Beyond Carbon Pricing: Envisioning a Green Transition

by Alice Kaswan

July 16, 2019

High hopes that putting a price on carbon emissions would provide the most effective and politically expedient climate change policy keep getting dashed. In June, Oregon's Republican senators fled the state and hid rather than enact a carbon cap-and-trade program. Washington State citizen initiatives to pass a carbon tax have failed – twice. Even in progressive California, efforts to include a cap-and-trade program in the state's initial climate legislation failed; cap-and-trade came later, administratively rather than legislatively, and as part of a larger plan. 

Carbon pricing has an important role to play and should be a part of any comprehensive climate strategy. However, as I argue in a new CPR Issue Brief, Carbon Pricing: Essential But Insufficient, carbon pricing will not solve the climate crisis. Pricing alone is unlikely to be fully effective, would sacrifice core democratic values, and, as we've seen, may be less politically viable than once thought. Climate policies that more fully embrace the environmental and socioeconomic implications of a just transition to a green economy are more likely to provide a thoughtfully planned, deliberative, and inspiring path forward than a price sticker.

As a practical matter, a carbon price sends market signals that can create important incentives to reduce carbon. But these signals generate fragmented actions by a wide range of players rather than a coordinated and integrated strategy for transitioning away from fossil fuels. Strategic planning and programs will be needed to coordinate the shift away from fossil fuels.

In addition, market signals create incentives for just one feature of a green transition: carbon reductions. But decarbonization will not be a marginal enterprise; how we decarbonize implicates a wide variety of critical features of our political economy, including air pollution, employment opportunities, and the structure and control of our energy system. Ideally, market signals incentivize efficient carbon reductions, but they don't necessarily incentivize shifts that will optimize the multiple environmental and socioeconomic features of a green transition. Careful planning and assessment can better maximize the multidimensional benefits and minimize the potential economic, social, and environmental costs of a green transition.

And can policymakers really get the price right? Most existing greenhouse gas cap-and-trade programs have featured relatively low prices that have not done much to incentivize robust investments. In fact, low prices could have a perverse effect; they could induce investments in energy sources, like natural gas and natural gas pipelines. Because of the long-term nature of these investments, they could hinder, rather than facilitate, a green transition. 

The alternative is equally unappealing, however: High prices, without direct investments to help disadvantaged populations, would have unacceptable socioeconomic consequences for lower-income communities. A modest carbon price, coupled with direct programs to structure appropriate investments and ensure an equitable transition, would avoid the risks inherent in sole reliance on a carbon price.

In addition to practical concerns, relying primarily on a carbon price implicates governance. A carbon price creates the signal and then lets the "private sector" decide how to respond. That means that utilities, industry, agriculture, and the buildings professions are in the driver's seat of our decarbonization trajectory. While some flexibility and autonomy is valuable and leaves room for innovation, fully privatized decision-making sacrifices governance values. The public sector – whether legislators, agencies serving the public interest, local governments, or other public entities – plays a lesser ...

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