Carbon taxes are useless! Okay, not really, but that might be one takeaway of a great piece by Leila Abboud in The Wall Street Journal today—if you don't read past the lede. Basically, Norway's greenhouse-gas emissions have risen 15 percent since 1990, despite having levied one of the stiffest carbon taxes in Europe. Now, considering that the country has grown 70 percent over that time (so much for carbon taxes killing growth), that's not a bad track record at all, but the thing about climate policy is that emissions need to go down, not simply rise more slowly. So what happened? One issue, it seems, is that too many industries were able to win exemptions:
Take paper manufacturers, which were given a low tax rate of between $16 and $18.40 per ton—less than a third what the oil sector pays. For the country's biggest paper company, Norske Skog, the carbon tax amounted to only about $200,000 a year. "It didn't have a major influence on our investments or our project decisions," says Georg Carlberg, vice president for environmental policies.
Now contrast that with Norway's oil and gas industry, which must've wished it had hired the paper industry's lobbyists, because they got slapped with a tax of $65 per ton of carbon—nearly double the price under Europe's trading regime—and actually did end up making major changes:
Around the time the tax was being debated, Statoil was developing a new gas field in the North Sea. At the Sleipner field, the natural gas Statoil extracts from under the sea bed contains 9% carbon dioxide. That's too high for Statoil's customers, whose power plants are designed to burn gas with only 2% carbon dioxide. Before Statoil can sell the gas, it has to separate and discard some of the carbon dioxide. Usually the excess carbon dioxide is spewed directly into the air.
Because of the looming carbon tax, Olav Karstaad, a chemical engineer at Statoil, got to work on another solution. Mr. Karstaad and his team adapted technology to push carbon dioxide under the sea floor and store it there.
Statoil spent two years and some $200 million on the project, which was launched in 1996. Since then, some 10 million tons of carbon dioxide have been buried, saving Statoil about $60 million on its carbon tax bill every year. The carbon storage facility cost less than what it would have spent on taxes, says Mr. Karstaad. "This is a money-saving operation for us," he says.
As a result of that and other carbon-reducing measures, the company's carbon dioxide emissions per ton of oil and gas it extracts are 39% of the industry average, according to the company.
Granted, Statoil's emissions have still quadrupled since 1990, thanks to a massive increase in drilling (the rest of the world, apparently, still likes oil), but it's emitting far, far less than it otherwise would be without a carbon tax. Another pea under the mattress is the transportation sector—despite gas that goes for $9 or $10 per gallon, most people just pay up and keep driving; given that two-thirds of Norwegians live in the countryside, most don't have a choice. Norway probably won't see a drop here until something like plug-in hybrid vehicles come along—more reason to think this could prove to be the biggest game-changers in terms of emissions worldwide.
One interesting comparison is putting Norway alongside Sweden and Denmark, two countries that also adopted staggering carbon taxes back in 1990 and grew rapidly but have actually slashed emissions (14 percent and 8 percent, respectively). I'm not sure exactly what accounts for the contrast, though Sweden has augmented its carbon tax with a) a big push toward biomass (a good idea if you have forests to spare) and b) government policies to promote denser development and curb driving. Denmark, meanwhile, has feed-in laws that have proved shocking successful at bolstering the wind industry. So one obvious lesson might be that carbon taxes do work—when they're not loophole-ridden—but can't be the only tool of climate policy.