by Countable | 10.17.18
Many government and business leaders favor policy options that put a price on carbon. These are market-based strategies, and if designed effectively, can help to reduce greenhouse gas emissions at the lowest cost.
The Center for Climate and Energy Solutions explains:
“The costs of climate impacts – such as higher sea levels and more frequent and severe heat waves, droughts, wildfires, and downpours – are not reflected in the price of goods and services that emit greenhouse gases. Putting a price on those emissions gives businesses an incentive to reduce them. By giving them flexibility to choose the most economical way to reduce emissions, rather than mandating one approach, pricing also encourages businesses to innovate.”
Importantly, carbon pricing schemes are technology-neutral. They directly target the actual problem – carbon dioxide emissions that contribute to atmospheric warming – rather than favoring a particular solution, such as solar panels or smart meters. The approach thus encourages the marketplace to develop the best possible tools and systems to reduce greenhouse gas emissions.
The U.S. pioneered market-based approaches to pollution. A program to curb sulfur dioxide, the cause of acid rain, was created in 1990 by a bipartisan Congress and launched by President George H.W. Bush. Emissions were cut about twice as quickly as predicted at a fraction of the cost of traditional regulation.
Market-based policies to curb greenhouse gas emissions are in use in 11 states, accounting for more than a quarter of the U.S. population and a third of U.S. GDP.
There are two main types of carbon pricing: carbon taxes and emissions trading systems.
A carbon tax directly sets a price on carbon by defining a tax rate on greenhouse gas emissions or – more commonly – on the carbon content of fossil fuels.
Critics contend that a carbon tax doesn’t guarantee a specific level of emissions reduction, but studies have shown that design elements such as a “ratcheting mechanism” that adjusts the tax upward if initial reductions are too low can solve that problem.
Last week, the Nobel Prize in economics was awarded to William Nordhaus and Paul Romer for explaining how climate change and technological progress impact long-term economic growth. Nordhaus’ work has led him to the conclusion that part of the solution to climate change is a universal carbon tax.
The Climate Leadership Council, a newly formed research and advocacy group, supports a revenue-neutral carbon tax. The Chicago Tribune editorial board published a resounding endorsement of the Climate Leadership Council’s plan:
“Americans don’t have to choose between a free, thriving economy and a healthy planet… The centerpiece [of the Climate Leadership Council’s plan] is a tax on carbon dioxide emissions that would start low and rise over time. At $40 a ton, the initial rate, it would raise gasoline prices by about 36 cents a gallon — a modest increase, but big enough to affect business and consumer decisions.
“Making fossil fuels more expensive would stimulate conservation, speed the shift of power plants from coal to natural gas and make renewable fuels more price-competitive. The result would be a steady reduction in carbon emissions, which in turn would put a brake on global warming.
“Here’s the real attraction for conservatives: This approach would remove the justification for a lot of federal micromanagement. ‘Much of the EPA’s regulatory authority over carbon dioxide emissions would be phased out, including an outright repeal of the Clean Power Plan,’ says the council.”
According to a 2018 survey, 30 percent of regulated electric utilities in the U.S. want an economy-wide price on carbon and other greenhouse gases.
An ETS – often referred to as a cap-and-trade system – caps the total level of greenhouse gas emissions and allows those industries with low emissions to sell their extra allowances to larger emitters. By creating supply and demand for emissions allowances, an ETS establishes a market price for greenhouse gas emissions. It differs from a carbon tax in that it predefines the emission-reduction outcome.
Critics point to problems that actual cap-and-trade programs have confronted, such as weak emissions caps, volatility in emissions allowance prices, and overly generous allocations of emissions allowances. However, these are problems with the design of a cap-and-trade program, and each has a straightforward solution.
According to a 2018 survey, 12 percent of regulated electric utilities in the U.S. want an economy-wide cap-and-trade system for greenhouse gases.
Globally, for every $1 spent to support renewable energy, another $6 are spent on fossil fuel subsidies. These subsidies are intended to protect the poor from fluctuating fuel prices, studies show the wealthiest 20 percent of the population captures six times the benefit from fossil fuel subsidies as the poorest 20 percent.
As of October 2017, Oil Change International estimates U.S. fossil fuel exploration and production subsidies at $20.5 billion annually. Other credible estimates range from $10 billion to $52 billion annually.
In September 2016, the U.S. and China released fossil fuel subsidy peer reviews, in which the two biggest greenhouse gas emitters attempted to increase transparency and to cooperate on climate change remedies. The U.S. self-assessment identified $8.2 billion in subsidies, of which $4.8 billion was deemed inefficient.
Do you support any of the climate change policy remedies above? Do you prefer a different approach? Tell your reps what you think, then share your thoughts below.
—Sara E. Murphy
(Photo Credit: iStock.com / leolintang)
Written by Countable