carbon pricing

Are you choosy about carbon pricing?


Target: Reducing GHG Emissions

The only way the United States will achieve its long-term target of reducing greenhouse gas (GHG) emissions will be to place a price on carbon emissions.  Emissions of greenhouse gases into the atmosphere contribute to climate change. The recognition of this possibility has led to implementation of tax programs that are constructed to curb emissions. When GHG emissions are not priced, the costs of climate change are borne by people unrelated to the activities generating the emissions. A carbon price would send a message to those who buy and sell carbon-intensive products.  Higher prices will also encourage consumers to use less electricity and producers to develop new clean energy technologies and improve existing technologies like solar and wind energy.

Choose your carbon pricing tool

There are four ways to price carbon. The first is to regulate carbon. Rules could be made into law by the federal government to limit carbon generation. Presidents have the authority to sign executive orders mandating federal policy. An example was President Trump undoing the order implemented by the Clean Power Plan by the Obama administration to fight climate change. Federal agencies, for example the Environmental Protection Agency (EPA), bear the responsibility to enforce these orders once they become law.

The second method is to place a tax on carbon emissions. A carbon tax would directly establish a price on carbon dioxide emissions.  Polluters would be taxed a pre-specified amount based on their emissions.

The third route to decreased emissions would be the implementation of a cap-and-trade program that would limit total emissions, and issu­ing tradeable emissions allowances for those who exceed the limit.  Emitters need to purchase enough permits or allowances to cover their emissions. The advantage of cap-and-trade programs is they ensure a given level of emissions reductions.

The last proposed method is described as fee and dividend. In this case, a fee is added to carbon-based fuels based on the amount of carbon they contain. The fee is collected upstream, at the source (well, mine, port of entry) of where the carbon enters the country. The plan is “revenue neutral”, which means the government doesn’t keep any of the revenue which is true in the case of a carbon tax and a cap-and-trade program.  The money collected using this type of carbon pricing is returned to American households on an equitable basis.

The choice is ours – but pick one

There have been arguments to utilize each of the carbon pricing methods described. In my view, all have some merit. Regardless of the decision made, the chosen path needs to be selected as the longer we wait to act the longer time will elapse before any results can be expected.