IS CARBON TAX A “SILVER BULLET”? YES!

By Climate Reality leader William Tucker – 5/5/2020

Maybe not gold, but definitely silver!

We frequently hear those climate activists who are skeptical of carbon fee and dividend legislation (see, e.g., The Energy Innovation and Carbon Dividend Act, H.R. 763) dismiss it as not a “silver bullet.”  What is meant by this seemingly pejorative comment I’m not entirely sure, but clearly carbon fee is a necessary and urgent measure in reducing carbon emissions quickly.  It may not be the only legislative initiative we undertake, but what is not sufficiently understood and appreciated among climate activists is that carbon fee has been shown by economists to be the single most effective step we can take to dramatically lower emissions.  It may not be a “gold” bullet, capable of achieving 100% of the necessary reductions (net zero by 2050 or sooner), but it surely qualifies as a “silver” one, getting us most of the way there all by itself.  No other legislative proposal comes close.

It’s essential for those of us who care deeply about climate change to keep our eyes on the ball: we must reduce carbon emissions drastically and quickly to lower the risk of climate catastrophe which will not only make our grandchildren’s lives hell but could end civilization as we know it.  The Earth will get hotter for half a century more even if we ended all carbon emissions tomorrow, so time is of the essence.  The sooner we peak carbon emissions and begin phasing them out, the safer we and our progeny will be.  This means that whatever we do, our actions must be timely, effective in reducing emissions, and lead to measurable results.

We won’t achieve the necessary reductions in emissions by relying on personal choice alone.  Environmentalists concerned about climate often say the solution is to leave it to consumers to change their behavior voluntarily (choose more fuel-efficient cars, drive less, ride public transit, ride bikes, relocate, etc.), and/or encourage sustainable local transportation or land-use measures.  These steps collectively may or may not be effective in lowering emissions, but unless we are willing to leave it  to individual choice or local ordinances to save the planet, some sort of national legislation broadly applicable to the economy at large will be necessary.

Some climate activists seem to feel that a “drawdown” regulatory approach would be better. In fact, there are a number of regulatory legislative tools we can use to tackle climate change besides carbon pricing, for example: mandating zero-carbon electricity production by utilities; requiring transition to all-electric vehicles by the truck and automobile industry; setting efficiency standards for industry and construction, etc.  As the climate crisis deepens, those measures might all be passed in good time, probably against stiff conservative opposition.  Yet it can take years even after regulatory legislation is passed to fund and staff the relevant regulatory agencies and promulgate implementing regulations, which are subject to public comment and are routinely challenged by high-fee, white-shoe industry lawyers who specialize in such matters.  A suite of such measures could be tied up in the legislative process and in subsequent administrative challenges for years, much longer than we can afford. We just don’t have the time to transform our society through piecemeal regulatory action sector-by-sector, without beginning by pricing carbon. 

The IPCC agrees that pricing carbon is an essential component in meeting net zero emissions by 2050.  At the Conference of the Parties in Paris in 2015, where the Paris Agreement was signed, the IPCC was invited to provide a Special Report on risks of global warming of 1.5°C as compared to 2ºC.  It was issued in the fall of 2018.  In addition to concluding that net zero carbon emissions must be achieved by 2050 to limit warming to 1.5°C, the Special Report further addressed options for getting there, concluding that pricing carbon is an essential component of future mitigation efforts.The Special Report states with “high confidence” that: “Policies reflecting a high price on emissionsare necessary … to achieve cost-effective 1.5°C pathways.” Among other measures, the Green New Deal Resolution also endorses pricing carbon: it states its goals can be achieved by “ensuring that the Federal Government takes into account the complete environmental and social costs and impacts of emissions.”   In other words, carbon pricing should not be seen as incompatible with the Green New Deal but in fact a central component of it.

The principal objections to carbon fee seems to be rooted in skepticism that it will work to reduce emissions significantly (i.e., not a “silver bullet”), and distrust of certain aspects of the bill seen as unnecessary and burdensome concessions to the fossil fuel industry.

With regard to the former, the economics are clear: a carbon fee, steadily increasing, will reduce emissions far more than any other single measure. In fact, without it, it is difficult to see how we can achieve net zero emissions reductions by 2050 or sooner no matter what else we do.

Citizens’ Climate Lobby (CCL) contracted with Regional Economic Modeling, Inc. (REMI) to do a nation-wide macroeconomic study on the impact of its Fee and Dividend policy.  The study showed significant economic benefits would result from carbon fee and dividend legislation, but most important for this discussion is that it showed that CO2 emissions decline 33% after only 10 years, and 52% after 20 years relative to the baseline of $0/ton of CO2. See The Economic, Climate, Fiscal, Power, and Demographic Impact of a National Fee-and-Dividend Carbon Tax, Regional Economic Models, Inc. (REMI), Scott Nystrom, M.A., Patrick Luckow, M.S., June 9, 2014, https://11bup83sxdss1xze1i3lpol4-wpengine.netdna-ssl.com/wp-content/uploads/2018/05/The-Economic-Climate-Fiscal-Power-and-Demographic-Impact-of-a-National-Fee-and-Dividend-Carbon-Tax-5.25.18.pdf

Other economic studies project a similarly dramatic decrease in GHG emissions resulting from carbon pricing. See, for example, the following:

CARBON PRICING PROPOSALS IN THE 116TH CONGRESS, Jason Ye, Sept. 2019, Center for Climate and Energy Solutions (compares emissions targets of 8 bills before congress—EICDA emission target is90% below 2016 levels by 2050)https://www.c2es.org/document/carbon-pricing-proposals-in-the-116th-congress/

Policy Insights from the EMF 32 Study on U.S. Carbon Tax Scenarios, Alexander R. Barron, Allen A. Fawcett, Marc A. C. Hafstead, James R. Mcfarland, Adele C. Morris, Climate Change Economics, Vol. 9, No. 1 (2018) 1840003 [MIT and National Renewable Energy Laboratory (NREL) study] (“A carbon price of $50 in 2020 rising at 5% per year reduces emissions21–35% below 2005 levels by 2020 and 26–47% below 2005 levels by 2030.”) https://www.worldscientific.com/doi/pdf/10.1142/S2010007818400031

AN ASSESSMENT OF THE ENERGY INNOVATION AND CARBON DIVIDEND ACT, Noah Kaufman, John Larsen, Peter Marsters, Hannah Kolus and Shashank Mohan, October 2019, Columbia University Center on Global Energy Policy, Rhodium Group. (Compared to 2005 levels, implementing EICDA as a stand-alone policy leads to economy-wide net GHG emissions reductions of 32–33 percent by 2025 and 36–38 percent by 2030.) https://energypolicy.columbia.edu/sites/default/files/file-uploads/EICDA_CGEP-Report.pdf

Energy and Environmental Implications of a Carbon Tax in the UnitedStates, John Larsen, Shashank Mohan, Peter Marsters, and Whitney Herndon, July 17, 2018, report prepared by RHODIUM GROUP for the Columbia University SIPA Center on Global Energy Policy. (An economy-wide carbon tax set at $50/ton in 2020 and rising at a real rate of 2 percent achieves emission reductions of 39 to 47 percent below 2005 levels by 2030.) https://energypolicy.columbia.edu/sites/default/files/pictures/CGEP_Energy_Environmental_Impacts_CarbonTax_FINAL.pdf

Carbon Pricing Calculator, Resources for the Future (RFF), interactive data tool by Marc Hafstead (helps users visualize the environmental and economic effects of different carbon pricing policy designs), https://www.rff.org/publications/data-tools/carbon-pricing-calculator/ (Shows yearly emissions approx. halved by 2035 under EICDA.)

The economics of this make carbon fee and dividend the gold, or I should say, silver standard: what other single measure now before Congress would accomplish such sweeping reductions in emissions?

With regard to concessions to industry, the main objection is that a carbon fee and dividend bill, such as HR 763, would “gut” the Clean Air Act.  This is a reference to Sec. 8, which “pauses” EPA authority to regulate CO2 equivalent emissions covered by the fee for the first 10 years after the policy is enacted. If emission targets are not being met after 10 years, the pause is lifted. Sec. 8 states that during that period EPA “shall not enforce any rule limiting the emission of greenhouse gases from the combustion of that fuel under this Act (or impose any requirement on any State to limit such emission) on the basis of the emission’s greenhouse gas effects.” (Emphasis added.) The pause does not impact EPA’s ability to issue regulations related to water quality, air quality, health or other issues.  It simply avoids redundancy in limiting GHG emissions specifically.  The main point is that economic studies show the bill will lower carbon emissions far more than existing and pending EPA regulations directed at GHG effects, making those regulations unnecessary.

The Energy Innovation and Carbon Dividend Act, H.R. 763, which has more co-sponsors (some 80) than any other carbon fee bill currently before Congress, IS in fact a “silver bullet.”  It will significantly improve our chances of limiting warming.  Of course, other measures will be necessary if we are to end GHG emissions. But whether or not the Green New Deal becomes a reality, this bill is a necessary, first start towards getting to net-zero emissions by 2050.