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Concentration of CO2 in the Atmosphere

Carbon Pricing Misconceptions

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Katharine Gage

The Intergovernmental Panel on Climate Change (IPCC) recently released the second part of its Sixth Assessment Report on climate change, focusing on impacts, mitigation, and adaptation, again drawing attention to the deteriorating future of the climate and the urgent need for action.  It reports that many impacts are irreversible, but future damages to people, society, and ecosystems can be substantially reduced with near-term actions that keep global warming close to 1.5˚C.

The IPCC finds carbon pricing to be the “most powerful and efficient” emissions reduction policy, and a “critical tool in any cost-effective climate change mitigation strategy, as it provides a mechanism for linking climate action to economic development.”

The United States remains one of only two developed countries that are not yet pricing carbon. The IPCC report also identifies rhetoric, misinformation, and polarization as key factors that have “delayed mitigation and adaptation action, most notably in the US.”  Let’s explore some common myths that are delaying effective carbon pricing legislation.

Myth #1: Carbon pricing will increase our cost of living

What matters is the net effect. If we charge fossil fuel producers and importers a carbon fee, industries will pass these higher costs down to consumers. And as we know from current world events, increased fossil fuel prices raise our cost of living. Pairing carbon pricing with a cash-back dividend ensures that citizens are compensated (or even overcompensated) for these higher costs. When all of the money collected from the carbon fee is distributed to all households on an equal, per-capita basis, 85% of households will receive more in their dividend than they pay in trickle-down higher prices from the fee.

Breaking our reliance on fossil fuels and transitioning to clean energy solutions will prevent energy price spikes from production and inherent market problems, such as what we are seeing with Russia‘s invasion of Ukraine. As a bonus, taking the profits out of selling fossil fuels will also defund Russian aggression, because Russia relies heavily on its fossil fuel exports for war funding.

Myth #2: Carbon pricing will have regressive social impacts

An increase in fossil fuel prices has regressive social impacts because low-income households spend a higher proportion of their budget on those fuels. However, a carbon price with a full, equal household dividend has a progressive social impact, because it protects and helps low-income, middle-income, and marginalized communities. Low-income households naturally have smaller-than-average carbon footprints as a result of a lower-consumption lifestyle; so when everyone receives the same dividend, low-income households make money – to the point where 99% of the poorest fifth of the population will either break even or come out ahead. Minority communities will also disproportionately benefit, with about 90% of households breaking even or coming out ahead. A carbon price with a full, equal per capita dividend is an efficient step toward achieving environmental justice goals.

Breaking our reliance on fossil fuels and transitioning to clean energy solutions will prevent energy price spikes from production and inherent market problems. (Photo: Daniel Christensen /Wikimedia Commons)

Myth #3: Carbon pricing will hurt the competitiveness of U.S. businesses in the global market

While it is true that implementing a national carbon price will temporarily increase U.S. production costs, carbon pricing policies can be designed to equalize these costs relative to our global competitors. Border carbon adjustments can be used to charge our carbon price on imports and rebate our carbon price to our exporters during trade with other countries that do not have a similar carbon price.

Since U.S. manufacturers are less carbon-intensive than those in many countries we trade with, pricing carbon actually gives U.S. exporters and manufacturers a competitive advantage. For example, a price on pollution will make cleaner U.S. steel cheaper than dirty steel from China.

Myth #4: Carbon pricing won’t reduce carbon emissions fast enough

The IPCC calls for carbon pricing because it will make a big impact – for instance, the border-adjusted, cash-back carbon pricing bill in Congress is projected to reduce United States carbon emissions 47% by 2030 and 90% by 2050. This policy alone is nearly enough to put the United States on a path that aligns with the global emission reductions needed to hold 21st-century warming to 1.5˚C. Complementary policies can get us the rest of the way there.

When looking at the climate crisis from a global perspective, carbon pricing is the only national policy that allows us to hold other countries accountable for their emissions and incentivize them to harmonize their climate policies with ours. This is accomplished with border carbon adjustments, which World Trade Organization rules only allow to be used with an explicit price on carbon – not with other policies like regulations, subsidies, or incentives.

As the importance and likelihood of enacting strong climate policies increases, it is essential to consider the policies that will be best for the climate, the people, and the economy. We need options that reduce carbon emissions rapidly, protect Americans financially, ensure that our businesses can compete on a level playing field in the global market, and have an influence on emissions at a global scale. The best policy option for satisfying these objectives is border-adjusted, cash-back carbon pricing – please ask your congressmen to enact this important legislation.

Katharine Gage is a freshman at Bowdoin College and has volunteered with Citizens’ Climate Lobby (VVL) for five years. She co-leads a CCL NH and a Bowdoin chapter.

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