May Journal Club Review: Carbon pricing and the fight against climate change

May’s journal club was led by Michael Pinkert (Graduate Student in Medical Physics). Journal club review was written by Grant Hisao (Postdoc in Biochemistry).

Carbon pricing is a strategy to put market pressure on polluters to reduce carbon pollution. It functions by making polluters pay for their emissions and has been cited as one of the most effective policies to reduce greenhouse gas emissions. But how successful has carbon pricing been and what challenges have governments encountered in implementing carbon pricing policies? This was was the topic of CaSP’s journal club in May 2019.

Mechanics of Carbon Pricing

Carbon pricing comes roughly in three forms – a carbon tax, an emission trading system (aka cap and trade), or some sort of hybrid. A carbon tax is simply a fee placed on emissions, typically some dollar amount per ton of CO2 emissions. Cap and trade is a system where each polluter is given a limited allowance of carbon emission and allows each entity to buy and sell allowances from each other.

An effective policy, from the perspective of reducing emissions, is one that places a high price tag on pollution that affects many industrial sectors (e.g energy, transportation, etc). The tradeoff of having an aggressive policy is that prices of goods and services can go up, as business pass on the cost of carbon to consumers. Thus, such policies require a balance between reducing pollution and minimizing the economic burden in order to be palatable to the public as a whole.

The History and Politics of Carbon Pricing

Pricing policies started in 1990 with Finland and Poland. Currently, over forty national governments and a handful of other subnational governments have some sort of carbon pricing scheme or are in the process of implementing a new program. Pricing strategies have been met with mixed results.

Aggressive taxation can be politically perilous, as was the case in Australia. In 2012, Australia’s government (led by the Labor Party) introduced a 23 AUD per ton carbon tax which was to transition into a cap and trade model a few years into the plan. However, government distrust, a lack of transparency, and bipartisanship made the plan unpopular, leading to a large electoral defeat for the Labor Party. Under the new government, the policy was swiftly repealed in 2014.

By contrast, Sweden is regarded as the world-leader in carbon pricing, with the highest tax of 140 USD per ton of CO2 and strong public support for the policy. Sweden’s success has been attributed to the overall political trust their citizens have in their seemingly non-corrupt, highly transparent government.Since its initiation in the early 90s, the plan reduced emissions about 26% while the GDP of the country increased nearly 80% (in 2017).

In the United States, nine states from the Northeast and California have enacted carbon pricing initiatives. Prior to such initiatives, the US Congress failed to pass the American Clean Energy and Security Act of 2019, which would have implemented a cap and trade program similar to the European Union Emission Trading Scheme. The federal government has stymied on any new action since then.

Carbon Fee and Dividend

What should the revenue from a carbon tax be used for? Some think it should be used to develop cleaner sources of energy or to improve infrastructure. Others, such as the Citizens Climate Lobby believe the revenue should be returned directly to taxpayers through a program known as a Carbon Fee and Dividend (CFD).

CFD plan functions in two parts. The first part is to place a fee on fossil fuels. As mentioned above, such fee will both place market pressure on companies to reduce carbon emissions but will most likely also cause increases in prices for goods and services. To compensate consumers for the increase in prices, the second part of the plan is to redistributed the collected revenue directly to citizens in the form of dividend.

A CFD plan has now become law in Canada and has received bipartisan support in the United States. A bill proposing CFD plan has now been introduced in the United States Congress (HR 763: Energy Innovation and Carbon Dividend Act of 2019).

Action Needed

Though it is still too early to tell if Canada’s carbon pricing plan will be a success, it is promising. The bipartisan nature of the US’s HR 763 is also hopeful given our current political divide, but Congress will not move if individuals do not lobby for it. Though it may not be the panacea for climate change, action is needed immediately in order to limit the adverse effects of climate change (see the Fourth National Climate Assessment for many reasons why).

Reminder: CaSP will be hosting a climate change simulation game on Saturday, June 8, 2019 in the Orchard View Room at the Discovery Building. The simulation begins at 1:00 PM and runs for roughly four hours. Space is limited and there will be light refreshments, so we request that you RSVP here.