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Carbon Pricing price-on-carbon

Published on December 21st, 2013 | by Guest Contributor

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Why A Carbon Tax Is Necessary

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December 21st, 2013 by
 

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.

Implementing a carbon tax is no longer a pipe dream but understood as a coming - and much needed - realityWhy 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.

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  • Pointy bit full of spiders

    Very roughly a $25 a tonne carbon price raises the price of electricity from coal by 2 cents a kilowatt-hour and electricity from gas by 1 cent a kilowatt-hour. Note that this is not a cost but a transfer. The revenue from a carbon price can be given right back to the people who have their electricity bills increased while still being effective at reducing carbon emissions. Just thought I’d mention that.

    • Bob_Wallace

      And that would make wind and solar much more competitive while costing end-users nothing.

  • Steeple

    I would like to hear the arguments here as to why the European Carbon Tax has been such a disaster. And why some macro Carbon Tax would work any better.

    • Ross

      ETS schemes are sprouting everywhere. Seems like another example of EU soft power to me. The reasons why the price fell are well known and the fixes will be made in the 2014 – 2020 period.

    • Grad

      European trading scheme crashed because of economic downturn. Economic downturn reduced emissions and prices of CO2 allowances dropped from 20-30€ per tonne of CO2 to about 5€ (at the moment).

      But transformation of trading scheme is underway and it will return prices back to what was originally planned (that is above 20€/tCO2).

    • SageThinker

      Yes, because it’s apples and oranges. The EU has a cap & trade scheme that is not effective. A carbon tax is very simple, and effective. The experience in British Columbia of the last 5 years is useful to look at.

  • jfreed27

    The author writes, in error,

    “Republicans will be left out of the cold if the companies responsible for global warming are seeking a carbon tax.”

    Big if! Are they “seeking” a carbon tax, or simply preparing for that possibility? It is likely that these same companies would actively oppose such a tax -through political lobbyists and Stink Tanks – yet are covering their bets in the (unlikely) case such a thing passes.

    • sambar

      “Big If” means you don’t know, so how can you say “the author writes in error”

      • jfreed27

        Should have left out the error part. Comment is otherwise valid.

    • SageThinker

      Some companies have been actually pushing for a carbon tax.

      • jfreed27

        Splendid. Which companies? Nike? Cargill? Exxon?

        I would be surprised if fossil fuel companies (ffc) were to support a carbon tax, as it would make a dent in their market share.

        On the other hand, if ffc were to shift investments to green energy, I could understand it.

        I hope it is not too late for our species for ffc to make such a shift.

        • SageThinker

          Indeed, the CEO of Exxon was a very notable case. From a Guardian news story: “As a businessman it is hard to speak favourably about any new tax,” said Tillerson. “But a carbon tax strikes me as a more direct, a more transparent and a more effective approach. … A carbon tax is also the most efficient means of reflecting the cost of carbon in all economic decisions – from investments made by companies to fuel their requirements to the product choices made by consumers,” he said.

          I think that the main point of some fossil energy companies wanting a carbon tax is that they want stability and predictability instead of a tangled and ever-changing mish-mash of subsidies, caps, and regulations.

          • SageThinker

            Exxon the company did backpedal from those statements, however. I think the energy companies are planning for a carbon tax, and perhaps would prefer a stable and predictable carbon tax policy over unknowns, and yet they won’t be the ones to make the big push. They just see it as inevitable, once the bungling politicians reunite with logic and reason. They may be delaying it, and they will surely be trying to shape it in their favor, and certainly to count fracked gas at a lower rate than it deserves (by not counting the very high emissions cost of the extraction process).

  • http://netmetering.co.za/ David Lipschitz

    According to South Africa’s new Integrated Resource Plan (http://www.doe-irp.co.za/), if there is only a Carbon Tax, the Utility will simply pay it. A far better option is to have a Carbon Limit, probably set to the output we had in 2000, and that it has to be enforced by 2020, otherwise countries won’t import products from countries that exceed it, ie there needs to be an incentive.

    Another problem pointed out in the IRP is that South Africa is considering building coal power stations in neighbouring countries, because then the carbon isn’t on South Africa’s balance sheet.

    • Bob_Wallace

      I don’t see how someone can make the argument that a carbon price wouldn’t tip the scale in favor of carbon-free energy. In the US wind is already competitive with coal and natural gas and solar is getting close. Put a price on carbon and the market will purchase a lot more wind and solar and less coal and natural gas.

      As far as putting plants across the boarder, that can be legislated away. It doesn’t matter if the approach is either carbon price or carbon limit. Price/limit any use inside the country, regardless of source.

      • http://netmetering.co.za/ David Lipschitz

        The problem in South Africa is that there is no competition. You can buy Coal energy or Coal energy. So a carbon tax here is really unfair.

        • Bob_Wallace

          South Africa is starting in install renewables.

          If a carbon tax speeds their implementation without hurting the economy, that’s a good thing.

          Of course a carbon tax (or a carbon limit) could be poorly designed.

    • SageThinker

      A carbon tax reduces the amount of demand, as the price of energy goes up. The electric generation company doesn’t swallow the loss, it passes it on. Electricity costs more. People use less of it. We do need to use the revenue to return money to those of lower income.

      • Bob_Wallace

        At least use carbon tax revenue at the other end of production to re-lower the cost of electricity.

        That way you avoid opposition from the greedy “1%” and don’t dampen the economy.

        • SageThinker

          Well, the cost of electricity that comes from fossil fuels needs to cost more, to cause people to use less of it. But the revenue can go to another point in the economy, by reducing the payroll taxes. Why do we tax work? Why do we tax a working person’s wages so much? It would help employment to go up, and raise wages, without costing businesses anything. Then people could afford a bit more for electricity, or else insulate their houses and stop using electric heat, which is rather inefficient, and use a wood stove or solar gain and thermal mass to keep warm.

          • Bob_Wallace

            You’re attempting to do two things with one tool. That makes it harder to get permission to use the tool.

          • SageThinker

            I understand what you mean. The alternative is to reimburse the carbon tax revenue as a dividend. That would be the most progressive way to make the tax whole.

          • Bob_Wallace

            If you distribute the revenue based on electricity used you’ll get the least resistance. Hopefully people wouldn’t see their electricity bills change. At least very little.

            If you also try to make it a means of helping the less fortunate, evening things out, however it’s pitched then there will be (more) resistance from the right.

            We’ve got so much hate going for the working poor in this country that offering them a bit of a break on their electricity prices would drive some people into a rage.

          • SageThinker

            Bob, people’s electric bills *have* to change, if the electricity is generated by fossil energy and producing greenhouse gases. That’s the point of a carbon tax. If you take the money and then reimburse people for the electric bills, you’re negating the tax.

            We can help the less fortunate out, in a way that allows people to still make choices, like using less electricity or other fossil energy.

            If we’re going to fear taking principled action because of resistance, we’d never have had the civil rights movement either.

            If there’s so much hate for the working poor — which i agree there is — then let’s just give up. I’m the working poor. This is indeed a hostile place for us.

          • Bob_Wallace

            You and I are looking at a carbon price differently, it seems.

            I want us to use less fossil fuels and more renewables.

            If you tax carbon then utilities will use more renewables and less fossil fuels.

            If you use the revenue from the carbon tax to offset any cost to consumers (residential, commercial and industrial) then you’ll encounter less resistance to creating the tax.

            A better deal for the working poor is a good thing and I support it. But if we try to heal all the world’s problems in one package we will almost certainly fail.

        • Otis11

          Or, my vote, cut everyone a check. Say a carbon tax took in $3M in revenue across 10,000 citizens. Cut everyone a $300 check. This helps the poor most as they tend to be below average consumption (because the wealthy typically consume more resources). It also rewards those who conserve resources instead of lowering electric prices and allowing end users to go on “business as usual.”

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