endpoint as long as they get us there quickly.

That’s part of what makes carbon pricing so attractive. It doesn’t care what technologies win out. Whether it’s electric vehicles and solar panels or jetpacks and nuclear fusion or some other unfathomable breakthrough, so be it. It is a future-proof policy.

The endgame

Because our long-term picture isn’t totally clear, dealing with the global problem of climate change can feel daunting. Relying on market-based policies like carbon pricing allows us to remain agnostic, less certain about the journey, but more certain about the destination. A decarbonized world is our endgame. The less we care about how we get there, the better. When it comes to the economics of reducing emissions, carbon pricing offers that path of least resistance.

The challenge of climate change will span generations. It is the ultimate long game. We have a tool to match. We just need to use it.

2 comments

  1. Doug Sanden

    price elasticity > perceived price elasticity > step wise elasticity: One idea is improving step-wise decarbonization. For example, you could install a Geo Exchange system for $20k if you have the money. But a more step-wise approach that will reach more people: when they buy an Air Conditioner they’re usually somewhat price insensitive “Just do me. I can’t take the heat”. The installers could offer to upgrade to a heat pump for an additional $1000. Then later options are more step-wise: get solar panels to power the heat pump in spring and fall. Put in a solar collector to gather a bit more heat. Do a mini-geoX (hoses in ground). That’s all more step-wise -improving price elasticity.
    perceived price elasticity > TV SHOW > Decarbonizing Canada – a show that looks at specific cases, shows decarbonization technologies, techniques, ways of working, ways of thinking, that viewers can translate to their own situations.
    Perceived Elasticity was mentioned in a study:
    https://onlinelibrary.wiley.com/doi/pdf/10.1002/wcc.531
    – OVERCOMING PUBLIC RESISTANCE TO CARBON TAX
    Besides the 6 points they mention, I found another 2:
    – Benefits dilution by other parties shirking in a Tragedy of the Commons scenario ie “China is still building coal plants” and “we’re only 1.6% of the problem”
    – likely lack of human instinct to save future generations – we’ve been lucky that overlapping generations have had aligned interests over eons of human development. But sacrificing 50$/month to save some abstract future generation? “What are they going to do for me in return?” Nothing, they can’t.
    http://gpugroup.blogspot.com/2018/08/to-defend-or-kill-broad-based-carbon.html
    – a blog showing my current state of mind

    • Brendan Frank
      Brendan Frank

      Hi Doug,
      Thanks for sharing the blog. A stepwise approach is certainly one way to build on small successes over time. On a global scale, there’s literature arguing that we should take the same approach to global climate policy, a.k.a. “building blocks” approach.

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