Climate Change

Carbon Pricing Is a Possible Alternative to Partisan Bickering Over Climate Change

Taking meaningful steps to reduce carbon emissions requires recognizing that the market is smarter than bureaucrats in Washington.


In the closing days of a race that's closer than expected, Sen. John Cornyn (R–Texas) has been accused of using manipulated footage to make his Democratic challenger, MJ Hegar, say that she "support[s] a carbon tax."

In fossil fuel-rich Texas, of course, support for a tax on carbon is potentially disqualifying. Hegar's actual position is somewhat unclear: She claims to support a carbon tax but also says she would not want it to hit middle-class families. Still, the last-minute tussle over carbon taxes in the Texas senate race is indicative of a greater problem in our national politics when it comes to fighting climate change: The politics often supersede the policy.

That's certainly been true in this year's presidential race.

Democratic nominee and former Vice President Joe Biden's campaign website calls climate change "the greatest threat facing our country and our world." He promises to invest $2 trillion dollars into infrastructure, manufacturing, and "environmental justice" to ensure that "communities who have suffered the most from pollution are first to benefit."

Biden also plans to refit thousands of homes, even though the costs for that are significantly higher than the benefits. He pledges to reduce carbon emissions to zero, which Bjorn Lomborg, a visiting fellow at the Hoover Institution, projects would cost $5 trillion dollars. Overall, Biden's plan would cost thousands of dollars per taxpayer every year, according to Lomborg.

Meanwhile, incumbent President Donald Trump's environmental agenda consists primarily of hoping that climate change goes away. His campaign website describes his second-term agenda as promising to "Continue to Lead the World in Access to the Cleanest Drinking Water and Cleanest Air" and to "Partner with Other Nations to Clean Up our Planet's Oceans"—admirable goals, sure—but does not mention climate change or outline any concrete plan for reducing carbon emissions.

Reducing carbon emissions requires recognizing that the market can do a better job than bureaucrats in Washington—but also that doing nothing isn't a good option. Failing to act on climate change presents significant economic costs as well. According to the Congressional Research Service, even a small increase in global temperatures could lead to a 2 percent annual loss in gross domestic product, with that number increasing alongside the rate of warming.

A new study from the Niskanen Center, a centrist think tank, offers a middle ground that more politicians should be willing to consider: carbon pricing.

Joseph Majkut, director of climate policy, argues in a recently published report that carbon pricing could be an effective policy for curbing emissions while preserving markets. Under Majkut's proposal, the federal government would price carbon at $50 per ton, and return that revenue to taxpayers. This would create a market incentive for corporations to implement clean energy plans. It would discourage investment in fossil fuels, and likely encourage firms to start the process of moving toward clean energy sources. But it wouldn't cost trillions of dollars, nor would it absolutely destroy the American economy. There would be costs, just as with any tax—but not to the degree that Biden's plan would entail.

It would not, Majkut notes, "entirely fix underinvestment in scientific research" nor "eliminate the cost premium and limited selection facing prospective buyers of electric vehicles." But, he argues, it is a valuable first step that would still meaningfully contribute to working against climate change.

Corporate decarbonization can only come from regulatory predictability, and "regulatory predictability and market certainty come from a carbon price, not from continually changing command-and-control measures," Majkut writes. It's a plan that has support from stakeholders in the fossil fuels industry, including energy companies like ExxonMobil and BP, as well as automakers like General Motors and Ford.

The support by the energy sector for carbon pricing has led to some pushing back against it. According to Bloomberg, the projected $40-50 price for carbon may be too low to actually trigger changes in the marketplace. Bloomberg notes that climate activist groups like the Natural Resources Defense Council argue that carbon pricing would effectively price out coal, but would boost the market for natural gas.

Carbon pricing is a plan that relies on letting market mechanisms sort out the costs of pollution that affect the climate. Unfortunately, implementing it would be tough as it would require our politicians to admit they don't have all the answers.