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Tamminen: Zero Sum Game In Copenhagen

The deal being discussed in Denmark right now, in the name of climate change, is actually a framework for truth in advertising on a global economic scale. Think FASB on steroids.

The Copenhagen Ice Bear
Sasha Abelson
The Copenhagen Ice Bear

For example, we spend about three bucks for a gallon of gasoline in the US. In fact, we spend about ten, because of the cost of defending oil around the globe (recall that even Alan Greenspan was among the many government officials who have concluded that the trillion-dollar Iraq war was entirely about oil); healthcare costs directly attributable to diseases from petroleum pollution; tax breaks; and other direct benefits bestowed on the oil industry.

We can debate whether a fundamental commodity like transportation fuel should be subsidized to help commerce in general, but we cannot escape the fact that we are doing so today. The extra seven bucks a gallon for gasoline doesn’t include the value of lost productivity for a worker with asthma or the cost of repairing New Orleans (a disaster that was, at least in part, exacerbated by climate change).

By contrast, climate negotiators favor a system where either a carbon tax or cap-and-trade market system would have businesses and consumers pay the full cost of energy, technology, and consumption of scarce natural resources.

Some states in the northeast have already added that cost to electricity and have earned billions of dollars that they can now use to pay for the externalities, like higher costs for health care or crumbling coastal barriers. If the world moves to this more candid accounting, what else will cost more—or less—in such a zero sum game?

Two things that will go in very opposite directions, as a carbon price is added to goods and services, are overnight packages and books.

Jet and diesel fuel (commodities that power cargo planes and delivery vans) take more energy to make than gasoline, and, while commuters have choices when gas prices spike, package businesses have no alternatives when it absolutely/positively has to be there overnight. Supply and demand, as the economy rebounds (especially in China), will also push the price of the fuels of commerce higher/faster. That will hurt FedEx , UPS , DHL and even the humble Greyhound bus line.

By contrast, books will get cheaper. The carbon price imposed on deforestation (paper), printing processes and shipping will drive the price of traditional books high enough to get us to read books on devices we already have—laptops, iPhones, and Kindles. Electronic publishing and delivery of books is much cheaper than printed versions. Beneficiaries will include the obvious Apple , Amazon , Sony and Google (which has already brought the cost of many classic books down to zero) and exciting new companies like iRex Technologies (a spinoff of Phillips that sells the technology for e-book devices to numerous manufacturers).

Some policymakers favor taxing carbon, but reducing taxes on businesses or workers by an equal amount. That works today in the U.K., where higher gas taxes are offset by lower income taxes. To be sure, income taxes there are still hefty, but people get more in services for their money, such as free health care. Without the tax on petrol, those income taxes would be higher still or services would have to be cut. Sounds like the debate in Washington, eh?

However it shakes out in Copenhagen this month, the zero sum game is worth playing to calibrate our economy to new realities. What trade offs would you make?

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Terry Tamminen, former Secretary of the California Environmental Protection Agency, is a partner at Pegasus Sustainable Century Merchant Bank and the Cullman Senior Fellow at the New America Foundation. (Cracking The Carbon Code is a registered trademark of Terry Tamminen).