Has the Time Come for a Price on Carbon?
In an article written for the Wall Street Journal, global energy policy expert Amy Myers Jaffe argues that the US may soon put a price on pollution. Though it seems that pollution valuation and quantification are indubitably important in our collective battle against climate change, the idea of putting a number and price on carbon, the largest culprit, has been met with protest. The propelling factors, Jaffe writes, are preexistent valuation of carbon, technological advancements in viable alternatives, and international developments such as China’s own development of a carbon-pricing plan and the UN’s recent COP 21 in Paris. Unlike former iterations of the policy, she believes that upcoming carbon valuation plans will have the perfect storm of conditions to bolster their chances of getting passed-- the right policy, at the right time.
The two most common methods that could be employed are the carbon tax, and a cap-and-trade market. The carbon tax would occur as a penalty per ton of carbon emitted by industries. A cap-and-trade system is comprised of a predetermined number of permits to emit, which may be exchanged on the market between companies, at a value determined by the market. Both are aimed at industrial and commercial bodies, who are responsible for a substantial amount of emissions.
Perhaps the most compelling argument for a price on carbon is that in many realms, she argues, it already exists in the US. California is currently experimenting with its own fledgling cap-and-trade system. Even the largest emitters-- companies that sell or deal with large volumes of carbon, such as oil and gas companies, and electricity producers-- have factored an additional “shadow” price of carbon into their business plans. This precautionary move has already shaped the way these players view long-term
projections, and ideally strives to cushion the effects of imposed federal and state regulations. In quoting Moody’s Investors Service, Jaffe writes, “policy and regulatory uncertainty regarding the pace and detail of emissions policies “is material to credit quality now” for many companies involved in the energy business”. Even more surprising is the support of industry giants Exxon Mobil and Total SA for a carbon tax.
Not only does a carbon price exist in some form throughout the country, but other countries prove that the idea can work. Japan, the European Union, and South Korea already have some formal system of carbon valuation, which has been integrated into their economies and exports. Even California is experimenting with a fledgling cap-and-trade system. The most compelling example, however, is industrial superpower and sometime rival China. At the World Economic Forum last year, Chinese President Xi Jinping announced the development of a stringent, nationwide cap-and-trade market; some believe this choice will only continue to spur the growing clean-tech industry, and reinforce its dominance in the photovoltaic manufacturing market.
Working in an American carbon pricing policy could spark more progress both in the short- and long-term, Jaffe contends. It could help shift national emphasis towards the development of a skilled workforce around clean technology, and fuel national energy sovereignty. Creating a universal standard throughout the union would reduce market inefficiencies and uncertainty for investors, lenders, utilities, companies, and consumers, resulting in an overall improved quality of life for all.