Eternal Ecological Tax Reform

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Question: Do you believe\r\nthe Copenhagen Climate Council was a failure? 

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

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

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

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Question: Should there\r\nbe a tax on carbon? 

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Ernst Weizsäcker: We are suggesting to learn from the glorious experience of the Industrial\r\nRevolution which was the following: \r\nBetween 1850 and, say, 2000, in 150 years or so, the labor productivity\r\nhas been increasing year by year by year by year, ending up a 20-fold increase of\r\nlabor productivity, which is fantastic. \r\nBut, the trick is, it always went in parallel with gross wages, with\r\nlabor costs.  Now, this was a\r\nmutual chain of causes.  If labor\r\ngets more expensive, companies have a strong incentive of labor\r\nrationalization, of increasing labor productivity.  If labor productivity goes up, the trade unions see the\r\npotential for increasing wages. \r\nSo, it’s a mutually supportive process, this has been a glorious\r\nexperience, as I say. 

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

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

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Question: Do you have\r\nhigher hopes for the summit in Mexico next year?   

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

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

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So, this would be something\r\nwhich Cancun should address and later conferences should agree on. 

Recorded on April 9, 2010

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

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