Carbon pricing gains support but strings attached

By Jonathan H Harsch

© Copyright Agri-Pulse Communications, Inc.



WASHINGTON, Sept. 20, 2016 - Long-time carbon-pricing advocate Bill McKibben insists that putting a steadily increasing price on carbon emissions is essential but won't be enough to avoid the worst consequences of global warming.

In a Yale School of Forestry & Environmental Studies opinion piece, McKibben insists that because the world failed to launch carbon pricing 25 years ago, it now needs not only a meaningful carbon price but also:

·         “dramatic subsidies for renewables to speed their spread,”

·         “an end to producing coal and gas and oil on public land,”

·         “a ban on fracking, which is sending clouds of methane into the atmosphere,” and,

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·         “a dozen other major regulatory changes that have some chance of cutting emissions the 6 or 7 percent a year that's now required.”

In a key reversal, ExxonMobil is now on record in support of carbon pricing. But while McKibben insists that carbon pricing needs to be part of “a suite of solutions,” Exxon argues for eliminating other environmental regulations as the tradeoff for putting a price on carbon emissions.

Resources for the Future Senior Fellow Raymond Kopp, co-director of the Washington think tank's Center for Energy and Climate Economics, tackled the controversial issue in an RFF forum last week. He said interest in carbon pricing is increasing whether through implementing a cap-and-trade allowances program to cap greenhouse gas emissions or through “a straightforward fee or carbon tax mechanism.”

Kopp pointed out that “even in the polarized U.S.,” interest in federal carbon taxes is growing among Democrats and Republicans, and among progressives and conservatives. “Carbon pricing has already taken root in Canada and Mexico and, at least at the state level in the U.S., there are carbon pricing programs that are up and running.”

The central argument for an economy-wide federally-mandated price on carbon emissions is that, as Amy Myers Jaffe, executive director of energy and sustainability at the University of California, Davis, wrote in the Wall Street Journal last week, “Having a carbon price, in other words, would allow the free market to do its best work.” In theory, requiring industry and commerce to trade carbon allowances or initially pay perhaps $50 per ton for the carbon they emit would incentivize companies to find ways to reduce their emissions and the most innovative companies would thrive. 

Opponents counter that mandates are never the best way to allow the “free” market to work. And carbon pricing would depress economic growth by imposing new mandates and costs on business and make any country imposing these new costs less competitive internationally. Ultimately, those higher costs will follow on consumers who show little interest in paying more.

A new poll indicates that more Americans are concerned about climate change, but few are willing to open up their checkbooks and address the issue. 

Sixty-five percent of Americans think climate change is a problem that the government needs to address, including 43 percent of Republicans and 84 percent of Democrats, according to a new survey from the Energy Policy Institute at the University of Chicago (EPIC) and The Associated Press-NORC Center for Public Affairs Research, issued Sept. 14. While the major political parties have in recent years frequently clashed over the need to combat climate change, Americans are largely in favor of efforts on all fronts to combat climate change.  

But, Americans are fairly stingy with their climate change dollars. When asked whether they would support a monthly fee on their electric bill to combat climate change, 42 percent of respondents are unwilling to pay even $1, according to the EPI poll. Twenty-nine percent would pay $20, an amount roughly equivalent to what the federal government estimates the damages from climate change would be on each household. And, 20 percent indicate they are willing to pay $50 per month.

Party affiliation is the main determinant of how much people are willing to pay, not education, income, or geographic location. Democrats are consistently willing to pay more than Republicans. 

Supporting the case against limiting carbon emissions, last week the Trump campaign promised in a press release “to undo the damage of the last eight years” in order to “unleash an energy revolution that will bring vast new wealth to our country.” The release said that once a Trump administration eliminates President Obama's restrictions on energy production, “We will support coal production. We will support safe hydraulic fracturing. We will allow energy production on federal lands in appropriate areas. We will also open up vast areas of our offshore energy resources for safe production.” 

But a compelling response to cost and competitiveness concerns comes from British Columbia. The Canadian province implemented a revenue-neutral carbon tax in 2008, now set at $30 per ton. This carbon tax in theory puts BC at a competitive disadvantage among Canada's 10 provinces. The only two other provinces with carbon pricing have lower prices. Alberta's new carbon price won't reach $30 until 2018 and Quebec's cap-and-trade system, linked with California and soon Ontario, has a $16 price.

John Roome, senior director for climate change at the World Bank, explains in a World Bank video that BC's carbon tax has turned out to be net positive. “British Columbia has grown faster than any of the other Canadian provinces,” he says, adding that “if you look at the structure of their industry, they have lots of green industry growing there, but they have also taken that revenue and used it to reduce other forms of taxes to stimulate growth in the rest of the economy.”

Pointing to growing public and private sector interest in carbon pricing, Roome says that some 40 countries and 23 cities worldwide operate carbon pricing programs today, covering about 12 percent of the world's total greenhouse gas emissions. He says the challenge is “how to increase this coverage quickly” to meet the World Bank's goal of doubling the use of carbon pricing by 2020 and double it again by 2025. He says it's particularly encouraging that more than 500 global companies “already employ an internal price of carbon” as a basis for their business and investment decisions.

At the RFF forum, Rachel McCormick, a counselor at the Canadian Embassy in Washington and program manager for energy and environment, noted that Canada's new government came into office committed to carbon pricing and has already signed a trilateral clean-energy agreement with the U.S. and Mexico. She explained that carbon pricing plays a central role in Canada's climate plans. “We see this as an effective and efficient way to reduce carbon, to encourage innovation, and to stimulate investment in the green infrastructure and the low-carbon economy,” she said.

Thanks to the provinces' leadership, McCormick said that by 2017 Canada “will have over 85 percent of our population living in a province that has a price on carbon,” representing over two-thirds of Canada's carbon emissions.

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Dallas Burtraw, also a senior fellow at RFF, said a promising sign in the U.S. is that the Obama administration's Clean Power Plan to limit carbon emissions was “cited in the Democratic platform as evidence of the party's commitment to carbon pricing.” He said he expects that “at least 30 states, if not the vast majority of the states” will develop carbon reduction programs to comply with the Clean Power Plan.

Another reason to expect increasing support for carbon pricing is that more businesses are voluntarily switching from fossil fuels to renewable energy. Just ask the 70 major corporations that have joined RE100, a global alliance of businesses committed to 100 percent renewable electricity by a specific year. Members include BMW, Coca-Cola, Goldman Sachs, Google, Johnson & Johnson, Microsoft, Nike, Starbucks, and Walmart.

Last week RE100 member General Motors announced plans to get all its electricity from renewable wind, solar, and landfill gas energy by 2050, to supply its 350 facilities in 59 countries. So for GM and many other companies, carbon pricing would be just fine, giving them competitive advantage over their fossil-fueled competitors. GM Chairwoman and CEO Mary Barra said that along with cleaner air, the benefits of the switch to renewables include “strengthening our business through lower and more stable energy costs.”

GM's optimism aligns with the World Bank's conclusion that “with the right strategies and policies in place, businesses can remain competitive while implementing climate-friendly production methods.”

To learn more about carbon pricing, watch the World Bank's webcast conference today, Sept. 21, from 2 to 6 p.m. Eastern, Innovating to Meet the Climate Challenge. World Bank President Jim Yong Kim, John Roome, and other experts will discuss innovative approaches including carbon pricing.

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