Why A Carbon Tax Is Necessary

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Originally published on Global Warming Is Real.
By Richard Matthews.

As 2013 winds down, there are promising signs that we may actually see a price on carbon in the U.S. In 2010, the cap-and-trade bill was killed in the Senate by the fossil fuel industry’s ubiquitous misinformation campaigns. However, a confluence of events have renewed hopes that we may yet see carbon pricing legislation that could significantly reduce U.S. carbon emissions.

Why we need a carbon tax

Paying for carbon pollution is the best way to put free markets to work to reign in emissions that cause global warming. There is a virtual consensus among economists who say that putting a price on carbon is the most effective way to fight global warming. The case for carbon pricing is strong, this point has been repeatedly made by the World Bank and a number of economists including a team from the London School of Economics.

According to most analyses, carbon pricing is the most powerful regulatory mechanism we have to bring down emissions without wreaking havoc on the economy. Putting a price on carbon will allow market forces to drive down demand for carbon rich industries like fossil fuels and help to buoy cleaner low-carbon technologies like renewable energy.

On a very pragmatic level, carbon pricing could enable the U.S. to achieve the pledges it has made at UN climate talks. This includes carbon emissions cuts of 17 percent below 2005 levels by 2020, and 80 percent by 2050.

Corporate juggernauts are onboard for putting a price on carbon

One of the reasons to be hopeful comes from a Carbon Disclosure Project (CDP) report which indicates that at least 29 big American corporations are actively preparing for a carbon tax. The companies in the CDP report include powerhouses like American Electric Power, ConAgra Foods, Delta Air Lines, Duke Energy, DuPont, Google, General Electric, Microsoft, Walmart, Walt Disney and Wells Fargo.

What is most surprising is that this list also includes five major oil companies (BP, Chevron, ConocoPhillips, ExxonMobil, and Shell). While they can hardly be called champions of a low-carbon economy, they are, if nothing else, economic realists. They see the writing on the wall, and their actions are a strong indication that they see some form of carbon tax as inevitable.

Make no mistake about it, fossil fuel companies are not embracing the common good, they are acting in their own best interest. Preparing for the expense of a carbon tax is simply good business and for many, it represents a great opportunity. To illustrate the point, ExxonMobil, America’s wealthiest corporation supports a carbon tax because it has a vested interest. As the nation’s biggest producer of natural gas, it would profit from carbon pricing. Such a scheme would inflate the costs to the coal and crude oil industries far more than natural gas.

Republicans may be left out in the cold

Support for a carbon tax from corporate interests including fossil fuel companies could be a real problem for the GOP’s political future. Republican opposition is a salient reason for the failure of cap-and-trade legislation in 2010. The GOP’s climate denial was underscored during the 2012 presidential elections and they continue to beat the climate denial drum to this day. As recently as Wednesday December 11, their ignorance was on display for all America to see. On this day, Republicans in the House of Representatives held sham hearings that called upon climate change denying scientists to reinforce their subterfuge.

Corporate interests are the traditional support base for Republicans, but as they embrace a carbon tax, Republicans will be left out of the cold if the companies responsible for global warming are seeking a carbon tax.

The Koch brothers may be the only friends that the GOP has left. The only U.S. supporters from big oil still onside with climate denial is Koch Industries, who continues to pressure Republicans to stay onboard the denial train. In 2012, all of the GOP’s presidential candidates had ties to the owners of Koch industries. Koch continues to use its various front groups to oppose science and resist any form of carbon tax. However, this oil company has repeatedly been exposed as the nation’s biggest purveyor of misinformation. Koch industries is a pariah even in the dirty and destructive fossil fuel industry. Republicans who embrace Koch may undermine their own election hopes and further tarnish the GOP’s already badly battered brand.

According to the latest research, Americans, including supporters of the Republican party, embrace the veracity of climate change and want government to do something about it. A Stanford University study showed that all states, even traditionally Republican states, acknowledge global warming and would like government to find ways to reduce climate change causing emissions. Recent election and ballot initiatives may also signal a change in American attitudes.

Republicans have effectively painted themselves into a corner. Changing public and corporate attitudes are stranding GOP policy positions. If Republican support is eroded they may not have enough political representation to thwart progress and this could in turn pave the way for carbon pricing.

Carbon trading in place and calls for emissions reduction from U.S. state governments

Carbon trading is increasing around the world with emissions trading schemes now operating in 35 countries, 13 states, provinces and cities. Europe already has the world’s biggest emissions market and China is launching its own schemes. In North America, new additions to the Regional Greenhouse Gas Initiative (RGGI) and the Western Climate Initiative (WCI) doubled carbon trading in 2012. There are now 48 schemes internationally and when added to the 7 in China, a total of 880 million people, representing about 20 percent of global emissions will be part of some form of carbon pricing.

As reported by Reuters on December 16, fifteen U.S. states (California, Colorado, Connecticut, Delaware, Illinois, Maine, Maryland, Massachusetts, Minnesota, New Hampshire, New York, Oregon, Rhode Island and Washington) are asking the Environmental Protection Agency (EPA) to adopt their carbon-cutting policies.

As part of President Barack Obama’s climate change strategy announced in June, the EPA has been directed to develop federal emissions standards for existing power plants. Now a coalition of states have told the EPA that they would like to see a “system-wide” approach to cutting emissions rather than working on individual power plants.

The Clean Air Act has stipulated that states must develop their own plans to meet EPA standards. States have been asked to provide feedback ahead of a planned June 2014 proposal which is scheduled to be finalized a year later. States that are part of carbon pricing schemes want to make sure that the EPA gives them credit for being early adopters.

Benefits of price on carbon far outweigh cost

The most frequently cited argument against carbon pricing and carbon taxes is the cost. According to the Potsdam Institute for Climate Impact Research, the introduction of a carbon tax could cause fossil fuel companies to lose between $9 trillion an $12 trillion in profits by the end of the century. That is because a carbon tax would drive up costs and decrease demand, as the demand was reduced the prices would fall.

However, the Potsdam Research indicates that the cost to fossil fuel companies would be more than compensated for by carbon taxes (or carbon auction revenues). Their analysis reveals that such taxes would generate revenues equaling $21 trillion to $32 trillion by the end of the century. That translates to a net economic benefit of around $20 trillion, in addition to potentially staving off the worse impacts of climate change and providing citizens with cleaner air and water. The profits from carbon taxes could be used for green-energy projects and climate adaptation efforts.

There was a time in the recent past when putting a price on carbon was dismissed as a utopian dream, however, the overwhelming logic is becoming increasingly undeniable, even in the most unlikely places.

The introduction of a carbon tax is unlikely to occur without a political fight, but the weight of the evidence will inevitably triumph over ignorance.

Richard Matthews is a consultant, eco-entrepreneur, green investor and author of numerous articles on sustainable positioning, eco-economics and enviro-politics. He is the owner of The Green Market Oracle, a leading sustainable business site and one of the Web’s most comprehensive resources on the business of the environment. Find The Green Market on Facebook and follow The Green Market’s twitter feed.

Image credit: Gustavo Madico, courtesy of Flickr.