Some 5 million tonnes of oil were contaminated in April with organic chloride and the dirty crude is now stuck in pipelines in Belarus and further West – in Poland, Germany, Ukraine, Slovakia, Hungary and the Czech Republic.

The sources said it could take months to fully resolve the crisis.

The crude is blocking the 1 million barrels-per-day Druzhba pipeline, shut since late April, and the evacuation of dirty barrels is complicated by the fact that no firm wants to pay for or refine them as organic chloride can damage refining equipment.

Four industry sources familiar with the latest Russian plan told Reuters Moscow would reverse the Druzhba pipeline and pump back around 1 million tonnes of contaminated oil from Belarus, thus cleaning up the link all the way through to Belarus’s border with Poland.

Another 1 million tonnes stuck in Poland and Germany though, will be left there to be dealt with by those countries, the sources said.

“The Russians are open to agreeing to take back the polluted oil from the Belarus section which has not come to Poland yet, but there is no agreement on compensation,” one industry source said.

The source attended a meeting in Warsaw on Thursday between Russian, Belarussian and European companies to discuss how to resume oil exports via Druzhba, the loss of which is costing Russia $80 million per day.

Three other people present at the Warsaw talks or briefed on what was discussed also said the plan was for Russia to take back the oil from the Belarus section.

“This is a bit under 1 million tonnes. They plan to take it back to Russia,” one of four sources said.

The pipeline supplies Poland and Germany via its northern leg and goes to Ukraine, Hungary, Slovakia and the Czech Republic in the south. The routes split at the Mozyr refinery in Belarus.

ROAD MAP

On Friday, Russia and Belarus signed a protocol agreeing to clean the pipelines by pumping back the oil to Russia but the protocol gave no specific volume to be pumped.

Russia has not yet determined the amount it will pay in compensation, Economy Minister Maxim Oreshkin told reporters, adding Transneft had the resources to deal with the issue.

Russia’s energy ministry and Transneft, the Russian state pipeline operator, did not reply to requests for comment.

Belarus state energy company Belneftekhim, which manages the country’s two refineries, declined to comment. Polish oil refiners PKN Orlen and Lotos also didn’t respond to a request for comment.

Polish pipeline operator PERN said on Friday it had dealt with over 30% of oil contamination in its system but it may take several months to completely clean the network.

Germany’s economy ministry and oil industry association said on Friday that ongoing Druzhba problems did not pose a threat to the security of oil product supply and that there were no plans to release oil from strategic stocks.

It remained unclear where Russia is planning to send the contaminated crude after pumping it back, the four sources said. It previously sent contaminated oil via the Baltic port of Ust-Luga via a pipeline, while a small volume was sent by rail to the Black Sea port of Novorossiisk where it got mixed with clean oil.

Russia is also exporting oil via other ports in the Baltics, as well as in the south and east of the country. These supplies were not affected by the contamination.

So far, Russia has managed to remove around 2 million tonnes, using rail, storage tanks and ships, restoring, at least partially, clean flows to the Ust-Luga port and to Slovakia.

After any normal voyage the tanker would quickly deliver its 700,000 barrels of Russian crude into a refinery for processing into gasoline, diesel and other petroleum products. But the Mendeleev Prospect is in limbo, the victim of Russia’s unprecedented contaminated crude crisis that’s been spreading chaos though the European oil market for a month.
The length and scope of the crisis has given it a political dimension. On Thursday, Polish Prime Minister Mateusz Morawiecki decided to get personally involved in finding a solution, but said talks were “very difficult, very tough.”
Back in April, unusually high levels of the chemicals known as organic chlorides were discovered in the Russian crude flowing through the giant Druzhba pipeline, built in the 1960s to carry crude from the USSR to allied countries in Eastern Europe.
The chlorides can severely damage oil refineries and on April 24 Russia’s state pipeline operator, Transneft PJSC, halted shipments. Moscow pledged to resolve the issue right away; four weeks later, the flow of Russian oil into Europe is little more than a trickle.
Druzhba usually supplies up to 1.5mn barrels a day of Russia’s benchmark Urals blend into central Europe — more than the total production of Opec member Libya. The crude goes directly to refineries through two separate pipeline spurs and via tankers from the Ust-Luga export terminal in the Baltic.
Despite repeated pledges from Russian authorities to resume shipments in days, the crisis is proving bigger, longer and costlier than almost anyone expected and a solution could still be weeks away.
In Germany, one of the continent’s biggest refineries — the Leuna plant owned by French oil giant Total SA — has shut down. Poland has been forced to tap the emergency petroleum reserves. And as far west as Rotterdam, Europe’s petroleum hub, some refineries have been forced to run at lower rates.
The technical challenge of handling millions of barrels of tainted crude has been compounded by fights over who will pay the cost of the crisis. An emergency summit in Warsaw on Thursday made some progress, but didn’t nail down a solution.
“So far the resumption of flows along Druzhba has been progressing very slowly,” Vienna-based consultant JBC Energy GmbH told clients. “Negotiations and payment arrangements here could well take some time, delaying the full resumption of flows.”
Then there’s mystery of what’s happening to Russia’s crude oil while Druzhba is shut. According to official data, output has barely dropped over the last four weeks, falling from 11.23mn barrels a day in April to 11.15mn barrels a day so far in May.
But the country is shipping roughly 1mn barrels a day less than normal, about a tenth of its output.
That’s led oil traders to puzzle on how Russia’s been able to maintain production, asking whether Russia has the millions of barrels of empty storage needed to hoard the crude that hasn’t flowed through Druzhba for four weeks.
Spokesmen for Transneft and Rosneft declined to comment.
As the weeks pass, the price tag soars. Speaking privately, more than a dozen oil traders and refining executives in London, Geneva and Moscow said the cost may reach $1bn. The estimates are based on the volume of oil contaminated and the $10-to-$20-a-barrel discounts refiners are asking to take the tainted barrels. The traders and executives spoke on condition of anonymity to avoid upsetting their commercial relationship with Russia. “The Druzhba pipeline issue should cap Russian supply for the time being,” said Ed Morse, head of commodities research at Citigroup in New York.
Although Moscow has yet to give its own estimate, Western traders also believe the problem will prove larger and take longer to resolve than many predict. Russian oil officials talk about 20mn barrels contaminated, but oil traders and refining executives believe the real number may be closer to 40mn.
The larger the amount, the bigger the problem: the polluted crude will need to be blended very slowly to bring the chloride levels down to acceptable levels, on a 1-dirty-to-10-clean barrels ratio most likely. That process may well take months, not weeks. So far, refiners in Poland have experimented with blending and struggled.
“The Russian crude can only be blended down over time, a process requiring hundreds of millions of barrels of clean crude,” said Amrita Sen, chief oil analyst at consultant Energy Aspects in London. The second problem lies with who’s responsible for the crisis – and the cost of clearing it up. The pipelines are run by Transneft, headed by Nikolay Tokarev, a former KGB pal of Vladimir Putin. Much of the oil is supplied by state oil company Rosneft PSJC, run by the Kremlin power-broker Igor Sechin.
Russian oil officials have pinpointed the contamination to a small, privately-owned terminal in the Samara region, about 1,000 kilometres (620 miles) from Moscow. Who owned the oil and why it was polluted remain a mystery.
The contamination with organic chloride, which is very unusual, comes at a time when the global oil market is already short of supply of crude of similar quality to Urals.
The combined impact of US sanctions on Iran and Venezuela, Opec+ production cuts, and lower-than-expected output in Mexico has reduced worldwide shipments of denser crude with high sulphur content. Premiums in the physical market for medium-heavy crude have surged to multi-year highs as a result. “This is a significant unplanned outage that is having spill-over effects,” said Harry Tchilinguirian, head commodity strategist at BNP Paribas. “What you end up with is a further reduction in the availability of medium quality crude oil.”
Russian officials and European oil executives are groping toward a solution. After Thursday’s Warsaw meeting, Transneft said uncontaminated barrels can flow into Poland by June 10 if interested parties implement a restart plan yesterday. But PERN SA, its Polish counterpart, said claims for compensation from oil refiners must first be acknowledged if the deadline is to be met.
To be sure, the situation is slowly improving. Russia is resorting to Soviet-style mobilisation, marshalling thousands of rail cars to move crude from the north of the country into a terminal in the Black Sea where the polluted crude could be slowly blended with clean flows.
The southern branch of the Druzhba pipeline, which goes into the Czech Republic and Hungary has started to pump, although at rates about half their normal level of 300,000 barrels a day. Clean crude arrived on Thursday in Slovakia and it’s expected to reach Hungary by Monday.
Ust-Luga is also receiving clean oil, but shipments remain patchy. The big problem is, however, the key northern branch of Druzhba going into Belarus, Poland and Germany, which remains closed, depriving the region of at least 700,000 barrels a day. So far, every plan to re-start the pipeline has failed. As an alternative, refiners in the region are getting oil via the Baltic ports of Gdansk in Poland or Rostock in Germany.
Until a proper solution is found, a crisis that started in a remote village in southern Russia will keep reverberating through the continent’s oil market – and the costs will rise and rise.

Big Oil wants to put a box in your hall closet that works like a human brain, can cut the lights, stop the refrigerator and will know how you move about in the privacy of your home better than you do.

Sounds worrying? It’s one of the ideas the world’s largest oil companies are experimenting with to survive in a low-carbon world.

Companies like Lightsource BP, in which British oil major BP Plc holds a stake, are trialing smart systems in people’s homes that will do everything from generating solar power, storing it and managing consumption. Much like Spotify Technology SA gives users instant access to thousands of cool playlists without having to spend years building up their own collection, Lightsource BP wants to make sophisticated renewable power systems available to average people.

They are figuring out how to go big on electricity as demand surges with rising prosperity around the world while investors and activists put them under immense pressure to adopt green policies. However, concerns over climate mean the power industry of the future will be nothing like the past as focus shifts to efficiency and carbon-free electricity.

Todd Hill, an electrical engineer from Melbourne, lives in a four-bedroom house in a hilly town south of London with his wife and two daughters, represents what Lightsource BP thinks is possible.

Hill controls this kit, which he estimates cost about $13,000, with an app that gives real time information. So he could be camel-riding in Mongolia and the technology will still know the best time to generate power in his England home and charge the battery. At night, when the solar panels are effectively useless, the battery can juice-up his electric car.

“The main aim is to use everything we generate within the home,” Hill, wearing a dark green shirt with a windmill on it, said over a cup of tea in his kitchen. “So anything that goes from the PV to the grid is a wasted opportunity that we can save money on.”

For anyone with less interest in tinkering with their day-to-day power use, Lightsource BP is offering to take control. The company specializes in efficiently generating Hill’s own electricity so he doesn’t produce any surplus which can only be sold to the grid at discounted prices. And ensures he doesn’t end up buying more expensive fossil fuel-generated power.

When the customer moves around the house, the artificial intelligence box learns patterns, like when a person works from home, or is on vacation, with the purpose of closely matching electricity generation with in-house consumption. It can do things like predict the next day’s weather, detect individual appliances, collect data on how often and at what times they are used, and help produce a greater share of the power at home.

Hill is one of 200 people who tested a smart energy-management system for Electricity de France SA local unit and Lightsource BP, in whose lab he also works.

A spokesman for EDF’s unit EDF Energy said it aims to provide a range of “energy services,” to customers to keep them on board. Its trial with Lightsource BP ended in 2018 but it’s running other experiments, such as offering discounted batteries to homeowners with solar panels.

“Once you get the customer on your side, it’s like an Apple ecosystem; those companies will make it really hard to switch providers,” said Elchin Mammadov, a utilities analyst at Bloomberg Intelligence. “It’s trying to make this offering more sticky and then you can up-sell other services.”

A profitable business for the companies could be managing the power grid itself. A network of homes and businesses with solar panels and batteries could potentially replace some of the giant power stations in the futures. Companies with access to these homes could help balance supply and demand for a fee.

“There’s going to be more and more electricity demand,” said Kareen Boutonnat, Lightsource BP’s chief operating officer. “You can manage that by effectively putting in a lot more generation and having generation on reserve and spending billions on having to upgrade the grid, or you can do that by having this type of smart system.”

More of the biggest oil companies are considering these smart power systems. Royal Dutch Shell Plc, which bought a big U.K. utility in 2017 and wants to be the world’s biggest electricity supplier, will also offer a range of smart home energy devices. It expects its power unit to eventually generate returns of as much as 10%, close to what it gets from producing and selling oil. French major Total SA has also acquired a large company, Direct Energie, and is examining different business models.

They also have tough competition from existing utilities and Silicon Valley tech companies, who are also trying to find the future’s winning power formula. Mammadov said these experimental businesses will probably be loss-making for the foreseeable future.

Meanwhile, at Hill’s home, they are looking forward to summer. That’s when he generates so much extra power that his family can take hot showers without having to turn the boiler on.

May 24, 2019 ANA PAULA AGUIAR , ODIRILWE SELOMANE, PERNILLA MALMER

https://www.project-syndicate.org/commentary/united-nations-report-nature-destruction-four-changes-by-ana-paula-aguiar-et-al-2019-05

As the European Parliament election approaches, Europe is abuzz with speculation over who will lead the main European Union institutions for the next fi ve years. Among the positions up for grabs are those currently held by European Commission President Jean-Claude Juncker; European Council President Donald Tusk; Federica Mogherini, the EU High Representative for Foreign Aff airs and Security Policy; and European Central Bank President Mario Draghi. Personnel issues are hardly trivial. In politics, personality matters, and it has often played a pivotal role in determining the EU’s trajectory. Still, the leadership name game should not be the main focus.

Far more important is the debate over the EU’s 2019-2024 strategic agenda. After an informal summit in Sibiu, Romania, earlier this month, European leaders will return to this issue in earnest later in June. And for all of the attention paid to the EU’s institutions, it is EU heads of state who will craft the bloc’s agenda. In other words, member-state governments, operating through the European Council, will be the actors to watch after the election results are in. When the European Economic Community, the precursor to the EU, was established in 1957, its primary objective was to secure the peace between France and Germany, starting with a customs union for industrial goods (for the Germans) and a common agricultural policy (for the French). This arrangement anchored the European agenda for decades.

Then, when the Soviet Union and its empire collapsed, countries that had been trapped behind the Iron Curtain wanted to “return to Europe.” In the years since, the EU has undergone a massive expansion to include them. Its goal has been twofold: to aid the newer member states in their post-communist economic and political development, and to maintain continental peace and stability by bringing Central and Eastern Europe into the fold of EU institutions. The immediate post-Cold War period was a time of self-confi dence and optimism for the EU. Gradually, its strategic mission expanded beyond merely keeping the peace, to projecting the European model of shared sovereignty and integration abroad. The EU model, it was said, would lead to more stable governance for the entire world. Over the past decade, however, the EU’s eff ort to project its model outward has collapsed. Following the 2008 fi nancial crash, the euro crisis, and recurrent migration imbroglios, the EU has turned inward. At the same time, the EU’s immediate neighbourhood has transformed from a circle of potential friends and partners into a ring of fi re. Now, rather than trying to export stability, Europe’s strategic priority is to protect itself from the wider world. In trying to breathe new life into the EU after years of inward-looking crisis management, French President Emmanuel Macron has pushed for “a Europe that protects.” Following Macron’s call to arms, published by Project Syndicate this March, the EU leadership in Brussels has taken up that mantra and bundled various initiatives under the theme of protecting Europe in an age of global tumult. Such protection is undoubtedly necessary. Migration pressures, the constant threat of terrorism, and escalating economic disputes all demand a stronger policy response.

And while addressing some of these issues has proved controversial and diffi cult, the larger protection agenda is being carried out. Yet, looking ahead, it is clear that the current measures won’t be enough. The EU fi nds itself in a world dominated by great-power rivalries, Chinese assertiveness, and revisionist Russian belligerence. Worse, in confronting these threats, it can no longer count on the United States as an unconditional friend and ally. The EU now must choose between securing its own place on the global stage and becoming a playground for other powers. This is a strategic decision of the fi rst order – all other policy choices will follow from it. If Europe ignores or checks out of the dramas roiling the world from Amritsar in India to Agadir in Morocco, it will fail to ensure peace in its neighbourhood and betray its promise to its citizens to protect them from external danger. For the EU to uphold its original mission – peace and stability at home – it must become a global player.

The choice, then, is clear. Europe’s strategic mission in the coming years must be to secure its position on the world stage, and all matters of policy and personnel should be settled in a way that advances that objective. Obviously, a strong European Council president, working closely with a strong high representative, will be essential. Both will need to mobilise the resources and talents of all EU member states to prevent the EU’s constituent parts from being pulled in diff erent directions by global forces. If the EU’s member states embrace this mission, Europe will be positioned to act as a global player for years to come. Otherwise, they – and the EU as a whole – will fi nd themselves on a merry-go-round over which they have no control. – Project Syndicate zCarl Bildt is a former prime minister and foreign minister of Sweden.

Italian Deputy Premier Matteo Salvini vowed to change European Union rules in order to push through his promise of a 15% flat tax for everyone, as his top aide turned against Prime Minister Giuseppe Conte.

Salvini and his rightist League kicked off the week by opening fire on several fronts ahead of the European Parliament vote May 26, as tensions within the populist government escalated over immigration and other issues.

Salvini pledged at a pan-European rally of 12 nationalist parties in his hometown Milan on Saturday to push through the flat tax, a measure likely to raise concerns both in Brussels and among investors on how the government will draft the 2020 budget against the backdrop of a sluggish economy.

“The only way to create jobs is to reduce taxes, so we need to change some European rules and some limits imposed by Brussels,” Salvini told La7 television on Monday.

Changing deficit and debt caps would mean altering EU treaties, which in turn requires unanimity between member states and possibly referendums in some countries. Salvini has nonetheless continued to call those limits into question.

The deputy premier stayed on topic throughout the day on Monday, saying in a video interview on Facebook that tax cuts should initially be financed with a higher deficit, and that rules imposed by Europe are flawed.

Now, Giancarlo Giorgetti, who’s also cabinet secretary, is adding fuel to the fire, voicing long-running frustration among League lieutenants about Five Star, which picked Conte a year ago.

“Conte is no longer impartial,” Giorgetti told newspaper La Stampa. The premier tries to act as a mediator between the League and Five Star but “when the clash becomes tough and he has to take a side, he goes for the stand of those who put him forward,” Giorgetti said. “The situation cannot last for ever.”

Questioning the premier’s neutrality “is not a serious allegation, it’s a very serious one,” Conte said later Monday in comments to reporters. The premier also acknowledged that clashes between the two parties in the coalition are becoming increasingly heated.

Conte, a former law professor, was plucked from obscurity by Salvini and fellow Deputy Premier Luigi Di Maio of Five Star last year. While never a Five Star member himself, Conte was loosely affiliated with the movement in the past and Di Maio once named him as a possible candidate to head the Public Administration Ministry.

Salvini backed Giorgetti’s remarks. “If everyone keeps their word and keeps their promises, we keep going for five years,” Salvini said in the La7 interview. “The problem is the ‘no’s’ on autonomy, the flat tax, unblocking construction projects.”

Unprecedented Tensions

Both Salvini and Di Maio have repeatedly insisted the government won’t collapse despite unprecedented tensions before the European elections. The partners have squabbled about everything from security and immigration to more powers for regions in the League’s northern stronghold.

Senior officials in both the League and Five Star have said the infighting is mainly due to the election campaign, although uncertainty remains on the coalition’s future.

The impact of the Trump administration’s threats to choke Huawei reverberated across the global supply chain on Monday, hitting some of the biggest component-makers. Alphabet Inc.’s Google cut off the supply of hardware and some software services to Huawei, a person familiar with the matter said.

Salvini, who’s also interior minister and has insisted Italian ports remain closed to humanitarian ships carrying rescued migrants, protested on La7 Sunday night as he watched migrants disembark at a Sicilian port.

“Someone must have given the order,” Salvini said, as Five Star officials insisted no minister of that party had granted access to the ports. “That person has to account for his action.”

Salvini said he’ll propose giving his ministry powers over migrant vessels in territorial waters at a cabinet meeting he said will take place later Monday. Conte’s office said no time has been set for the meeting.

— With assistance by Nikos Chrysoloras, Dan Liefgreen, and Marco Bertacche

Delays in tackling cli- mate change could cost companies about $1.2tn worldwide during the next 15 years, according to the UN. That’s the preliminary anal- ysis of a UN Environment Fi- nance Initiative project that brought together 20 global fund managers to measure the impact of climate change on 30,000 of the largest listed companies. The group has cre- ated a guide for investors to as- sess how their holdings would respond to different levels of global warming and policy making. “Investors have a central role to play in moving the world to a low-carbon future,” said Mau- rice Tulloch, chief executive of- fi cer of Aviva Plc, one of the par- ticipants in the project. “This collaboration shows how we can all take better decisions, for our customers and for the environ- ment.” Extreme weather events, including fl oods, tropical cy- clones, and extreme hot and cold days are already hitting business operations. Should governments install tougher policy in the push for cleaner technology, emis- sion-intensive companies will increasingly struggle to com- pete. As well as Aviva, the investor group included companies such as Manulife Asset Management, M&G Prudential Ltd and DNB Asset Management AS. The work was guided by advisory and modelling fi rms Carbon Delta AG and Vivid Economics Ltd. Investors are playing an in- creased role to protect fi nancial stability against climate change. The research work will enable them to better understand cli- mate-related risks and oppor- tunities, in line with the recom- mendations of the Task Force on Climate-related Financial Dis- closures, a part of the Financial Stability Board global regulator, the UN said. The task force is chaired by Michael Bloomberg, the majority owner of Bloomb- erg LP. To cut investor risks, govern- ments probably need to put in place consistently rising car- bon taxes or markets that will spur a shift to cleaner technol- ogy, Christopher Hope, a policy modelling expert at the Univer- sity of Cambridge, told funds managers gathered in London on Friday.

HOUSTON (Reuters) – Hungarian Foreign Minister Peter Szijjarto said on Wednesday his country would again turn to Russia for natural gas supplies if Exxon Mobil Corp has not decided by September whether to invest in a massive Black Sea offshore project.

Romania’s Black Sea reserves pose a potential challenge to Russian Gazprom’s dominant role supplying Central and Eastern Europe, according to consultancy Deloitte. Tapping those fields could diversify the region’s gas supplies and bring the Romanian government revenue of $26 billion by 2040.

“Exxon Mobil can be the game changer in the energy supply of Europe. But they should finally make their final investment decision,” Szijjarto told Reuters during an interview in Houston where he was opening a consulate office.

“If they don’t make that decision until September, I will have to make another long-term agreement with the Russians.”

Exxon and Austrian energy group OMV’s Romanian subsidiary, OMV Petrom SA, have put on hold a decision on tapping the natural gas field pending legal framework revisions. The field has been estimated to hold 1.5 trillion to 3 trillion cubic feet (42 billion to 84 billion cubic meters) of natural gas.

Exxon is weighing several factors while deciding whether to invest in the Neptun Deep project in Romania, spokeswoman Julie King said on Wednesday.

A decision would require “competitive and stable fiscal terms, a liberalized Romanian gas market that enables free trade, and sufficient interconnectivity with neighboring free and liquid markets, in each case, for the duration of our concession agreement,” King said.

Hungary’s landlocked location in Central Europe puts it at a disadvantage in getting access to needed imports of natural gas, which is used by 85 percent of the households in the country, Szijjarto said.

“The question of whether we will be able to diversify gas resources depends on four allies of ours: Croatia, Romania, the United States and Austria,” he said. “It’s a strange situation where we are encouraged by our friends and allies to diversify, but basically it’s up to them.”

Development of a liquified natural gas (LNG) terminal on the Croatian island of Krk, would help it diversify from the current, east-to-west logistics system established during the Cold War when the Soviet Union dominated Eastern and Central Europe, Szijjarto said.

Climate change is the world’s most urgent problem, and in the United States, the left, at least, is taking it seriously.
Earlier this year, Representative Alexandria Ocasio-Cortez of New York and Senator Edward Markey of Massachusetts, both Democrats, introduced a Green New Deal (GND) resolution, which offers a blueprint for decarbonising the US economy. But while a growing number of Democratic presidential contenders have endorsed their proposal, centrist Democrats and Republicans continue to cling to a different climate-policy approach.
The key centrist proposal, in keeping with the prevailing neoliberal dispensation, is a carbon tax. The idea is simple: if you tax fossil fuels where they enter the economy – be it at a wellhead, mine, or port – you can fully capture the social cost of pollution. In economic parlance, this is known as a Pigovian tax, because it is meant to correct an undesirable outcome in the market, or what the British economist Arthur Pigou defined as a negative externality – in this case, the greenhouse-gas emissions that are responsible for global warming.
As a response to climate change, a carbon tax is immensely popular among economists from across the political spectrum, and it does have an important role to play. But it is far from sufficient. Rapidly decarbonising the economy in a way that is economically equitable and politically feasible will require a comprehensive package on the order of the GND. That means combining some market-based policies with large-scale private- and public-sector investments and carefully crafted environmental regulations.
Even in this case, including a standard carbon tax involves certain risks. Just ask French President Emmanuel Macron, whose country has been roiled by months of demonstrations that were initially launched in response to a new tax on diesel fuel. The lesson from the weekly “yellow vests” protests is clear: unless environmental policies account for today’s high levels of inequality, voters will reject them.
Nonetheless, as progressives push for more green investment, they will look to the carbon tax as a source of revenue. After all, depending on the size, it could raise almost a trillion dollars per year. But rather than a straightforward levy, they should consider implementing a carbon dividend, whereby carbon would be taxed, but the proceeds would be returned to the people in equal shares. Yes, this would preclude one option for funding the GND; but it would ensure that the transition to a carbon-free economy remains on track, by protecting the incomes of low- and middle-class households.
A common objection to a carbon dividend is that it would defeat the original purpose of a carbon price, which is to encourage people to reduce emissions. But this isn’t true. To see why, suppose you are a low-income American, currently spending $75 per month on gas. Assuming that your driving behaviour does not change, a carbon tax of $230 per ton – the level needed just to put us on a path toward limiting global warming to 2.5? C above pre-industrial levels – would raise your monthly fuel expenditure by $59, to $134, or 79%. In this case, you unquestionably will feel poorer. This is what economists call an “income effect.”
Now imagine that a carbon dividend is in place: you would receive a monthly payment of $187, more than offsetting the price increase, and leaving you feeling richer. But wouldn’t this also leave you with a greater incentive to use gasoline? Economic theory suggests not.
Just because the price of gas increases does not mean that everything else in the economy will follow suit. Rather, goods and services that produce a lot of carbon dioxide emissions will become relatively more expensive than those that do not. Hence, you would have a choice between using the dividend to drive more and using it to increase your consumption of other things, from dinners with friends to new running shoes. Those social gatherings and shoes are your incentive to use less carbon. This is what economists call the “substitution effect.”
In this way, a carbon dividend would gradually nudge people, large businesses, and the government away from carbon-intensive consumption and toward activities and investments that reduce their emissions. Equally important, a carbon dividend would protect the poor. A straightforward carbon tax is inherently regressive, because it imposes the same cost on the poor as it does on the rich. But a carbon dividend inverts this effect, because every dollar that is returned will be worth more to a low-income household than it will be to a wealthy one.
Moreover, it is the rich who fly all over the world, heat and cool enormous homes, and drive inefficient sports cars. Because they lead far more carbon-intensive lifestyles than everyone else, they would contribute far more per capita to the carbon dividend. More to the point, they would pay in much more than they get back, while the poorest 60% of Americans would get back more than they put in.
In short, a carbon dividend would distribute money from predominantly wealthy high polluters to predominantly low- and middle-income low polluters, all while reducing CO2 emissions. On its own, it would represent a smart step in the right direction – one that wouldn’t invite a “yellow vest” reaction. But don’t let anyone tell you it’s a silver bullet. When it comes to climate change, there isn’t one. – Project Syndicate

* Mark Paul is an assistant professor of economics at New College of Florida and a fellow at the Roosevelt Institute. Anthony Underwood is an assistant professor of economics at Dickinson College.

https://www.gulf-times.com/story/631897/A-carbon-dividend-is-better-than-carbon-tax