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  • Writer's pictureTom Mast

Price Carbon Emissions: The Only Path to Victory

Tom Mast, founder of Solve American Gridlock

It is obvious from the first graph above for the global emissions that all the talk, five-year conferences producing more promises than action, and the hand-wringing about climate change, one would think we were not serious about stopping global warming. The second graph shows a slight trend downward in emissions of CO2, the most damaging greenhouse gas (GHG). However, it is not nearly enough to get the job done, and it shows data only for the U.S. while GHGs in the world’s atmosphere is truly a global issue if there ever was one.

The graph below shows that the reduction in electrical generation by coal from 2005 to 2020 was 63%. Coal is the most CO2 intensive fuel, and it was replaced by natural gas and other sources that produce less or no CO2. This one-time event was responsible for a good part of the recent U.S. CO2 emissions reduction shown above.

Let’s focus on the U.S. alone for most of the rest of this note. Why? Because we Americans have more control, I think and hope, over what happens in our country than elsewhere. If we can get our act together and get control over GHG emissions, there are ways we can motivate the rest of the world to take similar measures.

Why shouldn’t we have a broad-based and fair way to motivate and support this mother of all projects – absolutely dwarfing the construction of the Panama Canal? Why shouldn’t everyone be included – have skin in the game? Why don’t we have a way to put ever-increasing disincentives on all consumption of substances that produce greenhouse gases (GHG) in proportion to the amount of damage they cause? Why do taxpayers have to support large federal subsidies and tax credits on some selected activities in hopes that those will somehow achieve adequate GHG emission reductions? Why shouldn’t market forces drive these decisions as they do for virtually all of our other purchases? #carbontax

I remember hearing many years ago about the efforts of the Soviet Union to regulate the production of everything from Moscow and how wheat, tractors, and almost everything else were more often than not either in short supply or stacking up in warehouses. I visited China about three years ago and saw huge numbers of completed and partially finished empty apartment houses. The U.S. is using regulation of its oil production and refining industries to reduce their sizes prematurely, leading to shortages and high prices. Now it is trying to correct the imbalances with releases from our strategic reserves. Relying on central controls rather than market forces usually leads to unintended consequences. This applies to the need to reduce GHGs too, the majority of which result from energy sources.

Consider the example of an electrical energy generation company making a decision about an aging coal-fired power plant and considering whether to:

  • Continue as-is

  • Shut down the plant and don’t replace it

  • Switch to natural gas

  • Switch to wind, or solar

  • Switch to nuclear

This company needs to know much more than it presently can about future demand, projections costs and prices, and the timing of coming changes. It knows how to make such estimates based on market trends, but it can’t predict sporadic centralized decisions.

Consider a family pondering:

  • Whether to replace its home heating system and with what and when

  • Whether to replace some plastic food storage containers

  • Whether to buy a foreign-made item made of synthetic cloth or an alternative

  • Whether to cook Atlantic salmon, chicken, or something else tonight

  • Whether to use different settings of the home thermostat

  • Whether to replace its four-year-old car now or wait

  • What large and small decisions to make on several hundreds of other issues

What is happening now?

  • Consumer Joe drives a gas hog, has made no effort to control his home heating and air conditioning costs, flies on frequent vacations, and pays nothing extra for his GHG emissions of the tomatoes, shirts, packaging, and hundreds of other purchases he makes. He has no solid reason to change his habits – no pressure. He, along with most other consumers, is doing nothing to fight climate change. He has no skin in the game of global warming.

  • Consumer Sally drives a hybrid and keeps her thermostat at energy-saving temperatures. But, she has no idea how the hydrocarbon intensity of fertilizers affects the costs of her vegetable purchases; in fact, it may not because there likely are not any GHG-emission fees imposed on the raw materials for these fertilizers. So, she has no incentive or even any knowledge that one vegetable generates more GHGs to arrive in her kitchen than does another – and it isn’t her fault.

  • Consumer Mrs. Green owns no car, but uses public transportation. She tries hard to minimize her energy consumption in her home. She has no knowledge or control of how concrete, steel, shipping, and thousands of other substances and activities are affecting her life or her hydrocarbon consumption, and she couldn’t affect them if she did. Most of these fly below the radar, generating about the same amount of GHG emissions they did some years ago.

  • Acme Steel Company is an integrated steel supplier, creating its products from raw materials. The processes consume huge amounts of both heat and electrical energy, both coming almost entirely from hydrocarbon (GHG-producing) fuels. The pricing structure of its energy sources has no direct incentives to reduce GHG emissions. So, the cheapest or most convenient source may well be a serious emitter of GHGs, the same one Acme has been using for many years.

Assume that we have in our state a sales tax system that lets consumers decide whether or not they want to be a part of this system. If they opt out, their credit card is given a special code that eliminates the sales tax from each purchase. Would that work? Would our state have good schools, police and fire departments, highways, and all the rest? I believe the answer is a clear “no”.

What is a carbon pricing system and how would it work? It would place at or near the source of the GHG-producing substance a fee or tax based on the GHG intensity of the substance. Most such substances are hydrocarbon fuels: coal, oil, and natural gas generating CO2. This fee would increase annually at a published rate so consumers and industries would be able to plan on the rates and amounts of increasing costs. Supplier all down the supply chains would have to increase their prices regularly to stay in business. As this reduced demand for their products, they would make the appropriate business decisions, cutting back or making other changes. As the fee increased, the consumption of the GHG-producing substances would diminish, making the national total amount of the fees somewhat stable. The fees collected by the government would be returned to consumers, perhaps called a dividend. One might ask whether the consumer’s habits would change if the monies are returned. The answer is “yes”; as prices for something like a gasoline car rose, the consumer would likely spend the dividend on something else other than another similar car, perhaps replacing the car with one of a different technology and/or energy source or even something that would save even more.

Where does the money come from? It will come from the consumers – the source of all money in our economy. Realistically, getting control of global warming is likely to cost consumers some of their income. But, carbon pricing allows them to make their own decisions as to what that cost will be and what choices they want to make.

The recent Inflation Reduction Act included $369 billion in climate change laws, perhaps around $3,700 per family, spread over several years. Consumers will pay this amount ultimately in taxes to reduce this additional $369 billion in additional debt or in inflation making their purchases more expensive. Keep in mind that this Act doesn’t begin to be adequate to get control over GHG emissions; more costs will come if we don’t enact comprehensive Carbon Pricing instead. We are talking about replacing most of the energy systems – developed over 100-200 – years in a much shorter period of time; this is not a trivial task.

So, what are the steps to replacing the present regulatory and subsidy programs with a Carbon Pricing approach?

  • Congress creates a Congressional Commission to draft a long-range Blueprint, based on carbon pricing with a dividend back to the consumers and a border adjustment fee to encourage other countries to control GHG emissions. The Commission will be staffed with experts in needed fields including science and economics. It will be given a completion deadline of several months. The final report will include a version understandable to the average citizen.

  • Congress will enact legislation based on the Blueprint.


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