Carbon Pricing: The Good, The Bad and The Ugly

Yes, Keep it in the Ground!  

Indigenous groups, environmental justice organizations and climate justice organizations are visibly and successfully confronting global warming directly. To cite just one example, in a stunning show of community organizing and popular will, the diverse, highly-visible “keep it in the ground” movement halted (at least temporarily) the Keystone XL pipeline which would have carried crude oil from Alberta’s “tar sands” across sacred indigenous lands, fragile ecosystems and vital drinking water aquifers to reach refineries in Texas for distribution to U.S. and global markets.[1] Extraction of “tar sands,” one of the dirtiest and most carbon-intensive fossil fuels, would damage or destroy much of Alberta’s Boreal Forest. Beyond its intrinsic value as a home to indigenous people and species, the Boreal Forest is a diverse ecosystem that sequesters millions of tons of carbon annually. [2]

To all appearances, mainstream scientific, environmental and policy organizations have been markedly less successful in organizing and spurring action to confront the climate threat. Beginning in 1979, the National Academy of Sciences issued lengthy, peer-reviewed surveys of global warming science. Early NAS reports estimated that continued fossil fuel burning would double atmospheric CO2 concentrations within a century, resulting in 2 deg C of warming. Based on painstaking studies of bubbles in ice cores that reveal CO2 concentrations in Earth’s paleoclimate history, scientists cautioned that 2 deg C of warming poses serious risk of catastrophically destabilizing Earth’s climate.[3] And they warned that even a stable 2 deg C warmer climate would be far beyond the range in which our species (and most ecoystsems on Earth) have evolved and adapted.[4]

Facing the stark realization that continued rapid exploitation of humanity’s chief energy source poses existential risks, some NAS study authors suggested aggressive pricing policy to attack the causes of climate change. In a 1983 NAS report, Yale economist Bill Nordhaus wrote,

“A significant reduction in the concentration of CO2 will require very stringent policies, such as hefty taxes on fossil fuels…”[5]

Alas, Nordhaus and other NAS collaborators deemed aggressive carbon pricing too radical and premature. Instead, their main policy recommendation was “further study.” That’s what has happened. Year after year, decade after decade, scientific studies continue to describe various aspects of the climate problem in ever more meticulous detail, but they largely temporize or abjure discussion of policy solutions. The scientific community’s hedged and often stilted warnings provided an opening for the well-funded climate science “doubt” industry to exploit. The “doubt industry” intones that stringent climate policies would be terribly costly, perhaps even destroying our economy, which the doubt industry asserts is inextricably and permanently tied to fossil fuel consumption. And they claim that nobody can prove that any climate policy is even needed.[6] Economists have pointed out that revenue from carbon pricing can be recycled to eliminate regressive distributional effects and mitigate economic distortions.[7] Despite such assurances, most U.S. politicians, even those concerned about climate have been only too happy to put off those hard choices.

Last fall, a year after the climate movement found itself effectively exiled from the Administration and Congress, a collection of environmental justice, climate justice and indigenous groups issued a “community resistance guide” authored by Tamra Gilbertson, claiming that all carbon pricing is a “false solution.”[8]  The “resistance guide” argues, citing substantial empirical evidence and academic research, that carbon pricing, even where enacted and implemented, has not produced the needed shift from fossil fuels to renewable energy and efficiency. (No argument there. We’re just nowhere near where we need to be to avoid climate catastrophe; time’s running out fast.[9])

But a close look reveals that much of the resistance guide’s well-founded critique is based on the flaws and complexities of indirect carbon pricing through cap & trade with offsets. (Hereinafter abbreviated as “CTO.”)  I’ve spent a decade researching, writing and advocating simpler, more direct carbon pricing policies that offer fewer hiding places for gimmicks and exclusions and instead provide clear, briskly-rising price signals to investors, innovators and consumers. Instead of auctioning all pollution permits, [10] CTO policies tend to distribute many of them free to polluters in order to grease the skids for enactment.[11] That not only rewards past pollution, it cuts down on the revenue available to compensate disadvantaged communities. And as the guide articulates, the carbon offsets in CTO policies raise serious questions about indigenous rights and equally serious problems of monitoring, reporting and verification which have plagued the European Union’s Emissions Trading System.

Carbon Taxes Are Different Than Gimmicky Cap & Trade with Offsets.

In contrast, transparency, simplicity and an explicit revenue stream are key reasons why carbon taxes remain the most radical climate policy, even though they are grounded in mountains of peer-reviewed economic theory and analysis.[12] Thus, I was distressed that the resistance guide lumps explicit carbon taxes in with complex, gimmicky CTO policies that, as the guide points out, have not induced the robust carbon prices needed for aggressive emissions reductions.

The guide claims carbon taxes can “never” rise to levels high enough to reduce CO2 emissions to the degree needed. It’s true that carbon taxes, as enacted, and even most of those proposed, start too small and rise too slowly to hit consensus climate targets. And it’s true that economic models rarely seem to account for amplifying climate feedback; they discount or entirely exclude catastrophic scenarios so their damage estimates come out low.[13] Twelve years ago, in a widely-cited Scientific American article,  Princeton researchers Robert Sokalow and Steven Pacala described a path toward decarbonization broken down into 15 “carbon wedges” whose development and implementation would require a carbon price rising to $100 – $200 per ton within a decade.[14] Eight years ago, a few carbon tax bills were introduced by House Democrats and one brave Republican (Bob Inglis) that aimed that high. Now, I know of no legislative proposals that even come close.

So on the face of it, it’s true that carbon taxes are too small and grow too slowly to have much chance of hitting the kind of climate targets that climate scientists conclude would avoid catastrophic scenarios.

We Need The Engagement of Environmental Justice, Climate Justice and Indigenous Environmental Groups to Enact Effective and Fair Carbon Taxation.

The resistance guide further asserts that carbon pricing, even with substantial revenue directed toward assisting frontline communities, can “never” compensate for the historical environmental harms and future climate damage that disadvantaged communities endure. So the guide jumps to the conclusion that environmental justice, climate justice and indigenous environmental groups should unite to resist carbon pricing on a global scale. That advice overlooks the fact that frontline communities stand to benefit first and perhaps most from policies that mitigate or avoid climate damage. And sticking to the “false solutions” line would leave EJ, CJ and IE groups protesting outside while policy advocates and policymakers develop carbon pricing proposals, work which must be undertaken now if we are to be ready when the political tide turns. And the “false solution” rubric further ignores the robust body of economic analysis showing that regulatory programs, mandates and prohibitions create perverse incentives for other nations to free ride. Even quantity-based carbon pricing systems such as CTO lead to gaming. Only explicit carbon taxes with border tax adjustments offer potential to “go global” by aligning the incentives of nations to trade fairly and push for higher carbon taxes.

The choice between “Keep it in the Ground” and carbon pricing is a false dichotomy. Recent economic analysis suggests that supply side (“Keep it in the Ground”) and demand side (Carbon Pricing) can work well together.[15] The climate movement needs EJ, CJ and IE voices and organizations to keep the pressure on and to engage in designing carbon pricing policy — preferably in the form of transparent, upstream excise taxes on fossil fuel sources of carbon emissions — to assure aggressive prices and fair revenue distribution. Yes, CTO has proven problematic, as many of us warned. But if EJ, CJ and IE voices engage, transparent taxes on climate pollution offer a path to effective climate policy that embraces and enhances climate justice.

[1] “Keystone XL Pipeline Foes Rev Up Fight Again After Trump’s Rubber Stamp,” Inside Climate News (March 24, 2017).

[2] “Tar Sands Threaten World’s Largest Boreal Forest,” World Resources Institute (July 15, 2014).

[3] Elizabeth Kolbert, “The Climate of Man Part II,” The New Yorker (May 12, 2005).

[4] A quarter century of “further study” has changed those initial estimates only slightly.

[5] Naomi Oreskes & Erik Conway, Merchants of Doubt, (2010) p 179, citing “Climate Change,” Nierenberg, et al (1983).

[6]  Merchants of Doubt, p 169 et seq.

[7] Donald Marron & Adele Morris, “How To Use Carbon Tax Revenues,” Tax Policy Center (February 2016).

[8] “Carbon Pricing, A Critical Perspective for Community Resistance” (2017).

[9] “Countries made only modest climate-change promises in Paris. They’re falling short anyway,” Washington Post (February 19, 2018).

[10] Obama’s draft budget projects cap-and-trade revenue, Scientific American (February 26, 2009).

[11] See e.g., Robert Stavins’ blog,“The Wonderful Politics of Cap-and-Trade: A Closer Look at Waxman-Markey” (May 27, 2009).

[12] See e.g., Ian Parry, Adele Morris, Roberton Williams, Implementing a US Carbon Tax: Challenges and Debates (2015).

[13] Martin Weitzman, “Fat-Tailed Uncertainty in the Economics of Catastrophic Climate Change,” Review of Environmental Economics and Policy (2011).

[14] “A Plan to Keep Carbon In Check,” Scientific American (2006).

[15] Fergus Green & Richard Denniss, “Cutting with both arms of the scissors: the economic and political case for restrictive supply-side climate policies,” (February 2018).