Illinois economists: price carbon now

  • Christopher Clapp

    Christopher Clapp

  • Jerry Hinkle

    Jerry Hinkle

By Jerry Hinkle and Christopher Clapp
Guest columnists
Posted9/19/2021 1:00 AM

Climate change is considered to be the greatest challenge of our generation and for good reason. As global average temperatures have increased 1°C (1.8° F) over the last 100 years, storms have become stronger and more damaging, flooding and drought are both more common and more intense and loss from wildfires has grown dramatically.

The cost of destructive weather is rising dramatically. According to NOAA, climate and weather-related disasters now regularly cost the U.S. over $100 billion a year, a more than fivefold increase from just the 1980s on an inflation-adjusted basis.


Illinois is not immune from a changing climate. The EPA's assessment for Illinois predicts that climate change will lead to more intense precipitation and flooding events in the spring and more intense heat and drought in the summer. These changes will lead to higher incidence of flooded farmland. Our area experienced 500-year floods in 2011, 2017 and 2019. We will also face challenges to management of water resources, increased heat-related deaths and ecosystem stresses in Lake Michigan.

If current global climate policies to reduce emissions are not strengthened, this 1.8° F temperature increase will at least triple by the end of this century and corresponding damages will increase even more. As the IMF recently stated, "Without further action to reduce greenhouse gas emissions, the planet is on course to reach temperatures not seen in millions of years, with potentially catastrophic implications."

This cannot be our future or the future we leave to our children.

But a simple, effective solution, one that is broadly favored by economists, can stabilize climate risk, increase job opportunities, improve public health and provide a financial benefit to the most vulnerable in our society. The solution is explained in the "largest public statement of economists in history," signed by all living Chairs of the Federal Reserve, 28 Nobel Laureates and over 3500 other economists.

It is to simply put a fee on carbon pollution and then return all funds raised directly to households in the form of "carbon dividends." This solution, commonly referred to as "carbon fee and dividend," is favored by economists because it "offers the most cost-effective lever to reduce carbon emissions at the scale and speed that is necessary," the public statement says. By creating a financial incentive for all consumers and producers to reduce carbon emissions, it will send a powerful price signal that steers economic actors toward a low-carbon future.

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Because this policy does not ban any particular activities or mandate any particular mitigation behavior, it allows consumers and producers the freedom and flexibility to reduce emissions in the way that is best for them. Reductions are achieved at least cost to the economy. In fact, the IMF report cited earlier shows that a strong carbon fee and dividend policy will lead to a small increase in GDP in the near-term and improve it dramatically in future decades as tremendous climate-related damages are avoided.

Further, it states that this type of market-based policy will have a "net positive effect" on employment. And as carbon and other pollutants are reduced, the policy greatly improves our health and saves tens of thousands of lives each year. Finally, this approach provides a direct monetary payment to all Americans, including the poorest among us. Simply by charging a fee for pollution and returning all funds to the American people,

"The majority of American families, including the most vulnerable, will benefit financially by receiving more in 'carbon dividends' than they pay in increased energy prices," the economists wrote.

We agree: a carbon fee and dividend policy is a clear win-win for America. We can stabilize climate risk, improve the economy, increase job opportunities in the industries of the future, improve our health and help the most vulnerable, all with one policy. The time to tackle climate change is now and carbon fee and dividend should be the centerpiece.

• Christopher Clapp, Ph.D., teaches economics in the Harris School of Public Policy at the University of Chicago. Jerry Hinkle, M.A., is the economic research coordinator for Citizens' Climate Lobby and serves on CCL's governing board. This statement has been signed by 21 economists around the state of Illinois.

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