Can Carbon Pricing Solve Climate Change: Lessons From Climate Policy Efforts Around The World

[00:00:00:00] First of all, thanks all for coming here. And thanks to Dimonica and Kristoff for organizing it. I'm quite soft spoken, so if you don't hear back in the background just move forward. Also please excuse and bear with me, as I'm actually recovering from a cold. So I'm going to try to do this. But we'll see how it goes.

[00:00:21:18] So what I'm going to talk to you about today is climate policy, and specifically a view of putting a price on carbon. So my talk is going to take a very political/ economy perspective as we talk about the real world experience that governments have had with introducing these policies.

[00:00:44:00] So just a little bit about me, about why am I talking to you today. So I guess I've actually been involved in carbon pricing for about eight years now. Back in 2009, in the US, there was a pretty good cap and trade, or carbon pricing policy that was being proposed and going through Congress. And I was actually involved in undegrad and organizing petitions for it, and things like that.

[00:01:10:00] Later on, I worked at [INAUDIBLE] as an analyst. And what we did there is essentially doing research and analysis and consulting for lawmakers and for businesses on carbon pricing, essentially tell them how to design carbon pricing systems and things like that. Really fascinating work. I miss it.

[00:01:30:27] And most recently, I actually had the fortunate pleasure to be involved in a consulting project with the Mexican government. Actually last week I was in Mexico City meeting with officials and kind of consulting them on options for carbon pricing. At MIT, I'm doing a Masters in technology and policy, with a lot of you in here. And I'm also doing research on US climate policy as well.

[00:02:00:17] So I'm going to talk for about 40 minutes here about the four key aspects. First, a really sort of brief introduction into carbon pricing, not necessarily from en economist's perspective, but just carbon pricing in terms of what do people say about it. How is it being framed in the media, how different people think about it. Then, talk about how are carbon prices performing so far around the world. And then moving into the reasons why carbon pricing is performing the way it is, or not performing the way it should be. And finally, some suggestions from me about where do we go from here.

[00:02:53:01] So the economists perspective about carbon pricing is we love it. This article actually quotes some of our very esteemed professors here at MIT, who basically say, well, yeah if you want to solve climate change, there's a one-page solution. It's called a carbon price. It will incentivize market players to take into account the carbon emissions they're emitting, et cetera. I'm not going to go through that today. Actually, Ming Hao did a very good job earlier this week if you were there.

[00:03:27:15] You know, there's a-- we sat about economists, for every economist, there's an equal and opposite economist. And they're both wrong. But that's actually not true about carbon pricing. You'll be very hard pressed to find an economists that doesn't think carbon pricing is a good idea, even very conservative ones like Gregory Mancue here support the idea.

[00:03:52:27] Scientists endorse it as well. James Hansen, on the right, has publicly transported it. Mike Mann, who wrote the book Madhouse Effect-- great book-- also kind of brings it up as one example of things that people should support if they want to get involved politically. And then recently also, scientists signed a letter publicly supporting an initiative in Washington State during this past election, in fact in November, for a carbon tax.

[00:04:25:26] Maybe strangely, oil companies support it as well. This is a letter from six oil and gas companies, European ones that sent the letter to the Executive Secretary of the body of the United Nations that deals with climate change. [INAUDIBLE]. And they basically said, you know, we want a global price on carbon.

[00:04:49:18] And Elon Musk supports the idea as well. But the interesting thing about this tweet, is he says-- it was in relation to the confirmation hearings for Rex Tillerson. And he said, well, Rex Tillerson may not be such a bad guy. He supports a carbon tax. So carbon pricing has essentially become this gauge for how smart you are, how committed you are to economic policy. In a way, kind of a pre-condition to be taken seriously.

[00:05:18:15] So how do climate policy wonks think about carbon pricing? Well, if you first start with the big question of how do we solve climate change, this chart is one way to think about it. Essentially on the horizontal axis, we have amount of initial reductions in million tons of CO2. On the vertical axis, we have the cost per ton of emissions that it cost to reduce those emissions. And this is what a typical chart-- you probably-- you might have seen it. Essentially what we have is sort of three different types of internal reduction efforts that we can take.

[00:05:56:15] Over here on the right side are a lot of things that have a negative cost. They lot make sense to do. They're things like energy efficiency. They just pay themselves off. We don't really need a carbon price to implement them. And these are things a carbon price cannot really incentivize because they're non-financial barriers that prevent market players from implementing these options-- bounded rationality, sort of a lot of different market values that I won't go into right now.

[00:06:26:06] Interestingly in the UK, people are trying to figure out why don't people insulate their attics. It would make so much sense. It would save so much money. And they found out that people didn't want to go through the mess in their attic. They had hoarded so much stuff. And no carbon price was going to incentivize them to do that. So there were all these barriers that-- so we sort of want energy efficiency and other policies to deal with these things.

[00:06:53:10] Then we have a lot of other things we can do in the middle of the chart that cost money. And if we had a carbon price, they would become sort of economically-- it would make sense, with clean energy or sustainable agriculture. And these are things that carbon price can do and incentivize.

[00:07:12:00] And then on the far right, we have things like new technologies that require significant research and development, where a carbon price cannot feasibly really incentivize it because you have to be extremely tied in. There are also other market values associated with positive externalities and things like that that I don't want to go into. But essentially, everybody agrees for these things in the middle of the chart, we need carbon pricing.

[00:07:42:06] So if carbon pricing is such a good idea, how are we doing so far? So this shows where there's carbon pricing already. If you look at the chart, basically the blue and green areas are places where there are either cap and trade systems in place or carbon taxes. The yellow areas, which kind of dominate the chart, are areas where carbon prices are being considered. What that means is that government may have a commitment to carbon pricing, but there is law and no official announced start date to when a carbon pricing system would start to be implemented. So, China for instance.

[00:08:35:05] So the one observation I want to make about this chart, there's not much carbon pricing going on. If you look at the US, it's sort of one glaring omission from this chart. If we look at other in either green or yellow, a lot of major economies are now actually pricing carbon.

[00:09:00:03] So cumulative discharge shows how many emissions are we actually covering with carbon pricing. So from the vertical axis, you see the percentage of emissions that are being covered by carbon pricing so far. So essentially, what we see is that so far we're covering about 15% of emissions. The big chunk at the end that you see is the forthcoming Chinese national cap and trade system. This is supposed to come into place in 2017. Personally I'm a bit skeptical. I think that sort of having followed the government and the progress that they've had, it's possible that they'll be doing it, but at some point in China, there will be cap and trade system. And we'll go up to 25% of global emissions being covered by carbon pricing. And the point I'm trying to make is that this is quite limited. It's still not really covering most emissions.

[00:10:00:29] So how high are carbon prices so far? So here essentially on the vertical axis we're showing the level of the carbon price in a given jurisdiction. And the horizontal axis is showing how many emissions are being covered by that carbon price. So if you look at the green bars, those represent carbon prices that are so implemented as a cap and trade system. And the blue one, sort of carbon taxes.

[00:10:30:00] So one interesting observation is actually most carbon pricing systems, in terms of emissions, cover cap and trade systems. This is essentially because they are more publicly feasible. If we look at the European and Californian examples, these are places where governments considered having a carbon tax, but actually found it to be politically unfeasible and went for a cap and trade instead.

[00:10:54:23] So if we look at big chunks here, this is the European cap and trade system, one that I worked on for about five years. And then we have California as well and Korea there. And we have a lot of carbon taxes on the right that are actually quite high, especially in Scandinavia. But what you notice about them is they are very limited in terms of emissions. And that is because they have many exemptions. Essentially to convince lawmakers to pass these carbon taxes, they had to exempt most energy intensive industries.

[00:11:39:02] One extreme case of that, where you have a lot of exemptions, is South Africa which has a carbon tax in place , which is actually not being shown here. But the joke about the South African is it's so sugarcoated that when you open it, it's all sugar. And I think that's true for a lot of these as well.

[00:12:03:04] So if we're comparing to what we actually need to address climate change, we can look at what the social cost of carbon is, a concept economists use to measure how much should carbon cost to really internalize the externality, just sort of really for the companies to take into account the real damages that they're dealing to the rest of the world by polluting.

[00:12:26:23] So according to the EPA the social cost of carbon is $37 a ton. As we see, this is far above any carbon price in existence. But the EPA estimate actually can be considered quite low due to the use of very conservative assumptions and quite dubious presuppositions about what discount rate is and things like that. We can look at other social prices of carbon estimates. This is from a study which compiled all our estimates from different studies into the median value. And what that is $75 a ton. So that's, again, way up there. And then we could look at what the IBCC says the carbon price would have to be meet the 2 degree barrier, or to have a 66% chance of meeting it. And that's around 80 in 2020.

[00:13:26:16] So I guess the conclusions from this is that carbon prices are failing at addressing climate change to the extent that we've hoped they would. But I also want to make the point that there are a lot of positive effects of these carbon prices. For instance, in the European Union, they're raising a lot of revenues from carbon pricing because this actually sell permits to businesses. And these revenues are going into renewable energy and energy efficiency. So they're supporting things that are generally helping the climate quite significantly.

[00:14:00:10] If we look at something like the British Columbia carbon tax, which is at $30 a ton, studies have shown that it has reduced emissions. And at the same time, allowing the British Columbia economy to grow faster than other provinces in Canada. So it's not all bad. Certainly, carbon prices are having a lot of positive effects. They're just not as good as we hoped them to be.

[00:14:30:09] So I want to address the question of why is that. And bear in mind that there's a lot of reasons behind carbon prices being too low. There's a great saying that nothing happens for a reason, everything happens for lots of reasons. But here I'm going to focus on one. And that is political constraints. So as Bismarck said, "Politics is the art of the possible."

[00:15:04:08] And we can see this in the real world experience of trying to put these systems into action. So Europe for a long time has been concerned about its low carbon price, and actually trying to pass a lot of reforms to increase it. The company that I was working for, we were actually involved with consulting lawmakers throughout this process. So I was fortunate to see a lot of this in action.

[00:15:30:27] So essentially what happened is in the period between 2012 and 2015, the European Union, European Commission, and Parliament and Counsel, all these bodies, they were involved in reforming the market, more specifically with the system called the Market Stability Reserve. And this was-- I don't want to get into specifics-- but basically a way to increase the carbon price.

[00:15:54:08] Essentially what happened is there was a coalition of European member states led by Poland that formed and essentially they collected enough votes in the European Council to be able to block any deal that would raise the carbon price too much. Why did they do that? Well, a lot of these Eastern European member states are based on coal and gas. Poland specifically, most of its electricity comes from gas, and has quite a sizable coal industry as well, or coal mining.

[00:16:26:27] So the same thing happened in the European Parliament. Certain factions within the parliament, like the Industry Committee, generally pandered to serve interests of energy-intensive industries which said that any increase in the carbon price would spell they end to their businesses.

[00:16:46:12] One thing to underscore here, it's not because Europeans don't believe in climate change. They do. It's just that they think that if they have a high carbon price but other countries don't, they're worried about their industries leaving Europe and going to the places that have low carbon prices. So that's the concern here.

[00:17:05:05] And essentially the end result was that all of these concerns resulted in weaker market reforms than would have happened otherwise. But Europe did eventually pass a reform to reduce carbon market. Currently we think the carbon price is on the way up. How high will it go? Well, one of projections that we made before I left was that in 2030 the carbon price would be about $30 a ton, or between $20 and $30. So still not high enough to really solve climate change, if we look at the benchmarks that I've put up there.

[00:17:44:02] Interestingly enough, throughout this process, one of the lawmakers that worked on this, from being a party in the European Parliament, he said this-- he captured this very well by saying, you know, there's a political constraint on how high the carbon price can be. And that's at around 20 or 30 euros a ton. That just can't air because businesses and lobbies will essentially prevent it from happening.

[00:18:15:11] So briefly going through Australia, this is actually my favorite case. If you think that climate policy doesn't get enough media attention, you would really get a kick out of Australia because the media was talking about carbon pricing all the time there, for a long period of time. And carbon pricing defined the careers of three different prime ministers. So it started with Kevin Rudd, who proposed a cap and trade system back in 2008.

[00:18:42:25] And long story short, essentially it was believed that the cap and trade system would hurt industry too much, even though there were a lot of exemptions, and a lot of actually a lot of possibility that industries would actually gain from the system. But eventually business interests coalesced around fighting against the proposal and it eventually failed.

[00:19:07:27] So what this did is make Kevin Rudd very unpopular. And that sort of set the stage for Julia Gillard to replace him as prime minister. Now, Julia Gillard what she tried to do was again implement the cap and trade system. And what happened is that she formed a coalition with the Green party so that she can get a majority in parliament. And the Green party said, well, if you want our support you need to start the cap and trade system with a period where the carbon price is fixed at 23 Australian dollars a ton.

[00:19:40:20] So she did that. And what happened later is that the opposition party and the media framed the cap and trade system as a carbon tax because the price on carbon was fixed in the beginning. And this whole carbon tax debate was very actually problematic because Julia Gillard had promised during her election campaign not to raise any taxes. So she acquired this nickname of Julia Gil-liar.

[00:20:15:12] And essentially this actually set the stage for her to lose the following election and Tony Abbott to win. And Tony Abbott was from the Liberal Conservative Party. And he essentially campaigned on the idea of repealing the carbon tax. So the carbon tax essentially defined his campaign and he won. And when he did, he repealed the cap and trade system. So I'm not saying that a carbon tax brought down the Australian government of Julia Gillard, but it was one of the main factors.

[00:20:52:12] So going to the Hillary campaign, you know Hillary had a lot of plans for how we tackle climate change. I'm not going to go through them now, but one glaring omission was that she didn't actually support a carbon price. And according to emails leaked by Wikileaks that haven't been substantiated, but this is what they said, is according to the emails, John Podesta, who was a campaign manager, said that "We have done extensive polling on a carbon tax. It all sucks." So, again, we're not sure that he said that, but it's actually quite believable.

[00:21:37:02] So if we look at polls being done on climate policy, and look at the lowest part, which is a carbon tax if revenues are used to refund every American household. How many people would support that? It's 44%.

[00:21:57:25] Now, interestingly, if we look at other climate policies, such as fund research into renewable energy sources, actually 77% of Americans support that policy. If we look at other ones, like regulate soot as a pollutant, again 74%. Interestingly, set a strict CO2 limit on existing coal fired power plants. Again, so majority of 63% of Americans. So the majority of Americans want the regulations on carbon emissions, but not carbon pricing even though carbon pricing is the most cost effective way to reduce emissions.

[00:22:38:24] So going back to why do oil companies support-- can we take questions later? Going back to why-- unless it's a clarifying thing.

[00:22:48:06] It's on this slide, but we can come back to it.

[00:22:50:00] OK. So going back to oil companies, why would they say we want the global carbon price? Well, one reason is they want to appear progressive, and they want to kind of appear like they're playing along for, I think, media relations essentially. Because they know that a carbon price is unfeasible. If we look at the polls, and the poll experience and the way that carbon pricing's very politically difficult, for an oil company, it's good public relations exercise to say, we support something that sounds very good and clearly will never happen. So this is one of the main reasons why you see them doing it. Get

[00:23:38:00] So why is carbon pricing so unpopular? Well, I think it goes back to essentially it's very difficult to raise energy prices. This has been an [INAUDIBLE] of policy makers for a very long time. Mexico, where I was just last week, recently raised the price of gasoline. Essentially what they did is they removed subsidies that they were giving to the gasoline market, the gasoline producers side. What happened is the price of gas went up by 20%. And there was a crisis in January, just this past month.

[00:24:18:00] There was looting on the streets. People died, unfortunately, a few of them. And there was widespread looting. This is not unprecedented. In history, there are a lot of cases in which [INAUDIBLE] have tried to raise the price of energy, and there have been massive, massive protests.

[00:24:42:15] So a way to think about climate policy then from a political economy perspective is it can have two dimensions. So on the horizontal axis, we have either costs are invisible or costs are visible. And then on the vertical axis, the lower quadrant is where benefits are relatively spread out, diffuse and costs are very concentrated. And then higher up, the opposite. So I think talking about carbon pricing, it's essentially here. It essentially makes cost very visible. This is the carbon price. This is what you should pay for every ton of emissions, right? And that's the idea. That's what economists love.

[00:25:32:16] But the problem that is benefits are very diffuse. So a lot of people benefit. Every citizen on the planet benefits from climate policy. But the costs are very concentrated in the very few fossil fuel interests. And that's a big problem from a political economy perspective. It creates collective action problems. It's very difficult for all of these diffuse beneficiaries to really organize and fight for these kind of policies.

[00:26:06:02] So we fooled with some alternatives. If we look at a ban on coal, this is where costs are becoming invisible. It's hard to tell how much does it cost the economy to do that. But again, sort of costs are very concentrated. And we can look at other policies by subsidies where the benefits are very concentrated but the costs are spread out and the costs are invisible. So the argument I'm trying to make here is essentially as you move up and to the left, we see policies that have a better and better chance of being passed, that are more and more politically feasible.

[00:26:46:19] But in the lower right quadrant are policies make the most sense economically. So this is good economics, internalize the externalities, sort of making prices explicit. But this is great politics, is when you have a bunch of money and you can allocate it to special interests that are lobbying you or that are getting you campaign contributions.

[00:27:13:10] Another thing here is, intensity wins in politics. So if the benefits are very concentrated, you're going to get those beneficiaries that get all the benefits lobbying for those policies. And if the costs are diffuse, then the people that lose a little bit, they're all going to intensely organize and try to stop you. So that's why we see [INAUDIBLE] actually very popular around the world, one of the main ways that companies have so far implemented their support for renewables, most notedly in Europe, in Germany, and France, Denmark. Also I think in California, we see that policy being implemented. So essentially, what's good economics is very, very difficult politics.

[00:28:12:07] But nothing that I'm saying should be a reason for cynicism or to withdraw from policy making and just say, I give up. Actually, I think quite the opposite. I think going back to this quote is, as Plato says, "One of the penalties for refusing to participate in politics is that you end up being governed by your inferiors." may be particularly relevant today in the US.

[00:28:41:03] So I actually think there's a lot of reason for hope. If we look at a lot of the recent progress with the Paris agreement of 2015-- this is John Kerry signing it with his granddaughter in his lap. That's the first international agreement where all countries are actually committing efforts. I'm saying we'll do something and we'll do more and more over time. The first because of the Kyoto protocol and then actually commit all countries, just developed ones.

[00:29:15:26] Then the Kigali Agreement in Rwanda, which happened in 2016, and essentially was a very major international agreement to phase of HFCs. And HFCs are greenhouse gases that are tens of thousands of times more potent than CO2. According to some estimates, the Kigali agreement will mitigate climate change to an extent that is comparable to that of the Paris agreement, so a very, very significant step forward.

[00:29:45:21] And also there was a deal on limiting aviation emissions at the International Civil Aviation Organization, ICAO, by 2016 in Montreal. So there's a lot of progress. And going back to the oil companies again, one reason I think that they supported carbon pricing is, besides of all the rest, is that they know that climate policy will happen at some point, inevitably. And then it will be more and more stringent over time. So that they know that if they don't engage constructively, if they're not at the table, they're on the menu.

[00:30:31:20] And there's another reason as well. So what if oil companies actually have gas infrastructure and gas reserves? And they benefit from a carbon price because carbon price makes coal less competitive than gas. So this is one example where carbon pricing actually benefits clean energy industry, and there might be beneficiaries and there might be industries that have in their self-interest are incentivized to support these policies.

[00:31:11:02] So a lot of these-- I think one of the main takeways that is second best is not worse. So what I mean by that is economists and climate policy experts talk a lot about second best policies. And what this means is well, carbon pricing is the best policy, as we talked. But actually, it's not politically feasible, but there are a lot of alternative policies that might be second best, but they're actually feasible. We can actually implement them.

[00:31:39:28] So a lot of these things are subsidies, renewable portfolio standards, regulating the power sector. For instance, implementing things like real time pricing, things that potentially help renewables be integrated into the system. If you want to know more about that, you should read MIT's utilities of the future study which covers these things pretty well.

[00:32:04:02] There's a researcher at the University of Berkeley, Jonas [? Mickley ?] who talks a lot about a sequential approach to climate policy, and saying that we need greener industrial policy, essentially these things that I numerated. We need that to happen first. And we need businesses that will later advocate for carbon pricing, essentially we need to create the industries that will be benefit, who will be able to fight for carbon pricing to happen.

[00:32:33:25] So, first subsidize, have renewable portfolio standards, et cetera. And then price carbon, he says. And I think one of the conclusions from this talk is that makes sense. But don't get me wrong. I'm not saying that carbon pricing's not worth pursuing. As I've said, carbon pricing around the world have actually produced a lot of benefits. They've reduced a significant amount of emissions, and brought in revenues that are being invested in renewable energy, et cetera.

[00:33:06:22] If you look at California, most of the policies being implemented, most of the initial reductions that are happening are actually come from the second best policies. They're bringing more than 90% lower emissions-- emission reductions in California.

[00:33:23:24] But California also had a carbon price. And the carbon price is, I think, very smart. It's modest. It's about $12 a ton. And it's politically feasible, and something that brings in revenues that they can reinvest into all these second best approaches where they support renewable and public transit industries.

[00:33:49:15] But when you talk about carbon pricing, the conclusion from this talk is carbon pricing is [INAUDIBLE]. So we should think of it as a journey. We should think of it as "the strong and slow boring of hard boards," something that [INAUDIBLE] was very fond of saying. It's difficult, so we should be open to the idea of accepting concessions. If we're trying to implement a carbon price, maybe accepting the idea that at first, it's not going to be perfect. But eventually we're going to fix it and improve it over time. So to place an incrementalist approach to carbon pricing.

[00:34:34:22] So just one example, in Europe the cap and trade system, the way that they managed to implement it at first was to give away all the permits to the polluting industries, so free allocation of permits. So this kind of thing, it limits the effectiveness of the system. But it means that you can bring in industry as supporting stakeholders and actually implement it. So, it's going to be slow and incremental process.

[00:35:13:06] And I already said, be open for concessions. Do not make the perfect the enemy of the good. We saw that in Washington State which actually tried to implement a carbon tax, as I mentioned. There was a carbon tax on the ballot in November. And it created this huge controversy in the environmental community because a lot of environmental groups actually didn't support it because it wasn't the policy they wanted. It wasn't perfect. So it failed. It got 42% support, which to me says that if the environmental community would've supported it wholeheartedly it would've passed, and Washington state would've had the first carbon tax in the US. But that didn't happen because I think we made the perfect the enemy of the good.

[00:36:07:26] So if there's one take away, if you remember only one thing, let it be this. If we want for our research to be relevant, if we want our strategies to be successful, we should account for political feasibility. So let's, from time to time, put ourselves in the shoes of lawmakers whose job it is to put our ideas into action. Thanks.

[00:36:37:02] [APPLAUSE]

[00:36:46:21] So we have a couple of minutes to take questions. I know there was one, definitely. So, please?

[00:36:53:03] Yeah. Can you go back to the bar chart about attitudes? So that big gray blob in the middle of the carbon tax would say to me that there's a huge population who doesn't have their mind made up. So there's actually a big opportunity to really engage folks in these ideas.

[00:37:19:24] Yeah. That's exactly right. Yeah. Thank you. There's another caveat to this, is that other polls done by Michigan University have showed that there is a majority support for carbon pricing with recycling the revenues back to household and--

[00:37:39:02] So revenue neutral.

[00:37:40:17] Revenue neutral. However, the support that was found was 51%, so very slim margin. But yeah, there is potential. Yeah.

[00:37:56:15] Where did you get the fantastic tee shirt?

[00:37:59:07] So that's Citizen's Climate Lobby, which is an organization that tries to promote a revenue neutral carbon tax in the US and around the world. I worked with them briefly while I was in Europe. Anna?

[00:38:15:19] When you had the slide about the overall externality of carbon, does that include health effects from more pollution in the air. And if so, why isn't that more of a discussion. I know that with acid rain, everyone was very aware of linking health effects that were fairly immediate as opposed to having to discount benefits.

[00:38:39:14] Yeah. That's a good point. It's not. It's not included in those estimates. So that would be an addition. So that's what economists call co-benefits of climate action where you're not just mitigating climate change and getting good benefits of less climate change, you're also getting additional benefits in terms of clean air. It would make more of a case for [INAUDIBLE].

[00:39:03:28] Just to quickly say a lot of the reason why it's not talked about as much as climate benefits is partially that it's very difficult to quantify. And also partially that sort of policy wonks have this approach of one problem, one policy. So there's a tendency not to think too much about sort of the synergies, even though I think we should be think about them more.

[00:39:29:29] In terms of early adapters, you know, in one of your slides, those that have done some kind of them, some kind of policy. How have those countries done, or those geographies done, economically, [INAUDIBLE]?

[00:39:50:06] Quite well, actually. So British Columbia, I think I mentioned that, there have been studies trying to show the economic impact of the carbon tax that essentially showed that it is positive because the money from the carbon tax is used to reduce other taxes. So actually it makes people richer and you'll spend more on other things. And this economists would love to see it as you tax things that are bad, and not things that are good like work and income and things like that. Similar studies have been done in Scandinavia where there have been carbon taxes for a long time. So we can study them for a long time. And they've shown that generally there's a positive economic benefit as well, partially for the same reasons. Tris?

[00:40:38:17] When on a state quota was trying to decide what the right amount of damage is, whether it's industrial plants, or whether it is [INAUDIBLE], they even model their own action and tried to see what their optimum emissions are. But this doesn't happen everywhere. And inefficiencies are introduced because some people make more than what they should and pay out more, and some people don't. So how does this work out in real-- in your experience? Do people do this, participating units, do they somehow pick out the right amounts [INAUDIBLE]? What about the rest?

[00:41:28:20] Yeah. There are a lot of small companies being covered by a of these carbon prices. And they generally have no clue what to do. Oftentimes, their focus is make sure we're compliant with the policy and that's it. So, yeah, there's a lot of Inefficiency. But it's relatively small. So the major emitters are usually big companies that have resources. And what happens is they hire whole teams of people that are actually just carbon experts within the company that are doing that. But you could argue that even they are not taking all the actions that they should be taking, theoretically, because of bounded rationality and things like principle agent problems, so maybe they identify an energy efficiency measure that can save them money and make them money by selling carbon permits, but they can't do it because the management wants to allocate capital somewhere else.

[00:42:27:09] Getting back to the first question, what would your one or two sentence argument be for the people who haven't formed an opinion about carbon pricing. How would you convince them, particularly people without an economics background?

[00:42:41:22] How would I convince them of what?

[00:42:43:06] That they should support carbon pricing.

[00:42:48:17] Well, carbon pricing is the most elegant, effective, cost effective way of addressing climate change. It's the cheapest way. Because once you've set a price on carbon, you let participants who have companies decide how they're going to reduce emissions. And that takes a lot of decision making out of government, and into private sector, which usually has more information and can actually-- the market can make a more efficient decision. So at the end of the day, we're going to solve climate change at a lower cost. So economically speaking, it's a very huge argument for carbon pricing because it's simply a lot cheaper to reduce cheaper to reduce emissions that way.