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Thinking through carbon pricing myths

April 1, 2022

This piece represents the opinion of the author.
Alyssa Bommer

In my six years of advocating for Carbon Fee and Dividend legislation to address climate change, I’ve come across a lot of very thoughtful concerns about the impacts and effectiveness of carbon pricing schemes. Some of these have made me really have to think and research about whether Carbon Fee and Dividend is the bright spot of hope for a safe future that I thought it was. But time after time, I have realized that Carbon Fee and Dividend sensibly proposes a carbon price in a way that addresses the concerns of its biggest skeptics. This article explores four common concerns about carbon pricing, and proves how a well-designed Carbon Fee and Dividend policy reduces these concerns to just myths.

Myth #1: Carbon pricing will not reduce emissions fast enough

With warnings from climate scientists growing more urgent and the impacts of climate change in our lives increasing, it may seem like the time has passed for a market-based solution, and that it is instead time to step in with government regulations and subsidies. However, economists have determined that carbon pricing is actually the most cost-effective way to reduce carbon emissions fast enough on a large scale. No one policy alone will solve climate change, but MIT’s En-ROADS Climate Change Solutions Simulator shows that of all available options, the single most effective option for reducing emissions is carbon pricing.

The Carbon Fee and Dividend bill that is currently in Congress is projected to reduce American carbon emissions by 47 percent by 2030 and 90 percent by 2050. This policy alone is nearly enough to put the United States on the path to the net zero carbon emissions by 2050 goal that is needed worldwide to hold 21st century warming to 1.5 degrees.

When looking at the climate crisis from a global perspective, carbon pricing is the only national policy that incentivizes other countries to enact similar climate legislation. Carbon Fee and Dividend legislation uses border carbon adjustments to adjust pricing of imports and exports in a way that reflects their net emissions, and the World Trade Organization only allows border carbon adjustments to be used with a price on carbon—not with regulations, subsidies or incentives.

Myth #2: Carbon pricing will increase our energy prices

While fossil fuel producers and importers are the ones who will pay the carbon fee directly, these industries will pass higher costs down to consumers, or so goes the argument. However, clean energy prices will soon drop from new investments and entrepreneurship driven by the carbon fee, and to protect people during the transition to clean energy, all of the money collected from the carbon fee will be distributed to all households equally each month as a dividend. Consequently, 85 percent of American households will come out ahead—receiving more in their dividend checks than they pay in the higher prices from the fee.

Myth #3: Carbon pricing will have regressive social impacts

Critics claim that a policy that solely increased fossil fuel energy prices would have regressive social impacts, since increased prices would most impact those who are already struggling to pay daily expenses. However, progressive social benefits can be achieved when the carbon price is combined with a full, equal household dividend. The dividend makes it so that everyone with a below-average carbon footprint comes out ahead. This includes most households in low-income and marginalized communities (along with anyone who chooses to maintain a low carbon footprint). In fact, 99 percent of the poorest fifth of the population, along with about 90 percent of minority households, will break even or come out ahead—making Carbon Fee and Dividend a great step toward achieving environmental justice goals.

Myth #4: Carbon pricing will hurt the competitiveness of U.S. businesses in the global market

Imposing a carbon price on U.S. producers will increase their costs relative to global competitors, some claim. However, Carbon Fee and Dividend legislation equalizes these costs with a border carbon adjustment. A border carbon adjustment applies the U.S. carbon price on imports from (and removes it from exports to) other countries that do not have a matching price on carbon. Since U.S. manufactures are more energy-efficient than many foreign manufactures, Carbon Fee and Dividend with border carbon adjustments would actually make U.S. manufacturers more competitive in the global market.

In conclusion, carbon pricing is one of the most effective tools we have to stop climate change. A good carbon pricing policy with an equal household dividend and border carbon adjustments can do it in a way that is also equitable, beneficial to local businesses and influential on a global scale.

Katharine Gage is a member of the Class of 2025.

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