Lawmakers must do whatever it takes to price carbon

Washington is once again talking about carbon pricing. The Clean Electricity Payment Program may be dead, but a carbon tax could still be on the table. It could also be replaced by extended loan guarantees for clean energy, or by tax credits for clean energy. Whatever form it takes, politics will be tough. They still are, until suddenly they aren’t.

Look at the UK, host of the Glasgow climate talks, for some advice. The first attempt to ban a fossil fuel came six centuries before the world knew it was the cause of climate change. King Edward I banned the burning of “sea coal,” what was then called bituminous coal, in 1306. It made his subjects, including his own mother, sick and so fouled the air that even he could not. could not hide from the soot and smell. The maximum penalty for repeat offenders: death.

It is a drastic price to pay. It didn’t last either. The ban was quickly turned into a tax, before that disappeared as well. At its peak in 1920, the British coal industry employed over a million people, or 5% of the working population. At present, there are less than a thousand coal workers in the country, two remaining coal-fired power plants and a full phase-out scheduled for 2025.

The disappearance of coal in the United Kingdom has many causes. Some are technological, some economic, many political. These, in turn, have come in various forms – from taxing coal to subsidizing cleaner energy sources to British Prime Minister Margaret Thatcher who wanted to crush the Coal Miners’ Union in the years. 1980.

But whatever form government actions take, most have followed the fundamental economic principle that a higher price for something leads to less demand for its quantity in the market, and a lower price leads to more: the law of demand in action.

Despite current political labels, “carbon pricing” does not end with a carbon tax or an emissions trading system. Edward I’s coal ban was also a price, an infinitely high price for that. It is easy to see why this would be too high a price to pay for each tonne of coal. If the ban had been maintained, the Industrial Revolution could not have taken place and the world would be considerably poorer.

But now we know that the extraction and consumption of every ton of coal, every barrel of oil and every cubic foot of natural gas comes with significant costs to human health, the economy, society and ecosystems. After decades of public denial and obfuscation, some of the biggest players in the industry, like BP, ExxonMobil and Shell, are now claiming to support a carbon tax. There is a catch.

For one thing, their preferred price starts at $ 50 a tonne of carbon dioxide. All other things being equal, even a price of $ 50 – any price – would be nice. But everything else, of course, is never equal. The plan the companies are pushing aside from other “current and future” regulations on power plants or other stationary sources in the name of “significant regulatory simplification.”

Such a regulation would be on the chopping block: a federal standard on electricity or clean energy, a version of which was part of the $ 3.5 trillion budget reconciliation bill, when it was still in question. a bill of 3.5 trillion dollars. The program would create incentives for utilities to add low-carbon electricity to the grid.

Twenty-nine states, three territories, and Washington, DC, have their own clean electricity standards. Levels of ambition vary widely. The Iowa rules, which created the country’s first standard in 1983, are among the weakest. Other states like New Mexico have strict targets of producing 40% of the state’s electricity from zero-carbon resources by 2025, 100% by 2045. New York is aiming for full decarbonization of ‘by 2040.

The impact of standards is undeniable. About half of the total growth in renewable electricity generation since 2000 is due to them, reducing CO2 emissions from the power sector by 10-25% in the process. This advantage, of course, comes at a cost. The standards increase electricity rates by around 11% seven years after their introduction.

Translated into dollars per tonne of CO2, costs range from around $ 60 to $ 300. These costs are well within the range of estimates of how much each tonne of CO2 should cost. This is also why energy companies are arguing instead for an initial tax of $ 50 per tonne of CO2.

But we have to see these arguments for what they are. This is not a principled position in favor of superior climate policy and profitable taxes. These are calls for low carbon prices to avoid higher prices.

The reverse is also true. Many environmentalists today seem to oppose carbon taxes and emissions trading systems on principle, preferring more direct interventions. “Market-based” policies, after all, are what the industry wants, so they have to be bad.

This explains the lukewarm reaction of some environmentalists to another provision currently under consideration in the Senate: a levy of $ 15 per tonne for each tonne of CO2. This is, of course, even lower than the $ 50 tax. He clearly cannot stand on his own. And that’s where the bottom line is: No single policy can carry the full weight of climate policy, and neither should it.

A $ 50 carbon tax can’t solve everything, but even $ 15 is better than zero. There are better and worse ways to design and implement policy. But no policy should be excluded on the basis of a purist economic or environmentalist principle.

Whether the price is direct or indirect – whether it is $ 15, $ 50 or $ 500 per tonne of CO2 – or whether it is called a “tax”, “royalty”, “standard” or almost anything else, the one that prevails the principle is the same: higher prices, lower emissions.

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