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 or more reactive role in shaping our transition to a green economy. Though government decision-making can be contested and messy, it is more likely to bring the critical questions into the open and preserve democratic values.
And then there's the question of political viability. Because market mechanisms like cap-and-trade and carbon taxes are assumed to be more cost-effective than direct programs, decision-makers have assumed that they are likely to be more acceptable to impacted industries (and consumers), and thus more politically viable. However, when it comes to popular opinion, market mechanisms face obstacles. Carbon pricing presents as, well, a price – as a cost. While carbon pricing advocates generally describe a range of ancillary benefits, the cost is front and center in the eyes of industry and the public. In 2019, substantive policies, not prices, have dominated the raft of new and ambitious state climate laws. Washington, New York, New Mexico, Maine, Colorado, and Nevada established clear and tangible clean energy goals. In contrast, as noted above, Washington and Oregon's efforts to establish carbon pricing were unsuccessful.
In addition, pricing policies do not offer a compelling vision. Because they leave key decisions to private actors, there is no overarching vision, aside from carbon reduction. Climate strategies that allow people to see what a green economy might look like, or that create a planning process that allows people to participate in imagining that future, could be more compelling than a carbon price alone. It is telling that, after failed efforts to pass a carbon tax at the ballot box, the Washington State legislature speedily adopted laws establishing 100 percent zero-carbon electricity goals and tangible energy efficiency objectives.
All this said, carbon pricing is essential. Carbon pricing would provide a background incentive to reduce emissions and to innovate. It would also cover gaps in the event that more direct measures do not cover certain areas or prove ineffective.
And carbon pricing will be necessary to generate much-needed revenue. Lower-income communities will need financial assistance to take advantage of green technology and address potentially increasing costs. Agriculture and some industries may need assistance to develop or adopt new technologies and practices. And there is no escaping the fact that adapting to climate change will be dauntingly expensive.
In the end, there is no silver bullet. At the international, federal, state, and local levels, we must confront what we would like a green economy to look like and deliberate about how to get there. A carbon price should be an important part of the package, but it should be one that complements a more engaged and systematic reckoning with the future.
