Geoscience Reference
In-Depth Information
all the adjustments, reducing CO
2
emissions from coal is probably the
most important step for the United States.
A high carbon price will get the attention of electricity generators.
Indeed, many companies already build the possibility of high carbon
prices into their long-term plans, even though the current price in the
United States is zero. For example, a survey of twenty-one electric utili-
ties in 2012 in the United States found that sixteen had built a positive
CO
2
price into their planning, with the average price for 2020 being
A third and more subtle effect is that carbon prices will give mar-
ket incentives for inventors and innovators to develop and introduce
low-carbon products and processes to replace current technologies.
Suppose you are the executive in charge of research and development
(R&D) at a large company like GE, which had an R&D budget of $5 bil-
lion in 2012. You make equipment for generating electricity from differ-
ent sources—coal, nuclear energy, and wind. Most generating facilities
will last for decades. If carbon prices are going to be zero or very low,
then coal-burning plants will continue to be an important source of
profi ts, and you will continue to do substantial R&D for coal tech-
nologies.
On the other hand, if you expect carbon prices to rise sharply, few
conventional coal stations will be built, and zero-carbon technologies
like wind and nuclear power will be the areas on which to place your
bets. In other areas where consumer or producer demand is sensitive
to carbon prices—air travel, consumer appliances, and automobiles
being good examples—companies with big R&D budgets will be sensi-
tive to the signals given by carbon prices and redirect their invest-
ments accordingly. I discuss the economics of innovation at length in
Chapter 23.
CARBON PRICING AND ENVIRONMENTAL ETHICS
People often wonder why economists recommend such a compli-
cated approach as carbon pricing. Why not just tell people to stop using
so much CO
2
, or shut down coal production? Perhaps we should all have
bumper stickers: “Just say no to carbon.”
