May 15, 2014 | Vol. 118 -- No. 4
Washington Gov. Jay Inslee recently signed an executive order creating a task force to design a “carbon emission limits and market mechanisms program” that establishes a cap on emissions, and includes “measures to help offset any cost impacts to consumers and workers, protect low-income households and assist energy intensive, trade-exposed businesses in their transition from carbon-based fuels.” Inslee’s “emissions limits and markets” program is, like a rose by any other name, a cap and trade program.
The Western Climate Initiative, of which Washington is a member, has established a regional target for reducing heat-trapping emissions of 15 percent below 2005 levels by 2020. WCI’s main focus is developing a regional cap-and-trade program, so Inslee’s executive order is congruent with this goal and focus. Inslee is doing all he can at the state level. Unfortunately, cap and trade won’t do enough to reduce emissions. It’s a little like dusting your house with a feather duster. It just moves the dust from one place to another.
The best way to reduce greenhouse gas emissions is to price carbon-based products, like coal, such that the price reflects the damage those products cause to the environment and, in turn, our quality of life (the so-called "Social Cost of Carbon"). To do this we must put a surcharge, or fee on carbon to be assessed at its source. This fee must be imposed at the national level in order to avoid a patchwork of policies that confuses markets and pits one state against another.
The fee on carbon would start low and increase annually in a predictable manner until emissions goals were reached. Now, there’s no getting around semantics on this —conservatives will call the fee a “tax” and will oppose it on principle, shouting slogans about, “tax and spend liberals!” But here’s the kicker; 100 percent of revenues collected from the carbon fee world be returned to households as a monthly dividend. This is what’s termed a “revenue-neutral carbon tax,” or in economic terms, a Pigouvian Tax, and it is considered by most economists to be the most effective way of reducing emissions, while minimizing the impact on the economy.
Under cap and trade, bankers and market traders get rich, and administrators go nuts. A carbon fee and dividend system is far more effective in reducing emissions, and it is immensely simpler to administer. And because the fee (and in turn, the price of fossil fuel) goes up predictably over time, it sends a clear price signal to industry. That predictability allows intelligent investments in low/no emissions technologies. Carbon fee and dividend proponents, such as the Citizens’ Climate Lobby, also propose placing a border adjustment levy on all imports from countries that do not price carbon similarly, leveling the playing field for U.S. companies.
For consumers, the rising cost of fossil fuels increases the demand for low/no emissions products, making them even less expensive as they reach mass production. Research and development of emissions mitigation technologies, and production of clean energy alternatives also creates jobs, and drives our nation’s economy into a clean energy future — a future in which we have stabilized our climate and ensured a livable planet for our children, and their children after them.