Energy

Federal Carbon Pricing Is Closer Than You Think


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The Climate Leadership Council this month released a revised carbon pricing plan that dropped its demand that any carbon taxing scheme also be accompanied with a pre-emption of legal nuisance claims against energy producers and users. I see this as an important development. Despite the impression that many have, carbon pricing seems poised to enter the mainstream political debate.

The Climate Leadership Council’s announcement shows that many of the possible sticking points and side issues seem to be making way for a legitimate push for carbon pricing.

Economists have long argued that the most efficient and effective way to lessen the impact of greenhouse gas emissions is to price them – forcing emitters to pay and paying those who pull the emissions out of the air. This creates the incentives which move the invisible hand of multiple entrepreneurs and investors towards the lowest cost reductions. Economy wide pricing can occur through taxes or through a cap and trade system. While there are differences between the two, both could provide the effective pricing system called for by economists.

Pricing of greenhouse gas emissions doesn’t solve all of the issues surrounding climate impacts. By itself, it does nothing to compensate or assist those impacted by climate change, and it doesn’t account for co-pollutants. But government pricing of pollution could only move the needle in the right direction, regardless of what other climate change policies, such as better renewable infrastructure, were in place. In addition to its support from the Republican-initiated Climate Leadership Council, it is supported by other conservative groups and Democratic policy makers as well. Though carbon pricing is not mentioned in the Green New Deal, many of the leading candidates for the Democratic presidential nomination support it.

California has a well-functioning law that prices carbon, and CO2 emissions are also priced in the electricity sector in the Northeast. But despite examples of functioning systems, near universal agreement that it is the most cost-effective solution to lower greenhouse gas emissions and increasing bipartisan support, it may seem we are no closer to carbon pricing at the federal level than we were after the collapse of the Waxman-Markey climate bill in 2010.

To the astute observer, however, such pricing may be closer than appears. Perhaps most importantly, the major proposals have inoculated themselves against the claim that they are just another “tax” by suggesting any moneys collected be returned directly to the public on a per capita basis. Not only does this take the government spending issue off of the table, it also goes far in rebutting the charges that such emissions pricing will fall hard on those with low incomes. Low-income residents spend less on energy than higher income individuals and so on average should actually profit from a pricing system that returns money to the American public on a per capita basis.

Probably related to the coalescence around making carbon pricing revenue neutral, there is much more significant support from major Republican figures than there was in 2010, and the support keeps growing. While the biggest Republican supporters may be former public officials, the political case for Republicans to do something has also gotten stronger, as younger Republicans and conservatives see climate change as a central issue going forward.

In fact Republican pollster Frank Luntz recently testified before Senate Democrats that he had been wrong to try to make climate a wedge political issue, and his message for Republicans is to address the issue soon or lose young voters.

Another difference from just a year ago is support for a significant price on carbon from the legacy energy companies. Exxon Mobil supports the Climate Leadership Council’s proposal for a significant tax on emissions, which was crafted by Republicans. The U.S. Chamber of Commerce this week said it will form a climate task force to inform its climate policies.

Finally the number of large companies that have adopted an internal carbon pricing mechanism and the pricing in of potential greenhouse gas restrictions in carbon-heavy stocks seems to indicate which way market wisdom expects the issue to go.

The only truly significant hurdle to pricing carbon would seem to be the policies and attitude of President Trump, who at one time declared climate change a hoax and who famously doesn’t admit to past mistakes. His leadership of the Republican Party has cowed many legislators, including those in leadership roles, from publicly declaring support of carbon pricing or bringing issues to the floor for debate.

But his very specific antipathy to climate science and policies, along with his support for legacy energy sources such as coal, can be seen as a dam ready to burst. While the Trump dam tries to hold the debate in one place, pressure is building more intensely for action. Either a new president will open the dam come January 2021, or the dam will break with Trump bowing to the pressure. We know when a dam breaks, the water spills out faster and can be uncontrolled. Presidential resistance to pressure for sensible policies such as carbon pricing, at least as a first step, will likely embolden more radical proposals.


Victor B. Flatt
is the Dwight Olds Chair in Law and the Faculty Director of the Environment, Energy, and Natural Resources (EENR) Center at the University of Houston Law Center. He also holds an appointment as a Distinguished Scholar of Carbon Markets at the University of Houston’s Global Energy Management Institute. He was previously the inaugural O’Quinn Chair in Environmental Law at UHLC from 2002-2009.

UH Energy is the University of Houston’s hub for energy education, research and technology incubation, working to shape the energy future and forge new business approaches in the energy industry.





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