High gasoline prices reflect OPEC’s failure to resume supply to meet demand after the 2020 Covid shutdown, the international boycott of Russian oil in protest of the war in Ukraine, and aggressive profit-taking by U.S. oil and gas majors. (John Gage)
John Gage
Many of the economic problems we are experiencing today (high gasoline, energy prices, and inflation) are caused or compounded by our over-reliance on fossil fuels (coal, oil, and gas) and the unavoidable price volatility in the global oil and gas markets. Ending our dependence on fossil fuels will provide economic stability, better health and national security, and address the main cause of global warming. But we also need solutions that help people through their current financial difficulties.
Some quick fixes have been proposed, such as temporarily suspending the federal gasoline tax. While doing so would slightly reduce costs at the pump, fossil fuel producers would likely absorb one-third of the reduction for profit. A federal gas tax holiday is not a cost-efficient or powerful way to help household budgets, and it would do nothing about gasoline use.
Some questionable long-term fixes have also been proposed, such as significantly increasing U.S. oil and gas production by easing regulations. But it is not feasible for the U.S. to produce enough to control global prices, so OPEC and Russia will always have leverage to have an effect on the U.S. economy as long as we remain dependent on those fuels. And even if it were possible to produce our way to oil and gas price stability, doing so would be catastrophic for our climate.
Neither of those proposals would help household budgets much or at all in the near term, and both wedge us further into the high-polluting fossil fuel dependency trap in which we find ourselves.
A better approach is to take this opportunity to make our economy more energy-efficient and accelerate the transition to clean energy solutions, to become more economically resilient and healthier from less pollution. We can do that with policies that reduce emissions, protect budgets, and keep U.S. businesses competitive in the global market.
A Price on Pollution is Required
Putting a price on pollution is the most powerful and cost-effective way to reduce it. In the case of climate pollution, this means putting a price on carbon emissions from fossil fuels. Experts, including the IPCC and U.S. Treasury Secretary Janet Yellen, say we cannot adequately address climate change without carbon pricing. But is this the right time to do it? Charging fossil fuel producers and importers a fee for the carbon pollution from their products will have the trickle-down effect of raising the price of gasoline, heating oil, and many other things. That would reduce emissions, but millions of Americans are already struggling to afford high fuel, electricity, housing, and food prices.
Cash-Back Carbon Pricing to the Rescue
Paradoxically, this may be the perfect time to price carbon. High energy prices, inflation, and the climate crisis are on people’s minds, and they want solutions. Now is a great time to talk about the number one expert-recommended cost-effective and equitable way to reduce pollution and decouple our economy from its dependence on fossil fuels – cash-back carbon pricing – because most people will benefit financially. Cash-back carbon pricing puts more money in most people’s pockets. The extra spending power it provides will help people cope with the current high prices and inflation, because the largest benefit goes to those with the smallest carbon footprints, low-income families.
How Cash-Back Carbon Pricing Works
Carbon Fee and Dividend is a simple three-part cash-back policy:
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Charge fossil fuel producers and importers a steadily increasing fee based on the carbon emissions from the products they sell. Start at $15 per ton of CO2 and increase the fee by $10 yearly until emissions-reduction targets are met.
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Rebate the money collected to all American households on an equal basis each month. Two-thirds of all households will receive more in their monthly share than they pay in trickle-down higher prices from the fee.
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Use “border carbon adjustments” to charge our carbon price on imports from free-polluting countries and rebate our exporters, to keep U.S. businesses competitive and strongly encourage other countries to match our carbon price.
The carbon fee will drive down carbon emissions at the necessary scale and speed. The monthly cash back will protect budgets, and border adjustments will enable us to harmonize climate policy among trading partners.
What About Inflation?
Inflation is a global problem, but some countries are fairing better than others. Canada began using Carbon Fee and Dividend a few years ago, and inflation there is less than that in the U.S. A study by Regional Economics Modeling Inc. (REMI report) found that Carbon Fee and Dividend would increase inflation by just 2% over 20 years while reducing carbon emissions by over 50%. Another study on Canada and the EU suggests carbon pricing may even be deflationary.
Putting Relief into Perspective
The recently proposed three-month gasoline tax holiday would save the average person about $14 according to analysis from the Wharton School at UPenn, and sacrifice $6 billion in infrastructure funding. According to the REMI report, the average personal net gain in the first year from Carbon Fee and Dividend is about $45 (and rising to $500 by the tenth year and $800 by year twenty). In short, sending people carbon cash back is a better way to help families afford the gasoline they need today.
Rather than using policies that incentivize pollution and extend fossil fuel use, Congress would be wise to address the biggest problems we face today with cash-back carbon pricing. A strong carbon price will bring our economic dependence on fossil fuels to an end by unleashing the investment, innovation, and transition in the clean energy solutions we need for a safe future. The cash-back dividend will help people cope with high prices and inflation today.
The best path forward for households, businesses, and our climate is clear. We can each help create the political will to enable Congress to pass Carbon Fee and Dividend legislation by asking them at congress.gov/contact-us.
John Gage volunteers with Citizens’ Climate Lobby as state coordinator for New Hampshire.
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