Why an invisible gas needs a visible price
After years of obscurity, the term "pricing carbon" is now almost synonymous with "climate change solution." Presidential candidates are talking about it, 16 states have proposed or enacted legislation and even the U.S. Congress has seen multiple bills introduced.
Even after establishing the link between the burning of fossil fuels and climate change, momentum for carbon pricing failed to develop in the U.S., until recently. What's changed now is that Americans are finally learning about the growing costs of climate change.
Among the many tangible costs are more costly extreme weather disasters, expanded Western fire seasons, diminished agricultural output and loss of valuable coastal properties. Less obvious costs include increasing migrations as populations leave drought-stricken areas and move away from low-lying seacoasts.
Moody's Analytics now says climate change could result in $69 trillion in damages to the world economy by the year 2100. In a 2018 survey among multiple actuarial societies, climate change risk was the survey's big mover and is now considered the top current risk.
Strikingly, there may soon be a whole new group of climate change cost estimators on the way. Recently, the House Financial Services Committee approved the Climate Risk Disclosure Act of 2019, introduced by U.S. Rep. Sean Casten, a Downers Grove Democrat, requiring public companies to disclose exposure to climate-related risks. Instead of hearing about climate costs in the abstract from academics and climatologists, we will hear it from the people that crunch numbers for a living, the nation's CFOs.
This will bring the conversation into hundreds of board-level discussions, validated by public accounting firms. Food companies will highlight the risks to their supply chain, real estate companies will list their risks from rising sea levels, insurance companies will identify their risks from increasing storm claims, and on and on.
Knowing the costs provides a strong incentive to try to avoid them. There are three broad categories of climate policy - regulation, cap and trade and carbon taxing. Trying to regulate so many sources of emissions will result in a constituency forming behind each, an impassioned argument why the limit shouldn't apply to them and inevitably spawn countless new lobby groups.
New regulations would lead to a bureaucracy to manage them, followed by years of litigation and ending with searches for loopholes around them. We don't have the time or political stomach for this approach.
A "cap and trade" policy would face many of the same risks of overregulation, or worse. It requires a new bureaucracy to measure and audit greenhouse gas emissions. Most worrisome, many market trading mechanisms would be ripe for fraud or abuse, lead to fluctuating energy and transportation prices, doing lasting damage to the political will behind climate action.
The final option is what so many politicians are now talking about - carbon pricing through a tax or fee. The concept is easy to understand, simple to implement and drives the needed large-scale actions. If properly designed, it can have appeal across the political spectrum.
It relies on market forces, correcting for what is a large market failure, doesn't pick winners or losers and preserves freedom of choice. Many view it as the moral thing to do while appealing to Americans' sense of fairness. If the coal, gas and oil industries create climate change, shouldn't they pay the price for the resulting damage?
Ideally, the price should start at a level that avoids economic disruption, yet gets us to where the scientists say we need to go, a decarbonized world by 2050. Returning the collected carbon fees equally to households achieves the best of all available outcomes - doesn't grow government, supports economic growth and jobs and ensures that low- and middle-income households are fully protected from increasing energy and transportation costs.
Provide visibility to the true cost of fossil fuels and you will see American businesses and households conserve, innovate and invest their way from carbon footprints, while making America a leader in new 21st century industries.
Fortunately one of the introduced carbon pricing bills is based on this approach - the Energy Innovation and Carbon Dividend Act (H.R. 763). As Americans learn of the costs of climate change, they'll need to add their voices to the discussions of solutions.
Mike Zanillo is a retired information technology executive with a degree in economics from the University of Chicago. He joined Citizens Climate Lobby after retiring from McDonald's Corp. as Sr. Director, and in 2017 was named CCL's state coordinator for Illinois.