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Concentration of CO2 in the Atmosphere

How to Prepare for Carbon Pricing

John Gage

If you are taking steps to become more energy-efficient and transitioning to clean energy options as you replace things over time, you are on the path to thrive in an economy in which the true costs of using fossil fuels (coal, oil, and natural gas) are reflected in their prices. But if you are considering oil or gas options for your next furnace or water heater, or if you plan to kick the tires of gasoline-powered vehicles when you look for your next car, this article may save you thousands of dollars over the next decade – please read on!

Comparison of household costs incurred from a $15 carbon fee with carbon dividends. Each quintile represents 20% of the population, ranked by consumption. Carbon dividends are net after personal income tax. (Citizens’ Climate Lobby, Household Impact Study

Carbon pricing is unavoidable

A price on carbon emissions from fossil fuels is essential to address climate change according to the IPCC, World Bank, WTO, World Economic Forum, OECD, and IMF, and carbon pricing is spreading rapidly. Over 45 countries are now pricing carbon – double the number from just five years ago – including every developed country except the U.S. and Australia, and prices are rising. Recently, the EU, UK, and Canada began preparing to charge free-riders for their pollution in trade. This will be a strong incentive for other countries to price carbon.

Whether the U.S. chooses to price carbon soon to meet Biden’s emission reduction goals, or is forced to do it later this decade through trade, decisions made now will be cast in a new light when there is a price on carbon. Some things will become increasingly more expensive to use, and some investments will sour. Other choices will prove to be brilliant.

Future-proofing with shadow carbon pricing

Hundreds of U.S. companies are preparing by including a “shadow” carbon price in decision-making processes. Shadow carbon pricing is a way of factoring future higher fossil fuel prices into choices being made today. Does it make sense to update a fleet with gasoline- or electric-powered vehicles? Anticipating a high price on carbon by the end of this decade leads to decisions such as Hertz’s plan to purchase 100,000 electric cars from Tesla. Some states (e.g. Colorado) and municipalities are using shadow carbon pricing in their energy infrastructure planning to avoid future stranded costs. Families can do this too.

Vehicle and heating choices matter because they lock the consumer into an energy source for years or decades. Solar panels make financial sense today, but when fossil fuels become steadily more expensive, clean energy will offer even greater relative savings. Energy audits and following through with recommended updates will likewise yield increased savings for homeowners, municipalities, and businesses when carbon pricing makes fossil fuels more expensive.

What price to prepare for

A $10 per ton of CO2 tax adds about one cent per kWh on electricity from fossil fuels and 10 cents per gallon of gasoline.

The EU carbon price has more than doubled in the last year and is now over $80 per ton of CO2 emitted. Canada’s price will rise to $135 per ton of CO2 by 2030, which is the minimum target price required to hold global warming at or below 1.5˚C from pre-industrial levels, according to the IPCC. Canada achieved that price by charging fossil fuel producers a steadily rising fee based on the carbon in the products they sell and giving the money collected to all Canadian households. This is a popular approach because most families come out ahead financially, and those working to reduce their carbon footprints come out even further ahead. Despite initial resistance, the policy has gained broad support. Prime Minister Justin Trudeau, a strong proponent of the policy, has since been re-elected twice.

One group working to create the political will for this approach is Citizens’ Climate Lobby (CCL), a nonpartisan, grassroots organization that has been laser-focused on this goal for over a decade. A bill in Congress based on CCL’s Carbon Fee and Dividend policy called the Energy Innovation and Carbon Dividend Act (HR 2307) has over 85 co-sponsors. It puts a carbon fee on fossil fuel production and imports that increases by $10 per ton of CO2 annually for three decades, returns all the money collected to families on an equal per-capita basis each month, and uses border carbon adjustments to protect U.S. business competitiveness in trade. A study commissioned by CCL found that low-income households will receive an average of $241 in extra spending money (after accounting for higher costs) in the first year of implementation (see chart), and Regional Economic Modeling Inc. estimated an annual average after-tax gain of $1000 per capita in the tenth year for the New England region (carboncashback.org/benefits).

Help accelerate carbon pricing

The sooner the U.S. starts pricing carbon, the more gradually the price can rise, making it easier for U.S. businesses and families to adapt. According to Senator Whitehouse [RI], the Senate has 49 of the 50 Democrat votes needed to include cash-back carbon pricing in the reconciliation package this year, and negotiations are ongoing. The House and White House also support the approach.

Steady, positive pressure from businesses and citizens can give Congress the political courage they need to get this done. Businesses can endorse the Energy Innovation Act and lobby for Carbon Fee and Dividend legislation. Citizens can find quick and easy actions to take at cclusa.org/action.

John Gage is the volunteer New Hampshire State Coordinator for Citizens’ Climate Lobby

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