30. One More Time: What Is “Carbon Pricing?”

 One More Time: What Is “Carbon Pricing?”

The reason we bring this up is that national carbon pricing is important.  It is recognized by a full spectrum of economists, conservative to liberal, as key to reducing the role of fossil fuels in our economy, and by climate policy experts as critical for cutting emissions rapidly enough to avert catastrophe. 

Why do economists and climate policy experts promote carbon pricing but politicians do not?  We believe the answer lies with voters - voters who do not pressure their elected officials to enact carbon pricing because they aren’t sure what it is.

So here is what it is, in a nutshell.  Carbon pricing refers to placing a sort of “pollution fee” on fossil fuels to make their prices reflect their TRUE cost to society.  If the actual effects of fossil fuels -- in health damage, in environmental damage, in damage to the atmosphere -- were priced into those fuels, consumers would respond by avoiding them and favoring alternatives, including energy efficiency!

Some balk at this notion, of pricing fuels to reflect all their costs to society.  They say wealthy people can afford such a move while most cannot. The fact is, we are ALL paying huge amounts in pollution-induced diseases like childhood asthma, lung disease, in toxic waste clean-up, and in the increasing floods and fires, etc. related to fossil fuel emissions - it just gets blended into our taxes and insurance premiums!

So what carbon pricing does, is to increase the prices of fossil fuels to persuade the buyers of fossil fuels (mostly industry) to make business decisions that cut back on the use of fossil fuels and therefore cut back on greenhouse gas emissions, economy-wide.

For a long time now fossil fuels have been effectively subsidized by governments for political reasons, such as the influence of fossil fuel company support of politicians.  As consumers we have been trained to rely on low fuel prices to drive our consumption of more and more stuff, thus benefiting lots of corporations, who also support politicians, and so on.  

Thus, carbon pricing puts the cost of fossil fuels where it should be so that consumers and businesses and industry will make rational market decisions that favor energy efficiency and the use of non-fossil fuel sources such as solar, wind, and tidal energy. 

The version of carbon pricing we are most familiar with would impose a fee on fossil fuels (coal, oil, natural gas) at the source (the well head, the mine shaft, the port).  The fee would be charged to the producer of the fuel. 

The fee starts at $15 per ton of CO2 to be generated when the fuel is burned. For every ton of carbon dioxide to be emitted by the fuel when it is burned, the producer would pay this $15 fee, and the fee would rise steadily every year. The fees paid by the producers would be deposited in a Carbon Trust Fund to be returned to American households.  

This “carbon-fee-and-dividend” or “carbon cashback” policy would provide dividend checks to all households, with equal monthly payments to all adults and half shares for children. Prices of most goods will increase, but for two-thirds of American households the monthly dividend will more than compensate for increased prices. Meanwhile, industry will find ways to conserve and substitute for fossil fuels.

The Energy Innovation and Carbon Dividend Act, HR 2307, a bill in the U.S. House of Representatives, contains this policy.  While we prefer this type of carbon pricing, since it is socially progressive, any carbon pricing is far better than no carbon pricing. 

Besides being necessary for reducing emissions, pricing carbon is becoming ever more important for remaining internationally competitive. Roughly 50 other countries now have carbon pricing in place, including Canada, and the European Union is planning to impose trade penalties on countries without carbon pricing in 2023. U.S. exports will be at a disadvantage.

And besides international trade, what will carbon pricing do to the economy? Will higher energy costs have a negative impact on the economy?

No! The cost of renewables is now more than competitive with coal and gas for electricity production and continues to drop while the cost of fossil energy can really only rise over time. In 2019 renewables produced more electricity than coal for the first time and new generation capacity was dominated by wind and solar.  British Columbia’s economy, for example, has continued to grow throughout the 12 years of its carbon pricing.

The market is poised, ready for a carbon price, using mostly technology we already know, to produce lower carbon alternatives in every sector of the economy that uses energy, with potential to produce far more jobs than the fossil fuel industries currently employ. The artificially low price of fossil energy is a disincentive to this necessary move forward. 

What are we waiting for?  Apparently, for American voters to encourage their elected officials to enact carbon pricing!  Now is the time to get carbon pricing into the Budget Reconciliation Act!  Call or write Senators Collins and King, Representatives Pingree (who co-sponsored HR 2307) and Golden. We can make a difference!

Paul Stancioff, PhD., is a professor of Physics at the University of Maine Farmington who studies energy economics on the side. Cynthia Stancioff advocates for climate action and continually revises her and others’ prose. Their emails are pauls@maine.edu and cynthia.hoeh@gmail.com .