Some time ago, my mother and I were talking about whether to get behind a certain environmental organization, and she said “they seem to be heavily committed to carbons fees and I don’t know very much about that.”
I decided I needed a refresher on the concept, too, so here are the results of my inquiries.
Carbon fees are one version of a whole family of ideas called carbon pricing, which is itself part of a much larger effort to make the environment economically visible.
It’s important to understand here that “the economy” as described by traditional economics, is really just a model for how energy, material goods, and value move through society. It isn’t the only possible model, and it isn’t even a very good model because it leaves a lot of important things out.
Remember Ralph Nader? I saw him speak once and he had a great line; “privatizing the profits and publicizing the costs.” He wasn’t talking about climate change specifically but about pollution in general—how when a company creates pollution in the course of doing business, we consider that the money the raise belongs to them but the pollution—and its associated costs–doesn’t. This little economic slight-of-hand happens because our economic model ignores the existence of that which cannot be bought and sold. Natural resources that have not yet been extracted, natural processes, “the environment” generally, is thus invisible to economics, even though these are the ultimate source of all wealth. And, in the eyes of many, the priceless is simply valueless.
Hence the push to put a price on the priceless.
Carbon pricing aims to create a situation where everyone, from consumers to corporations to nations, will actively pursue climate sanity because it is the economically sensible thing to do. There are two main versions.
Carbon fees, or carbon taxes, put a price on carbon emissions. The idea is that since we have to pay money in order to emit, we’ll figure out how not to emit so we can save money. There are different types of carbon fee systems that vary in terms of who pays the fee, where the money goes, and how the price changes over time.
One version, carbon-fee-and-dividend, assesses the fee at the point where the fossil fuel enters the economy—at the mine, well, or port—and then distributes the fee to the public. Under this system, energy companies that use fossil fuel will pass the cost of the fees on to consumers, but since consumers will be receiving dividend payments, the increased costs won’t matter. Functionally, the cost of fossil fuel use will remain the same. But since alternative energy providers will not be paying the fee, their services will be effectively cheaper, giving them an advantage in the market place.
There are a couple of obvious potential pitfalls.
I do not know whether the system includes greenhouse gas emitters other than energy companies—cement is a huge source of greenhouse gas, as is refrigeration, agriculture, and, to a lesser extent, other industries. Agriculture particularly would be very difficult to assess fees for. Also, the system does not directly mandate emissions reductions, so it’s hard to say how far the economic nudge would really go.
But carbon-fee-and-dividend is simple to implement, can use the established tax system instead of requiring a new infrastructure, and has been used to good effect in Sweden already.
Cap-and-trade, or ETS, is the other main carbon pricing tool. Here, there is a legally enforceable cap on how much participants can emit—structured as a limited number of permits per participant. Those who need more than that number can buy them from those who use less than that number of permits.
Versions of cap-and-trade vary in how the permits are given out, who is participating, what the cap is, and how the cap changes over time. The system has the advantage of providing extra funding to those who reduce their emissions, and cap-and-trade has been used to good effect, both to fight climate change and to fight acid rain. The system can be difficult to set up and monitor, though.
Both types of carbon pricing can even be used together.
But if carbon pricing is such a good idea, why isn’t it being used on a national or international scale to fight climate change?
I got online and searched for “why is a carbon tax bad” and “why is cap-and-trade bad.” And, wouldn’t you know it, most of the hits on the first page were from energy companies or the Heartland Institute, which is funded largely by energy companies. The bulk of the remainder were from newspapers apparently reporting on the controversy. One pro-climate article explained that carbon pricing alone wouldn’t solve the problem, but the author did not object to carbon pricing being one of the options tried. Another pro-climate article ended up being a formal refutation of criticism of carbon feeds—in order words, actually pro-carbon pricing.
No major, credible environmental organization seems to have come out against carbon pricing—and some have come out very much for it. If you have vague, negative associations with carbon pricing, chances seem good that you have been exposed to propaganda paid for by the fossil fuel industry.
The fact of the matter is any effective form of climate action, including, quite definitely, carbon pricing (either form) is going to require that fossil fuel companies eventually find a different line of work or go out of business.
They don’t want to do that.
But the important thing to understand is that carbon pricing does not create a cost that doesn’t otherwise exist. Instead, these schemes make existing costs visible to the economy so we can think clearly about who should bear the costs and how. The other important thing to think about is that maintaining the economic status quo is not an option. Climate change itself will eventually dramatically alter our way of life if we don’t alter ourselves first. The wealthy will likely continue to be able to insulate themselves from those changes for a long time, while the poor and disenfranchised have begun bearing the costs of climate destabilization already.
In other words, somebody is going to pay either way.