Ernesto Hontoria
My
decision to support the Carbon Tax is not a political statement, but it heavily
influences my voting decision. I support the Carbon Tax because I am convinced
that it is an efficient way to include the hard to measure cost of polluting the
air. In other words, polluting is not free and should be accounted for. But
let me explain my thoughts from an economical perspective.
I
used to work for an oil company that extracted heavy crude oil from the Orinoco
belt. To extract the oil, the company goes to very pristine areas to drill wells,
then extracts oil for many years. When the oil extraction is
finalized, or oil wells are no longer profitable, the company closes those wells
and restores the land as close as possible to its initial state. Leaving the
land as you found it, is simply the right thing to do. Don’t you think so?
Normally, the directors of companies are responsible citizens that want to do the best
they can to reduce the environmental damage. Of course, there are some that just look for the immediate return, and do not care for the consequences,
but in my experience, in the oil industry, they are not a majority. For that
reason, companies have in their books a reserve[1]
for those restorations works, that they know, the company will need to do, once
they finish their job. Therefore, every time an oil company clears an area to
drill a new well, they start to accumulate funds in this reserve called ‘Remediation
Cost’, that will hit the company economic results (their P&L) immediately.
This
is the way that oil companies proceed with their oil wells, and oil fields as
well, because it is visible and measurable. It is not in their best interest
that people start sharing pictures of abandoned wells and oil fields, with clear
damage done to the environment. It is best to restore the area, plant new trees,
and leave as minimal visible disruption as possible. Environmental damages
that are not visible, or measurable, are a different story, and for these it is
hard to establish a ‘Remediation Cost’.
Air
pollution enters into this last category of invisible and hard to measure
remediation cost. Indeed, it is more difficult than just that; as it is not easy to discern who bears responsibility for this particular damage: the oil company which extracts the
oil, or the consumer that burns that oil and liberates the CO2 in
the air?
The
carbon tax is finally addressing the issue of putting a cost to air
pollution. It is not perfect, but so far, it is the most efficient way to start
tackling the problem. Without this cost being considered, the transition to cleaner sources of
energy will be more difficult.
Let me give you two examples that embrace the importance of having this cost in the equation.
In the late 1800s, the supply and transportation
cost of coal to drive the industrial revolution was a concern to the French government.
So much that the government decided to fund studies to develop other sources
of energy. As a result of these investments, in 1869, Augustin Mouchot tested in Paris the largest solar engine built till that moment, and two years
later installed and experimental solar generator at the Tours library. He compiled
his research and work into a book becoming a prominent figure in the field of
solar power. In 1878, Mouchot won a Gold Medal for transforming the solar heat into energy. His solar powered mechanical invention was displayed at the Universal
Exhibition in Paris. However, as coal
became increasingly cheaper in France, the government resolved that solar
energy was uneconomical, and ended Mouchot's research funding.[2]
The second example came in 1913, this time in Egypt. An engineer named Frank Shuman built the first solar thermal power station in the world. At the time of its construction, it was a cost competitive source of energy, able to pump 6,000 gallons of water per minute from the Nile River to adjacent cotton fields[3]. The plant was dismantled or destroyed (not sure) during the First World War, and after the war finished, the substitution of the coal for cheaper oil in the 1930s completely discouraged the advancement of solar energy. Oil powered plants replaced the missed solar facility.
This time was ‘cheaper oil’, that not having in its cost structure the
‘Remediation Cost’ of restoring the CO2 levels in our atmosphere, did not allow for an opportunity to develop a cleaner source of energy.
The carbon tax it is not a radical political idea, but an economic concept that helps to deal with a negative externality. Negative externalities occur when an individual or company does not have to pay the full cost their goods are causing to society; when the cost to society is greater than the cost consumer is paying for it. Pollution is a good example of a negative externality, and air pollution it is not different. What probably makes the carbon tax difficult to digest is to discover that we (ourselves) are the polluters. But in my mind is just a way to level the field to those who want to produce cleaner energy.
[1] A
reserve in accounting are funds that are set apart (reserved) to deal with a potential
cost in the future.
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