By Lucy Alexander
On Wednesday, June 10th, US Senators Sheldon Whitehouse (D-RI) and Brian Schatz (D-HI) spoke in front of the American Enterprise Institute on their proposed legislation for an economy wide revenue neutral fee on carbon pollution. Whitehouse, a passionate advocate for climate change on Congress, has given over a hundred weekly briefings on climate change in DC. This bill, called the American Opportunity Carbon Fee Act, introduced by Whitehouse and cosponsored by Schatz, would place a fee on greenhouse gas emissions (GHGs) from all coal, oil, and natural gas produced and imported into the US. It would also put a price on other large GHG emitters including incinerators, landfills, and concentrated animal feeding operations (CAFOs). The bill also includes tariffs on energy intensive goods imported from countries without a price on carbon, so as to ensure that American products are not put at a competitive disadvantage for taking progressive action on climate change.
Carbon pricing is a conservative economic method of addressing climate change. Its purpose is to internalize the negative effects caused by GHGs. Whitehouse contextualized this saying, “when the cost of externalities doesn’t get factored into the price of a product, economists classify that as a subsidy, a market failure.” Both Senators conveyed the desire to work with a bipartisan coalition to gain support for addressing climate change. Shatz expressed that “this is an area that demands conservative leadership,” and that we need conservatives to embrace market based solutions, such as pollution fees.
The fee on emissions the bill requires is equivalent to the Obama administration’s estimate of the “social cost of carbon,” starting at $45/ton in 2016 and increase 2% annually adjusted to inflation. The social cost of carbon is the economic cost of the harms caused by GHGs, including human health risks, impacts of climate change including damages from increased extreme weather such as flooding, and negative impacts on agriculture. All revenue collected from this fee, estimated at around $2 trillion in ten years, would be returned to the American public, making it revenue neutral.
Putting a price on GHGs and returning the revenue to the public is an efficient and effective way to send clear price signals about the costs of climate change while protecting the American public from a large financial burden. The price accounts for the negative externalities caused by GHGs and then gives Americans the choice of how to account for their own contributions to climate change: they can either continue to pay an increased price for products that cause climate change and receive compensation for the increased price, or they can take various actions to avoid greenhouse gas emissions. This can include investing in energy efficiency, energy conservation, and renewables.
The revenue from the fee would be returned to the public in several ways that would reduce our contribution to climate change and invigorate our economy. For businesses, the return would come by lowering the corporate tax rate. Workers would receive a $500 refundable tax credit to offset the first $500 they pay in Social Security payroll taxes. For those past their tax paying years, such as people receiving social security, they would receive other forms of benefits for compensation. The bill also establishes a small block grant for states to help with low income needs, rural household, and transitioning workers. In order to promote transparency, the bill would also create a recording mechanism that would allow the public to track where the money from the fee is spent and ensure it is all returned.
One important question raised at the conference was: what impact would this bill would have on global climate change and temperature increases? A study by Resources for the Future estimated that a $40/ton to $58/ton by 2035 would reduce our annual emissions by 50%. However, pundits worry that if the United States takes leadership on pricing carbon other countries might not follow. Senator Schatz retorted that “this is a global problem and we need a global solutions, but in the tradition of American leadership, it is important that we not preach temperance from a bar stool.” As the world’s second largest emitter of GHGs, “and as the country that has put the most carbon dioxide in the air, we need to lead on this issue.”
Senator Schatz also mentioned British Columbia as an example of an economy wide revenue neutral price on carbon that worked without participation from surrounding areas. British Columbia implemented a carbon price in 2008, the first region in North America to do so. Since the implementation of the fee they have experienced both a significant reduction in GHG emissions and increased GSP growth compared to other Canadian provinces.
Economists have long argued that putting a price on carbon is one of the most efficient way to address the climate crises. Over recent months momentum has been building in support of a price on carbon in the United States and internationally. Currently, coalitions in Massachusetts, Vermont, Washington, and Oregon have all begun exploring carbon pricing initiatives within their states. Even fossil fuels companies are beginning to support pricing carbon, with a group of oil companies, including BP, Shell, Eni, Total, Statoil, and BG Group, recently sending a letter to the United National asking them to adopt an international price on carbon as part of the climate negotiations happening in Paris this fall, where it will be an important topic of discussion on the international stage.