Price on Carbon

Taxing Polluters, Rewarding Pioneers

Price on Carbon


Imagine a house, maybe your house. And a car, maybe your car. You decide you want to power them with clean energy.

So you trade in your gas-guzzler for an electric vehicle. You stuff extra insulation into the walls of your home. You replace your old furnace with a super-efficient electric heat pump. And you cover your roof with solar panels.

No more electric bills. Hardly any more fuel bills. And a lot fewer greenhouse gas emissions. Sure, this all cost you a little more up front, maybe more than you wanted it to, but you did it anyway, and you feel good about it.

But still, you notice something disheartening. Only a few of your neighbors are doing the same thing. And not many in your town or in your county or in your state are doing much of it either. In fact, not enough people in your country are doing this, and never mind the rest of the world, it’s even worse. Oh sure, there are big pockets of virtue here and there, like in California, or Scandinavia, or Germany, but mostly it’s business as usual.

It’s still looking like full speed ahead toward certain climate catastrophe, even though science tells us we have to get to zero carbon emissions well before this century is over. That’s what the nations of the world have promised to do by adopting the Paris Agreement. How are we ever going to do that?

One answer is to put a price on carbon.

It’s an answer embraced across the whole, noisy spectrum of opinion, from Greenpeace all the way to Exxon. Why such broad appeal?

Because here’s what experts say it can do. It sends a signal pulsing through the entire economy, and points it in a new direction, like a ship aiming at another destination on the horizon. That’s the place where it is the easiest, the cheapest and the best thing to have a house and car powered on clean energy.

But a price on carbon? What the heck is that? How do you know it won’t wreck the economy? And what’s the price anyway?

A price on carbon comes in different flavors. Sometimes it even comes without vowels, like, for example, something known as RGGI. (People just call it Reggie.) It stands for Regional Greenhouse Gas Initiative. Nine mid-Atlantic states have cooperated to cap and reduce emissions from their power sectors and create a regional market of carbon allowances.

One study calculated that since 2009, the RGGI states have received and disbursed nearly $2 billion in proceeds from carbon allowance auctions back into local economies, and created thousands of jobs. Some experts say it could be made stronger and accomplish much more.

Another kind of price on carbon – a carbon tax – has been achieving results in British Columbia since 2008. The carbon tax started at $10 per ton of carbon dioxide emissions and was increased gradually to $30 per ton by 2012. By law, the province had to use the revenue from the carbon tax to reduce corporate and income tax rates.

The result of this tax shift? British Columbia’s per capita consumption of fossil fuels declined by more than 15 percent, while in the rest of Canada, it grew by 3 percent. BC’s economy, nevertheless, kept pace with economic growth in the rest of Canada. The province now has the lowest personal income tax rate in Canada and one of the lowest corporate rates in North America, too.

Both of these real world initiatives – and others – provide strong evidence that a price on carbon can drive big shifts in economic direction.

So now imagine an economy, maybe your economy. And a planet, maybe your planet. And you decide they need a price on carbon…