“Almost everything relies on the speed, with which we are leaving the fossil age”
Should governments raise the taxes on energy in order to speed up the energy transition? The Canadian economist Professor M. Scott Taylor looks at the complex correlations between trade, environment and resources from a sound economic perspective. His guest lecture takes place April, 28 at the WWZ Auditorium.
23 April 2015
Dr. Taylor, you will be holding a public lecture at the WWZ Auditorium in Basel on February, 28. It is entitled “The Beginning of the End of the Fossil Fuel Era”. Are we on our way out of the fossil fuel trap?
I don't think there is any doubt about that. But there is a big uncertainty about the speed with which we are leaving the fossil age, and almost everything relies on that. If we leave very quickly, there is a chance that we will able to limit global warming to two degrees Celsius. If we leave slowly, there is no chance for that.
How do you determine the speed at which we are leaving the fossil fuel age?
It is difficult. Humankind has only had a few energy transitions before, for example the change from wood to coal between the 15th and the 18th century. In England, coal first replaced wood for heating in industry and in homes. This initial transition was driven by a local shortage of wood in Middlesex County. The steam engine came much later, around the end of the 18th century, together with the industrial revolution. Looking back at this early transition, we see that new energy sources take a very long time to take over a significant proportion of the market. It is a slow process. What we also see is that wood did not disappear as an energy source; the overall energy use just increased. The same happened to coal when oil took over.
What does that mean for our own transition to renewable energy sources? If energy demand just increases, and if we do not stop using oil, we will not be able to slow climate change.
We need a different transition this time. The wood-coal transition was driven by the market, as was the coal-oil transition. The transition to energy from renewable sources must be driven by a consciousness for the social costs of climate change. Unfettered self-interest has the potential to destroy us this time.
Switzerland is in the middle of a transition towards a new energy system. The Basel-lead Competence Center for Research in Energy, Society and Transition CREST is working on the scientific data that should help to optimize this transition. How can this type of economic research contribute to such a transition?
In this type of research, politics determines what goal should be reached. In Switzerland's case, the goal is a reduction of the CO2 emissions. Economics can show the way to implement that goal in a cost-effective manner. That is not easy and a lot of countries get it wrong. If you implement a policy with the aim of cutting back on carbon, it means that you must put a price on carbon. Efficiency requires that everyone in society faces that same price for carbon, and we let the market determine who are the winners and losers in such an exercise.
How can we put a price on carbon in Switzerland?
There are two ways. One is a carbon tax that is the same for every industry. The other is through a permit system, where the permits are required for carbon emissions. Those permits would have to be tradable. Depending on the country, one system might be more efficient than the other. A tax is easier to implement. It could be introduced by replacing other taxes. This system has successfully been used in British Columbia, a province of Canada. The British Columbia carbon tax was combined with a cut in personal and corporate taxes so the revenue raised by the carbon tax was in a sense recycled in the economy.
You have studied the economic mechanisms that lead to ecological crises. How probable is an impending crisis on a world-wide level?
We do not know what critical ecological events will happen as a consequence of global warming. But with the gradual and continual evidence for climate change, we could be heading towards a political crisis that could force governments to act for a reduction of CO2 in the atmosphere. There are still governments that refuse to take part in any measures to reduce carbon emissions. They ignore the fact that others pay a price for their use of fossil fuels like coal, oil and gas. You could call them free riders.
What should be done by governments do to address climate change?
The problem of free riders could be addressed internationally by border taxes for goods that are produced in countries with no regulation on carbon emissions. This idea was considered as very radical five years ago, but opinions have changed since then. Many in the economics community now think that there could be ways to introduce such a tax and to do this in a WTO-consistent way. Such a tax would help tremendously to force countries to address climate change.
But climate change strongly affects two groups of people that have little or no influence on politics in our own countries: the future generations, and people in low-income countries. People in poor regions of the world, say in some countries in Africa or South America, will bear the brunt of the consequences of climate change. Rich countries can insulate themselves from the effects of climate change. It is going to be hard to convince people in rich countries about the cost of global warming when they do not feel the consequences at home.
What can be done to convince people in rich countries that people in poor countries need to be protected from climate change?
For this, we have to rely on empathy. We have to hope that people will be able to feel for the people in poorer countries and understand that the climate change we are experiencing is not natural – it is man-made.
“The Beginning of the End of the Fossil Fuel Era”. Public lecture by Prof. M. Scott Taylor, Tuesday, April 28, 2015, 6:15 – 7:30 pm, WWZ Auditorium, Jacob Burckhardt Haus, Peter Merian-Weg 6, Basel.
Doctor honoris causa of the University of Basel
Prof. M. Scott Taylor is the Canada Research Chair in International, Energy and Environmental Economics at the University of Calgary, Alberta, and Research Associate at the National Bureau of Economic Research (NBER). His path-breaking publications have appeared in the American Economic Review (five papers), Quarterly Journal of Economics, Review of Economic Studies, International Economic Review, Journal of International Economics, Journal of Environmental Economics and Management, and Canadian Journal of Economics, among others. His book “International Trade and the Environment: Theory and Evidence” (with Brian Copeland) was published by Princeton University Press in 2003 and won the Doug Purvis Prize for its outstanding contribution to Canadian Economic Policy. In 2010, he was awarded an Honorary Doctorate by the University of Basel for his pioneering work on trade, the environment, and renewable resources. In 2014, Scott Taylor has been named fellow to the Royal Society of Canada (RSC), the highest honour that can be attained by scholars, artists and scientists in Canada.
