CO2 tax graphicThe idea of putting a price on carbon to lower greenhouse gas emissions has been around for some years. Since the Trump administration took office in January, it’s actually been gaining traction, notwithstanding the administration’s aggressive efforts against addressing climate change concerns.

The idea is to impose a fee – a tax if you ask folks who don’t like it, and a regressive one at that – on the carbon-emitting items in all sectors of the economy, everything from the gasoline in cars to polluting industrial operations and power plants. And lots more.

The idea functions like a cigarette, alcohol, or any other “sin tax” – charge more for something you want people to do or use less of: In this case, emit less carbon. So you throw an extra charge on the activities and fuels that produce it. The effect theoretically is that everyone will buy and use less of the items that require those fuels and involve paying those higher costs. That, in turn, would lead to lower emissions, not to mention making or saving money for whomever gets the fees.

Some Republicans, conservatives back efforts

A team of “elder statesperson” Republican heavyweights, operating as the Climate Leadership Council, is trying to generate interest, particularly among Republicans and political conservatives, for such an approach.

The group – including George Shultz and James Baker, both with Secretary of State among their multiple credentials – is pushing the idea, as are a number of fossil fuel mega-companies, including, not insignificantly, ExxonMobil. They see putting a price on carbon as basic market-based economics, and a way to substitute market incentives for the Obama-era regulations that incense so many in the business, “free market,” and deregulation worlds.

The group’s efforts in many ways resemble comparable initiatives launched in 2012 by former South Carolina conservative Republican Bob Inglis, who in 2010 lost his seat in the U.S. Congress in large part because his opponent criticized his support for climate action.

In addition to Inglis’ “Republicen” efforts, 17 current U.S. House Republicans, while not specifically supporting a particular approach, in March expressed support for acting on climate change through market-based approaches, breaking with most of their Republican colleagues in the House and Senate.

Despite this increased interest among some Republicans, few observers expect concrete action in the U.S. Congress on climate change or other major related legislative efforts given the administration and Congressional leadership’s climate change positions. (They point also to roadblocks in Washington resulting from continuing controversies and investigations involving the Trump administration, saying those remain obstacles to a wide range of major policy actions.)

Plowing ahead in northeastern states

At the regional level, there’s a less high-profile effort under way in the Northeast. Eclipsed somewhat by prominent climate change management moves in California, the Northeast carbon charge endeavor has been percolating quietly for a few years and is now getting serious consideration in New England states other than Maine, and also in New York State. The National Caucus of Environmental Legislators is acting as a clearinghouse for this program.

The roots were in the Obama administration, but supporters say they hope the Trump administration’s inaction on climate change and the administration’s threatened slashing of federal climate science programs and research will help boost prospects of state and regional programs.

States in Northeast moving ahead on #carbon pricing efforts. Click To Tweet

“At the worst possible moment for the state of our species, our national government has been hijacked and we’re not going to see the kind of action that we need out of them,” said second-term Democratic State Representative Aaron Regunberg in an interview. “We really have no other choice than for states like Rhode Island and Connecticut and Massachusetts and others to step up and lead the way.” Regunberg has introduced a carbon pricing bill into Rhode Island’s legislature for the second time in two years.

That sentiment is not uncommon in the Northeast – an area in which climate change is pretty much accepted as a reality, where the states have ambitious clean energy mandates and programs, and where states have to import fossil fuels.

“Every dollar that we spend on imported out-of-state fossil fuels is a dollar that we are sending out of our economy to Pennsylvania or Texas or Saudi Arabia that’s never coming back,” Regunberg said.

The states considering carbon charges, along with a few others, also are participating in the nation’s first and only regional cap-and-trade program on carbon emissions from power plants – the Regional Greenhouse Gas Initiative, RGGI pronounced “Reggie” – which has helped cut electricity sector emissions.

As a proof of concept, many say RGGI may help ease the way towards carbon pricing across the Northeast, where states seem acutely aware that their power plants can’t cut much more carbon and that it’s motor vehicles that are causing high emissions in the region.

Which is where the notion of a carbon charge comes in.

The economics of paying for carbon

The economic principle behind carbon pricing is simple, says Gary Yohe, Huffington Foundation professor of economics and environmental studies at Wesleyan University in Connecticut. He is also a member of the Intergovernmental Panel on Climate Change and an author of the 2014 National Climate Assessment.

“Economists like me, when they model a price on carbon, they look at carbon as an input to a production process,” Yohe said. “It’s something that you should have to pay for, just like you have to pay for labor.”

He and others recommend finding the point where the fewest payments are needed – so where a fuel enters the economy. “At every port, you’d collect information on how much petroleum is being imported that day; how much natural gas is coming into the economy that day; how much coal was being used that day,” Yohe said. “The price of coal, the price of oil, the price of natural gas would reflect its carbon content, and that would get passed through the economic chain to consumers, and consumers would make their choices.”

And people do typically respond to price increases by buying less. Janet Milne, a professor at the Vermont School of law and director of its Environmental Tax Policy Institute, for instance, points to a study in British Columbia, which began a carbon pricing policy in 2008. Authors of that study found that people responded more strongly to a change in price resulting from a tax than to the same change in price resulting from other market forces. (Canada is presently implementing nationwide carbon pricing based on British Columbia’s success.)

Avoiding the ‘t’ word (as in ‘taxes’)

“Price does affect behavior at the pump or behavior at the dealer’s lot,” she said.

But whether carbon pricing is called a tax, fee, charge or just pricing, the issue in some cases involves more than just semantics or a way for politicians to avoid the “t” word. Things may depend more on what happens with the money once it is collected.

Putting a price on carbon, but avoiding 'the T word'. Click To Tweet

In Massachusetts for example, where state Senator Michael Barrett, a Democrat, is on his third attempt at a carbon something-or-other, if the money goes into general budget use – revenue-positive is the jargon – it has to be called a tax.

Revenue-neutral, more jargon, in which the money goes back to taxpayers, in Massachusetts cannot be called a tax. Even if it goes to specific programs like energy efficiency, in Massachusetts that’s a tax.

The semantics get a little fuzzier still in other states.

After the first defeat of his approach as a tax proposal in 2013, Barrett changed his legislation to revenue-neutral – all money goes back to taxpayers. “That’s where I’m going and where I’m staying,” he said. “It’s an important policy choice. It’s not marketing.”

The structures vary from state-to-state and among competing bills within states. A handful of carbon charge bills were filed in Vermont this year after two were defeated in a previous session. Those would have returned most of the money to taxpayers, and the rest would have gone into specific energy funds.

So far in 2017, the bills run the gamut from those that put all the money towards specific energy uses, to ones that use the charges to replace existing taxes, including sales and education taxes.

Connecticut’s legislation, filed for the first time this year, would have split the revenue among residents, employers, and various climate-related funds, as does legislation proposed in Rhode Island.

How to use the money is not the only dissimilarity among the carbon charge proposals in the Northeast. These differences are raising the question of whether, in a region of mostly small states and interconnected economies, carbon charges should be uniform.

The answer so far has been mostly no. “Helpful but not crucial,” said state Senator Barrett of Massachusetts.

Regional versus state approaches

The carbon prices and price increases in each state’s legislation are similar, but they do vary. Connecticut and Rhode Island would start pricing at $15/ton and increase it by $5/year. Vermont would start at $10, and increases by $10 until it reaches $100. Massachusetts would start at $10 and increase by $5 until it reaches $40. One of the bills in New York would start the price at $35 and increases it by $15 to a maximum of $185.

The differing prices, which partially reflect the different costs of living from state-to-state, are raising concerns that states could undercut each other with lower carbon prices as a way to attract business.

There also are questions involving what to do about the electricity sector, already under cap and trade through RGGI. Some states like Rhode Island and Connecticut are choosing to layer on a carbon charge that’s the difference between the stated charge and the RGGI auction price. Massachusetts and Vermont would just exempt the electricity sector.

Rhode Island and Connecticut have triggers in their legislation that don’t allow implementation unless other states in the region – especially the population powerhouse Massachusetts – also approve a carbon charge.

And for money that goes back to people and/or businesses, there are many more structural questions. Should it be tax rebates? Payments? Should there be special formulas for low-income people? What about people in rural areas having no option other than to drive long distances?

Some say they favor just using the RGGI model, which is a uniform program with a broad parameter for how to distribute money, an approach individual states could tailor to meet their specific needs.

“One shouldn’t assume a standard of purity for introducing carbon prices that doesn’t exist for other kinds of taxes,” said Milne, of Vermont. “There’s no one perfect carbon tax model because the carbon tax design has to fit within the structure of the state or the government that’s considering it.”

But she added: “I think the tax rate needs ultimately to be high enough to send a real signal.”

Johanna Miller, energy and climate program director at the Vermont Natural Resources Council, doesn’t quite agree. “It is really important to have coordination,” she said. “We recognize that and will certainly aim for it.”

State differences aside, Miller and others say the idea of a carbon charge, a heavy lift under even the Obama administration, might over time actually gain momentum with Trump in office.

Peter Shattuck, director of clean energy initiatives for the regional environmental advocacy group Acadia Center, noted that it was a Republican governor, George Pataki of New York, who proposed RGGI in the face of environmental inaction from President George W. Bush. Four of the region’s original seven RGGI signatories were Republicans.

“In a strange way – this may be one of the silver linings of the Trump administration,” he said. “As he guts every major climate policy that was put in place over the last eight years, there’s a need for governors in the region to step forward and show some leadership.”

They likely also will need patience. Bill sponsors and advocates admit passing a carbon charge is likely to be a multi-year effort. This year already, New Hampshire has turned down legislation to just study the idea. And the Connecticut General Assembly did not consider its bill.

Massachusetts and Rhode Island are seen as the best bets with chief sponsors there casting it as good economics. But even bill sponsors agree it’s only one part of the climate change “solution” puzzle.

Representative Regunberg in Rhode Island calls carbon pricing the jet fuel that pushes all the other climate change programs forward.

“This is an important piece of how we’re going to make Rhode Island’s economy strong. Even if we weren’t staring down the barrel of a climate-destroying gun, it would make sense,” he said. “Having said that – we ARE staring down that barrel. There’s a moral urgency to us taking that kind of action.”

AUTHOR
Jan Ellen Spiegel is a freelance writer and editor based in Connecticut. In 2013, she received a Knight Journalism Fellowship at MIT on energy and climate.

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