Halting global warming is the chief environmental challenge of our time.
While heat-trapping carbon dioxide (CO2) is not the only greenhouse gas (GHG), it’s the most abundant and longest-lived in the atmosphere and contributes the most to global warming. In March, atmospheric CO2 content reached a new high of 400 parts per million, already past the 350 limit many scientists believe is a safe level above which we risk triggering irreversible consequences out of human control.
Second only to China as the largest CO2 emitter, it’s incumbent on the United States to lead the world in addressing global warming. The Intergovernmental Panel on Climate Change estimates that the window of time to avoid the worst effects is just a few decades. Yet the United States has not adopted even a nationwide strategy.
Neither producers nor consumers of energy from fossil fuels pay for the environmental and social damages wrought. These so-called externalized costs are shouldered by the public through illness, droughts, violent storms, coastal community destruction, international conflicts, etc. Externalizing the costs of fossil fuels keeps their market price low, de-incentivizing society to move to renewable energy sources.
Current strategies to wean off fossil fuels fall into four categories.* Each attempts to internalize the actual costs of burning fossil fuels through incentives to convert to cleaner energy.
Traditional Pollution Regulation
This category encompasses the broad range of government agency regulations meant to insure that pollution emitters adopt mandated technologies, industrial processes and standards set by an administrative agency, like the Environmental Protection Agency or the California Air Resources Board. Examples are familiar, like when coal-fired power plants were required to install “scrubbers” to reduce acid rain-causing sulfur dioxide emissions, or mandated increases in the fuel efficiency of new cars and trucks.
In California, several regulatory programs growing out of the state’s Global Warming Solutions Act of 2006 (AB32), which requires reduction of GHG emissions to 1990 levels by 2020, fall in this category. More will be forthcoming if Governor Brown signs SB350 which requires that 50% of electricity be from renewable sources by 2030.
The sticks at a regulatory agency’s disposal to insure compliance are limited to threat of fines or litigation and rarely criminal charges.
Subsidies aim to lower the cost of converting to clean energy by offering monetary carrots to industry for reducing emissions or to consumers for choosing products with lower emissions. Examples are tax credits for producers of wind energy and rebates to consumers who install photoelectric (solar) panels or buy electric cars.
This approach relies on the government to pick what to subsidize and guess how the free market will react. The fact that subsidies have to be renewed annually by Congress introduces additional market instability. There’s also risk of increasing fossil fuel consumption, as lowering the price of renewables decreases demand for fossil fuels, potentially lowering their price too.
Critics also point out that climate change is far too big a problem to be solved by spotty subsidies.
Under cap-and-trade programs, a reduced total CO2 emissions limit is set then divvied up or sold to polluters based on historical emissions patterns. The cap is lowered over time, theoretically bringing down total emissions too.
The motivation to emit less CO2 stems from minimizing the cost of buying allowances, plus the option of selling (trading) unused allowances to others. The idea is that market forces will spur technological innovation and investment in clean energy without further government intervention.
Though there is no national U.S. cap-and-trade program, there are a few regional ones California’s cap-and-trade was established under AB32 and targets refineries, power plants, industrial facilities and transportation fuels. California is also working toward a larger regional emissions trading program with a number of Canadian provinces through the so-called Western Climate Initiative.
In 9 northeastern and mid-Atlantic states, fossil fuel power plants bid for CO2 emissions allowances through the Regional Greenhouse Gas Initiative.
The European Union’s Emissions Trading System covers only the largest CO2 emitters – power stations, industrial plants and airlines – but encompasses 31 countries.
Though never ratified by the United States, the Kyoto Protocol is the largest global market for trading GHG emissions, involving 192 nations. When not all nations participate, the price of fossil fuels can drop as demand for renewables increases, temping non-participants to buy up and burn more fossil fuels.
In what could be a game changer spurring the United States to embrace cap-and-trade, China just announced it will be launching a cap-and-trade program in 2017.
A general criticism of cap-and-trade is that richer businesses can buy their way out of reducing emissions.
A carbon tax is the most direct and transparent method to internalize the costs of burning fossil fuels. It’s simple. Because the carbon content of every fossil fuel is known, taxing a fossil fuel based on its carbon content is really a tax on the CO2 it will emit.
A government can levy the tax at any point once the fuel enters commerce, starting right at the oil well, coal mine, or fracking field.
To soften the blow to consumers, who will see the price of fossil fuel energy and energy-intensive products go up, the tax revenue can be returned to them in the form of tax breaks/credits or even direct dividends (rebates). Dividends can be designed such that people who consume less fossil fuels actually come out ahead.
It’s critical that a carbon tax start low enough to be minimally disruptive to the market but still send a message that change is afoot. But everyone will know that the tax will rise over time, prompting energy producers to convert to renewables and making products made with renewable energy cheapest.
Border adjustments – tariffs on imports from non-carbon taxing countries and credits for exports to those nations – could pressure U.S.’s trading partners to tax carbon too.
British Columbia implemented the first significant North American carbon tax. Consumers see higher gasoline and natural gas prices, but the tax is revenue-neutral, meaning returned in full to consumers, through income tax cuts or tax credits. Various forms of a national carbon tax have been enacted in Chile, Finland, Ireland, Great Britain and Sweden.
Advocates believe that only a carbon tax sends a strong enough market signal to both draw down U.S.’s CO2 emissions in time and bring the rest of the world along too.
A concern sometimes voiced about a revenue-neutral type carbon tax is that the rebates might encourage consumers to continue buying fossil fuel-based energy and products (e.g. gasoline and plastics). Supporters counter that per capita fossil fuel consumption dropped after British Columbia instituted its revenue-neutral carbon tax, while consumption rose in the rest of Canada.
There’s also the knee jerk rejection to anything dubbed a tax, even though a revenue-neutral tax wouldn’t feed government coffers. The alternative would be to direct revenues to traditional government programs and subsidies promoting renewable energy.
Awaiting Federal Action
President Obama recently named climate change among his top priorities. Otherwise, there’s been little evidence that the federal government is interested in leading globally or even nationally in solving climate change. The handful of climate change bills introduced in the U.S. Congress in recent years have, without Republican support, gone nowhere.
However, just last week there’s been a visible crack in the Republican dyke holding back action on climate change. Chris Gibson of New York and at least 10 other House Republicans introduced a resolution acknowledging the human contribution to climate change and the need for the federal government to find solutions.
This is stirring genuine hope among climate activists who believe that a nickel-and-dime approach of narrowly targeted and regional actions could never be enough to halt climate change. A global strategy to internalize the true costs of fossil fuels is also necessary, whether a carbon tax, cap-and-trade, or a combination.
Luckily, the public is already onboard. When asked if “the federal government should act to limit the amount of greenhouse gases U.S. businesses put out,” 78 percent said yes in a recent nationwide survey. All that’s missing now is the political will in Congress.
For the sake of our children, let’s tell our members of Congress we welcome seeing the dyke crumble that’s been holding them back.
* For more info, check out Professor Shi-Ling Hsu’s
2011 book, The Case for a Carbon Tax: Getting Past
Our Hang-ups to Effective Climate Policy.