The only way to reduce the threat posed by climate change is to reduce the burning of carbon, so any industry that extracts or sells fossil fuels is vulnerable to a carbon fee. To succeed in the marketplace, therefore, those industries must adapt.
But this is true whether Congress approves a fee or whether we tackle the climate challenge through EPA regulations or some other option.
Coal’s champions have been promoting development of clean processes for burning coal. They also have expressed enthusiasm about systems for extracting CO2 from flue gas and injecting it back into the ground, or for using CO2 to manufacture some other product that could be sold at a profit or could break even. So far, the technology has not made enough progress to make either of those solutions anywhere near economically viable. Perhaps it will, someday.
Policymakers and coal executives should proceed as if this new technology will not transform the coal industry. Coal miners and their communities deserve assistance to make the transition to a low-carbon economy. Donald Marron and Adele Morris, in a February 2016 Tax Policy Center report, estimated that providing assistance to the roughly 80,000 American coal workers and their communities for a decade would cost “a tiny share of the $1 trillion or more that a (carbon) tax could bring in over the same period.”
Coal production in the United States has declined by 15 percent since 2008 and many of the major coal producers have suffered huge losses in market value, with several declaring bankruptcy. The reasons include a spectacular boom in the supply of cheap natural gas, due to fracking. The gas is cleaner than coal, as well. In addition, health-related regulations to reduce emissions of mercury and other substances have decreased coal demand, while a stronger dollar has enabled other countries’ coal companies to eat into U.S. firms’ market share.
“In the past we always knew that the demand for coal would rebound and the jobs would come back,” Cecil E. Roberts Jr., the United Mine Workers of America president, said in a 2015 speech. “This time, there is no such certainty. Fundamental changes are underway in America and across the world that will have a lasting impact on the coal industry and our jobs.”
Oil and gas also contribute to climate change, though they are less carbon-intensive than coal. Easing the transition for those employed by the oil and gas industry will be important, too, but it can be stretched out over a longer period.
In addition, there are certain industries that consume large amounts of fossil fuels, and their costs could rise significantly. The steel, chemicals, aluminum, cement, glass and paper industries are on that list. But the industries whose energy expenditures exceed five percent of the value of their output account for less than two percent of U.S. gross domestic product and just half of one percent of U.S. non-farm employment.
Moreover, the impact on such companies is likely to be modest. Joseph Aldy and William Pizer of the Harvard Kennedy School, in a 2011 report, estimated that a $15-per-ton fee would cause such firms to lose one percent of output to foreign competition, unless their competitors faced similar carbon pricing.
While coal miners and others in carbon-based industries face economic problems, the places where they live are likely to become healthier. Fewer of them will suffer from black lung, and they and their families will breathe cleaner air as coal-fired power plants convert to less-polluting fuel sources or shut down. Water should be cleaner, too.
A carbon fee is not the only tool for reducing carbon emissions. We could rely on EPA regulations or adopt a national cap-and-trade scheme, to name two prominent alternatives. But neither has these two carbon fee benefits: 1) certainty for the business community, including investments in coal technology and future uses, and 2) a revenue stream that Congress could use to help workers who lose their jobs. A carbon fee is the most promising way to tackle climate change.