Carbon Pricing

So what exactly is this carbon pricing thing? So many considerations to take in, why this? Carbon pricing is the process of ascertaining the cost of carbon pollution created by businesses and countries. This cost is effectively charged to entities responsible for enhancing global-warming emissions ("What is Carbon Pricing?"). If you emit carbon dioxide (CO2), you are charged a price for that emission. Matthew Carr, writing for Bloomberg Quick Take wrote, “when factories belch smoke, everybody pays. Shouldn’t polluters feel the sting”? (Carr) Perhaps a bit more visually graphic than you would prefer, but the perfect way to conceptualize the problem. We are all familiar with reports of vicious storms, severe drought, heat waves and polar melting. When carbon pricing is not in effect, as was the case a few decades ago, society had to bear the cost for the damage that polluting carbon emissions created in the environment ("What is Carbon Pricing?"). Economic damages paid by communities, such as costs paid by the public to address the consequences of a polluter’s actions. For example, healthcare cost incurred due to harm caused to individuals, or incurred as a result of heat waves and droughts, or damage to crops, or the cost of property destruction as a result of floods and sea level changes. The objective of carbon pricing is for the responsible party to incorporate the price of its polluting ways into the cost of doing business. In many instances this will encourage the “evil doer” to try to find new strategies to address this added cost, or simply pay for it ("What is Carbon Pricing?"). The brilliant concept can be thought of in this way. If a ship builder needs to buy steel from a supplier, and two suppliers offer the exact same steel, but at two different rates, one at $5,000 a ton, and the other at $10,000 a ton, and the second purveyor provides no additional services to make the extra $5000 cost worthwhile, the shipping company will choose the vendor that sells steel at $5,000 a ton. 

It is the same with carbon. If a company has to pay $5,000 per ton of polluted gas emissions created by its company and there is a solution to the gas emissions problem that would totally eliminate the problem, and the technology only cost a one-time fee of $1,000, any company would choose the one-time fee of $1,000 to eliminate paying the perennial fee of $5,000 per ton. It is simply good business sense. 

In this way, a company can decide to attempt to address its gas emission, reduce costs, and overall be a more profitable and civic minded enterprise, or it can choose to do less about it, or nothing at all, but is faced with having to pay the carbon pricing rates per one tonne of CO2 emitted into the atmosphere ("What is Carbon Pricing?"). The additional positive that arises from this strategy is that it is essentially self-regulatory. You address the global problem, or you do not. The decision rests with the company board of directors and chief executives. The carbon pricing blueprint is efficient and offers the least costly way of addressing the overall global-warming issue. In addition, the approach encourages progressive companies to develop new technologies and fosters creativity and innovation for developing low-carbon emission solutions ("What is Carbon Pricing?"). 

Types of Carbon Pricing Schemes

There are several carbon pricing schemes, each has its benefits and detractions ("What is Carbon Pricing?"). The main methods are carbon taxes, cap and trade, hybrid strategies, and revenue policies. Carbon taxes are specific rates that are established for the carbon content of fossil fuels or greenhouse gas emissions (Quince and Phillips). The benefit of a carbon tax is that the cost is a predictable amount. Cap and trade is a supply and demand methodology of gas emission allocation that creates a market price for greenhouse gas that is emitted. A regulatory entity will set the total allowable amount of emissions, called the cap, then it creates permits for the same number. Industries that have low emissions levels are able to sell their extra allowances or permits to larger emitters. The permits are effectively distributed or auctioned to the highest bidder. By implementing the cap, it makes certain that the needed emission reductions will occur by keeping the polluters within their pre-determined carbon budget cap.

Hybrid strategies include some form of cap and trade designed with “valves” that effectively emulate tax schemes ("Hybrid Carbon Pricing”). Revenue policies ensure that monies received from carbon pricing schemes are not given back to the original polluters in any way ("Carbon Pricing Revenues."). The goal is often to apply the money to research, provide for those who are vulnerable, swap with and reduce other taxes, give-backs to the citizenry, increase emissions reductions, or give revenues to those specifically affected by climate change.

The determination of which scheme to choose depends on a number of circumstances including political, economic, and national agendas ("What is Carbon Pricing?"). In addition to the carbon tax, cap and trade, and other variations, carbon can be priced in a more indirect manner. The indirect approach includes taxing fuel, the expulsion of subsidies for fossil fuel, and a regulatory scheme that includes the social cost of carbon (SCC). Emissions pricing can also take place through premiums paid for emission reduction. Organizations and governments could buy emission reductions to offset their own greenhouse emissions.

To date, approximately 40 nations, numerous provinces and states and over 20 cities operate carbon pricing models, while fully intending to continue their progress over time. Calculating all the carbon pricing programs currently in operation, half of the total emission are being met. This quantity represents close to thirteen percent of yearly, worldwide carbon emissions. 

Carbon Pricing Internationally

Carbon pricing is growing internationally (McKibbin, Morris and Wilcoxen). More and more countries are adopting a carbon tax, including Finland, Sweden, Norway, Denmark, France, Ireland, Japan, India, South Korea, the UK, the Netherlands, Switzerland and Costa Rica. Canada had implemented some carbon pricing schemes and will likely delve further in the coming months and years. China, the number one producer of gas emissions, is examining the cap and trade method and is contemplating instituting a country wide trading system to take place in 2017. The European Union has established a formidable emissions trading system, also (McKibbin, Morris and Wilcoxen). 

Carbon Pricing in the U. S. 

Carbon price legislation in the United States has been unsuccessful ("U.S. Carbon Price 2015"). Though a number of states and various regions have implemented carbon pricing, without leadership or inspiration from the federal level. In fact, the Massachusetts Institute of Technology (MIT) instituted a contest through its Climate CoLab, in an effort to gather carbon pricing ideas from the top minds in the industry and academia. California, a first responder in the carbon pricing arena, has created an emissions ceiling, allowing industry polluters, such as utilities, distributors of fuels and manufacturers, to create a market place for permits where they buy and sell the permits that give them permission to make gas emissions ("Proof That a Price on Carbon Works"). In time, permits decrease in number and as a function of the marketplace, become increasingly more expensive.

The Obama White House

Despite the legislative lethargy of Congress, the White House has repeatedly beat the drum on reducing carbon pollution in America, and has been leading the way to creating a clean energy economy ("Cutting Carbon Pollution”). The United States is on a mission to deal directly with the perils of climate change. Carbon pollution reduction efforts have been in place in a number of areas and since 2005, America has exceeded the efforts of minimizing carbon pollution more than any other country worldwide. The President has taken steps to establish carbon pollution requirements for power plants, sponsor clean energy and ensure energy efficiencies. 

The biggest offender in the area of carbon emissions in America are the power plants. Collectively, power plants represent 1/3 of the total amount of national greenhouse gas emissions ("Cutting Carbon Pollution”). Restrictions have already been imposed for lead, mercury and arsenic, and numerous entities have made inroads to finding clean electricity resources. Yet no federal regulatory scheme exists to proscribe power plants from emitting carbon pollution at their discretion. Steps have been taken by the Environmental Protection Agency (EPA) to create carbon pollution norms that recently built power plants and those that have been in existence must adhere to. The year 2013 saw the establishment of requirements for new entries to the power plant industry ("Cutting Carbon Pollution”). EPA also sought collaboration from stakeholders from wide ranging perspectives to aid in the creation of blueprints for plants currently in existence. The year 2014 was no different. The EPA, clearly on a mission, announced the Clean Power Plan, establishing carbon pollution measures for power plants in existence that will protect our children’s health. In addition, the plan will set the country on the road to achieving a 30 percent reduction of gas emissions by 2030. The Clean Power Plan will ensure both environmental and health benefits valued in the range of $55 to $93 billion annually in 2030, while the class of pollution that creates soot and smog will be reduced by more than twenty five percent ("Cutting Carbon Pollution”).  

The Idea of Proxy Carbon Pricing

In a seminal document written by Alison Cassady and Gwynne Taraska, Proxy Carbon Pricing: A Tool for Fiscally Rational and Climate-Compatible Governance, the authors discuss the idea of a proxy carbon pricing program. As state and federal governmental agencies prepare for a low-carbon, clean energy future, employing the use of a proxy carbon pricing structure now, would help agencies and the corporate sector analyze the viability of long term investments (Cassady and Taraska). The proxy carbon price would be a tool to aid proper analysis of whether a potential project or program would be an economically sound choice, or a low-carbon nightmare. The cost of climate change must be factored into the cost of future projects, and the proxy carbon pricing structure offers a way to assist, what is inevitably going to be an absolute requirement in the future (Cassady and Taraska). Officials making plans for a proposed project would use the proxy carbon pricing to determine if the project would be a financially responsible one, and the determination would be more accurate because the price of fossil fuels would already incorporate the expenditures for climate change.

The idea of implementing a proxy carbon pricing structure is a smart one. It allows governments and businesses to more accurately make plans for the future, but what would really have a significant impact, would be if Congress stopped yammering, hemming and hawing, and take responsibility for creating legislation that would have a major impact on the entire globe, and leave the world a better place for our children. We owe them at least that much.

Works Cited

"Carbon Pricing Revenues." Climate Markets and Investment Association. CMIA.net. 28 October 2105. Web. 17 June 2016. <http://www.cmia.net/cmia-in-the-news/193-cmia-carbon-pricing-revenues-151028-1/file>.

Carr, Matthew. "The Cost of Carbon." BloombergQuickTake. Bloomberg, LP. n. d. Web. 17 June 2016. <http://www.bloomberg.com/quicktake/carbon-markets-2-0>.

Cassady, Alison and Taraska, Gwynne. "Proxy Carbon Pricing: A Tool for Fiscally Rational and Climate-Compatible Governance." Center for American Progress. American Progress.org. April 2016. Web. 17 June 2016. <https://cdn.americanprogress.org/wp-content/uploads/2016/04/13143140/CarbonPricing.pdf>.

"Cutting Carbon Pollution in America." White House. White House.gov. n. d. Web. 17 June 2016. <https://www.whitehouse.gov/energy/climate-change>.

"Hybrid Carbon Pricing." Sustainable Prosperity.  2009. Web. 17 June 2016. <http://www.sustainableprosperity.ca/sites/default/files/publications/files/Hybrid%20Carbon%20Pricing.pdf>.

McKibbin, Warwick J., Morris, Adele C. and Wilcoxen, Peter J. "Pricing Carbon." Brookings Institution. n. d. Web. 17 June 2016. <http://www.brookings.edu/~/media/Research/Files/Reports/2015/11/16-paris-climate-talks/pricing-carbon-mckibbin-morris-wilcoxen.pdf?la=en>.

"Proof That a Price on Carbon Works." The New York Times. The New York Times Company. 19 January 2016. Web. 17 June 2016. <http://www.nytimes.com/2016/01/19/opinion/proof-that-a-price-on-carbon-works.html?_r=0>.

Quince, Annabelle and Phillips, Keri. "A global history of emissions reduction schemes." RN ABC. 30 June 2015. Web. 17 June 2016. <http://www.abc.net.au/radionational/programs/rearvision/a-global-history-of-carbon-reduction-schemes/6583580>.

"U.S. Carbon Price 2015." Climate CoLab. MIT Center for Collective Intelligence Climate CoLab. n. d. Web. 17 June 2016. <http://climatecolab.org/plans/-/plans/contests/2015/us-carbon-price>.

"What is Carbon Pricing?" Carbon Pricing Leadership. n. d. Web. 17 June 2016. <http://www.carbonpricingleadership.org/what/>.