Carbon Pricing: New Hope in the Fight Against Climate Change

With only a few years left to reach the 2030 goal of reducing global greenhouse gas emissions in half, we still haven’t made the progress that’s required to reach it. The United States instead remains embattled across party lines at every turn, including the pandemic, the economy, voting rights, federal oversight, and the climate crisis. Both parties are more divided than ever as Democrats attempt to pass bold legislation to mitigate the situation while many Republicans remain hesitant to abandon the fossil fuel industry. Because of the perpetual state of gridlock, we risk allowing the emergency morph into an irreparable catastrophe. But there is a silver lining that could possibly bring people together: Carbon Pricing.

What is Carbon Pricing? Carbon pricing is a proposed method to lessen greenhouse gas emissions overtime and is comprised of the components known as fees and dividends. It’s distinctive from regulations and market caps because the nature of this type of tool introduces a carbon tax on fossil fuel companies, requiring them to pay a nationally set fee per metric ton of carbon released. However, the amount of the fee is not overwhelming to the companies that have to pay but are also not mundane enough to appear lackadaisical. The next year would see a slight increase of the fee, allowing for linear growth while incentivizing the companies to begin investing in more sustainable energy that would be cheaper than having to compensate for their harvesting of nonrenewable energy.

Let’s say, for example, that a country enacts carbon pricing legislation with a starting fee of $10 per metric ton of carbon released. According to advocacy and research compiled by Civilians’ Climate Lobby, existing IRS and Treasury Department procedures may be utilized to administer the fees so that new bureaucracy can be avoided as well as any chances of corruption. The companies themselves would be monitored as close as possible to the sites where they collect fossil fuels from the earth in order for their work to be accurately recorded, including how many metric tons of emissions that are generated. As the first fiscal year of operating under this law closes, the following one may raise the fee to perhaps $15 per metric ton and so forth.

Carbon Pricing would provide an orderly transition to renewable energy without stunting economic growth thanks to its ability to correct market failures. Any fossil fuels that we must rely on in the interlude would still be accessible and fairly priced as renewable energy becomes cheaper and more competitive.

Assessing where the fees would go brings us to the next question: What are dividends? The dividends originate from the funds acquired through the fees that fossil fuel companies pay for their emissions, and this money would be allocated to households based on their annual income. This side of carbon pricing is just as important because the energy that consumers rely on often comes with caveats in the form of Negative Economic Externalities. This is defined as market activity by a producer that results in negative external costs for the public that are avoided by the former. These can consist of outrageous electric bills and even harmful effects of pollution that stem from the nonrenewable energy a producer amasses which the consumer must depend on to power their home.

The dividends are meant to offset these externalities and provide relief for families as a form of income overseen by the IRS and Treasury Department, similar but not quite the same as tax credits and other rebates. Currently, a bill resides in the Senate called the Energy Innovation and Carbon Dividend Act of 2019 that would erect a carbon pricing law fully equipped with fees and dividends to stabilize the rampant emission levels in addition to meet the goals set by the Paris Climate Agreement. The dividend consists of one full share each for up to two adults and half shares for children up to age 18. A family of four may receive $2,000 in year 3 after the bill is codified into law, over $3,000 in year 5, and nearly $4,000 in year 10, peaking at $4,451 in year 12. Even better, an aggregated $2.5–3 trillion in revenue over ten years will be collected (greater than corporate tax revenue).

With extra money in people’s pockets, greater economic participation can be expected to benefit small and medium businesses. The lowest income households are slated to receive the most money for the fact that the dividends will not be a part of federal social programs eligibility determination, so faults that have been noted in the Child Tax Credit and Earned Income Tax Credit won’t be repeated. Further, there won’t be any loopholes that would allow for the highest income homes to receive a disproportionate amount. A majority of the dividends would be disbursed to those of lower socioeconomic status, decreasing as household incomes increase. It’s similar to the tax bracket but reversed. If one wanted to expound further on the benefits of these dividends, they would more than likely reach the conclusion that the funds could serve as recompense for the harm that’s come to the environment and public health by fossil fuels.

The concept of carbon pricing is wholesome and encompasses all facets of the economy so that both producers and consumers will be ready for a transition to green energy. Source: Dividends (carbontax.org).

Do any countries have such a system in place? Yes! There are many countries that use at least some form of carbon pricing to pursue a more sustainable way of life. Those that have a fully implemented tax add up to 27 countries, some of them including Canada, Argentina, China, Chile, Colombia, Mexico, New Zealand, the UK, Singapore, and Sweden. There are about 64 carbon pricing initiatives active around the world with still more planned, driving the international community to coalesce for the health of our planet.

How are other countries without this system incentivized to create their own? One of the challenges in attempting to inspire other nations to follow suit is how to address carbon-intensive trading between them, namely with a country that already has a system in place and another that doesn’t. The most feasible solution would be through an appended measure of what’s known as border carbon adjustment. This tactic places tariffs on goods imported from countries without an equivalent price on carbon and a rebate on goods exported to countries without an equivalent price on carbon. Not only does this level the playing field between trading countries, but such a system in the U.S. would prevent industries from outsourcing jobs overseas.

Another way to incentivize countries to adopt their own adjustments would be to have a subset of nations form a club so that others may feel more inclined to join, gaining access to the benefits thereof. In fact, the European Union is planning on initiating a border carbon adjustment in 2023! This new development is imperative to spur innovation in renewable energy because, per research published in “Global Carbon Pricing: The Path to Climate Cooperation” from MIT Press in 2017, the Paris Climate Agreement and the guidelines established in it are not reliable enough to get nations to adopt significant country climate programs since there aren’t ways to enforce or pressure them. That’s where border carbon adjustments will be most propitious.

How could carbon pricing bring people together? Apart from uniting countries, the Energy Innovation and Carbon Dividend Act of 2019 is already gaining momentum, especially from major organizations like Citizens’ Climate Lobby which consists of both Democratic and Republican members who want to advocate for change in ways that wouldn’t be considered too extreme. Although regulations and market caps are legitimate ways of stemming emissions, they are usually met with disapproval from more conservative members of Congress because of how the economy would be affected by them. Given that they are more intensive than carbon pricing, there wouldn’t be ample time to transition to renewable energy before fossil fuels became too expensive. The economy would suffer heavy losses in the energy sector and so would consumers, thus leading to a cascade that impacts all aspects of daily life including gas prices, utilities, the auto industry, the transportation sector, manufacturing, and jobs.

Carbon pricing eliminates those concerns due to the steady but smooth transition to greater renewable energy incentives and competition. More Republicans may be persuaded to support the bill, including Senator Mitt Romney who recently called for more carbon pricing measures to be considered. If Democrats are able to maintain enough seats in the Senate and the House after midterms, then their numbers ought to be plenty to pass this prodigious legislation, especially if some of their Republican colleagues decide to offer favoring votes. There is a path forward, so it’s up to us to know how to steer our society in the right direction.

In the end, climate change is a crisis that affects us all equally regardless of what side of the aisle we stand in, and we have to treat it as a non-partisan one! Our health, the quality of our air, the sanctity of the biosphere, the threat to minority communities, the potential devastation to third world countries, and our most precious natural resources should never be up for debate. This is the nexus of our prolonged mistakes and time is almost up for us to lead this monumental push for a better world. Carbon pricing may perhaps be the best shot we have in achieving an international consensus on the emergency, so do whatever you can to advocate for any proposed laws that reflect the fundamentals of it. Our children and grandchildren may not have an inhabitable world left if we fail to act any sooner!

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Alan Bailey

I’m a graduate from LaGrange College with a B.S. in Biology, striving to be a conservationist and to help our planet.