Tuesday, November 18, 2014
A Carbon Tax on Me: How to Cut Emissions, Save Money, Invest for the Future and Help End Energy Poverty
Amidst politics, hyperbole, gridlock, bipartisanship, skepticism, cynicism, advocacy and denial, we as individuals can feel powerless in making a substantial difference in the world in which we live. Yet each of us can contribute to solving issues which matter most to us. Take, for example, energy and climate change, key issues facing billions of people around our planet today.
The people of the world need energy. More than a million new potential energy consumers are added to the world's population every week. Energy contributes to many aspects of the quality of human lives including longer life spans, reduced infant mortality, improved health, increased education and literacy, increased employment, higher GDP and income per capita and reduced poverty. Energy heats, cools and lights our homes and businesses, and powers our industries and transportation. So, energy has been, is, and will continue to be a force for good.
But the CO2 thing. Not so good.
The problem? The most reliable, affordable and available energy sources, oil, gas and coal, unfortunately produce CO2. Fossil fuels provide us with more than 80 percent of our primary energy supply today. But increasing levels of CO2 in the atmosphere contribute to climate change - the more CO2, the more the atmosphere warms. And resultant climate change brings not only higher temperatures and rising sea level, but health and safety concerns, and potential ecological, social, and economic disruption.
What can an individual do? I'll start with me. What can I do to produce less CO2, while helping develop and deploy cleaner energy sources? How can I do this and save money, while investing for the future, and even creating wealth?
And what can I do in parallel to help alleviate energy poverty around the world.
So, I met with myself in conference last week. A rigorous internal debate ensued, but after much deliberation a clear path forward emerged.
I decided to impose a carbon tax on me. It has all the pain and benefits of of many other taxes except that the collecting agency is me and the beneficiary is the planet, those living in energy poverty - and, also, me.
There are many practical benefits to this carbon tax on me. For starters, I don't need advisors, lobbyists, committee meetings, a majority vote, alignment, buy in, affirmation, or a comment period. My carbon tax choice is independent of politics and political parties.
I can just put it in place and and do it. And so can you. It will reduce our CO2 output and contribute to energy and climate research and help reduce energy poverty. And investment of the proceeds in energy technology, deployment, ideas and innovation will be good for the planet and good for your investment portfolio.
Here is how my carbon tax on me will work.
I'll start with some simple goals:
Cut my CO2 emissions by 10 percent next year and 50% over the next decade through energy efficiency, conservation, lifestyle choices, and implementation of new technologies.
Tax myself with a self-imposed price on carbon, and put those dollars into an investment account that grows in value while helping fund clean energy for the planet future generations will inherit.
Contribute to organizations and institutions helping to reduce energy poverty around the world. Today, 1.3 billion people have no access to electricity, and nearly 900 million still use unsafe drinking water. More than 2.5 billion people still rely on biomass, like wood and dung, for cooking, with enormous health consequences. Energy is crucial to lift people from a life of hardship and poverty.
How to do it:
Step 1: Determine my current CO2 output
Before anything else I need to establish the starting point for my CO2 reduction goals and ultimately the tax I pay. The more CO2 I emit, the higher my carbon tax on me.
I can calculate my personal CO2 footprint using any number of widely available, free online calculators. Here are links to several good ones. I have purposely chosen sites with varying perspectives:
With the help of these calculators (there are many others) in less than 30 minutes I can determine my personal CO2 output in tons per year. The calculators produce a reasonable, fit for purpose estimate. I have found it useful to cross check my calculations and assumptions using more than one of the calculators.
Using these carbon footprint calculators not only gives me the numbers to use for my carbon tax on me but increases my awareness of opportunities for reducing emissions ( for example reducing air travel by 2 round trip flights a year from New York to Los Angeles is about the same CO2 savings achieved as by driving a high (40 mpg) vehicle versus an SUV ( 15 mpg) for a year).
As might be expected, the calculators are most sensitive to where you live ( heating or cooling requirements), the size of the house you live in, the source of most of your electricity ( for example coal versus gas versus nuclear vs renewables), the number of miles you travel in your vehicle and the miles per gallon equivalence of that vehicle, how much you fly, how you manage recycling, and whether you include a lot of meat or local produce in your diet.
Using the calculator, I have determined that my CO2 output is presently well above the US national average and very significantly above the average for the EU and China. I suspect yours may be too. There is lots of room for improvement. For reference, the CO2 emissions per capita in the US are around 17 tons CO2 per annum and the EU and China emissions per capita are around 7 tons CO2 per annum.
Step 2: Establish a carbon reduction target
My aim in reduction of my CO2 footprint is to have a target that exceeds that of most government mandates or aspirations - to get ahead of the curve. And to start now and at a pace that will make a difference. I also want the target to be realistic and achievable. My goal of a 10 percent reduction in year one and cutting my emissions in half over the next decade achieves these objectives. You might choose a more conservative goal, especially if your CO2 emissions are already low (for example in the range of the current EU average) or more aggressive if your emissions are especially high. I plan to review my target range annually.
There are many ways I might achieve a reduction in my CO2 emissions - from obvious zero cost conservation measures (lower the thermostat, turn off some lights etc), to deployment of readily available video technologies to reduce business air travel, to choosing lower impact travel alternatives to flying, to capital investment in energy efficiency measures and renewable energy for the home, to lifestyle choices in diet and waste management, to choice of vehicles. I could move to France and take advantage of nuclear power, or Iceland for hydro and geothermal, but that's unlikely to happen. More realistically, I might choose lower CO2 energy options if available from my power company, like wind and solar, or natural gas versus coal. (It would be great to have the option of affordable coal with CCS). For some useful lists of CO2 reduction measures each of us can take see the carbon calculator links above. The following websites also offer practical advice, again from a variety of perspectives.
http://m.wikihow.com/Reduce-Your-Carbon-Footprint. Practical guide.
http://www.epa.gov/climatechange/ghgemissions/gases/co2.html. Good general overview of emission sources
http://www.carbonfund.org/reduce. Website includes offset options.
http://cotap.org/reduce-carbon-footprint/. Website includes offset options
Step 3: Apply a price for carbon to my CO2 output and determine my annual carbon tax on me.
I will impose a personal carbon price of $40 per ton CO2 per year on myself. Note that this is well above the price of carbon as traded anywhere in the world. The goal is to help provide an incentive to help me reduce my CO2 output. Why $40 per ton? As a benchmark, $40 sits towards the upper end of the reported price range of companies disclosing their internal carbon prices ($6-7 per ton CO2 at Microsoft, $10-$20 at Walt Disney, $14 at Google, $34 at Total, $40 at Shell and BP, and $60 a ton at Exxon Mobil to name a few) and is also well within the EPA and other federal agency range of estimates for the social cost of carbon ($12 -$61 per ton CO2 depending on the discount rate). I will revisit my carbon price each year to determine if adjustments are needed.
In application then, I simply multiply my carbon price times my calculated CO2 emissions to arrive at the annual carbon tax.
Some useful benchmarks on how much this tax will be:
Per capita CO2 emissions in the US have fallen from around 20 tons of CO2 per year in 2000 to around 17 tons today, thanks largely to natural gas displacing coal for power, but also increased energy efficiency, and an increase in renewable energy. At 17 tons CO2 per annum and $40 per ton CO2, the carbon tax is $680.
For people living in very cold or hot climates (I live in Wyoming and Houston for example ), who commute or often travel large distances, who fly frequently, whose electricity comes largely from coal, who drive trucks or SUVs, or who live in larger than average houses it is not difficult to double the average US per capita emissions. You can check the sensitivities yourself with the calculators. Presently I am well above the current U.S. per capita average (as are many of you reading this) and my carbon tax will far exceed $680 per year. As I said, improvement are needed.
I recognize that a carbon tax of the magnitudes illustrated above would be very difficult to afford for many people, even if the goal is to save the tax and invest the money. You can't save what you don't have. Energy savings of the kind I described in step 1 above may help somewhat here, with the energy cost savings each year used to significantly offset the carbon tax.
Some cost saving examples:
If you drive 15000 miles per year in a vehicle that gets 20 mpg and drive 10% percent fewer miles next year, you will save around $225 at $3.00 per gallon gas.
You could complement these savings by trading in your low MPG vehicle for a high MPGe vehicle achieving 40 MPGe and save around $1125 dollars each year.
If your average monthly electricity bill is $250, a 10 percent reduction in your power consumption alone will save $300 per annum.
If you fly just one fewer long round trip airplane flight per year that will save you at least $750.
These examples alone would add up to $2400 in cost savings while reducing energy consumption and CO2 output. $2400 is equivalent to a carbon tax on 60 tons of CO2 at a carbon price of $40 per ton per annum. The potential for significant offset of the carbon tax is clear. With strong energy conservation and efficiency measures you can save money and in some cases may actually come out ahead.
Still, the goals of my proposed carbon tax do not include being an economic burden on people or dragging down the economy. If the carbon tax is too high for your budget, consider a lower carbon price. CO2 in California currently trades at around $12 per ton. You might start there. Or go with Microsofts's $6 per ton. The choice is yours. But start somewhere and start now. The planet will be better off.
Step 4: Save and Invest the tax proceeds
Which brings us to what will I do with these tax proceeds and cost savings? Invest! As with any investment you can choose between many options, but I will narrow it down to four. Should you decide to join me in this effort, what you do with your investment fund is up to you - but hopefully your choice will help to reduce CO2 output, spur research, development and deployment of new cleaner energy technologies and alleviate energy poverty. The investment of the carbon tax proceeds in Options 1 and 2 below can also create personal wealth, spur economic growth and create jobs. Option 3 helps you directly save energy and also provides jobs and is good for the economy, and provides cost savings for future investment use. Option 4 is more philanthropic and simply helps improve the lives of billions of people on our planet.
Investment Option 1: Invest in companies that produce and deploy products and services and have developed technologies available now to reduce our carbon footprint - solar solutions, efficient wind turbines, high MPGe vehicles, storage, grid and off-grid solutions, and local produce to name but a few. In my portfolio mix, for pragmatic reasons, I include companies with interests in natural gas and nuclear energy, both of which contribute significantly to reduction in CO2 while providing affordable large scale energy, and CCS which is vital towards meeting CO2 reduction targets given the continued increase in demand for fossil fuels.
The choice of what to include in your portfolio is up to you. In addition to investing in individual companies, there are many high quality Socially Responsible Investment (SRI) funds and Clean/ Renewable/ Alternative Energy funds available that may fit your investment needs.
Investment Option 2: Invest in Research and Development with institutions, organizations and companies doing high quality basic and applied research in science and engineering directly related to energy and climate. We need massive investments in R&D to help solve the climate/energy dilemma: Research in materials science, new energy technologies from solar to nuclear, in carbon capture, storage and usage, in energy distribution and logistics and storage, in urbanization and transportation, in innovative solutions for infrastructure.
Continued research in climate change impact and mitigation is also necessary to get ahead of the curve on mitigation to the extent possible.
Investment in companies focused primarily on research in very early stage emerging technologies adds a higher risk, higher return component to your portfolio. As in oil and gas exploration and such industries as biotech, dry holes and failure are to be expected, but success case payout can be high. Investment in research institutions and organizations will not likely provide immediate and direct returns, but may be viewed as seed capital for incipient technologies with future potential for clean energy investment.
Investment Option 3: Invest directly in the products and services created by the companies described in Option 1. Buy solar panels for your home, participate in distributed energy systems, purchase a hybrid or an electric vehicle, support local foods, install efficient lighting. There are many options which will help you save energy and money.
Investment Option 4: Invest in organizations which help alleviate energy poverty around the world. The world needs energy now, especially in poverty, famine and disease stricken places like sub-Saharan Africa. Every contribution helps.
I will hold myself accountable for funding these investments each year and tracking their performance. These investments, funded by my carbon tax on me as well as by energy cost savings, are an investment in our future.
I welcome ideas for improvement on my carbon tax on me. Those of you working as investment advisors and analysts, as experts in SRI funds or as financial planners and portfolio managers are well positioned to help clients and customers establish and maintain a low carbon investment account as part of their portfolios. Corporate retirement plans might consider a simple low carbon fund as an employee savings option, with a corporate match. The government might think about a low carbon Individual Retirement Account - call it a Carbon Retirement Plan. Companies might implement programs incorporating some of the basic elements and steps of the carbon tax on me proposal outlined above. Microsoft has instituted an excellent program which may serve as a useful template.
Make A Difference
Imagine if a thousand people concerned about energy and climate initiated their own personal carbon tax, as I have done with my carbon tax on me. Imagine if they achieved a fifty percent CO2 reduction in a decade and invested in options like those described above. Then multiply that by a thousand people. Or ten thousand! And more. Imagine if businesses and institutions did the same, scaling their carbon tax plans in ways that provided the greatest impact, while lowering energy costs and enhancing efficiency. Imagine the energy savings and the research investments in cleaner energy, the improved lives of people living in energy poverty, and the opportunities for creating wealth and investing in our future.
Each of us can make a difference. How much of a difference is up to me and up to you. Collectively the impact can be massive. Join me now by posting your personal pledge at #carbontaxonme and copy me @lawrence_energy and we'll track our momentum together. I've copied a generic version of my #carbontaxonme pledge below. Send this blog to your family, friends and colleagues and invite them to join us and post their pledge at #carbontaxonme.
Better to act when you can than when you must. Amazing what an individual can do and what influence you can have. Let's watch our contributions add up.
The Carbon Tax on Me Pledge
I pledge to join #carbontaxonme and cut my CO2 emissions, save energy and money, invest for the future and help end energy poverty.