Eternal Ecological Tax Reform

We don’t need an energy or resources tax; we need an instrument for letting resource prices rise in parallel with resource productivity.
  • Transcript


Question: Do you believe the Copenhagen Climate Council was a failure? 

Ernst Weizsäcker: There was a bit of a catch-22.  The United States of America, since the days before the Kyoto protocol of 1997, have a firm political decision, a unanimous decision at the Senate level that they are not going to enter commitments unless and until the large developing countries also do.  But the developing countries, on their parts, say before Kyoto and before Copenhagen "We are not going to enter commitments until the rich countries have done their homework."  So, it was sort of clear from the beginning that the conference would not lead to binding commitments. 

President Obama made a clever move by inviting the big developing countries into some kind of a green room with the Europeans cut out, agreeing on the so-called Copenhagen Accord which at least defines that the two degrees Celsius limit should be respected, that soon we should have a peaking of carbon dioxide emissions, and that the nations, including the developing nations should make at least relative commitments.  Meaning, a reduction of carbon intensity of their economies, which the Chinese were in the process of doing anyway, which is a good thing. 

The trouble is that this is less binding than the Kyoto Protocol, and could even kill the Kyoto Protocol, and then the world will be without any binding agreement.  Now, this is why many environmentalists and certainly most of the Europeans say Copenhagen was a failure.  From the U.S. American perspective, it was not.  It was perhaps the only way the American President could come home with something in his hand, tangible things.  But I suggest that if all delegations assembled in Copenhagen had understood the message of “Factor Five,” that you can become richer while at the same time reducing your carbon emissions, then I believe the attitudes of Americans, Europeans, and indeed Chinese and Indians would have been completely different.  But so far the idea, the ideology, if you wish, has been that you get richer only by emitting more carbon dioxide. 

Question: Should there be a tax on carbon? 

Ernst Weizsäcker: We are suggesting to learn from the glorious experience of the Industrial Revolution which was the following:  Between 1850 and, say, 2000, in 150 years or so, the labor productivity has been increasing year by year by year by year, ending up a 20-fold increase of labor productivity, which is fantastic.  But, the trick is, it always went in parallel with gross wages, with labor costs.  Now, this was a mutual chain of causes.  If labor gets more expensive, companies have a strong incentive of labor rationalization, of increasing labor productivity.  If labor productivity goes up, the trade unions see the potential for increasing wages.  So, it’s a mutually supportive process, this has been a glorious experience, as I say. 

But in resources, which today is actually more important than labor, we have seen a constant decline of costs.  The relative costs measured by the purchasing power, or whatever, of a ton of steel was much higher 200 years ago than it is now, or 100 years ago.  And the same essentially holds for energy.  So, now we have to engineer this kind of mutual climbing process between prices of resources and resource productivity.  

So, it is not just plainly an energy tax or resource tax, it is an instrument of letting resources prices rise in parallel, step by step, with resource productivity.  Then by definition, there would be no social hardship.  The mile driven would not be more expensive next year even if the petrol was becoming more expensive because the driving efficiency or the fuel efficiency was going up.  And if this sort of eternal ecological tax reform was politically decided, you would see investors, engineers, managers, traders, and indeed consumers, flocking into ever more efficient resource efficient technologies.  The selling of LED lamps in place of the old incandescent light bulbs would be sort of a natural thing to do.  And all the electrical companies would run into their direction and improving it ever further.  And the same for the car companies, the same for the infrastructure planners for public transport.  In agriculture, organic food would become much more competitive compared with energy intensive and pesticide intensive food, and the entire economy from buildings through mobility, agriculture, heavy industry, and everything.  All sectors would move into the direction of what we call a new long-term cycle of technology.  And this time correctorized by maybe a five-fold increase of resource productivity with the constant whip of gradually increasing resource prices.

Question: Do you have higher hopes for the summit in Mexico next year?   

Ernst Weizsäcker: I think that after the bad experience of Copenhagen, the Cancun meeting will at least try and find a new compromise.  One element that I find particularly important is unlikely to be on the agenda, but maybe in a post-Mexico conference.  This is per capita equal emission rights.

That means, an American, a German, a Russian, a Japanese has no larger right to make use of the atmosphere than a person from Cameroon, Bangladesh, China, Ecuador, whatever developing country.  And that would mean for us in the north with very high per capita emissions, we would have to go shopping to India, to Bangladesh buying rights.  If that was politically agreed with or without America, you would see investors in India, in China, in Brazil and other places, when considering the construction of a new co-power plant to weigh it against the potential of selling permits to the rich countries.  Today planning and building a new co-power plant for electricity in India or in China is a license for printing money.  It’s so fabulously profitable.  But as soon as selling carbon dioxide permits to America, to Germany and other places becomes an alternative – becomes very profitable, then all of a sudden the Chinese and Indians would say, look, we also have fantastic opportunities of becoming more energy efficient needing much less electricity, and instead becoming rich by selling permits. 

So, this would be something which Cancun should address and later conferences should agree on. 

Recorded on April 9, 2010