Various state and federal efforts are underway to put a price tag on carbon emissions, but we can't tax our way out of climate change.
To understand the real cost of anything, you have to understand its total impact, and the cost of dealing with that impact, or what economists call its “externalities.” An externality is a cost or benefit that affects a party that did not choose to incur that cost or benefit. So, for example, a fruit farmer might freely benefit from the pollination services of the bees kept by her neighbor, while an organic potato farmer might suffer some unplanned costs should his neighbor spray pesticides that drift onto his field.
In a capitalist economy, the only way to ensure that a company doesn’t impose unexpected costs on either its customers, the government, or the general public, is to require that they cover those costs themselves. But that usually requires regulation and—I know, what?—a government that is at least as concerned about public health and safety as corporate profits. Because, of course, companies don’t want to do it. Take the case of cigarettes. They are conclusively linked to a variety of costly and deadly illnesses and so shouldn’t just be priced according to the cost of tobacco, paper, and nicotine; their price should reflect their impact on health and the cost of dealing with that impact, the regulatory and labeling system required to administer warnings about their health impact, and so on and so forth. But as we know, it took several decades, well past the point where research had proven the link between cigarettes and various deadly health impacts, for cigarette pricing to reflect these externalities. The tobacco industry spent a fortune suppressing information and railroading whistleblowers to avoid it because, let’s face it, having to account for externalities in the pricing of your product has virtually no upside for companies. Your product costs more, which means fewer customers, but that extra cost goes toward the public good, not your private gain. Capitalism doesn’t really work if companies are altruistic (although that doesn’t stop us from expecting them to be), which is why you need a government that’s looking out for the common good. And therein lies the rub.
Enter the fossil fuel industry, which, like tobacco, has spent several years and tens of millions of dollars suppressing information that connects its products to damages borne by the public. There are currently various efforts underway to make someone, anyone pay for the externalities of fossil fuels. One proposed solution has been to set a price for carbon emissions, but opinions differ wildly on what an appropriate price would be, and how exactly a market-based solution for emissions should work.
Carbon Tax or Cap-and-Trade?
First, let’s define some terms. In general, when people refer to a “market-based solution for climate change” they mean either a carbon tax, which puts a price on fossil fuels in proportion to the carbon content in each fuel (so coal, for example, would carry a heavier tax than natural gas or renewables) or a cap-and-trade market in which each company’s emissions are capped at a certain amount and they need to purchase credits if they want to pollute more. If a company emits less than its cap, it earns credits which it may then trade to companies that are polluting above the cap. The idea is that there’s a fixed amount of allowable pollution and companies can basically sort it out amongst themselves who gets to emit what.
The vast majority of conservatives, if they’re in favor of any sort of price on carbon, prefer a carbon tax, which is often described as more simple and predictable, while those on the left tend to be more in favor of the cap-and-trade solution because the carbon tax that’s generally proposed is deemed too low to actually do anything (and were it to get high enough, the cost passed on to consumers would likely cause a revolt).
Current State of Play
California is currently the only state in the country with a functioning carbon market. The state passed AB32, the California Global Warming Solutions Act, in 2006, requiring the California Air Resources Board to impose regulatory caps on pollution and establish a cap-and-trade market, which, after getting tied up in legal issues for years, went into effect in 2012, and was updated in 2014. Although some California residents have protested the market’s impact on gas prices—currently the highest in the country at $3.21 per gallon on average—cities and counties have also begun to reap some of the rewards of the program, engendering increasing bipartisan support.
The state earns a percentage off of every carbon trade, money that goes into its Greenhouse Gas Reduction Fund. That fund is then used to finance projects throughout the state that will result in fewer emissions. Those projects range from transit improvements to multi-use high density developments in town centers, which could enable more residents to walk more often than they drive, and the first of them just got funded last year. Nearly $5 billion has flowed into the Greenhouse Gas Reduction Fund since companies began trading pollution permits in 2013, and while much of that money is earmarked for statewide emissions-reductions programs like the high-speed rail project, affordable housing, and various regional transit programs, 40 percent ($2 billion) is allotted for discretionary spending, of which the state doled out just under $850 million to various municipalities looking to green up their space.
In July 2017, California governor Jerry Brown signed AB 398, bipartisan legislation that extends the cap-and-trade market by 10 years, until 2030. The policy sets California on track to meet its target to reduce greenhouse gas emissions 40 percent below 1990 levels by 2030.
In the wake of California’s progress, similar legislation has been proposed in Washington and Oregon. In January, nine states—Connecticut, Maryland, Massachusetts, New Hampshire, New York, Oregon, Rhode Island, Vermont, and Washington—came together to form the Carbon Costs Coalition, which aims to reduce carbon emissions, in part via the development of market-based solutions. Even the Trump Administration, a total dud on every bit of environmental policy, has flirted with the idea of a carbon tax, quietly wrote in a tax credit for carbon capture and storage to its latest budget bill, and recently came out in favor of a gas tax to help pay for infrastructure improvements.
Carbon markets are as unequal as all the other markets
But not everyone views the California example as a success, or market-based carbon solutions in general as the right path forward. For one thing, there’s a reason why Republicans have gotten on board with market-based carbon solutions and that reason is not that they all suddenly “believe” in climate science.
Cap-and-trade was originally conceived as a way to avoid regulating emissions. This was in the late 1980s and early 1990s, back before the misinformation campaigns started around climate change, when the first George Bush had committed to “make the White House green.” Boyden Gray, an oil industry lawyer who worked as an advisor to George H.W. Bush came up with the idea to amend the Clean Air Act of 1990 to allow for trading pollution credits under the Acid Rain program as an alternative to strict emissions regulations. And guess who was an early proponent of carbon taxes? None other than former Exxon CEO and current Secretary of State Rex Tillerson, who began advocating for a carbon tax back in 2009. It’s important to note that on top of generally setting carbon taxes too low, most industry-backed proposals of market-based solutions tend to include a clause that would preempt climate liability litigation. “That’s ridiculous—no matter which, if any, market solution moves forward it shouldn’t have any bearing on past impacts and holding fossil fuel companies liable for them,” says Richard Wiles, director of the Center for Climate Integrity.
In a blistering op-ed published in In These Times in January 2018, Scott Edwards, co-director of Food & Water Watch’s Justice Project, outlined all the reasons why progressives and climate activists should not just let the markets solve climate change. In it, Edwards points out that market-based solutions to carbon emissions are just another form of neoliberal capitalism, and that they continue to impose the costs of pollution on the public. “In the climate context, pricing proponents believe that we can reduce fossil fuel use with a simple market adjustment: a price on carbon to adequately represent the ecological costs of its use,” Edwards writes. “Such a price, the theory goes, would make using fossil fuels prohibitively expensive, thus allowing renewable energy sources to better compete with oil, gas and coal. Consequently, our planet would be saved through the magic of the marketplace.”
Edwards points out that market-based solutions tend to double down on already-present environmental injustices, unfairly burdening low-income communities and communities of color. And unfortunately, an environmental equity assessment of California’s cap-and-trade program shows just that: The facilities that are, essentially, paying for the right to pollute more, all happen to be located in communities with higher proportions of residents of color and residents living in poverty. These communities are continuing to bear the brunt of pollution, as they have for decades, despite overall emissions reductions in the state. Just a few data points highlight how much that matters: People who live in communities with high levels of particulate matter (the nasty stuff that’s emitted along with CO2 at oil refineries, on highways, and at various industrial facilities, all of which tend to be heavily concentrated in low-income communities) have shorter lifespans; are more likely to have asthma and various other respiratory conditions; have a higher risk of developing type II diabetes or becoming obese in their lifetime; and, if exposed in utero, have an increased risk of cognitive and behavioral impairment.
Taking a “go ahead and pollute over there” approach that reduces overall emissions while unduly impacting the most vulnerable in society is not really the future liberals want. As with most problems, capitalism in the absence of social responsibility, in the absence of functioning democracy, is destined to fail the vast majority of people. For market-based solutions to be effective, they must come alongside, not in lieu of, regulation and policies that place the public’s health and safety first. Otherwise, we’re all still continuing to pay the price for the right of a few to pollute.
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