Visionary Perseverance vs Stubborn Stupidity

A few days ago, I heard a talk by RE-Power’s CFO. He took us through the company’s quite incredible journey. In early 2005, the company was a cash strapped sub ~€70m market-cap company, and no investor was willing to put any money in it. But by 2008, the stock price had gone up ten fold and the company was worth a couple of billion euros.
One of the conclusions of the speech was that if you believe in what you are doing, you should persevere, and you will be successful.
One hears this conclusion quite often in the retelling of success stories. But the problem is that when you hear about stories of failure - and normally such stories do not make it to a key note address – it is told by the investors who were smart enough not to invest. “Every one told the CEO it was a stupid idea, and he just went on wasting his time on it. It was clear it was going to fail.”
It seems that the line separating “stubborn stupidity” from “visionary perseverance” can only be drawn in retrospect.

A Case for CATs

I have been working on this paper in bits and pieces since the summer. It is a position paper advocating a "Carbon Added Tax" on embodied emissions.

This is the intro:

A Carbon Added Tax (CAT) is like a sales tax on the carbon emitted to produce the goods and services we consume. From the CAT perspective, when you buy say, a computer, you are responsible for the carbon emitted in producing its mother board and the hard disk and each subcomponent in the computer, as well as that emitted from the fuel burnt by ships and trucks transporting it, and to power the electricity in the shop selling it. A CAT levies a tax on the consumer for all this “embodied” carbon, at the point of sale.

This paper argues that a CAT represents a better way to affect global carbon emissions, because it leverages the global nature of the world economy to cut through geographic and legislative boundaries. The paper also addresses the major arguments against the CAT – the assumed difficulty of measuring embodied carbon and administering the tax. It discusses the latest developments in this area, and proposes structural incentives to overcome those obstacles.

And here is what's in it:

The Moral Imperative: Consumer vs Producer Responsibility
The Quantitative Impact of the Consumer Responsibility Perspective
The Economics: A Global Public Good
Structural Problems with the Producer Responsibility Paradigm
The CAT in Practice
Accounting View: Counting Carbon for CATs
A Philosophical Note: Archimedes’ Lever
A Time to CAT?
Conclusions

Macbook Environmental Report

Kudos to Apple for putting out an environmental report on their new Macbooks (via earth2tech).

Of course, I will have to point out that Apple estimates its embodied emissions (ie emissions from production and transport) to be 60% of the total lifecycle emissions of the product, versus 39% for customer use. Not to repeat myself too often, but why is it every one seems to be focusing on the 39% portion?

The CAT is out of the bag

I’ve been toying with the idea of a Value Added Tax on embodied carbon, and I’ve been meaning to put some thoughts in writing. So I came up with what I thought was the brilliantly original acronym: CAT for a “Carbon Added Tax”.

Then I did a search, and found that Nobel-laureate Joe Stiglitz recently proposed the same idea:

"A carbon added tax (CAT), levied at each stage of production, would have some of the same advantages that a value added consumption tax has. Each producer would have to show receipts for the carbon tax paid on inputs into its production. The taxes levied at each stage of production would be passed on to consumers. It is as if the tax were imposed on consumers… A carbon value added tax will both discourage production in more carbon intensive ways and discourage the consumption of carbon intensive goods."

His proposal pretty much sums up my thought process…

But perhaps even more interesting is that some one called Ewan O'Leary, registered the URLs for carbonaddedtax.com and .org last February. Now that is some real forward thinking!!! ;-)

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We need a new "Social Data Contract" for the web.

Letters to Economist Editors

I read the Economist religiously - or rather I partly skim and partly read the Economist religiously every week. So it was nice that they published a letter I wrote them. (Of course, it relates to Embodied Emissions.)

What was surprising is how much they edited the letter. At first, I was taken aback: after all, they had lost the nuance of some of my points. On reflection though, it is quite amazing and flattering that they would take the time and effort to completely re-write such letters to drive home the point they think is worth publishing.

In any case, here is the original letter I sent:

Dear Sir,

Your article entitled “Emissions Suspicions” (June 19 2008) ignores the principle of “consumer-responsibility” - that consumers can be responsible for the carbon embodied in the goods they consume. If our society decides to proactively reduce its total carbon emissions, it makes little sense to just focus on the carbon being emitted (or “produced”) directly in our society. For example, a study by Oxford’s Dieter Helm showed that while “UK greenhouse gas [emitted directly in the UK has] fallen by 15% since 1990…on a consumption basis, the illustrative outcome is a rise in emissions of 19% over the same period… Trade may have displaced the UK’s greenhouse gas appetite elsewhere.” Whether this displacement was caused by carbon regulations or other factors is less relevant - What matters is the total amount of carbon that was emitted to produce the goods and services consumed in the UK.

As such, a “carbon tariff” on embodied carbon should not be compared to traditional “import taxes”. The correct analogy is a “Sales tax”. Today, governments tax goods and services both at the point of production (via corporate taxes) and consumption (via VATs or other sales tax). But emissions regulations to-date have been aimed solely at the “production” of green house gases. It is the principle of reducing carbon “consumption” that matters more than the economic implications of leakage (which is the focus of your article.)

But is this principle practicable? Your article also claims that assessing embodied emissions is an “impossibly complicated task.” But much work has been done in this area, specifically by UK based “Carbon Trust” (with the BSI and DEFRA) to create standards and make the process simpler, fair and practical. It would have been more appropriate to reference (if not, assess) these efforts in your article, rather than to dismiss them out of hand, as impossible.

Regards,
Salman Farmanfarmaian
http://salmanff.blogspot.com/
Geneva, Switzerland

And here is how it was reprinted:

Green consumer-taxes

SIR – If a society decides to proactively reduce its total carbon emissions it makes little sense just to focus on the carbon it directly produces (Economics focus, June 21st). For example, a study by Dieter Helm of Oxford University shows that although greenhouse gases emitted directly in Britain had fallen by 15% since 1990 measured by the conventional method, “on a consumption basis, the illustrative outcome is a rise in emissions of 19% over the same period” and that “trade may have displaced” Britain’s “greenhouse-gas appetite elsewhere”.

Whether trade displacement is caused by variances in carbon regulations among countries, which you focused on, or other factors is less relevant than the total amount of carbon that was emitted to produce the goods and services consumed in a single country. As such, plans to introduce a “carbon tariff” on goods imported from countries such as China misses the point. Consumers are responsible for the goods they consume and the carbon emitted to produce them.

Emissions regulations have so far been aimed solely at the production of greenhouse gases, but governments tax goods and services at the point of production and consumption. It would therefore be more sensible to introduce an emissions “sales tax” rather than a carbon tariff.

Salman Farmanfarmaian
Geneva

I wonder which version is better.

The Polluter is the Consumer

Here is another high level analysis of embodied carbon in imports by Oxford’s Dieter Helm (et al). It looks at the UK’s carbon emissions from the “consumption point of view.” The paper notes that using conventional producer-based carbon accounting-methods,

“UK greenhouse gas emissions have fallen by 15% since 1990. In contrast, on a consumption basis, the illustrative outcome is a rise in emissions of 19% over the same period. This is a dramatic reversal of fortune… It suggests that the decline in greenhouse gas emissions from the UK economy may have been to a considerable degree an illusion. Trade may have displaced the UK’s greenhouse gas appetite elsewhere.”

The same paper has a well-articulated overview of the “consumer vs producer” paradigm:

“Both these [currently used] methodologies are based on the location of the production of greenhousegases. This, however, is a somewhat misleading and partial basis for policy purposes. For a country could have a very low production of greenhouse gases, but at the same time have a high consumption level. It could produce low-GHG-intensity goods, but import and consume high-GHG-intensity goods. Thus, a developed country might cease to produce steel, aluminium, glass and chemicals domestically, but import the manufactured goods from abroad. In the UK’s case, the shift of production in such activities to China, India and other developing countries in the last two decades suggests that this effect may be considerable… China might argue that, although it produces high emissions, these are on behalf of consumers in developed countries, and therefore the consumers should pay for the relevant reductions. In this way, the polluter is not the producer, but rather the consumer.”

Also, the paper finds that “by 2006, the trade deficit in greenhouse gases [in the UK] was 341 MtCO2e, around 50% of domestic UK greenhouse gas emissions.” Another data point in understanding our total carbon footprint.

____________________________
Notes:
Thanks to David McKay’s blog for pointing me to the above paper.
Also - Bold emphasis above added.