Published on May 15th, 2015 | by Sandy Dechert4
WRI Report Outlines US Carbon Pricing Alternatives
May 15th, 2015 by Sandy Dechert
This May, the World Resources Institute, a global research organization spanning over 50 countries, released Putting a Price on Carbon: A Handbook for U.S. Policymakers, an important reference guide that addresses decarbonization and its interaction with many other policy priorities.
WRI envisions the working paper—and the detailed briefings to come—as playing “a helpful role in the coming national conversation on these issues.” The organization hopes it will lead to a proven, market-based solution that can reduce the US contribution to climate change and raise revenues that will enable communities to better adapt to its impacts. In doing so, WRI authors note, carbon pricing will also help meet other pressing national priorities.
The report echoes statements made by numerous prominent individuals–from triple Cabinet Secretary George P. Schulz to Jerry Taylor, formerly of the libertarian Cato Institute, to Pope Francis, and organizations like the World Bank, the International Monetary Fund, and the World Economic Forum–that the time for taxing carbon is now. Andrew Steer, president and CEO of WRI, states it succinctly: “It’s abundantly clear that putting a price on carbon is the right choice to deliver multiple benefits, including driving innovation, boosting economic growth and reducing emissions.”
“We cannot continue to use the atmosphere as a dumping ground for carbon pollution. It surely makes no sense to tax productive activities like labor, income, and profits, while giving a free ride to carbon emissions that degrade the environment and imperil public health.”
The working paper is not prescriptive, however. It’s descriptive. It presents a range of ideas for pricing GHG emissions throughout the economy rather than promoting a choice. Thus it should greatly help in the definition and prenegotiation stages of decisionmaking on all sides of a thorny issue.
The handbook describes fundamental choices policymakers have in putting an actual price on carbon emissions. It includes a very complete list and description of precedents, all the way from Sweden’s carbon tax of nearly 25 years ago to working schemes in the recent past (see map below). About 40 countries (nearly 25% of world governments) and numerous subnational jurisdictions already have carbon taxes or cap-and-trade policies in place, and the number of important regional pacts is also on the upswing.
It is also realistic in recognition of the critical roles of compromise and of incorporating political goals beyond emissions reductions. Here are the factors the paper suggests might have the best chance of minimizing political barriers and attaining a comprehensive carbon-pricing policy:
- Bipartisan support for federal tax reform,
- Stated goals for deeper reductions in GHG emissions,
- Desire for alternative climate policies,
- Bipartisan support for deficit reduction,
- Experience at the state level, and
- Increased awareness of climate-related impacts
While none of these alone will likely move Congress to put a price on carbon in the coming years, the authors suggest that “their confluence suggests a gradual mounting of pressure that could turn the tide.”
I’ll describe WRI’s cited alternatives from goal-stating, bipartisanship (a somewhat hackneyed and increasingly difficult effort), desire for complementary fiscal and environmental policy, state (and local, regional, and special-interest) actions, and the looming position of climate change itself.
WRI notes that President Obama (with his Cabinet, and many members of Congress) has followed experts in articulating known climate risks. The administration has in place an initial plan for near- and medium-term emissions reduction and limiting the largest emitting sectors in the years beyond.
While these actions clearly represent progress, WRI makes the point that its own analysis shows these administrative actions to be insufficient to meet the long-term US emissions target of roughly 83% below 2005 levels by 2050. The consultants say we will need an economy-wide climate policy to achieve the level of reductions developed nations must contribute to mitigate and adapt to climate change.
The authors present an illuminating matrix of policy goals and revenue options (above). It reveals two important aspects of our possible choices: first, addressing climate head-on can achieve numerous American goals in other areas; and second, none of the climate options exists in a vacuum.
Nearly everyone involved views the federal tax code as onerous, complicated, and full of unfair loopholes. WRI finds it encouraging that both Republican and Democratic members of the Senate Finance Committee have discussed replacing most or all energy subsidies and tax credits with a carbon tax or cap-and-dividend program.
Likewise, reducing the national long-term debt resonates with almost all lawmakers, as well as with the general public. A national carbon tax that has the potential to raise hundreds of billions of dollars could be very helpful in the fiscal long run. It might also be useful in the face of current budget stresses.
Too, WRI notes, the revenue could contribute to tax cuts, refunds, and rebates—much as ample petroleum receipts set Alaskans free from taxes decades ago—and/or it could finance innovation and forward-looking infrastructure and help the nation transition from using harmfully carbon-intensive goods and services.
A price on carbon is both a fiscal and an environmental policy. In addition to using revenues to “pay for” reductions in other taxes, as discussed above, some proponents advocate an economy-wide carbon price as an approach that is preferable to imposing sectoral emission standards. Others view such standards as important tools in their own right or as potentially complementary climate policies.
I would suggest that experience at the state level will prove to be one of the most useful strategies here. WRI points out that “in the absence of a national, economy-wide policy to reduce GHG emissions, some states have moved forward with their own carbon-pricing mechanisms.”
Nine of our northeastern states operate a regional utility sector cap-and-trade program that has saved consumers more than $2 billion in consumer savings. Massachusetts, Oregon, Vermont, Washington, and others have strong stakeholders advocating for a carbon tax to raise revenue for items like key transportation infrastructure. Also, in 2012 California initiated an economy-wide program, which it now shares with Quebec and Ontario. The most spectacular North American example is British Columbia’s successful 2008 carbon tax, which has created new revenue, lowered other tax rates, and will lower emissions to a third of 2007 levels by 2020.
This brings up a very important point: we are seeing carbon pricing work on regional, local, and international levels as well. Successful implementation of carbon pricing by other political units could lessen resistance at the US federal level.
The other factor I see as swiftly moving the debate to a decision point is the weather—not just a conversation-mover as usual, but in the way it may relate to climate impacts and personal priorities. Public opinion has already become more vocal on the need for action. Carbon pricing only makes sense in view of redirecting fiscal responsibility from the consumer/taxpayer to the generators who profit from selling emission-laden products.
Despite fierce and moneyed opposition, Congress has acknowledged the force of climate change, investors are leaving coal behind, we now have an inclusive clean power plan, and polls indicate that people are recognizing the challenge. Too, business and localities have started decarbonization projects on their own and have formed regional and international compacts to implement solutions to climate change issues.
The conservative faction ultimately frames its case in the simplistic argument that changes in energy options constitute redistribution of wealth. It expresses incredulity that Americans would take up such a socialist, if not “communistic,” cause. Loaded rhetoric cannot disguise the feebleness of this position. It’s like advertising that “you deserve” a better insurance plan, or that you have somehow “earned” it. Leaders of all stripes acknowledge that a worldwide climate response goes hand in hand with sustainable development, which will also improve the lot of disadvantaged parts of the world, and swiftly.
Those looking for confirmation of widespread American approval of a carbon tax need only look clearly at the numbers. These include the recent January 2015 Stanford University and Resources for the Future poll. This instrument showed 60% of US respondents in favor of charging a fee to those who emit pollution. The majority went up to two-thirds (67%) if the revenues from the fee were directed back to consumers.
Americans are beginning to see heavy climate impacts, not just the economic hits of typhoons leveling less developed countries or deplorable flooding in “civilized” Europe, but right here. Nothing will change the US perspective better than more runaway wildfires up and down the Rockies, droughts forcing choices between water and fuel in California and Texas, the palpable sinking of Florida, or the prospect of Hurricane Sandies ravaging the coasts on a more frequent basis.
This handbook has the potential to demystify a critical issue of our time. It offers liberals solid, constructive economics and policy, and it hands hard-liners appropriate alternatives to deliberate ignorance and unproductive chatter. Access the guide on WRI’s website.