the world must do more to fight climate chaNge
Even if governments made good on their Paris climate pledges, the world would achieve only about one third of the greenhouse gas emission reductions necessary to keep average global temperatures to a “safe” level - no more than 1.5 degrees Celsius. More extreme weather, wildfires, crop failure and economic dislocation plus sea level increases that could reach 7-10 feet by the end of the century put our nation’s safety and security at risk. Prudent CEOs know that when a business faces risks of this magnitude, it needs a risk management strategy. So does the United States.
There Is a Bipartisan Solution
Partisan gridlock in Congress has long prevented enactment of a strong response to this challenge. President Obama’s Clean Power Plan was a first attempt under existing law. But independent studies conducted in 2016 by six different independent research organizations agree that even if fully implemented, the Clean Power Plan together with additional regulations under existing law would be insufficient to meet the U.S. pledge to cut greenhouse gas emissions 26 to 28 percent from our 2005 level by 2025. With President Trump’s attempt to roll back the Clean Power Plan well underway, if we’re going to address climate risk in the next three years, we need another path.
A bipartisan approach is within reach. If Congress enlists the power of the free market, our nation can reduce emissions more quickly and at far less cost. To broaden support beyond traditional environmental lawmakers, a carbon fee can be part of a pro-growth package. If, for example, roughly half the fee’s proceeds were returned to low- and middle-income taxpayers through tax credits or other stipends, and the remaining proceeds were divided between infrastructure, coal communities, and debt reduction, the fee would grow our economy, deliver long-sought bipartisan goals, and protect our country against the risks of a rising debt and unmitigated climate change.
Almost all economists and policy experts agree that the cheapest and most efficient way to reduce emissions of carbon dioxide and other greenhouse gases is to put a price on carbon. Doing so would make all business and personal investment and purchase decisions reflect the anticipated costs to society of the emissions resulting from those decisions.
20 nations and 2 subnational jurisdictions (British Columbia and Alberta) have implemented a carbon fee, and these initiatives cover 4.4% of global GHG emissions. These nations include Norway, Mexico, and Japan. The results are encouraging. British Columbia implemented a revenue-neutral carbon tax in 2008 and reduced fossil fuel consumption by 16 percent, while use in the rest of Canada country rose by 3 percent. Meantime, British Columbia’s GDP growth outperformed the country as a whole. Prime Minister Trudeau has announced that by 2022 Canada will have a single national carbon price no less than $50 CAD.
In June 2015 the CEOs of the six largest European oil companies wrote to the UN requesting a dialogue and negotiation about setting a single European or global price on carbon. The heads of the International Monetary Fund, the World Bank, and a number of countries have joined the call.
One way to price carbon is to create a cap-and-trade system. But this approach could not pass Congress during the Obama Administration and is now widely considered a non-starter. Moreover, cap-and-trade systems put in place in Europe, California and the Northeastern U.S. states have shown that in legislating these systems too many credits tend to be given away to powerful interest groups. Another problem is targets that are not ambitious enough. This has led to wide price instability and eventually to artificially low prices, thus crippling the system’s effectiveness in maximizing emissions reductions. Prices in cap-and-trade systems, at least without a set “floor” price, will inevitably be at least somewhat volatile, robbing the system of the predictability needed for long-term business decision-making.
A New Approach
The Partnership for Responsible Growth was formed to advocate a robust debate about the merits of a simple carbon price and has offered a pro-growth solution. An upstream carbon fee levied on fossil fuel producers would generate $1-$2.2 trillion over ten years, while providing a platform for regulatory certainty.
By returning roughly half the revenue raised to low and middle income families, and by investing the remainder in debt relief, infrastructure investments and impacted coal communities, we could protect our environment, provide carbon policy certainty and grow our economy.
This approach is simple to envision and execute, applying to fewer than 2,400 taxpayers. An upstream fee is more attractive than one that is imposed directly on all emitters because it builds on an existing system, is transparent, easy to enforce and virtually impossible to manipulate.
To encourage our trading partners to price carbon and to make sure that U.S. companies would not be at a disadvantage, we must impose a border carbon adjustment on imports and include a refund for energy-intensive exports, or implement similar measures to protect trade-exposed, carbon-intensive industries. Once adopted globally, carbon pricing would further strengthen American manufacturing competitiveness, which is experiencing a renaissance due to our access to low-cost, low-carbon energy.
This market-based response to climate change is the key to fixing the debt, helping the climate, and providing societal and financial stability.
Carbon fees can be enacted
We have held more than 200 meetings on Capitol Hill, focusing on House and Senate members who serve on the five committees that have jurisdiction over tax, environmental, and energy matters. These conversations strongly indicated that there is bipartisan receptiveness to carbon pricing, but only if the business interests most affected publicly advocate this solution.