 Okay the final speaker today is Larry Golder. Larry is the Shuzo Nishihara Professor in Environmental and Resource Economics at Stanford University and the Director of the Stanford Center for Environmental and Energy Policy Analysis. The title of his talk is Using Carbon Pricing to Promote Carbon Sequestration. Larry. When people talk about carbon pricing they're often focusing on the ability of the price to discourage combustion of fossil fuels and thus discourage emissions but of course as this workshop is indicated and what I want to talk about more is how carbon pricing can stimulate the use of natural systems to sequester carbon. So Gretchen you scooped me I guess Rob Jackson also scooped me. We've seen this slide before but it really emphasizes that we need both sequestration and emissions mitigation. Why? Because if you use both the total cost of achieving any particular ultimate target whether it's preventing temperature from exceeding a certain level or cumulative emissions from being reduced to a certain amount or preventing the concentrations in the atmosphere from exceeding a certain amount that target will be reached less with at less cost if you combine both approaches because otherwise you'd have to push further on more expensive options within one of those two approaches fossil fuel mitigation or natural climate system mitigation and by the way the part that's called natural NCS mitigation I would include I'm including in it both land surface sinks through changes in agriculture and forestry practices as well as subsurface sequestration say geological sequestration for example storage and underground aquifers. Now we can quibble about whether we should call it natural clearly subsurface sequestration doesn't make as much direct use of biology and it also involves a lot of risks perhaps more risk than in surface sinks but it's at least worth considering the possible contribution there and I want to emphasize the uncertainties are great. You can be misled by this diagram here which suggests that say 10 percent of the mitigation is going to come through NCS. We don't know Rob Jackson mentioned some work that suggested somewhere between 5 and 25 percent but we just really don't know because we don't know what the relative costs are and this suggests something beyond carbon pricing beyond emissions pricing is going to be useful as a policy matter and that is promotion of research and development. I'm not going to have time to talk about that but I want to emphasize that that's an important compliment to carbon pricing. What will I talk about? Well essentially I'd like to talk about three things. One is I'd like to talk about links between carbon pricing and carbon sequestration. Second as a policy question I'm going to use carbon prices. What prices would be appropriate? How high a price? There's a lot of uncertainty there and third I'd like to venture into sort of the political and ethical domain a bit and think about how we might try to design policies that attend to questions of fairness and ethics on the one and also political feasibility. So here are some ways that here's some instruments that can be used to encourage carbon capture. One is what I call independent payments that means they're not tied to an existing carbon tax or carbon price for example in the form of cap and trade and Gretchen's done a lot of work on this where in Costa Rica some of the payments were actually tied to fuel taxes but then some of the payments actually come out of general treasury so that can be independent and that's very important but also we can have carbon pricing that's connected with existing policies. So for example under a carbon tax a carbon tax also provides an implicit subsidy to carbon sequestration. For example electric power plants who would otherwise have to under cap and trade pay for additional emissions allowances they can get credits for emissions reductions to the extent that they instead of having the emissions go into the atmosphere they sequester they engage or they contract with another firm to sequester the carbon in underground aquifers. Also that could be in the case where power plant faces a carbon tax as well as cap and trade and similarly offsets under cap and trade are a way of effectively pricing carbon because if you make use of the offset you don't have to buy as many emissions allowances. This is an example of what's actually in place now in California under what was AB 32 and is now moving toward SB 32 as we move toward 2030 but on the left side you see as the emissions reductions occurring from various sources including cap and trade and sort of the bottom portion of the left hand pie chart but a big portion of this 18 percent of the emissions reductions are coming outside of the cap that's the light gray that's reductions outside of the cap and on the right it shows what that consists of and a big portion of that is so called sustainable forest those are forest offsets for forest projects that sequester carbon so six percent at least as of 2020 of the overall reductions are coming in the form of offsets. Now I want to mention that you don't need public policy is important but some incentives for emission for for sequestration exist even in the absence of a specific carbon price. The example I would use is oil companies that ordinarily when they extract oil they would vent some of the natural gas that comes out of the well at the same time which is basically venting pure methane but to the extent that in place there are and there are in the U.S. restrictions on methane emissions they can avoid the cost avoid overlapping with those regulations by instead of venting sequestering some of the natural gas putting it into the ground it actually lowers their cost because it helps them comply with existing methane regulations but then also of course there are publicly provided incentives here are channels through which a carbon price yields carbon capture here's the carbon price I'm going to talk about two main channels one is as mentioned there's an implicit subsidy to geological sequestration because an entity that otherwise would be facing a carbon tax can take can credit or deduct from the tax the carbon that actually doesn't make it into the atmosphere so that's an incentive for more carbon storage geologically there's another important channel as well which is with a carbon price offsets become more valuable because you avoid paying the carbon tax and the higher the carbon tax the better it is to have an offset and so with a carbon price it increases the demand for offsets and it means there's more carbon sinks for example on land so the policy question is well first question I want to know and there's a lot of uncertainty about it is how much sequestration would various carbon prices bring about and I have to say the bottom line here is that there's tremendous uncertainty but here's some work that is done actually a decade ago but it's as good as some of the more recent stuff in many ways it suggests that at different carbon prices different amounts of reduction that would occur as result that's the cumulative amount of carbon storage and so that's not annual it's cumulative and one thing to note from this is that a grid there's a lot of potential at current costs to have a significant amount of reduction coming through agriculture here are our slides that show annual effects rather than cumulative effects and this is showing within agriculture how much would come from cropland pasture and rangeland and notice that the a lot depends on the dollars per metric tons the vertical axis is the carbon price if you have for example a hundred dollar per ton carbon price you can get somewhere between 75 and 150 million tons of carbon per year reduced as through these three channels this slide provides a little more detail on the results from the previous slide and it shows I want to focus particularly on the middle panel the carbon sequestration whether and this is all by the way in the U.S. in agriculture as per year through crops pasture land and rangeland now you might ask and I do ask how does this compare with what you might say we need well that depends on what you think is the target but a piece by Keith Smith and others in nature climate change two years ago says that achieving net zero global emissions would require global sequestration of three billion tons of year well this suggests this table on the left suggests that if there's a hundred dollar per ton carbon tax we would get approximately one tenth per year of what is needed and that you can take as somewhat encouraging but that also there's big barriers to getting that hundred dollar per ton carbon tax that raises then the question here I'm going to throw some economics at you how high should the carbon price be and you can look at it two ways and here at Stanford we often debate this question one is economists tend to favor basing the carbon price on the time path of a so-called social cost of carbon that's the externality that's from here to eternity what one extra ton today of co2 applies in terms of damages and thus it's the benefit from reducing by one ton today the additional ton into the atmosphere whether it's through sequestration or it's through cutting it from the smokestack now here by the way Gretchen did team me up very well because we would in principle not only want to think about the carbon related benefits but also co-benefits in terms of uh if we if we use the money to reduce um for or aforestation there'll be reduced erosion enhanced biodiversity uh more ecosystem services pollination services so there are a lot of outside of the usual market co-benefits that come here and this is very much consistent with what Gretchen indicated in her previous slide that we're really trying to take a broader look at these benefits and costs look at a broader return on investment and I like the fact that Gretchen mentioned that she's doing some work with others to extend go beyond GDP in trying to assess how big a carbon price should be it's not just going to be the effect on GDP through market mechanisms both by partly by avoiding climate change so that's one approach another approach many many researchers say we just don't know what the social cost of carbon is going to be what we do want to do instead is set a target whether it's effect preventing emissions temperature increase beyond a certain level or preventing atmospheric accumulation of concentration of greenhouse gas from exceeding a certain amount let's set the target and then let's continually adjust the the price so as to meet that target so that's the alternative approach we could spend days debating both sides of this either way there's a crucial need for a price and what we're quibbling about his price here which is which should we set the price first or set the quantity target first and then adjust the price to that so we could talk about that more during the Q&A if we need to but let's suppose for a moment bear with me we did take the first approach we want to know what the price should be the economist say well let's figure out the social cost of carbon under the obama administration just i'm going to be brief there's a lot of uncertainty and the obama administration back has put together an interagency task force with 12 government agencies involved and their central estimate using a 3 discount rate then was $42 a ton now it's about $50 a ton but again wide uncertainty bans and these estimates do not include what gretchen mentioned the co-benefits you might feel you want the carbon price to be even higher than that central estimate if you want to take into account these co-benefits by the way that the obama administration's estimate today is about $50 a ton the trump administration has argued that it should be $3 a ton and one of the arguments they make is that when we think about the benefits from the U.S. reducing its emissions of co2 we should just take into account the avoided climate damage that implies to the U.S. and not account for the avoided climate damage that implies to other countries that's a debatable proposition that's not the only reason by the way it goes down to three dollars a ton also has to do with issues of discount rates but i'm just want to estimate there's difference of opinion as to what that social cost of carbon should be okay so i want to now move sort of more into the policy the question of policy design assuming we want a carbon tax as a way of providing incentives for both sequestration and for emissions reductions at the smokestack you know it's nice to talk about policy solutions but if you can't get it passed you're not going to get anywhere and if it's unfair you may not want to do it so some of my own work i'm plugging my own work here focuses on this and i thought it'd be relevant to today's talk so i'm going to mention it it all a lot of this is discussed in detail in a book that my co-author mark has said from resources for the future put out two years ago and i'm going to focus on one of the elements that focused on the book is a revenue neutral carbon tax and the first question of the two i'm going to talk about fairness and talk about political feasibility in terms of the fairness question can a carbon tax be fair well if you think about it well first of all let me quickly advance here's the carbon tax time profile i'm going to time profile i'm going to consider rising at about four percent per year starting at about twenty dollars a ton which is well below the social cost of carbon estimate by obama's administration and then rising at four percent per year over time and that occasion is about a 45 reduction in emissions over the next 30 years or so how do you make it fair well one of the problems that sort of gives us pause when we want to enter this context is it could disproportionately affect low-income households for whom carbon intensive goods and services are a larger share of their overall budget they spend a disproportionate amount on home heating and transportation electricity what do you do about that well briefly if you take a look at the whole picture including recycling of the revenues if you judiciously recycle the revenue you can avoid what would otherwise be a regressive impact to see that in the red bars here this is the effect of the carbon tax across five income quintiles if there's no recycling or if the revenue is essentially put back in a proportional manner and that's regressive as we expect the lowest income quintiles hurt the most these are welfare impacts on the other hand the recycling impact itself can be progress progressive depending on how you recycle in this particular example it's all coming in the way that my colleague or sanford's george schultz would recommend give a rebate check of equal amount to every household which is worth more to a low-income household than a higher-income household and those blue bars indicate the progressive effect of recycling put the two together the overall impact is slightly progressive my main point is if you want to try to push things forward concerned about fairness recycling can go a lot a long way another question is political feasibility can you bring vulnerable industries on board who otherwise would would would exert an effective veto but i think you you can and again is a matter of recycling if you just return the revenue through cuts in individual income taxes certain industries particularly the carbon intensive ones that were shown with arrows here what's shown here is the present is the percentage change in profits over the next 35 years the whopping profits impacts negative impacts on these industries as you make their product more expensive and you you reduce demand for their products etc and you they face the tax in brief if you instead use some and not all but some of the revenue to pay for tax credits to that would offset their corporate income taxes you can as those zeros indicate eliminate what would otherwise be an adverse profit impact to the 10 most vulnerable industries still having some revenue left over to cut income taxes so you can do that it does come at a certain expense in terms of the overall cost but you can do it so i think that that's at least attractive in terms of political feasibility all right oops a couple political observations my second last slide there is action on the hill and not just by democrats in the last 15 months there have been eight carbon tax bills proposed by the u.s congress to introduce a carbon tax a form of carbon pricing two of them are sponsored by republicans you can take with that some hope that there's some real interest there if trump is reelected well you know it's really hard to make predictions here but it could be very much the case that there's going to be much less emphasis on a carbon tax but trump has already indicated support for the trillion trees initiative which is to support a four station may not be too surprising because in this case the business community is is given the carrot rather than the stick if biden's elected hard to say but much greater likelihood of efforts to spur not only sequestration but also missions reductions perhaps through carbon pricing final point the biden standards unity task force which came out with a thousand page report approximately a few weeks ago has a whole not large number of climate policy recommendations it does mention carbon pricing but to the dismay of many economists it focuses a lot more on conventional technology standards so final slide might just to sum up three with three points one carbon sequestrations crucial crucial critical to bringing the overall cost down i should have mentioned that carbon pricing is a good way of allocating effort because it will basically eke out the approaches that are the lowest cost and enable the overall reductions to be achieved at the lowest cost pricing carmen's very cost effective for engaging carbon sequestration and finally there are a lot of challenges in terms of fairness and political feasibility but i'm arguing that judicious recycling of the revenues can at least help overcome both the ethical and and the political feasibility questions thank you thank you very much larry a lot of food for thought there and i see the questions coming in so i'm going to hand it over to jenny hi thank you sarah and thank you larry for a very interesting presentation we have a couple questions from the audience we'll start with lauri wayburn lauri would you like to unmute yourself when you're able and ask your question thank you very much can larry appreciate your presentation uh one of the elements there that you have was you implied that the only way to engage ncs solutions was through offsets and i'd like to ask whether or not um you see a feasible way to really engage the land sector as a whole one way of which of course would be to treat it the way we have done transportation uh and energy efficiencies which is by providing income from a carbon effectively a carbon tax in cap and trade to transform the management of those sectors so a twofold question one is your thoughts on that and the second is what about allocating tax credits into the land sector which people don't really believe can be pulled under a cap but providing tax credits for changes in behavior and management to more conservation based regenerative forest and agricultural management these are great questions let me start with the the second one tax credits there's certainly an option on a cost effectiveness basis if your sole concern if is uh is is reducing the increase in atmospheric concentrations in that case i believe that offsets is is the best because offsets effectively are providing a subsidy equal to the the carbon tax price or the price of emissions allowances under cap and trade but for political reasons or for reasons of administrative ease etc tax credits may indeed be the way to go i think the first part of your question also suggests that there are our issues that are broader than carbon they're um that um in fact this alludes to what gretchen said in her talk and to the extent that we want to broaden the reach and we're concerned about that then i think direct payments to agriculture to provide for a range of options besides uh simply sequestration does make sense so a lot depends on how much weight you're giving to other issues besides um the climate issue per se thank you um we'll ask george wane um would you like to ask a question unmute yourself when you're able to thank you yeah so in with regards to and this has been modeled just one of your view like on rice or dice modeling um but when it comes to like a global price uh regards mech price mechanism just your view on that and to the extent you know in this battle on carbon it's really a global effort and this cooperation versus non-cooperation you know you know that seems like a much greater bigger factor than any uh really the price on carbon i just wanted to extend you model that or to understand the sensitivity with regards to what's the bigger level great question first of all the ideal solution the least cost solution is to have a uniform price globally that way we would eke out the lowest cost reductions everywhere no matter where they are however in connection to the issue of political feasibility and fairness a global carbon price is going to put unacceptable burdens on low-income countries who don't have the resources for that is there a way to cut through the dilemma in principle there is in fact the world bank is already attending to this to some extent that would be to introduce a uniform price globally but then to take the revenue and redistribute it in accord with the economic burdens so a lot of the revenue in fact the preponderance of the revenue could be re could go back in the form of transfers to especially low-income countries you know that's been talked about for quite a lot of time it hasn't yet enabled us to come up with a global carbon price but it at least suggests there's a way of dealing with it and perhaps your your question gives me an excuse to reinforce the point I think I made too briefly which is the advantage of having a uniform and broad price is that it helps assure that the allocation of effort towards sinks and sources is done in the least cost matter because a facility facing a price of $50 is only going to undertake the effort if it costs at the margin less than $50 to do it so higher cost options won't be undertaken and similarly lower cost options will be so it really helps allocate the efforts in the most cost effective way