Abby L. Harvey
GHG Monitor
5/23/2014
Carbon pricing is more efficient, economically sound and common than many believe, a panel of experts said this week at an event hosted in Washington by the Center for Climate and Energy Solutions (C2ES). “We’re already paying a price—we already see a cost of the greenhouse gas fueling climate change and the damages that are significantly affected by climate change, namely rising sea levels, droughts, severity of fire and down pours,” Janet Peace, Vice President of Markets and Business Strategy at C2ES, said in her opening remarks. “Pricing carbon just makes sense. It makes sense to put the cost of those damages in the bottom line of decision making. Also, the nice thing of pricing carbon … is that it’s not the government picking winners and losers. It allows business the right way, or at least allows business flexibility to figure out the right way for them, of reducing their emissions.”
At its root, climate pricing can be reduced to basic economics by defining climate change as a market failure, said Adele Morris, Policy Director for Climate and Energy Economics at the Brooking Institution. “We’re taking an economic perspective and that means thinking about climate change as a market failure,” she said. “When I put gas in my car, the price I pay includes the cost to produce and market that fuel, but it doesn’t include the cost to the environment of those combustion gasses and so economically what we want to do with a carbon tax in internalize those costs and ensure that the prices we pay reflect the full social cost of the goods and services we consume. A carbon tax is an extremely efficient way to do that because it changes the relative prices of different fuels an exact amount related to the damage they cause the environment.”
How Should Tax Funds be Used?
The panel also discussed how the revenue generated by a carbon tax should be used, as well how to minimize the potential impacts on low-income consumers. For example, Morris suggested that if a tax were imposed on fossil fuels, the government wouldn’t necessary have to subsidize renewable energies to give them a leg up in the industry. However, the question of who really ends up paying the tax raises moral issues. “Estimates suggest, before we even account for what the revenue from the carbon tax does, if you just talk about the cost, a carbon tax can be fairly regressive … [meaning] that as a share of income the burden on a typical low income household is likely to be much higher than the burden on a higher income household. This happens because poorer households spend a larger fraction of their income on energy intensive goods,” Aparna Mathur, resident scholar at the American Enterprise Institute said. However, if the revenue from the tax were to be returned to the consumers, this could help ease that burden. “There are ways we could design a carbon tax that could offset the regressive [nature] for lower income households that could keep them harmless,” Marthur said.
Some Skeptical Over Approach
Not all panelists had high hopes for carbon pricing in the United States, however, with David Bookbinder, co-founder of Element VI Consulting, expressing doubt that such a measure could be enacted on a federal level. “There is only going to be a federal carbon tax in the United States when Congress is a) broke and b) everything else is a worse alternative. Seriously, you will not get a carbon tax until Congress needs the revenue and every other revenue source is even less palatable than a carbon tax,” he said. He went on to say even then, negotiations would be difficult. “It’s not going to be a polite discussion about redistribution, it’s not going to be a polite discussion about how we deal with the lowest quintal or the highest quintal, it is going to be a no holds barred brawl over the biggest pots of new money congress has seen in decades.”
While some doubted the feasibility of a federal carbon price, the idea of state carbon prices was well accepted as a slightly less appealing, though still mostly effective measure, and further, a measure that is already being implemented. “We have carbon pricing here in the United States, we have nine states in the northeast in the Regional Greenhouse Gas Initiative and we have California [with] the second largest cap and trade program in the world, right after the [European Union] who also has had a carbon price since 2005. So here in the U.S. if you think about the Regional Greenhouse Gas Initiative, that’s about a quarter of the U.S. population that actually live in states that have a carbon price,” Peace said. She added that that “we have an opportunity perhaps to have more states with carbon pricing and the avenue for that would be EPA’s proposed carbon standard for existing power plants.”
