The US can inspire other countries to act on climate by adopting a carbon fee and dividend with a border tax adjustment

By: Jon Clark – Citizens’ Climate Lobby.

See original post here.

In response to Barry Davis’ July 29 essay on climate change:

Thank you Mr. Davis for your thoughtful, fact-driven letter and thank you for the context you have so clearly defined. As you point out, the U.S. is responsible for about 13% of global emissions, China, India and the E.U. account for over half of global emissions.  The world cannot successfully tackle climate change without significant emissions reductions from ALL of these countries.

As for the cost benefit analysis of climate action, there is plenty of research done on the costs to our economy with climate action vs. inaction. For example, a study from the Deloitte Center for Sustainable Progress released this year found there’s a “potential to gain $43 trillion in net present value to the global economy by 2070” if we take decisive action now, vs. the potential for unchecked climate change to “create $178 trillion in global economic losses (in present value terms) between now and 2070.”  

Extreme weather events we know are becoming more frequent and more intense, are costing us billions of dollars and are also a disruptor of our global supply chain and threaten our food supplies and national security, not to mention the loss of lives. 

According to the World Economic Forum, “Over the past decade, global economic losses from weather events like storms, floods, droughts and wildfires have grown more costly. During the first decade of the 21st century, there were only two years when weather disasters cost more than $200 billion (including 2010). In the second decade, those $200 billion-dollar-a-year losses seem to have become more normal, with seven out of 10 years grossing over $200 billion in global losses from weather events.

The costliest year on record was registered in 2017, totaling over $470 billion in losses, including those from major Hurricanes Harvey, Maria and Irma. All in all, weather damages totaled approximately $2.5 trillion around the globe between 2011 and 2020, up almost 50 percent from the 2001-2010 figure.” I’m writing this and watching yet another flooding disaster unfold, this time in Kentucky.

Even if you discount the disaster-related costs, the burning of fossil fuels contributes to four of the five leading causes of death in the United States, including heart disease, cancer, stroke and lung diseases, while putting children at risk of asthma and delayed mental development.  

According to the National Academy of Sciences, the burning of fossil fuels causes $120 billion annually in health-related damages.  

All these costs are externalities shouldered by society and if we had a true free-market economy would be included in the price of fossil fuels. They are not. Taxpayers are forced to pay these costs both in lives and dollars. 

We could disagree as to what dollar amount carbon pollution costs our economy, but I think we could both agree that cost is not zero. That’s what the fossil fuels industry is charged currently in the U.S. for their pollution. I see this as the greatest market failure the world has ever seen. This brings me to your point of what can the U.S. do with countries like China and India who plan on increasing emissions before they reduce them.  

Currently, the United States and Australia are the only two developed economies that do not put a price on carbon emissions. 

If we implemented carbon pricing here in the U.S. we could also put in place a border tax adjustment to protect American manufacturers from being undercut by countries who do not have a similar price on carbon. 

This prevents what’s called “leakage,” manufacturers moving their production overseas where it’s still free to pollute. The EU is doing exactly this. 

The EU currently has cap and trade (a price on pollution) and their current price on Co2 emissions is about 76 Euros/ton of emissions (about $77 American).  They are also in the process of implementing their own border tax adjustment on carbon intensive goods such as cement, steel and aluminum and plan to expand the scope of what’s taxed at their border. In short, without a similar charge for carbon pollution, American manufacturers will be paying the EU’s carbon tax. 

In fact China and Russia are already squawking about it but are also talking about setting up their own in-house carbon pricing in response. This is exactly how we get others to act. The incentive is there to keep those fees within their own treasuries vs. paying it out to the EU. Once the EU implements this, other countries that charge for carbon pollution will be lining up to implement their own carbon border tax adjustments as well. Canada and Japan are already talking about this. There is bipartisan support for a border tax adjustment in the U.S. but I think that would be very hard to do without a price on carbon pollution and be WTO compliant.   

As far as a price on carbon pollution wrecking our own economy, Citizens’ Climate Lobby advocates for returning 100% of the revenue collected back to households equally as a dividend (something Canada is doing now). This is to protect consumers from higher energy costs and encourage behavior change as consumers and manufacturer’s look for ways to reduce their carbon footprint. 

When gas prices were at their highest, Americans were paying the equivalent of about $150/ton of CO2 emissions with 100% of the revenue going to the oil companies, hence record profits. We need to shift that revenue back to Americans. We want to start out low at $15/ton of CO2 emissions charged to companies where fossil fuels enter our economy (the port of entry, the well or the minehead). This sends a market signal that we should be reducing the amount of fossil fuels we use. 

We’re not picking winners; we’re just charging an amount closer to what fossil fuels should be costing (not zero) and letting the market do its job, correcting the market failure. 

We determined that about two-thirds of households would break even or come out ahead with the amount returned to them as a dividend vs. what they pay out in higher energy costs. This puts money in people’s pockets and would be a boost to our economy as most people tend to spend it when they get it.  Basically it would be an economic stimulus.  

I agree with your statement that we should be having a policy debate, but too often I hear the “what about China and India” argument used as an excuse to throw our hands in the air and continue business as usual. We can inspire other countries to pursue their own emissions reductions with the right policies in place, but that discussion needs to happen with both political parties at the table and acting like we have a global emergency on our hands — official declaration or not. 

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