How Carbon Is Changing the Price of Everything: An Interview With the Author of “Carbon Shock“

2014 930 carbon stNASA’s Orbiting Carbon Observatory-2 spacecraft collected data on molecular oxygen or carbon dioxide in the atmosphere over New Guinea, August 6, 2014. (Image: NASA/JPL-Caltech/NASA GSFC)This story could not have been published without the support of readers like you. Click here to fund more stories like it!

Unlike other books out there about climate change, Carbon Shock takes readers on a journey to the front lines of a changing world, where the same chaotic forces reshaping our weather patterns are also transforming the global economy, playing havoc with corporate calculations, shifting economic and political power and upending our understanding of the real risks, costs and possibilities of what lays ahead.

Schapiro’s journey gives us a feel for the shape of our new economy, where new powers are rising and others are falling, based on the central economic fact of our time: The rising cost of carbon.

Shay Totten for Truthout: Writing your new book, Carbon Shock, took you on an unusual journey. What were you seeking, and what did you find along the way?

Mark Schapiro: I approached the topic like a detective seeking to understand how the costs of climate change are being experienced today – a carbon hunter. I wanted to understand how greenhouse gases are becoming a profoundly disruptive force in the global economy – shaking up the calculations of the future for businesses, governments, even the Pentagon. The costs are often hidden, but we need to understand them in order to act.

Climate change works on so many levels. Its effects are immediate and long-term, happening down the block, but maybe far more intensely a thousand miles away.

Not long before I started writing Carbon Shock, I had written a couple of in-depth forays into the carbon markets, the players, and how they operate for Harpers and others. I revealed many of the underlying flaws that have made them, for the most part, ineffective in triggering a switch away from fossil fuels. It became clear to me after a while that I could spend the rest of my career reporting on flaws in the market approach. But that would not get at the underlying questions: What are the markets and cap and trade actually trying to accomplish? Yes, they were trying to reduce emissions. But on another level, they were trying to find a way to establish a price for carbon – that stand-in for the world’s greenhouse gases – to create a price that actually reflects fossil fuels’ immense damage to our atmosphere and to our planet. Those costs are now hidden; they’re externalized. We, the public, pay for them two, three, 10, 30 years down the line while the fossil fuel companies reap the profits. There’s a fundamental imbalance there – what economists call “asymmetric risk” – and I wanted to begin documenting how that imbalance plays out on the ground in order to understand how we might go about changing it.

So I followed the carbon trail and ended up in far-flung places around the world: the Brazilian Amazon, the Central Valley of California, where much of America’s food is grown. I traversed the Spanish coast that had been decimated by an oil spill. I went to cities like Pittsburgh, Pennsylvania and Manchester, England, to understand how formerly industrial cities adapt to this new post-carbon era – and to China to explore new industrial cities. I spent time with carbon traders in London to understand how they operate in a market trading solely in the world’s primary pollutant.

There are so many ways in which we’re paying for climate change without even knowing it.

Everywhere I turned, carbon was at the center of the action. When I started, I thought I’d actually be able to identify some precise cost, some actual sequential equation of causality – x + y = the costs of climate change. But it doesn’t quite work that way, partly because climate change works on so many levels. Its effects are immediate and long-term, happening down the block, but maybe far more intensely a thousand miles away.

Part of the task is calling these costs what they are, then we can face them head on.

After a couple of decades of writing environmental stories, I was also tired of reading in the environmental literature about this very technical term, externalized costs, as a way to characterize environmental damage. It’s repeated so many times, but remains abstract. I wanted to see what those “external” costs look like, see them in action in a place with people and a name and a set of circumstances that are being altered in ways that can be traced back to those invisible greenhouse gases. To tell the stories behind the costs.

What surprised you most about what you found?

I knew that carbon was a major economic disrupter, but perhaps I had not quite comprehended the scale of the disruption and how profoundly it is already underway. The impacts on supply chains from moving trucks and trains in increasingly extreme conditions; the impact of diseases moving ever northward and the implications for public health budgets; and, most potently, the matter of water, which around the world is becoming far less predictable than it has ever been in the past. It began to dawn on me just how wild a card it is. There are so many ways in which we’re paying for climate change without even knowing it. For example, the huge stresses that farmers’ are experiencing from changing weather patterns are actually being cushioned and paid for by the federally supported crop insurance system, in other words, by American taxpayers. But neither carbon nor climate is mentioned on the ledger. Part of the task is calling these costs what they are, then we can face them head on.

Also truly surprising to me was how deeply engaged people all over the world are in trying to figure out a way to address the destructiveness of climate change, within the existing political and economic constraints – and, even, in changing the nature of those constraints. You’re seeing the rise of new industries and the demise of old ones, the rise of new diplomatic powers and the fall of old ones – all based on their access to the resources that are becoming evermore valuable in a post-carbon economy.

I was also surprised to find that that disruption was happening on so many levels. It was shaking up alliances. On what issue is the United States allied with Russia and China? Emissions from airplanes. And what kind of financial traders bet on the price of something in order to make it disappear? Those are called carbon traders. In which area of the United States are they now growing fruits that were once limited to the Middle East and the tropics? In California, growing warmer by the day. Everywhere you look: shake-ups, and they have large implications for the way we conduct business, government and our lives moving forward. That’s what I wanted to communicate, the spectrum of implications and their costs.

In your book you demonstrate that we’re already paying for the cost of carbon, but we just don’t call it that. What are some of the most striking examples? Who is paying? And how?

A few examples, one pretty common and another that might be a surprise. The common example: the costs of recovery from hurricanes Katrina and Sandy. Now, no one, no serious scientist or person, says that climate change “caused” those hurricanes. We’ve always had hurricanes. But what the atmospheric turbulence does do is intensify the extremes of those and other extreme events. The winds blew more aggressively for longer and across a broader landscape than they would have in a world without climate change. So recovery from those hurricanes cost more than $50 billion – and that’s only as of now, and just for rebuilding of infrastructure. We’re not talking about lost livelihoods, lost days of work, lost lives – in which case those costs ripple out for decades. And just so we’re clear: Those costs are paid by you and me – the American taxpayers. And the same with European, Japanese, Australian, Chinese and South African taxpayers, and everyone else, for the similar situations in their countries.

Another less known, perhaps, cost: Farmers deal with the radically shifting winter conditions every day, and we’re seeing the consequences – skyrocketing claims from the federally supported crop insurance devised to keep farmers on the land even in the face of difficult weather and other conditions.

We pay to perpetuate the problem, too, not just to cover its consequences. For the past several decades, the United States Treasury has been providing more than $3 billion a year in subsidies to oil companies

And who pays when new diseases like valley fever, caused by a fungus carried by dry winds that are one feature of drought, start showing up in the American southwest and California? People pay with their health, and their tax dollars support the Centers for Disease Control and other public health agencies trying to devise a response. Plant breeders pay as they frantically try to develop new varieties able to tolerate the rising temperatures and dropping water supplies.

Who else pays? General Mills, the producer of Cheerios and other high-profile food brands – reported to investors earlier this year that their second quarter showed a lower economic performance than usual due significantly to disruptions of their supply chains as trucks and trains were unable to deliver grains during the unusually heavy storms of last winter. So all along the chain, someone pays; and of course, that someone is us.

But I would also like to point out that we pay to perpetuate the problem, too, not just to cover its consequences. For the past several decades, the United States Treasury has been providing more than $3 billion a year in subsidies to oil companies – tax advantages, refunds, special dispensations, and outright cash payments. Oil companies have been getting significantly more support from the government than renewables. Subsidizing one of the world’s leading greenhouse gas contributors defies logic.

Does who currently pays the costs of carbon differ from who should pay?

Yes. Since fossil fuel-reliant companies don’t have to account for the full costs of their product, those costs have been shunted onto the rest of us. Under the current system, we the public pay in installments, more every year – higher insurance costs, higher food costs, the diversion of health resources, and on and on. So the first step is to integrate the actual costs into the price of energy. Then the question is: Do we just increase the price of gas and energy and allow the fossil fuel companies to make the same profit margins they’ve been making all along?

The greenhouse gases of Chinese industry are being produced on behalf of the citizens of Pittsburgh and other “greened” cities whose residents consume the products made there.

Those companies have been getting a really good deal out of the past century or two of discounted energy, energy in which the risks were borne by the public, and they received the profits. One of the major challenges is providing a mechanism – whether through rebates, tax incentives, or otherwise – to enable most of the costs to fall on those who’ve benefited on a huge scale. We need to ensure that the solution is not as inequitable as the problem itself, that people with lower incomes do not bear the brunt of the burden.

In the book, you visit two former industrial cities that are turning green now that their manufacturing base has disappeared as well as Guangzhou, a current manufacturing hotspot in China. Along the way you pose some interesting questions about real carbon footprints. What’s the difference between the footprint of someone in Guangzhou and someone in Pittsburgh?

You would expect the footprint to be higher where the emissions are higher, and right now that’s in Guangzhou, which is one of the centers of China’s export manufacturing industries. But the greenhouse gases of Chinese industry are being produced on behalf of the citizens of Pittsburgh and other “greened” cities, whose residents consume the products made there. This is one of the fascinating twists to climate change and devising means of dealing with global greenhouse gases. I spent some time in Pittsburgh, and it is quite a lovely city in parts, with big open spaces, cool cultural spaces, and high-tech and bio-tech firms where there were once steel factories. You’d never know it was one of the industrial centers of the United States – until the steel and associated industries started leaving in the 1980s.

But the city’s greenhouse gases did not just disappear. They moved to China along with the factories. Greenhouse gases in many American and European cities have plunged while their residents’ consumption of greenhouse-gas intensive goods have increased. So who is responsible for those emissions? The producer of the goods or the consumers of the ultimate product? This question is rising as a source of contention as the discrepancies in the global economy intensify, dividing the sites of production from the sites of consumption.

Why has it been so hard to develop fair ways to pay for the impacts of climate change? Is it a lack of political will? Bureaucratic inertia? Pressure from fossil fuel companies? All of the above?

Well, first of all you have the fact that reducing greenhouse gases requires a fundamental reshaping of our economic order to favor the development of renewables. That’s a shift of unprecedented scale; it touches everything about the ways our society and the economy has been organized over the past two centuries. So that’s the backdrop.

Another factor is corporate influence. I discovered in the course of reporting the book that just 90 companies account for two-thirds of the world’s greenhouse gases. Two-thirds! So we know who the major culprits are. They have names, they have corporate headquarters. They are involved either in obtaining, processing, and burning oil or coal, or in major manufacturing like steel and chemicals. Or they manufacture products like automobiles and trucks. Many are household names. They are also huge, transnational enterprises, often with operations that range across numerous national frontiers – and thus jurisdictions. You’ve got an immense and powerful status quo that has a lot to lose in making the shift.

While I don’t think the American or global economy will come anywhere close to the economic crisis predicted if we act seriously about climate change – in fact I think there’s plenty of evidence to suggest that the green economy would bring tens of thousands of new jobs and hundreds of millions of dollars in new funds into the economy – the fact is that this shift means that somebody will lose. And that somebody is those companies that are closest to the source of energy: coal companies and oil companies and utilities, and manufacturers who have not even begun the process of adapting to more renewable sources of energy. And so you have a struggle with some of the most entrenched interests on the planet.

One result of this pressure from entrenched industries was the development of the carbon markets. At the Kyoto negotiations in 1997, when the world was deciding how to curtail emissions, the Europeans and the Group of 77 developing countries had wanted to implement a carbon tax, considered by most economists to be the most direct way of imposing a price on carbon. But the Americans, led by then-Vice President Al Gore, favored a market-based approach. Brazil led the developing country delegation at that time, and at a meeting in Rio de Janeiro they agreed to the Americans’ demand.

That led to cap and trade, and the buying and selling of greenhouse gas pollution credits in the carbon markets. And the architects of those markets designed them with a central inherent flaw. They wanted to make the price high enough to trigger a shift away from fossil fuels; and they wanted a price low enough to lure major energy users into the market, and reduce the costs of compliance with the new regime. Those motives are bound to collide, and they did. The price has been so low as to have almost no impact on the decision-making of major fossil fuel users. And there has been major criminal activity, as criminals moved into a market that ripe for manipulation, in which traders spend millions on a commodity in order to make it disappear. As I describe in the book, outlandish schemes emerged, carbon allowances were stolen, double credits issued, the works.

So now we have a complex, crime-riddled system attempting to change an entrenched system propped up by undue corporate influence, and we have major players, like the United States, who are loathe to pressure corporations to do the right thing.

Your book mentions discovering the new normal of a climate-impacted world. What does this “new normal” look like for most people in their day-to-day lives?

It depends upon which people you’re talking about. For most Americans who live in cities, the new “normal” is hotter, with less rain. When it does rain, the rain is heavier and falls more intensely. And the cost of goods is growing higher as the increased risk of doing business is passed along to consumers. If you live in the southwest of this country, you’ll also be exposed to diseases that are moving northward as the temperature rises. If you live in the Midwest or in parts of California, you’re going to have to get accustomed to constant and sustained pressure on your water supply.

If you live in the horn of Africa, you’re going to have to get used to that same phenomenon of shrinking water supplies in an area that has far fewer resources for adaptation than in the United States. So you’re going to see increasingly intense and violent conflicts over resources that are strained by the impacts of climate change.

I quote California Governor Jerry Brown, who says that the longer we wait to act on climate change, the more we’re going to get to what he described as a “Hobbesian situation.” Hobbesian as in Thomas Hobbes, the 17th century philosopher who wrote about society as a clash of individuals driven by immutable self-interest and government as the restraining force on those selfish instincts. As climate-linked stresses on the earth increase, the signs of Hobbesian conflict – over water and land – are not hard to find, even, already, in the state of California.

With oil spills, train derailments, health costs, and rising costs to grow food in hotter climates, is it possible to account for, and assess, all of the costs of climate change without bankrupting the global economy?

I’d suggest recasting the question. First of all, we are not talking about bankrupting the American or any other economy. The question is do you put the economic pressure on now, and on those most responsible for the costs, and thereby reduce the long-term economic consequences; or do you continue the status quo, in which the public pays the costs and the costs continue to increase at a more rapid rate. The chances of bankrupting the economy – to use that handy though inappropriate term—are probably higher if maintaining emission levels than if reducing them.

The EPA estimates what it calls “the social costs of carbon” to be $38 per ton of greenhouse gases. These are the costs to the nation’s infrastructure, public health, security systems (the Pentagon calls climate change one of the foremost security threats) and other factors. More than 6.5 billion tons of greenhouse gases were emitted in the United States in 2012, according to the US Environmental Protection Agency. You can do the math. It’s a big number. President Obama’s Council of Economic Advisers estimates that every year that emissions continue to rise at the current rates, the costs of dealing with and trying to mitigate the impacts of climate change will also rise by some 40 percent per decade into the hundreds of billions of dollars by 2050.

The more appropriate question is, What are the costs of acting to make the shift toward more renewable energy sources vs. the costs of not acting at all? Every calculation from the EPA to the UN to the world’s foremost scientists to former treasury secretaries from both parties (President Bush’s treasury Secretary Hank Paulson and President Clinton’s Treasury Secretary Robert Rubin) shows us that the costs of starting to slow those emissions now are significantly less than letting them rise at the current rate and paying for the consequences.

After researching the book, which country, or countries, do you see as being the most forward thinking in assessing the costs of climate change? Which ones are taking the most steps to mitigate their own impact?

There are many responses around the world. Germany comes to mind as a frontrunner in trying to create a new grid to enable electricity to be generated from wind and solar and transmitted across the system. Germany has also turned green energy into a huge trade surplus, with the industry generating thousands of jobs and pumping many millions of dollars into the green economy taking shape. The Netherlands is turning into the world’s consultant on how to wisely channel water resources. The state of California is leading the United States in imposing stricter emission standards on gasoline fuels and on emissions from coal refineries. And let’s not forget China – which is now the world’s leading producer of solar and wind power. And there are thousands of other initiatives breaking out all over the world that are showing promise, on scales large and small, for steering us away from fossil fuels.

In Brussels, I spoke with several high-ranking political and economic figures associated with the European Commission and European Parliament and asked, Why are far more resources being devoted to lowering the carbon load of energy across Europe than anywhere else? Their answers, which I quote in the book, boiled down to this: When the world wakes up to the need to make the wholesale shift away from fossil fuels, we want to have our technology ready when the market for renewables explodes. That’s the message, and it applies across the board.

We’re just starting to see many global companies accounting for carbon in some fashion on their balance sheets, even though they are not required to. How are they doing this, and why are they doing it?

I think you’re seeing this for a number of different reasons. Five of the biggest oil companies announced they were integrating a cost for carbon – from $40 to $60 per ton – into their internal accounting. Why? There’s one thing oil companies know how to do other than drill for oil, and that’s calculate risk: They are envisioning the possibility in the future of a carbon price that could get that high. What’s also interesting about the oil companies’ move is that there’s no turning back. It lifts the lid on the trick behind what’s been years of accounting magic, in which a sleight of hand has long kept the actual costs of energy out of sight.

It is also, though, a price that does not come near pushing them toward alternate sources of energy. Most economists think that the price has to be closer to $100 per ton to create an economic incentive to move away from oil.

Are you hopeful that there will ever be an international agreement to “tax” carbon emissions?

I am hopeful that there will be building recognition of the impacts of climate change and the moves that are necessary to slow its pace. That’s because the evidence is coming at us every day. And also because there is a big and growing international citizens movement, involving millions of people in this country, in Europe, in Japan and Australia, and in countries like Brazil, Mexico and Korea, that are demanding action.

Ultimately … what I, or any individual, does is ultimately, in the big picture, pretty small. What’s needed are laws that require us to act in unison.

Right now, the overall picture is of a world moving toward some uniform price – though that could end up looking like many countries having their own price and then trying to harmonize it over time. And the question will be, Is it high enough? We could, on the other hand, also end up with major trade disputes if you get prices higher in one place than another – which is why an international accord on this is critical. A top priority of coming climate negotiations, first in Lima, Peru, this November, then in Paris in 2015, is negotiating a successor to the Kyoto Protocol.

There are also other types of initiatives at play, too, to reduce emissions – from tax incentives and subsidies to government mandates, like President Obama’s limits on emissions from coal-fired power plants. Those kinds of independent initiatives will have an effect, over time.

After writing the book, what are you doing personally to lessen your impact on the climate?

Over the course of reporting and writing this book, I’ve become aware of a fundamental idea that I don’t think I’d quite fully grasped before. The earth is like an organism, constituted from air, land and water. And I’ve come to understand viscerally the balancing act of the atmosphere, earth and oceans that has allowed humans to flourish over the last eye flash of millennia. What that means is I’m far more aware of the finiteness of resources and the particular ways in which my actions challenge that balancing act and contribute to the economic disruption I’m writing about.

So, for example, I’m a little less wasteful. I think of paper towels and paper as former trees (important carbon sinks, not to mention key contributors to the ecological balance). And when plugging a power cord into my wall, I regard it as a surefire greenhouse-gas-emitting moment. That awareness influences how I use resources. I drive a little less (fuel for transport is the second biggest source of emissions). These are all small things individually, but they come out of understanding the big picture.

Ultimately, though, while I hope that all of us become more conscious of our energy use, what I, or any individual, does is ultimately, in the big picture, pretty small. What’s needed are laws that require us to act in unison. To get the mass-scale shift that’s needed, we have to mandate that it be done. We have to create a new level playing field if we’re going to avoid disruption on a mass scale and create a more healthy environment for us all.