It's remarkable how little people are willing to pay for gas, which moves thousands of pounds of steel much farther and faster than they could by foot. Considering that burning fifty gallons of gas produces a ton of CO2 and moves an average 2017 model car 1250 miles (25 MPG), it's especially difficult to process that a carbon tax might add pennies per mile traveled. And when gas prices came down from the '08-'14 levels, people just got bigger, less efficient cars with the savings rather than pocketing it. It's maddening!
From a political perspective, what's even more maddening is that most people have no idea what electricity or natural gas costs, but most people can name the price of gasoline and/or diesel fuels down to the penny. Politicians know this. Every academic who talks with policymakers remembers their first experience when someone asks, inevitably in response to a far more complicated point, "But what does this mean for gasoline prices?"
That's precisely why it's hard to make carbon pricing work for transportation fuels. You have to have an answer to that question because your industry opponents have already written the attack ad.
Which is great if you can afford an EV. Most people buy used cars and those used cars aren't yet EVs. I'm optimistic that statement will be totally different in 10 years, thanks to enormous progress in policy and technology, but we're not quite there yet.
The average used car selling price was apparently $21k in 2019 and the median is around $18k-20k depending on the source. That covers a lot of good used Chevy Bolts and Nissan Leaf options in my areas based on KBB (not based on actual listings). I think it's possibly a matter of range anxiety, aesthetic concerns, and maybe used supply?
Canada's carbon tax is beyond a proposal or a plan. The initial implementation has shown durability and equity. It started April 2019 with a "dividend" (unfortunately through a tax credit rather than a monthly check) at the same time as the $20/ton broad-based (not sector-based) carbon tax took effect. For each Province they published the estimated dividend and the increased household costs. The carbon tax was the major Conservative opposition talking point in the 2019 elections and Trudeau and the carbon tax prevailed. In April 2020 in the midst of the pandemic, Trudeau issued the carbon dividend/tax credit and implemented the annual $10/ton increase to $30/ton. Trudeau's comment: “Our plan on pricing pollution puts more money upfront into people’s pockets than they would pay with the new price on pollution. We’re going to continue to focus on putting more money in people’s pockets to support them right across the country.” (Citing the response to Ontario's cap and trade and conflating it with the carbon tax policy is not sound. The lessons learned from cap and trade problems are generally not relevant to a discussion of carbon tax policy, e.g., fluctuating prices, regulatory programs undermining cap and trade and resource shuffling, cap forecasting.)
[Related note: Thanks for your assessment of offsets. It would be of high value if you both took on the issue of documenting the fundamental flaws and assessing alternatives to offsets. The big corporates/banks/Big Green are gearing up to push it hard. Trading desks have not had such an opportunity since the 2008 mortgage meltdown.]
The authors describe the Cap and Trade carbon pricing policies (since that is what is out there) and are basically correct about its problems. But a Fee and Dividend (F&D) carbon policy does not have the problems they describe and is specifically designed to get public support (by returning 100% of the fees collected to every legal resident on an equal basis). Yes, we need leadership to get any serious climate policies enacted but F&D is doable and and will help align financial incentives with climate realities. See the paper by James Hansen and me on why F&D is the best carbon pricing policy: https://www.ourenergypolicy.org/resources/why-fee-and-dividend-will-reduce-emissions-faster-than-other-carbon-pricing-policy-options/
F&D always seemed to be more attractive politically than people gave it credit for. Who wouldn't want to get a monthly dividend check? And if you live a low carbon lifestyle, you can come out ahead.
This is essentially the bet the Trudeau government is making. On the economics, they aren't wrong — and it's on all of us who understand this stuff to say as much whenever critics challenge this connection in bad faith. But climate pragmatists must also watch the politics of implementation to test whether this idea works in practice.
I share David's skepticism. I even tried to help make such a proposal happen in California, with a proposal that looked a lot like PM Trudeau's. Unfortunately the environmental NGOs hated it only a little less than the oil industry, so it didn't get any traction and therefore didn't get to a place where we could really test the politics of dividends for real. We did, however, get support from the environmental justice community — a major score for carbon pricing, for those who are watching that debate become more controversial over time.
i think the F&D approach is one of those ideas that sounds like it should be a slam dunk politically yet, in practice, is very hard to make work. The "fee" part is right--beucase it behaves like a tax, and tax instruments perform MUCH better than C&T because of how they interact with existing regulations. Second, to have much effect on emissions you need high prices--and thus run into all the extra-sensitivity to high nominal prices we talk about in the book and which Kevin Unusual-last-name talks about below. Maybe those high prices are viable in some sectors, but we have run this experiment many times politically and it nearly always fails. Third, the full dividend creates all sorts of political problems. It allocates all the potentially large revenues back to the people, thus eliminating the potential to transform the politics of cliamte change over the long term by investing in new technology. (OUr book has a whole chapter on "how to spend it"). and even seemingly fair equal refunds will have all sorts of regressive problems--opening a can of worms that must be opened regarding allocation rules, which in turn will create a massive political conflict on that topic. i wish the solutions were so elegant since one of my mentors at Stanford, George Shultz, has helped to articulate this idea--a Great American he is--but the politics quickly revert to what we describe in the book.
instead of arguing about the feasibility, Citizens Climate Lobby, with thousands of volunteers in US, Canada, and abroad, has been spending untold precious time and energy talking with legislators, businesses, municipalities, mayors, faith leaders. CCL believes it is politically possible. It looks at climate change as a global issue and works diligently with other countries. Turning anxiety into action seems like a good thing. If you listen to Michael Gerrard, Michael Mann, and others, we need to try all actions possible--market based (carbon fee & dividend) and others.
Read the bill, at least these sections of HR763-2019.
Refunds: HR763 flips current penalties the energy industry pays on its head to become refunds taxpayers pay to corporations! Sec 9906 Carbon Capture And Sequestration, specifically (b) Payments (2) Amount of Refunds. It is the undefined “Secretary“ who determines and grants refunds to corporations based on an undefined formula. Refunds become revenue, which increases corporate profit.
Refunds: HR763 further insulates the energy industry from the carbon fee with another refund; the export carbon fee is refunded, per Sec 9908(e) “the Secretary , in the case of covered fuels produced in the United States…shall be allowed as a credit or refund…to any exporter of such covered fuels….”
Lisa, Please have a look at the independent 2019 assessment of HR763's effects out to 2030 from Columbia University and Rhodium group, cited above. They show with evidence that HR 763 if passed as written would put the economy on track to net zero by 2050. Not what the oil companies want.
Climate Crisis, SierraClub, LCV, 350.org have also thousands of volunteers talking to legislators et al, and there are better bills out there that align with the Green New Deal which values Environmental Justice, which HR763-2019 lacks in spades.
Where in the bill is it? There is a wide disconnect between what is intended and what is actually in HR763-2019. (If reintroduced in 2021, then the bill number will change.)
Read the bill, at least these sections of HR763-2019. Talking-points and articles are not the things on which Congress will vote.
Refunds: HR763 flips current penalties the energy industry pays on its head to become refunds taxpayers pay to corporations! Sec 9906 Carbon Capture And Sequestration, specifically (b) Payments (2) Amount of Refunds. It is the undefined “Secretary“ who determines and grants refunds to corporations based on an undefined formula. Refunds become revenue, which increases corporate profit.
Refunds: HR763 further insulates the energy industry from the carbon fee with another refund; the export carbon fee is refunded, per Sec 9908(e) “the Secretary , in the case of covered fuels produced in the United States…shall be allowed as a credit or refund…to any exporter of such covered fuels….”
A fair reading of the bill doesn't yield the editorial judgments you're making, Lisa. You're bringing more to the language than is there, and making some factual errors.
To get a payment, a company must capture and sequester carbon permanently. The payment comes from the collected fees, not from taxpayers. If the carbon capture facility is operated by an FF co, then the FF co gets a refund of carbon fees it has paid. It doesn't get to double-dip--that is, to get a refund AND a payment.
The Secretary is unnamed because it is understood to be the Sec of the Treasury, since this bill modifies the Federal Tax Code.
Read the bill, at least these sections of HR763-2019.
Refunds: HR763 flips current penalties the energy industry pays on its head to become refunds taxpayers pay to corporations! Sec 9906 Carbon Capture And Sequestration, specifically (b) Payments (2) Amount of Refunds. It is the undefined “Secretary“ who determines and grants refunds to corporations based on an undefined formula. Refunds become revenue, which increases corporate profit.
Refunds: HR763 further insulates the energy industry from the carbon fee with another refund; the export carbon fee is refunded, per Sec 9908(e) “the Secretary , in the case of covered fuels produced in the United States…shall be allowed as a credit or refund…to any exporter of such covered fuels….”
Hello, good people of the mighty Volts community! I'll be dropping in and out over the next few days to answer your questions and receive your pointed criticisms with as much dignity as I can muster in defeat. Who knows, we might even convince my co-author and his lordship of social media obscurity, David Victor, to join us for a spell. He may be physically grounded like the rest of us during the pandemic, but that's not to say he isn't living on European time when not otherwise surfing the San Diego waves. You think I am kidding, but I am not.
Let me add to Danny's hello. while i am not a big social media user (no twitter, no facebook, no instagram, etc--all designed to reduce high frequency noise in my life) i really appreciate the substantive debates Dave is teeing up here. look forward to contributing...
I should add, three great voices to follow on this issue are Nic Rivers (U Ottawa), Mark Jaccard (Simon Fraser U), and Andrew Leach (U Calgary). There are many more excellent Canadian researchers and climate policy experts, but if you don't know these three that'd be a good place to start.
It's ambitious! But it's also more a proposal than a plan, let alone a complete implementation plan. That's not meant to be a criticism of the Canadian government's effort or intentions, but rather an important question mark on what comes next. In Canada, provinces implement carbon pricing policies with review from the federal government. Those provinces that don't implement their own policies get a federal program instead. Existing carbon pricing systems will need to rapidly increase ambition to meet these new targets, including Quebec — which is linked to California's system — and recalcitrant provinces will object, forcing the federal government to impose high carbon prices from Ottawa.
There are a few issues to keep an eye on with the Canadian proposal:
1. Will the courts uphold the government's authority to price carbon? A few provinces challenged the federal government's ability to enact this type of program and that case is before Canada's high court now. I'm not a Canadian lawyer so I don't have much to add, other than keep an eye out for how this case comes down.
2. How will trade-exposed industries react? The ambitious carbon pricing trajectory is going to raise trade sensitivities. Right now Canadian industries usually get what's called output-based free allowance allocation, that gives cleaner firms more free allowances than their relatively dirty counterparts. Problem is, will this approach work as prices increase through 2030? The proposal talks about carbon border adjustments as a way to make a playing field, but doesn't offer a lot of detail. There isn't much chance of the US taking a similar approach to carbon pricing and border adjustments with a divided or narrow Democratic majority in the Senate, so it's hard to see where this goes — Canada's biggest trading partner by far is the US, but there isn't much of a chance the US follows suit anytime in the next two years. If Canada moves forward, look for a lot of discussion with the US on trade effects with relatively few tools available to the Biden Administration to move that discussion forward in the near term.
3. Will voters find rebates acceptable in exchange for higher energy prices? Canada is counting on a generous rebating program to deliver the political goods when it comes to visible transportation fuel price impacts. The economics are clear: rebating like this is progressive on net. But will voters care? No one has run an experiment like this before, and at least some early evidence from the Canadian rebating experience to date suggests that rebates don't significantly change voters' concerns. Keep in mind that Ontario's current premier ran his campaign in part in reaction to Ontario's former participation in a $17 carbon pricing program linked with California's. PM Trudeau is betting big.
It's important to add that if Canada pulls this off, it'll be an unambiguously amazing thing. I see some friends on the left sniping about how prices at CAN $170/tCO2 and I just … can't take that seriously. This is the biggest proposal on the table anywhere in the world on carbon pricing. The question is whether Canada can get there, not whether these prices would make a difference.
Thank you so much for this analysis! You have confirmed my feeling that carbon pricing called Cap & Trade (C&T) is complicated and just not working as promised, and also my suspicions of carbon offsets. And I agree, strong sectoral policy is still required.
I’m excited about the new generation of carbon pricing, “CARBON CASH-BACK” (aka Carbon Fee and Dividend). This is the policy the 4000+ economists are supporting which quickly reduces emission! It pays for itself so doesn’t grow government. The fees collected are returned to Americans monthly as cash to spend as we see fit. And, it’s your choice to lower your carbon footprint and come out even more ahead.
As you recommended, we need carbon pricing that can operate more smoothly in the presence of strong regulation. Carbon Cash-back fits that requirement! It complements sectoral regulation. Take gasoline, for example. Carbon pricing does not cause much change to gasoline prices. This is where effective CAFÉ standards are still strongly needed.
Lastly, I think carbon cash-back applied to our borders, (border carbon adjustment), as the EU is considering, will make us a powerful world influence for decarbonizing.
I hope your next research effort will take a look into Carbon Cash-back its SUCCESS in CANADA! I think a bipartisan federal Carbon Cash-back solution is an excellent first step for tackling climate change and something we can put in place quickly as we work to hone the regulations.
Lisa, I would share your indignation if the facts you present were correct. But they're not. Let's take just a couple:
-- You say, HR 763 doesn't cover methane. This is mostly true. But it never purported to. That's a bit like faulting breakfast for not being dinner. HR 763 isn't put forward as a "silver bullet," which is a common straw-man attack on it. By design, HR 763 doesn't apply to upstream wellhead or mine mouth leaks at all, because it's implementation depends on existing metering to calculate the carbon content, for simplicity. It would cover methane leaks downstream of the point of measurement, although it treats them as if the methane were combusted, so doesn't account for the difference in GWP. Methane leakage, upstream and downstream, is for other legislation to address.
-- You say, The fee is assessed at the point of use. That's mistaken. One of HR 763's great strengths is that is avoids that point-of-use problem seen in cap-and-trade which, I agree, lets the FF cos skate, and puts the burden almost entirely on the mid-market (e.g., utilities) and on consumers, to find alternatives to FFs. Under HR 763, the fee is applied in the field at the coal consolidation yard or the processing plant/refinery, where the energy content of the fuels (and by implication their carbon content) are measured as a matter of normal commerce. That isn't the point of use--that's the point where the wholesale product enters the system for delivery to retail distributors. The FF cos pay the fee. This is explicit in the bill. If HR 763 had been in place, Exxon's payment to the Treasury (to be returned back to taxpayers in equal shares) in 2019 would have been $5.4 billion, which was 27% of their 2019 profit.
Jim Hansen in the 1980's envisioned a carbon TAX that was assessed "at the point of origin," which he further described as "mine" and "well-head." HR763-2019 clearly changes a tax to a fee, thereby requiring a dividend to partially offset which must then be claimed as income, which either further dilutes the dividend and can in some income brackets jump a household into higher taxable assessment.
Moreover, HR763-2019 clearly specifies that the fee is assessed at "emitting use." Emiiting use means every business, every household, every consumer downstream of the point of origin (extractors) and refineries.
The first mention of "emitting use" in Section 9902 applies to any combustion engaged in by "covered entities." A "covered entity" is, "in the case of crude oil, a refinery operating in the United States, and any importer of any petroleum or petroleum product into the United States; in the case of coal, any coal mining operation in the United States, and any importer of coal into the United States; in the case of natural gas, any entity entering pipeline quality natural gas into the natural gas transmission system, and any importer of natural gas into the United States." These are the FF cos themselves.
They burn a lot of oil and NG to refine oil, for example. So the first mention of "emitting use" in Section 9902 actually covers a potential loophole the FF cos might otherwise wriggle through. It doesn't apply to downstream businesses, because they aren't "covered entities."
Similarly, the requirement to pay the fee applies exclusively to "covered entities," not to downstream businesses, which are excluded from that definition.
Sec 9902 further states that the carbon fee applies to the SALE or TRANSFER "for an emitting use, of any covered fuel"-- meaning that the tax is paid by the FF companies if *anyone else* is going to burn it after the sale or transfer. It doesn't mean that the downstream customers, who aren't covered entities, pay the fee directly. It will have already been paid by the FF cos. It's not a point-of-use surtax. It is a point-of-production fee.
Why "fee" and not "tax"? Because the government doesn't keep the money, but rebates it to all of us via the dividend. And the dividend isn't "required" to turn the "tax" into a "fee." That phrasing makes it sound deceptive. It's not. The dividend is an up-front, straightforward, integral design feature to keep the fee from being regressive to middle and lower income people, to the extent the FF cos pass the fee's costs on.
The fee FF are assess upon sale or transfer for export is a refunded, as prescribed in this bill. This is an incentive to FF to export which replaces any incentive to transition to green renewables. Also, as climate change is a global problem exporting for use on another continent does not reduce carbon emissions.
The export refund provision is part of the “border carbon adjustment” mechanism. It's not an incentive to produce FFs, but a design feature to fulfill the bill's intent to protect US international trade from being economically disadvantaged by countries that don't have an equivalent carbon price. It certainly won’t drive more demand for FFs anywhere in the world.
The BCA applies to all "carbon-intensive products manufactured or produced in the United States," not just FFs. Without this provision, US exporters would pay the domestic carbon fee but have to compete with other countries that have a lower carbon fee (or no fee), costing US jobs and harming the US economy. It could even incentivize US business to relocate to a no-fee country, a phenomenon known as “leakage.”
The export refund is the mirror image of the bill’s requirement that importers of carbon-intensive goods pay the US’s domestic carbon fee, to the extent their country’s carbon price is less than ours.
What’s the practical effect of this? If a US company exports say, LNG, to a country that charges a carbon fee, then the US LNG exporter would get a refund, so it wouldn’t be paying two carbon fees, but just the lower of the two. Status quo of international trade competitiveness is maintained—but the cost of all affected FFs would be higher than now, driving end-use down, everywhere, because all FFs would have paid a fee.
If the US LNG exporter wanted to send its LNG to a country that doesn’t have a carbon fee, it would get a full refund. Sounds bad at first. But which countries wouldn’t have a fee? Mostly fossil fuel exporters. So, a US FF co sending FFs to a no-fee, FF exporting country would literally be sending coals to Newcastle (or LNG to Algeria). Presumably, the US would develop regulations to prevent “wash sales” to such countries that were designed to evade the fee.
Developing countries may not have a carbon fee. If those developing countries are exporters, then their exports to the US (our imports) will be more expensive here, because the fee will be imposed here, and the US will get the fee revenue. So exporting developing countries will be motivated to institute their own carbon fee, so they get the revenue instead. If a no-fee country isn't an exporter, then it's likely a very small energy user, with low incomes, so not impactful to climate change, relative to larger, wealthier countries.
The BCA is the stickiest part of the bill, IMO. Implementation design (regulations) will be key to enact the intent of the bill, which is to drive down CO2 emissions without harming the US economy due to unfair international competition.
Although CCL intends that "border carbon adjustment mechanism" not to be an incentive to continue to extract and refine fossil fuel, it is. There are many points of disconnection between CCL talking-points and what HR763-2019 actually delivers.
Stripping the EPA of the Clean Air Act for a minimum of 10y is doozy (HR763 reduces the EPA.s ability to defend quality for Americans to merely reporting data--no more penalties for breeching carbon emissions.)
Let's not overstate the EPA pause. It's not "stripping," as I'll explain below, and it's precisely 10 years.
A last word on the BCA. As I noted, keeping things neutral won't increase consumer demand, so there'll be no new markets driven by the border adjustment. As the BCA inspires other countries to institute carbon pricing, oil and gas demand will go down, just as it will in the US, because businesses will squeeze carbon out of their supply chains and processes, and consumers will buy lower-price low-carbon goods and services. Why are they lower-priced? Because they're lower in carbon, so the sellers don't have to recover a carbon cost.
The regulatory pause would affect very little, as a practical matter. Today, the EPA has no power to apply penalties for breeching carbon emission limits, for the raw fact that there are no EPA-mandated limits to be breeched. The only authority the EPA has is non-legislative. It comes from a 2007 Supreme Court decision that CO2, even though it is not enumerated in EPA's regulations as a pollutant, is nonetheless subject to EPA regulation if EPA finds it affects the environment.
The EPA's attempt to set CO2 limits based on this judicial interpretation, the Clean Power Plan, was set aside by the Trump administration as an early order of business in 2016. It is also under challenge in 26 states, and at the Supreme Court, which is now solidly conservative. These cases will not be resolved for years, even if the Biden Administration reinstates the CPP. So it won't be effective for at least half of those 10 years in the best case. And the Trump-dominated Supreme Court could kill it anyway.
Compared to the effectiveness of CFD, the CPP weak--only projected to reduce overall GHG output in the US by four percent, compared to 40% for the fee, assuming it was, in fact in effect for 10 years.
Also, the EPA can still regulate anything else, even if it has the side effect of reducing GHGs. Fuel standards are an example. They could also increase the standards for any enumerated pollutant, like SOx or NOx, which, for power plants, would likely reduce their operation and so their CO2 output. Plus, any state can regulate GHGs, as CA and the RGGI states do now.
So, all in all, it's not much of a give-up to get a few Republicans on board. That said, it didn't succeed in attracting a single Republican co-sponsor beyond the original one for the 2019 version. We'll have to see if it shows up in the 2020 version. If the bill's sponsors can trade it for a guarantee of Republican co-sponsors in both houses, it's worth it, IMO.
But there's more than one way to do this. If Republican support (just need a few) can be gotten without the pause, I'm sure everyone on the left side of the aisle (including me) would be all for it. This is the sausage-making compromise process that goes on over the heads of citizens like you and me.
BTW, I speak for myself in all these comments, not for CCL.
This is good feedback. I am wary of assuming who and who is not seen as emitting use, because a crucial section of any bill, Definitions, seems incomplete. An incomplete Definitions section results in disputes going to court where the party with the most funds tends to win.
Methane is a more potent destroyer of the ozone than is other carbon, molecule for moleule. Carbon is downtrending with coal. Methiane is increasting with the production of fracked gas. A bill that doesn't address GHG in totality, isn't a serious bill to address climate change. A cleaner way to price fossil fuels would be to eliminate the subsidies for them. It has the same market effect for consumers and businesses downstream of extractors and refineries, without increasing profits to the extractors, refiners, and exporters of fossil fuels.
We agree on ending subsidies for the FF cos. The biggest one of all is the right to pollute for free.
It's not an either-or choice. FF subsidies of all kinds, direct and indirect, should be ended ASAP, and a socially just carbon price put in place, also ASAP. Plus other stuff needs to be done, like stronger methane regulation, among others, as you've suggested. These policies are mutually supportive.
If fracking companies see that the cost of their product is going to rise steeply for structural reasons (e.g., an annually increasing fee), then they would stop investing in new wells and pipelines pretty much immediately. Businesses of all sorts would innovate like crazy to squeeze carbon costs out of their supply chains, putting further pressure on the FF cos. The FF fee would also make renewables spectacularly more economic. It would be the inverse of what is happening to coal, economically.
How would the FF cos know that the increasing fee wouldn't be rescinded by a future administration? Because the monthly dividend to taxpayers would be financially net positive for virtually everyone making less than the median income. It would be like getting a Social Security payment (although a lot smaller at first), and so would be politically durable like Soc Sec is.
Thank you for the analysis. One question: Europe is considering imposing carbon tax on imports. Of course, still a long shot, but if successful, don't you think it could force the issue, similar to the potential impact of the just revealed Digital Market Act
I think this is a lot harder than many appreciate. Border adjustments are really hard to pull off, both technically and politically — especially because most of the real work in climate policy is coming through regulation, industrial policy, and, in emerging economies, often through direct state support in industry and finance.
What is happening in the EU is that policymakers know they need better answers for trade impacts than current free allocation approaches provide, especially as the EU ETS — the most successful carbon pricing program — pushes for higher carbon prices. Border adjustments offer that promise. Problem is, not many people have carbon pricing systems, and those that do aren't exactly chomping at the bit for border adjustments — in part because subnational programs, like California's, face legal and institutional barriers that nation-states do not.
The claim that a border carbon adjustment from the EU will induce another country to adopt a carbon pricing program from scratch isn't as strong as it might seem. Major players, like China and India, are not inclined to like this approach and even if the US wanted to follow suit, the prospect of legislation advancing in the next two years is extremely slim — no matter who takes the Senate after the special elections in Georgia. The EU and Canada are perhaps most aligned on this issue right now, but Canada's biggest trading partner is the US, not the EU, so the politics of what are feasible in Canada are more likely to be affected by the US-Canada relationship than whatever possibility Canadian-EU relations hold at this time. That's not to say the EU won't make important progress here — frankly, they need to in order to rely more on the carbon price from the EU ETS — but I expect the EU will find it'll be an uphill battle with respect to the reception it receives from its trading partners.
We talk a lot in the book about how policy diffusion is best done through demonstration of working policy models, rather than using market links and trade measures to encourage adoption of identical instruments. It's just so hard to get the politics and institutions right in response to something like a shift in trade policy.
This is great, but I've always thought that the ability to (theoretically) pass a carbon tax through the Senate in a budget bill--thus avoiding the filibuster--is way more important than the aspects discussed here. The filibuster is and always will be the biggest hurdle to passing any kind of comprehensive climate legislation and I don't see a pro-climate 60 vote majority happening anytime soon.
So the Manchins and other legislators from FF states are going to have to do something, or risk losing votes, especially among younger voters, even Republican ones.
So you think congress will pass a carbon tax? In the next two year? I really hope you're correct, that would be awesome. But I'll bet you a beer they do not.
I do not think Manchin fears carbon voters. Look at WV polling in your Yale data.
I hope so. I'm not saying it won't be hard. But it's something that can be focused on, unlike a slew of regs. Also, if you're focusing on one state, that seems self-fulfilling in terms of potential defeat. Whether a socially just carbon price can be instituted soon is a matter of building a coalition that sees it as the best alternative. It's a no-regrets first step that can be effective right away, instead of taking another 5-10 years to put in place hundreds if not thousands of laws and regs that would be needed to achieve equivalent effectiveness. We don't have 5-10 years to get something immediately effective into place.
“There are two reasons. One is that the politics in each sector are different. In the transportation sector, for example, voters are super-sensitive to anything that visibly raises the cost of transportation fuels. Policies in that sector that have a visible impact on cost are politically toxic.”
Yes, but you’re assuming that the politics are an intrinsic property of the issue like the number of gallons of gasoline refined from a barrel of oil. In similar situations in the past, i.e. the oft cited CFC allowance system, one major party was not reflexively trying to hold the country back on almost every issue. Now it appears that that party’s political power might be waning as it cleaves itself into merely contrarian and animated crackpot wings, leaving the political center in charge. Politics can change. (And once insurance companies start refusing to insure expensive Miami real estate, the pressure to change will only increase). The key to political acceptance is to tell people what’s in it for them. Cue the Green New Deal.
As for transportation specifically, the size of price increases due to, for example, the Transportation Climate Initiative, will be unnoticeable and in the noise of normal fluctuations.
“Any effort to increase the ambition of the overall system means that your opponents can run attack ads saying you’re trying to raise the price of gasoline, which is one of the things politicians hate to be seen doing the most. Everyone can fight you.”
As the number of EV’s increase and more and more people “cut the nozzle”, this will become less of an issue. We’ve been driving EV’s since 2012, so the price of gasoline doesn’t really interest me. It’s like the price of cigarettes for a non-smoker.
Agreed, the politics very much are dynamic — and so the answers to a given problem will change with conditions. Our model is meant to capture this dynamism and provide a structure for thinking about when we might expect different outcomes.
If you think that opponents of the Transportation Climate Initiative aren't going to run an attack ad that says "they are going to raise your gasoline prices," boy, do I have some news for you. Saying "oh but you won't notice this" is not a winning response.
One important issue to flag is that so long as carbon prices are low, so too are revenues and GHG emission cuts. Making the TCI a low-price system, like RGGI or California's program, means it'd mostly work around the margins on emissions. That's helpful, but not transformative. So if the path to making TCI work relies on EVs taking off first, just remember that all TCI would do in that case is help accelerate the transition a little faster. More, please! But I want something that brings me the EVs in the first place. Hence the core argument in our book.
I expect further conversation and the underlying work address some of this, but: coordination of effort across multiple sectors is important and hard. Not just ‘to reduce costs’ (though efficiency matters!) but to manage perverse consequences of unaligned policies. Like policies to support energy storage can easily extend the life / output of less flexible fossil generation. I accept that truly economy-wide pricing is dead or at least far far off, but the problem still needs solutions.
Also: De-linking policies doesn’t really allow ‘taking on one sector at a time’. All the opportunities across all the sectors still need policies! But now they’re more technical policies, more subject to specific expertise, intense sectoral interest and diffuse public benefit.
One part of the political logic of carbon pricing that I’ve never seen articulated is that policy makers don’t need to take responsibility for specific negative outcomes - “my local power plant closed” eg - in the way that they would if they regulated the outcome. We’re used to accepting stuff that is driven by ‘the market’, even though big underlying policy choices are important. Most carbon pricing schemes haven’t got to the point of maturity where such outcomes have the sense of natural inevitability, however.
This is definitely a big problem. Our main argument is that economy-wide pricing, which solves this problem in theory, doesn't work in practice. That means someone else or something else has to do the coordination instead.
One of the big challenges lies in how one defines a sector. We see this with the integration of light-duty EVs and electricity. But it's even more complicated if you think hydrogen or other chemical fuels carriers are needed in industry.
The problem of coordination is severe. Pretending markets solve it isn't the right answer. We call in the book for a more clear-eyed assessment of what's working and what isn't. That's a start, but not the full story. What do you think?
2. If carbon pricing is politically untenable, where's the best place a Joe-Schmo climate activist like me, living in a red district in a red state, can spend his time and energy?
on your first point, our argument is designed to be global--it is about the structure of political forces and how the choice of policy instruments affects those structures. We have a lot of stuff in the book about Europe, in particualr, where strong adminsitrative state and tightly integrated political systems make cross border emission trading (the ETS) feasible in ways that are unique to Europe. Also, in effect, with the reserve mechanisms and other policy reforms the ETS is being converted into something more tax-like, which we welcome.
By test driving some non-Tesla EV's and working to explain to your fellow red-state citizens that they increase US energy security by reducing foreign oil imports and they save money by having very little maintenance, never mentioning climate change. Even red-staters should love EV's.
Great arguments around the politics of carbon pricing - we put together similar arguments in a recent paper, questioning i) problem framing (market vs. system problem), ii) policy priority (efficiency vs. effectiveness, iii) innovation orientation (optimization vs. radical change), iv) context (universal vs. sector specific approach) and v) politics. Transformation oriented climate policy mixes - we call it transition policy - could be an alternative.
It's remarkable how little people are willing to pay for gas, which moves thousands of pounds of steel much farther and faster than they could by foot. Considering that burning fifty gallons of gas produces a ton of CO2 and moves an average 2017 model car 1250 miles (25 MPG), it's especially difficult to process that a carbon tax might add pennies per mile traveled. And when gas prices came down from the '08-'14 levels, people just got bigger, less efficient cars with the savings rather than pocketing it. It's maddening!
From a political perspective, what's even more maddening is that most people have no idea what electricity or natural gas costs, but most people can name the price of gasoline and/or diesel fuels down to the penny. Politicians know this. Every academic who talks with policymakers remembers their first experience when someone asks, inevitably in response to a far more complicated point, "But what does this mean for gasoline prices?"
That's precisely why it's hard to make carbon pricing work for transportation fuels. You have to have an answer to that question because your industry opponents have already written the attack ad.
One solution is for folks to "cut the nozzle" and get EV's. We've been driving EV's since 2012, so for us the price of gas is of little interest.
Which is great if you can afford an EV. Most people buy used cars and those used cars aren't yet EVs. I'm optimistic that statement will be totally different in 10 years, thanks to enormous progress in policy and technology, but we're not quite there yet.
The average used car selling price was apparently $21k in 2019 and the median is around $18k-20k depending on the source. That covers a lot of good used Chevy Bolts and Nissan Leaf options in my areas based on KBB (not based on actual listings). I think it's possibly a matter of range anxiety, aesthetic concerns, and maybe used supply?
Canada's carbon tax is beyond a proposal or a plan. The initial implementation has shown durability and equity. It started April 2019 with a "dividend" (unfortunately through a tax credit rather than a monthly check) at the same time as the $20/ton broad-based (not sector-based) carbon tax took effect. For each Province they published the estimated dividend and the increased household costs. The carbon tax was the major Conservative opposition talking point in the 2019 elections and Trudeau and the carbon tax prevailed. In April 2020 in the midst of the pandemic, Trudeau issued the carbon dividend/tax credit and implemented the annual $10/ton increase to $30/ton. Trudeau's comment: “Our plan on pricing pollution puts more money upfront into people’s pockets than they would pay with the new price on pollution. We’re going to continue to focus on putting more money in people’s pockets to support them right across the country.” (Citing the response to Ontario's cap and trade and conflating it with the carbon tax policy is not sound. The lessons learned from cap and trade problems are generally not relevant to a discussion of carbon tax policy, e.g., fluctuating prices, regulatory programs undermining cap and trade and resource shuffling, cap forecasting.)
[Related note: Thanks for your assessment of offsets. It would be of high value if you both took on the issue of documenting the fundamental flaws and assessing alternatives to offsets. The big corporates/banks/Big Green are gearing up to push it hard. Trading desks have not had such an opportunity since the 2008 mortgage meltdown.]
The authors describe the Cap and Trade carbon pricing policies (since that is what is out there) and are basically correct about its problems. But a Fee and Dividend (F&D) carbon policy does not have the problems they describe and is specifically designed to get public support (by returning 100% of the fees collected to every legal resident on an equal basis). Yes, we need leadership to get any serious climate policies enacted but F&D is doable and and will help align financial incentives with climate realities. See the paper by James Hansen and me on why F&D is the best carbon pricing policy: https://www.ourenergypolicy.org/resources/why-fee-and-dividend-will-reduce-emissions-faster-than-other-carbon-pricing-policy-options/
F&D always seemed to be more attractive politically than people gave it credit for. Who wouldn't want to get a monthly dividend check? And if you live a low carbon lifestyle, you can come out ahead.
This is essentially the bet the Trudeau government is making. On the economics, they aren't wrong — and it's on all of us who understand this stuff to say as much whenever critics challenge this connection in bad faith. But climate pragmatists must also watch the politics of implementation to test whether this idea works in practice.
I share David's skepticism. I even tried to help make such a proposal happen in California, with a proposal that looked a lot like PM Trudeau's. Unfortunately the environmental NGOs hated it only a little less than the oil industry, so it didn't get any traction and therefore didn't get to a place where we could really test the politics of dividends for real. We did, however, get support from the environmental justice community — a major score for carbon pricing, for those who are watching that debate become more controversial over time.
https://www.vox.com/energy-and-environment/2017/5/3/15512258/california-revolutionize-cap-and-trade
https://repository.uchastings.edu/cgi/viewcontent.cgi?article=1031&context=hastings_environmental_law_journal
i think the F&D approach is one of those ideas that sounds like it should be a slam dunk politically yet, in practice, is very hard to make work. The "fee" part is right--beucase it behaves like a tax, and tax instruments perform MUCH better than C&T because of how they interact with existing regulations. Second, to have much effect on emissions you need high prices--and thus run into all the extra-sensitivity to high nominal prices we talk about in the book and which Kevin Unusual-last-name talks about below. Maybe those high prices are viable in some sectors, but we have run this experiment many times politically and it nearly always fails. Third, the full dividend creates all sorts of political problems. It allocates all the potentially large revenues back to the people, thus eliminating the potential to transform the politics of cliamte change over the long term by investing in new technology. (OUr book has a whole chapter on "how to spend it"). and even seemingly fair equal refunds will have all sorts of regressive problems--opening a can of worms that must be opened regarding allocation rules, which in turn will create a massive political conflict on that topic. i wish the solutions were so elegant since one of my mentors at Stanford, George Shultz, has helped to articulate this idea--a Great American he is--but the politics quickly revert to what we describe in the book.
instead of arguing about the feasibility, Citizens Climate Lobby, with thousands of volunteers in US, Canada, and abroad, has been spending untold precious time and energy talking with legislators, businesses, municipalities, mayors, faith leaders. CCL believes it is politically possible. It looks at climate change as a global issue and works diligently with other countries. Turning anxiety into action seems like a good thing. If you listen to Michael Gerrard, Michael Mann, and others, we need to try all actions possible--market based (carbon fee & dividend) and others.
Read the bill, at least these sections of HR763-2019.
Refunds: HR763 flips current penalties the energy industry pays on its head to become refunds taxpayers pay to corporations! Sec 9906 Carbon Capture And Sequestration, specifically (b) Payments (2) Amount of Refunds. It is the undefined “Secretary“ who determines and grants refunds to corporations based on an undefined formula. Refunds become revenue, which increases corporate profit.
Refunds: HR763 further insulates the energy industry from the carbon fee with another refund; the export carbon fee is refunded, per Sec 9908(e) “the Secretary , in the case of covered fuels produced in the United States…shall be allowed as a credit or refund…to any exporter of such covered fuels….”
Lisa, Please have a look at the independent 2019 assessment of HR763's effects out to 2030 from Columbia University and Rhodium group, cited above. They show with evidence that HR 763 if passed as written would put the economy on track to net zero by 2050. Not what the oil companies want.
Climate Crisis, SierraClub, LCV, 350.org have also thousands of volunteers talking to legislators et al, and there are better bills out there that align with the Green New Deal which values Environmental Justice, which HR763-2019 lacks in spades.
Environmental justice in the proposed CFD is a very high priority.
Where in the bill is it? There is a wide disconnect between what is intended and what is actually in HR763-2019. (If reintroduced in 2021, then the bill number will change.)
read this: https://www.carbontax.org/ensuring-equity/
fee goes back to households, with lower income homes actually coming out ahead.
Read the bill, at least these sections of HR763-2019. Talking-points and articles are not the things on which Congress will vote.
Refunds: HR763 flips current penalties the energy industry pays on its head to become refunds taxpayers pay to corporations! Sec 9906 Carbon Capture And Sequestration, specifically (b) Payments (2) Amount of Refunds. It is the undefined “Secretary“ who determines and grants refunds to corporations based on an undefined formula. Refunds become revenue, which increases corporate profit.
Refunds: HR763 further insulates the energy industry from the carbon fee with another refund; the export carbon fee is refunded, per Sec 9908(e) “the Secretary , in the case of covered fuels produced in the United States…shall be allowed as a credit or refund…to any exporter of such covered fuels….”
A fair reading of the bill doesn't yield the editorial judgments you're making, Lisa. You're bringing more to the language than is there, and making some factual errors.
To get a payment, a company must capture and sequester carbon permanently. The payment comes from the collected fees, not from taxpayers. If the carbon capture facility is operated by an FF co, then the FF co gets a refund of carbon fees it has paid. It doesn't get to double-dip--that is, to get a refund AND a payment.
The Secretary is unnamed because it is understood to be the Sec of the Treasury, since this bill modifies the Federal Tax Code.
Read the bill, at least these sections of HR763-2019.
Refunds: HR763 flips current penalties the energy industry pays on its head to become refunds taxpayers pay to corporations! Sec 9906 Carbon Capture And Sequestration, specifically (b) Payments (2) Amount of Refunds. It is the undefined “Secretary“ who determines and grants refunds to corporations based on an undefined formula. Refunds become revenue, which increases corporate profit.
Refunds: HR763 further insulates the energy industry from the carbon fee with another refund; the export carbon fee is refunded, per Sec 9908(e) “the Secretary , in the case of covered fuels produced in the United States…shall be allowed as a credit or refund…to any exporter of such covered fuels….”
Hello, good people of the mighty Volts community! I'll be dropping in and out over the next few days to answer your questions and receive your pointed criticisms with as much dignity as I can muster in defeat. Who knows, we might even convince my co-author and his lordship of social media obscurity, David Victor, to join us for a spell. He may be physically grounded like the rest of us during the pandemic, but that's not to say he isn't living on European time when not otherwise surfing the San Diego waves. You think I am kidding, but I am not.
Let me add to Danny's hello. while i am not a big social media user (no twitter, no facebook, no instagram, etc--all designed to reduce high frequency noise in my life) i really appreciate the substantive debates Dave is teeing up here. look forward to contributing...
Thanks for jumping in! What are your thoughts on the recent news on the Canadian carbon tax? https://www.cbc.ca/news/politics/carbon-tax-hike-new-climate-plan-1.5837709
I should add, three great voices to follow on this issue are Nic Rivers (U Ottawa), Mark Jaccard (Simon Fraser U), and Andrew Leach (U Calgary). There are many more excellent Canadian researchers and climate policy experts, but if you don't know these three that'd be a good place to start.
It's ambitious! But it's also more a proposal than a plan, let alone a complete implementation plan. That's not meant to be a criticism of the Canadian government's effort or intentions, but rather an important question mark on what comes next. In Canada, provinces implement carbon pricing policies with review from the federal government. Those provinces that don't implement their own policies get a federal program instead. Existing carbon pricing systems will need to rapidly increase ambition to meet these new targets, including Quebec — which is linked to California's system — and recalcitrant provinces will object, forcing the federal government to impose high carbon prices from Ottawa.
There are a few issues to keep an eye on with the Canadian proposal:
1. Will the courts uphold the government's authority to price carbon? A few provinces challenged the federal government's ability to enact this type of program and that case is before Canada's high court now. I'm not a Canadian lawyer so I don't have much to add, other than keep an eye out for how this case comes down.
2. How will trade-exposed industries react? The ambitious carbon pricing trajectory is going to raise trade sensitivities. Right now Canadian industries usually get what's called output-based free allowance allocation, that gives cleaner firms more free allowances than their relatively dirty counterparts. Problem is, will this approach work as prices increase through 2030? The proposal talks about carbon border adjustments as a way to make a playing field, but doesn't offer a lot of detail. There isn't much chance of the US taking a similar approach to carbon pricing and border adjustments with a divided or narrow Democratic majority in the Senate, so it's hard to see where this goes — Canada's biggest trading partner by far is the US, but there isn't much of a chance the US follows suit anytime in the next two years. If Canada moves forward, look for a lot of discussion with the US on trade effects with relatively few tools available to the Biden Administration to move that discussion forward in the near term.
3. Will voters find rebates acceptable in exchange for higher energy prices? Canada is counting on a generous rebating program to deliver the political goods when it comes to visible transportation fuel price impacts. The economics are clear: rebating like this is progressive on net. But will voters care? No one has run an experiment like this before, and at least some early evidence from the Canadian rebating experience to date suggests that rebates don't significantly change voters' concerns. Keep in mind that Ontario's current premier ran his campaign in part in reaction to Ontario's former participation in a $17 carbon pricing program linked with California's. PM Trudeau is betting big.
It's important to add that if Canada pulls this off, it'll be an unambiguously amazing thing. I see some friends on the left sniping about how prices at CAN $170/tCO2 and I just … can't take that seriously. This is the biggest proposal on the table anywhere in the world on carbon pricing. The question is whether Canada can get there, not whether these prices would make a difference.
Thank you so much for this analysis! You have confirmed my feeling that carbon pricing called Cap & Trade (C&T) is complicated and just not working as promised, and also my suspicions of carbon offsets. And I agree, strong sectoral policy is still required.
I’m excited about the new generation of carbon pricing, “CARBON CASH-BACK” (aka Carbon Fee and Dividend). This is the policy the 4000+ economists are supporting which quickly reduces emission! It pays for itself so doesn’t grow government. The fees collected are returned to Americans monthly as cash to spend as we see fit. And, it’s your choice to lower your carbon footprint and come out even more ahead.
As you recommended, we need carbon pricing that can operate more smoothly in the presence of strong regulation. Carbon Cash-back fits that requirement! It complements sectoral regulation. Take gasoline, for example. Carbon pricing does not cause much change to gasoline prices. This is where effective CAFÉ standards are still strongly needed.
Lastly, I think carbon cash-back applied to our borders, (border carbon adjustment), as the EU is considering, will make us a powerful world influence for decarbonizing.
I hope your next research effort will take a look into Carbon Cash-back its SUCCESS in CANADA! I think a bipartisan federal Carbon Cash-back solution is an excellent first step for tackling climate change and something we can put in place quickly as we work to hone the regulations.
Lisa, I would share your indignation if the facts you present were correct. But they're not. Let's take just a couple:
-- You say, HR 763 doesn't cover methane. This is mostly true. But it never purported to. That's a bit like faulting breakfast for not being dinner. HR 763 isn't put forward as a "silver bullet," which is a common straw-man attack on it. By design, HR 763 doesn't apply to upstream wellhead or mine mouth leaks at all, because it's implementation depends on existing metering to calculate the carbon content, for simplicity. It would cover methane leaks downstream of the point of measurement, although it treats them as if the methane were combusted, so doesn't account for the difference in GWP. Methane leakage, upstream and downstream, is for other legislation to address.
-- You say, The fee is assessed at the point of use. That's mistaken. One of HR 763's great strengths is that is avoids that point-of-use problem seen in cap-and-trade which, I agree, lets the FF cos skate, and puts the burden almost entirely on the mid-market (e.g., utilities) and on consumers, to find alternatives to FFs. Under HR 763, the fee is applied in the field at the coal consolidation yard or the processing plant/refinery, where the energy content of the fuels (and by implication their carbon content) are measured as a matter of normal commerce. That isn't the point of use--that's the point where the wholesale product enters the system for delivery to retail distributors. The FF cos pay the fee. This is explicit in the bill. If HR 763 had been in place, Exxon's payment to the Treasury (to be returned back to taxpayers in equal shares) in 2019 would have been $5.4 billion, which was 27% of their 2019 profit.
For more, see: https://marinccl.files.wordpress.com/2020/10/what-if-fossil-fuel-companies-paid-us-to-stop-using-their-products-1.pdf (Note that this link is my opinion, not an official position of CCL.)
Jim Hansen in the 1980's envisioned a carbon TAX that was assessed "at the point of origin," which he further described as "mine" and "well-head." HR763-2019 clearly changes a tax to a fee, thereby requiring a dividend to partially offset which must then be claimed as income, which either further dilutes the dividend and can in some income brackets jump a household into higher taxable assessment.
Moreover, HR763-2019 clearly specifies that the fee is assessed at "emitting use." Emiiting use means every business, every household, every consumer downstream of the point of origin (extractors) and refineries.
The first mention of "emitting use" in Section 9902 applies to any combustion engaged in by "covered entities." A "covered entity" is, "in the case of crude oil, a refinery operating in the United States, and any importer of any petroleum or petroleum product into the United States; in the case of coal, any coal mining operation in the United States, and any importer of coal into the United States; in the case of natural gas, any entity entering pipeline quality natural gas into the natural gas transmission system, and any importer of natural gas into the United States." These are the FF cos themselves.
They burn a lot of oil and NG to refine oil, for example. So the first mention of "emitting use" in Section 9902 actually covers a potential loophole the FF cos might otherwise wriggle through. It doesn't apply to downstream businesses, because they aren't "covered entities."
Similarly, the requirement to pay the fee applies exclusively to "covered entities," not to downstream businesses, which are excluded from that definition.
Sec 9902 further states that the carbon fee applies to the SALE or TRANSFER "for an emitting use, of any covered fuel"-- meaning that the tax is paid by the FF companies if *anyone else* is going to burn it after the sale or transfer. It doesn't mean that the downstream customers, who aren't covered entities, pay the fee directly. It will have already been paid by the FF cos. It's not a point-of-use surtax. It is a point-of-production fee.
Why "fee" and not "tax"? Because the government doesn't keep the money, but rebates it to all of us via the dividend. And the dividend isn't "required" to turn the "tax" into a "fee." That phrasing makes it sound deceptive. It's not. The dividend is an up-front, straightforward, integral design feature to keep the fee from being regressive to middle and lower income people, to the extent the FF cos pass the fee's costs on.
Prof. Hansen supports HR 763. It works exactly as he prescribed. Read this, especially the last three paragraphs. http://www.columbia.edu/~jeh1/mailings/2017/20170208_FeeAndDividend.pdf . If you're still not convinced, write to him and ask him yourself. jeh1@columbia.edu
Re: sale or transfer
The fee FF are assess upon sale or transfer for export is a refunded, as prescribed in this bill. This is an incentive to FF to export which replaces any incentive to transition to green renewables. Also, as climate change is a global problem exporting for use on another continent does not reduce carbon emissions.
The export refund provision is part of the “border carbon adjustment” mechanism. It's not an incentive to produce FFs, but a design feature to fulfill the bill's intent to protect US international trade from being economically disadvantaged by countries that don't have an equivalent carbon price. It certainly won’t drive more demand for FFs anywhere in the world.
The BCA applies to all "carbon-intensive products manufactured or produced in the United States," not just FFs. Without this provision, US exporters would pay the domestic carbon fee but have to compete with other countries that have a lower carbon fee (or no fee), costing US jobs and harming the US economy. It could even incentivize US business to relocate to a no-fee country, a phenomenon known as “leakage.”
The export refund is the mirror image of the bill’s requirement that importers of carbon-intensive goods pay the US’s domestic carbon fee, to the extent their country’s carbon price is less than ours.
What’s the practical effect of this? If a US company exports say, LNG, to a country that charges a carbon fee, then the US LNG exporter would get a refund, so it wouldn’t be paying two carbon fees, but just the lower of the two. Status quo of international trade competitiveness is maintained—but the cost of all affected FFs would be higher than now, driving end-use down, everywhere, because all FFs would have paid a fee.
If the US LNG exporter wanted to send its LNG to a country that doesn’t have a carbon fee, it would get a full refund. Sounds bad at first. But which countries wouldn’t have a fee? Mostly fossil fuel exporters. So, a US FF co sending FFs to a no-fee, FF exporting country would literally be sending coals to Newcastle (or LNG to Algeria). Presumably, the US would develop regulations to prevent “wash sales” to such countries that were designed to evade the fee.
Developing countries may not have a carbon fee. If those developing countries are exporters, then their exports to the US (our imports) will be more expensive here, because the fee will be imposed here, and the US will get the fee revenue. So exporting developing countries will be motivated to institute their own carbon fee, so they get the revenue instead. If a no-fee country isn't an exporter, then it's likely a very small energy user, with low incomes, so not impactful to climate change, relative to larger, wealthier countries.
The BCA is the stickiest part of the bill, IMO. Implementation design (regulations) will be key to enact the intent of the bill, which is to drive down CO2 emissions without harming the US economy due to unfair international competition.
Although CCL intends that "border carbon adjustment mechanism" not to be an incentive to continue to extract and refine fossil fuel, it is. There are many points of disconnection between CCL talking-points and what HR763-2019 actually delivers.
Stripping the EPA of the Clean Air Act for a minimum of 10y is doozy (HR763 reduces the EPA.s ability to defend quality for Americans to merely reporting data--no more penalties for breeching carbon emissions.)
Let's not overstate the EPA pause. It's not "stripping," as I'll explain below, and it's precisely 10 years.
A last word on the BCA. As I noted, keeping things neutral won't increase consumer demand, so there'll be no new markets driven by the border adjustment. As the BCA inspires other countries to institute carbon pricing, oil and gas demand will go down, just as it will in the US, because businesses will squeeze carbon out of their supply chains and processes, and consumers will buy lower-price low-carbon goods and services. Why are they lower-priced? Because they're lower in carbon, so the sellers don't have to recover a carbon cost.
The regulatory pause would affect very little, as a practical matter. Today, the EPA has no power to apply penalties for breeching carbon emission limits, for the raw fact that there are no EPA-mandated limits to be breeched. The only authority the EPA has is non-legislative. It comes from a 2007 Supreme Court decision that CO2, even though it is not enumerated in EPA's regulations as a pollutant, is nonetheless subject to EPA regulation if EPA finds it affects the environment.
The EPA's attempt to set CO2 limits based on this judicial interpretation, the Clean Power Plan, was set aside by the Trump administration as an early order of business in 2016. It is also under challenge in 26 states, and at the Supreme Court, which is now solidly conservative. These cases will not be resolved for years, even if the Biden Administration reinstates the CPP. So it won't be effective for at least half of those 10 years in the best case. And the Trump-dominated Supreme Court could kill it anyway.
Compared to the effectiveness of CFD, the CPP weak--only projected to reduce overall GHG output in the US by four percent, compared to 40% for the fee, assuming it was, in fact in effect for 10 years.
Also, the EPA can still regulate anything else, even if it has the side effect of reducing GHGs. Fuel standards are an example. They could also increase the standards for any enumerated pollutant, like SOx or NOx, which, for power plants, would likely reduce their operation and so their CO2 output. Plus, any state can regulate GHGs, as CA and the RGGI states do now.
So, all in all, it's not much of a give-up to get a few Republicans on board. That said, it didn't succeed in attracting a single Republican co-sponsor beyond the original one for the 2019 version. We'll have to see if it shows up in the 2020 version. If the bill's sponsors can trade it for a guarantee of Republican co-sponsors in both houses, it's worth it, IMO.
But there's more than one way to do this. If Republican support (just need a few) can be gotten without the pause, I'm sure everyone on the left side of the aisle (including me) would be all for it. This is the sausage-making compromise process that goes on over the heads of citizens like you and me.
BTW, I speak for myself in all these comments, not for CCL.
This is good feedback. I am wary of assuming who and who is not seen as emitting use, because a crucial section of any bill, Definitions, seems incomplete. An incomplete Definitions section results in disputes going to court where the party with the most funds tends to win.
Methane is a more potent destroyer of the ozone than is other carbon, molecule for moleule. Carbon is downtrending with coal. Methiane is increasting with the production of fracked gas. A bill that doesn't address GHG in totality, isn't a serious bill to address climate change. A cleaner way to price fossil fuels would be to eliminate the subsidies for them. It has the same market effect for consumers and businesses downstream of extractors and refineries, without increasing profits to the extractors, refiners, and exporters of fossil fuels.
There is more taxpayer money going to the fossil fuel industry than there is going to our military budget! (https://www.rollingstone.com/politics/politics-news/fossil-fuel-subsidies-pentagon-spending-imf-report-833035/)
We agree on ending subsidies for the FF cos. The biggest one of all is the right to pollute for free.
It's not an either-or choice. FF subsidies of all kinds, direct and indirect, should be ended ASAP, and a socially just carbon price put in place, also ASAP. Plus other stuff needs to be done, like stronger methane regulation, among others, as you've suggested. These policies are mutually supportive.
If fracking companies see that the cost of their product is going to rise steeply for structural reasons (e.g., an annually increasing fee), then they would stop investing in new wells and pipelines pretty much immediately. Businesses of all sorts would innovate like crazy to squeeze carbon costs out of their supply chains, putting further pressure on the FF cos. The FF fee would also make renewables spectacularly more economic. It would be the inverse of what is happening to coal, economically.
How would the FF cos know that the increasing fee wouldn't be rescinded by a future administration? Because the monthly dividend to taxpayers would be financially net positive for virtually everyone making less than the median income. It would be like getting a Social Security payment (although a lot smaller at first), and so would be politically durable like Soc Sec is.
Thank you for the analysis. One question: Europe is considering imposing carbon tax on imports. Of course, still a long shot, but if successful, don't you think it could force the issue, similar to the potential impact of the just revealed Digital Market Act
I think this is a lot harder than many appreciate. Border adjustments are really hard to pull off, both technically and politically — especially because most of the real work in climate policy is coming through regulation, industrial policy, and, in emerging economies, often through direct state support in industry and finance.
Here's a great paper from Stefan Pauer on the problem: https://institute.smartprosperity.ca/library/research/border-carbon-adjustments-support-domestic-climate-policies-explaining-gap-between
What is happening in the EU is that policymakers know they need better answers for trade impacts than current free allocation approaches provide, especially as the EU ETS — the most successful carbon pricing program — pushes for higher carbon prices. Border adjustments offer that promise. Problem is, not many people have carbon pricing systems, and those that do aren't exactly chomping at the bit for border adjustments — in part because subnational programs, like California's, face legal and institutional barriers that nation-states do not.
The claim that a border carbon adjustment from the EU will induce another country to adopt a carbon pricing program from scratch isn't as strong as it might seem. Major players, like China and India, are not inclined to like this approach and even if the US wanted to follow suit, the prospect of legislation advancing in the next two years is extremely slim — no matter who takes the Senate after the special elections in Georgia. The EU and Canada are perhaps most aligned on this issue right now, but Canada's biggest trading partner is the US, not the EU, so the politics of what are feasible in Canada are more likely to be affected by the US-Canada relationship than whatever possibility Canadian-EU relations hold at this time. That's not to say the EU won't make important progress here — frankly, they need to in order to rely more on the carbon price from the EU ETS — but I expect the EU will find it'll be an uphill battle with respect to the reception it receives from its trading partners.
We talk a lot in the book about how policy diffusion is best done through demonstration of working policy models, rather than using market links and trade measures to encourage adoption of identical instruments. It's just so hard to get the politics and institutions right in response to something like a shift in trade policy.
nice information post
Any idea why their book is $52 for the Kindle version. That's insane.
This is great, but I've always thought that the ability to (theoretically) pass a carbon tax through the Senate in a budget bill--thus avoiding the filibuster--is way more important than the aspects discussed here. The filibuster is and always will be the biggest hurdle to passing any kind of comprehensive climate legislation and I don't see a pro-climate 60 vote majority happening anytime soon.
Even if both Georgia Senate seats have D wins, you still have Joe Manchin, and possibly other D's who would be reluctant to pass carbon pricing.
The universe of people who realize something has to be done is growing. Yale survey say 68% of Americans support a carbon tax. A number that high obviously includes some Republicans. https://climatecommunication.yale.edu/visualizations-data/ycom-us/
So the Manchins and other legislators from FF states are going to have to do something, or risk losing votes, especially among younger voters, even Republican ones.
So you think congress will pass a carbon tax? In the next two year? I really hope you're correct, that would be awesome. But I'll bet you a beer they do not.
I do not think Manchin fears carbon voters. Look at WV polling in your Yale data.
I hope so. I'm not saying it won't be hard. But it's something that can be focused on, unlike a slew of regs. Also, if you're focusing on one state, that seems self-fulfilling in terms of potential defeat. Whether a socially just carbon price can be instituted soon is a matter of building a coalition that sees it as the best alternative. It's a no-regrets first step that can be effective right away, instead of taking another 5-10 years to put in place hundreds if not thousands of laws and regs that would be needed to achieve equivalent effectiveness. We don't have 5-10 years to get something immediately effective into place.
“There are two reasons. One is that the politics in each sector are different. In the transportation sector, for example, voters are super-sensitive to anything that visibly raises the cost of transportation fuels. Policies in that sector that have a visible impact on cost are politically toxic.”
Yes, but you’re assuming that the politics are an intrinsic property of the issue like the number of gallons of gasoline refined from a barrel of oil. In similar situations in the past, i.e. the oft cited CFC allowance system, one major party was not reflexively trying to hold the country back on almost every issue. Now it appears that that party’s political power might be waning as it cleaves itself into merely contrarian and animated crackpot wings, leaving the political center in charge. Politics can change. (And once insurance companies start refusing to insure expensive Miami real estate, the pressure to change will only increase). The key to political acceptance is to tell people what’s in it for them. Cue the Green New Deal.
As for transportation specifically, the size of price increases due to, for example, the Transportation Climate Initiative, will be unnoticeable and in the noise of normal fluctuations.
“Any effort to increase the ambition of the overall system means that your opponents can run attack ads saying you’re trying to raise the price of gasoline, which is one of the things politicians hate to be seen doing the most. Everyone can fight you.”
As the number of EV’s increase and more and more people “cut the nozzle”, this will become less of an issue. We’ve been driving EV’s since 2012, so the price of gasoline doesn’t really interest me. It’s like the price of cigarettes for a non-smoker.
Agreed, the politics very much are dynamic — and so the answers to a given problem will change with conditions. Our model is meant to capture this dynamism and provide a structure for thinking about when we might expect different outcomes.
If you think that opponents of the Transportation Climate Initiative aren't going to run an attack ad that says "they are going to raise your gasoline prices," boy, do I have some news for you. Saying "oh but you won't notice this" is not a winning response.
One important issue to flag is that so long as carbon prices are low, so too are revenues and GHG emission cuts. Making the TCI a low-price system, like RGGI or California's program, means it'd mostly work around the margins on emissions. That's helpful, but not transformative. So if the path to making TCI work relies on EVs taking off first, just remember that all TCI would do in that case is help accelerate the transition a little faster. More, please! But I want something that brings me the EVs in the first place. Hence the core argument in our book.
F&D is a shill game. https://patrell-lisa.medium.com/hr763-energy-innovation-is-wolf-in-sheeps-rags-what-corporate-lobbyists-have-done-to-a-formerly-df1be6103e46
I expect further conversation and the underlying work address some of this, but: coordination of effort across multiple sectors is important and hard. Not just ‘to reduce costs’ (though efficiency matters!) but to manage perverse consequences of unaligned policies. Like policies to support energy storage can easily extend the life / output of less flexible fossil generation. I accept that truly economy-wide pricing is dead or at least far far off, but the problem still needs solutions.
Also: De-linking policies doesn’t really allow ‘taking on one sector at a time’. All the opportunities across all the sectors still need policies! But now they’re more technical policies, more subject to specific expertise, intense sectoral interest and diffuse public benefit.
One part of the political logic of carbon pricing that I’ve never seen articulated is that policy makers don’t need to take responsibility for specific negative outcomes - “my local power plant closed” eg - in the way that they would if they regulated the outcome. We’re used to accepting stuff that is driven by ‘the market’, even though big underlying policy choices are important. Most carbon pricing schemes haven’t got to the point of maturity where such outcomes have the sense of natural inevitability, however.
This is definitely a big problem. Our main argument is that economy-wide pricing, which solves this problem in theory, doesn't work in practice. That means someone else or something else has to do the coordination instead.
One of the big challenges lies in how one defines a sector. We see this with the integration of light-duty EVs and electricity. But it's even more complicated if you think hydrogen or other chemical fuels carriers are needed in industry.
The problem of coordination is severe. Pretending markets solve it isn't the right answer. We call in the book for a more clear-eyed assessment of what's working and what isn't. That's a start, but not the full story. What do you think?
1. Is the Cullenward & Victor argument specific to US politics? If not, what are their thoughts on the recent news on the Canadian carbon tax? https://www.cbc.ca/news/politics/carbon-tax-hike-new-climate-plan-1.5837709
2. If carbon pricing is politically untenable, where's the best place a Joe-Schmo climate activist like me, living in a red district in a red state, can spend his time and energy?
on your first point, our argument is designed to be global--it is about the structure of political forces and how the choice of policy instruments affects those structures. We have a lot of stuff in the book about Europe, in particualr, where strong adminsitrative state and tightly integrated political systems make cross border emission trading (the ETS) feasible in ways that are unique to Europe. Also, in effect, with the reserve mechanisms and other policy reforms the ETS is being converted into something more tax-like, which we welcome.
By test driving some non-Tesla EV's and working to explain to your fellow red-state citizens that they increase US energy security by reducing foreign oil imports and they save money by having very little maintenance, never mentioning climate change. Even red-staters should love EV's.
Great arguments around the politics of carbon pricing - we put together similar arguments in a recent paper, questioning i) problem framing (market vs. system problem), ii) policy priority (efficiency vs. effectiveness, iii) innovation orientation (optimization vs. radical change), iv) context (universal vs. sector specific approach) and v) politics. Transformation oriented climate policy mixes - we call it transition policy - could be an alternative.
https://www.pnas.org/content/117/16/8664
This is a great paper! We cite it in the book.