Carbon taxes and cap-and-trade systems are sparking conversations about carbon pricing around the world.
Intro to Carbon Pricing
Carbon pricing aims to put a cost on the negative effects of climate change so that consumers will, even unconsciously, make choices that consider the hidden impacts of carbon emissions. But what exactly is a carbon price? These blog posts, originally posted by the Pricing Carbon Initiative, explore different types of carbon pricing mechanisms.
For years, scientists, economists, and advocates have written in favor of carbon pricing as a method to bring climate change into everyday decisionmaking. Carbon pricing builds on the idea that negative climate outcomes—like sea level rise, desertification, and intensifying natural disasters—tend to feel very far off. Carbon pricing aims to put a cost on these negative impacts of climate change with the idea that consumers will, even unconsciously, make choices that consider the impacts of climate change. While many other countries have implemented carbon pricing policies to contend with climate impacts, the United States is not among them.
Canonical carbon prices (a carbon tax or a cap-and-trade system) may be decreasingly popular, but these are not the only ways to make the act of polluting more expensive. There are, in fact, many exciting efforts underway in the United States at all levels of government to make the cost of pollution more visible and so affect decisionmaking about emissions.
Before diving in, some context: Why does anyone want to price carbon in the first place? In economic terms, when someone is able to burn fossil fuels without paying a price for the greenhouse gases they emit, it is a market failure—a situation when a market fails to appropriately price a behavior that imposes costs on society. Such market failures evoke the tragedy of the commons that British writer William Forster Lloyd wrote about in 1833. The original metaphor referred to a field, or a “common,” free for all to use, where farmers grazed their cattle. However, this led to overgrazing, and the grasses on the field died, with the result that no cows could be fed. It came to be a foundational metaphor in both economics and ecology: in ecology, for similar human overuse of natural resources, and in economics, for market failures.
Environmental market failures are very common. It has proven very easy for humans to underprice the value we all receive from clean air and clean water. Pricing pollution dumped into a commonly shared atmosphere is an attempt to correct this failure, and to make polluters pay a fair price for this damage.
While carbon taxes and cap-and-trade programs that put prices on fossil fuels at the point of sale are the most obvious and furthest-reaching ways to correct market failures, they are not the only ways. After all, fossil fuel–derived carbon dioxide is not the only carbon-based “greenhouse forcer,” or pollutant warming the climate. Chemically speaking, “carbon price” is a sloppy term, since other climate forcers such as methane, hydrofluorocarbons, chlorofluorocarbons, and fine particulates collectively known as “black carbon” all include carbon. In the above list, it’s even spelled out in the name of each except for methane. Usually, carbon prices are understood to refer only to carbon dioxide. Making it more expensive to emit any of these greenhouse forcers into the atmosphere could, chemically, be properly considered a carbon price.
Nor is the point of sale the only place where decisions are made on how much to pollute. Consumers make such decisions when they budget for the future, consider the lifetime costs of an appliance or a vehicle, and even where they want to live and in what kind of house. Companies do likewise when making a five-year plan, evaluating their logistics, deciding on suppliers, and marketing to consumers. Businesses and consumers are not the only ones making decisions on emissions: governments, with their enormous purchasing power, consider not only direct costs for their buildings, fleets of vehicles, and militaries, but how their decisions affect the voters they serve. Factoring in a price for emissions in any decision processes could lead to outcomes that are better for the climate.
When you consider all the greenhouse forcers with carbon in them, and all the decision points where a little price information about how consumer, business, and government actions will affect our common atmosphere, pricing carbon becomes a much more compelling policy idea.
