15.+THE+TRUE+COST+OF+CARBON

=Chapter 15= toc **__ Global issues notes: __** **__ The true cost of carbon: __** **__ Zein Shami __** **__ A flawed system: __**

- When the world wanted to address the crisis, it was hit with the global economic recession - So in order to create jobs the government spent billions of dollars to create green infrastructure - The market is still not fully utilize to solve this global issue - The way we perceive what is good and bad for us is deeply flawed - All forms of pollution are described by economist as negative “externality” (this has come to mean that we do not want to keep track with his stuff so let’s pretend it does not exist) - Carbon **dioxide** is invisible, tasteless and odorless it is invisible to market calculation - What we pretend what does not exist is destroying the planet - Humans put 90 millions tones of CO2 in the atmosphere every 24 hours (this amount is rising every decade) - The easiest way to reduce the amount is to put a price on carbon, so you pay for the amount of carbon you expel - The longer we wait to address the issue, the greater the risk the economy faces from investments in carbon assets. - “Nature does not do bailouts”- Jonathan Lash - Our market economy can help solve the climate crises if we make the right decisions - The system of national accounts serve as the country of determining the country GDP, it is very incomplete in its assessments value. - It is precise in its ability to account for all established goods and services, but is the dangerously imprecise in its ability to account for natural resources and human resources-Al Gore - The colonial era would end a in a couple of decades, but when the national accounts were being developed they assumed natural resources should be treated differently as capital resources. - As a result common accounting devices like depression which was routinely applied to man made capital assets like equipment, building, factories and other fixed assets were not used in the same way for raw materials that seemed to be in almost limitless supplies-Al Gore - In all fairness the economist who created the GDP did not mean it to be widely used to determine a country current state. - - An elaborate system of accounting, one resting of an assumption that economics posses “perfect information” would assign large categories of inputs and outputs to another world that was considered safe to ignore. Most form of pollution fell in this category, due to a false assumption that the earth was so vast and resilient that dumping into nature surely had no consequences worth tracking on a balance sheet. - The gross natural product measures everything expect what makes life worth wile- Robert F. Kennedy. Forty years ago Robert F. Kennedy reminded the world that the GDP fails to respect the integrity of our environment - The most serious consequence of failing to account for pollution in business, is that we make our market blind to the consequence of unrestrained pollution-Al Gore - It is tempting to think that the only tool in life is a hammer and to treat everybody like a nail- Abraham Maslow - In the same way if every tool we use to analyze is the price tag, then that everything that have no price tag begin to look like they have no value. And if they have no value that means that they are not worth taking account in the balance sheet. - In a market economy like ours all the solution to solve the climate crisis, would be more effective if we put an extra price on oil.
 * __ The system of National accounts: __**
 * GDP || GPI ||
 * Is the standard measures of a countries economic performance || The GPI measures the sustainability of income and socio economic standard of a nation. ||
 * GDP is the total amount of production created and services by a country (this does not take into account the socio-economic well being of a nation. || GPI adjust the personal consumption of data by adding the benefits of nonmarket work (unpaid housework, volunteering) and they subtract the cost of crime, air and water pollution and deforestation ||
 * It is good for knowing a country economic state, however bad for knowing anything else about a country || Combines all the information about a country, but it is not clear on how much a country produces ||
 * __ Blind to the consequence: __**
 * __Bhutan Growth Natural happiness:__**

Alone among the world nations, Bhutan has taken a fresher approach to the growth natural product. Rather than focusing on the traditional measures, Bhutan king introduced the idea of growth natural happiness. This improves quality of life, quality of education. - After the cold war, the American government urges the creation of new markets. This period of market triumphalism led to removal of many harmful pollution. This coincided with the time that global warming was discovered as a fact-Al Gore. - There is nothing more powerful than idea whose time has come- Victor Hugo - Seven trillion worth of subprime carbon assets depend on their valuation that it is perfectly okay to put 90 millions tones of CO2 in the atmosphere every day. - The scientific community has presented irrefutable evidence that we must quickly stop burning carbon-based fuels if we are in order to continue human civilization. - The longer we continue to invest in carbon assets, the longer it will increase the risk faced by our economy - Since so much money has been invested in suddenly worthless assets, the sheer size of the stranded assets becomes a powerful drag on the economy. - Due to the drop of the price of carbon assets. The owners of these high carbon assets have an incentive to defend aggressively against this. - Some people defend the price of these assets by fighting the necessary environmental reform - The longer we fail to recognize and measure the cost of carbon based fuels in the way we are currently growing them, the bigger the bubble will grow and the more destructive the burst will be. - There is something fundamentally wrong with treating the earth like a business in liquidation-Herman Days.
 * __ Market fundamentalism: __**
 * __ Subprime carbon assets: __**

**__ Short-Slightness: __** - A serious defect in the market is its reliance on short-term profit and earnings projection to see if a company is doing well or not. - Numerous studies show that most company’s true value is determined by its long run performance, today the majority of the investments community now act in ways that gives the impression that the long term does not matter anymore. - Many experts in the finance believe that 75% or more of a cooperation true value should be over a period of five to seven years. - This short-term orientation has significant effects on the world economy. If business forgo value in creating short-term earnings it damages the economies vitality in the future. - A short-term approach also hinders innovation, research and developments. Diminishes the investment in human capita, encourages financial gymnastics and discourages leadership.



The graph above shows the average holding of stock in that respected time period.

**__ Looking at the long term: __** - To diminish this trend, the investment community should embrace genuine long-term thinking. That would mean managing portfolios with a long-term investments horizon of roughly five years. - Many coal deposits in the United States are roughly mined with the removal of Entire Mountain tops, with the toxic residue dumped into streams of water at the base of the mountain. - This despicable practice has already poisoned a number of community drinking water sources and has threated havoc on the lives of many families.
 * __ Paying for pollution: __**



The picture above shows the drastic change in landscapes that occurs when coal mining.

**__ The true price of oil: __** - Yet another cost on our reliance on oil and coal that is not measured in our routinely is the cynical destruction of our global economy that comes as result of the instability of the prince of oil in world markets- Al Gore - Most oil reserves in the world today are not controlled by private businesses, but a sovereign government controls them. The owners of the largest reserves work with OPEC (the organization of petroleum exported countries) to pursue two strategic goals simultaneously. - **First**: they want to increase the price as much as possible and to minimize production quotas to drive the price of oil higher then what it otherwise be. - Production quotas are a goal for the production of a good. A government or an organization typically sets it. - **Second**: The second objective is not well understood by oil-consuming countries: they are highly conscious about their strategic interest in preventing the formation of political views in the west that might lead to a sustained effort- like the one advocated here- to make an investment in the change of the use of carbon based fuels to renewable energy. - Another wildly known defect in the way markets for energy work is the principle agent problem. - The principle agent problem is the comfltect between the choices made by one generation and its repercussions with the next. - For example many builders and developers are driven by short-term competition to reduce the initial prices on buildings and leases. Even if that means not including heavy insulation or efficient windows and lighting designs that can drastically reduced energy consumption for the benefit of the customers who will be buying or leasing said apartments.
 * __ The principal agent problem: __**







The graph shows the rises and descents on the prices of oil over the years.

**__ Putting a price on carbon: __** - For all of these reasons, an effective plan for solving the climate crisis must include aggressive remedies, for our erroneous reliance on deceptive market signals in carbon based energy. Said signals are mostly structurally flawed and intentionally manipulated by sovereign nations seeking to control the energy of the future- Al Gore - There are three options available to fixing the flawed signals in the market place. - It is possible that their attitudes may change over time as the merits of a revenue-neutral CO2 tax become more widely understood- and as recognitions of the unthinkable consequences of failing to solve the climate crisis begin to play a deeper role in our assessment of what is right and what is wrong. - For the foreseeable, future however it is only prudent to assume that the U.S political system is incapable of making such a bold and controversial decision. - Presented with the unlikelihood of gaining sufficient support for a CO2 tax, most thoughtful advocates have concentrated instead of an option two, the cap and the trade system.
 * **First**: A CO2 tax that shows the true environmental task cost of coal and oil
 * **Second:** The use of a cap and trade system, which indirectly restrict the amounts of CO2 that can be produced and allocating it trough a market-based trading system
 * **Third:** Direct regulations of CO2 under laws such as the clean air act

- The invoice shows how many things that are not taken into account in the GDP **__ More regulations: __** - Another regulation for fixing the mistaken signals in the market for carbon-based fuels involves government regulation of CO2 emissions. In concert with a CO2 tax and or a cap and trade system. - In early 2009 the new head of the head of the EPA under president Obama, Lisa Jackson, initiated formal proceedings that are now resulting in new regulations of large emitters. - Another form of regulation that promises to accelerate the transition to renewable energy comes in the form of a largely required mandate to producers and sellers of electricity that they obtain a large and growing percentage of their energy from renewable sources. - This approach has already been acted in the State of California and several others states and has already resulted in a surge of new investments for windmills and solar panels would not have been built without a legal mandate. - If this approach is used nationally, the surge of renewable energy will grow rapidly.



The picture shows how the cap and trade system work.