There has been some good progress in the battle against climate change lately, since the US finally enacted a comprehensive energy and industrial policy framework to accelerate its green energy transition. The federal subsidies and carefully targeted tax credits in the Infrastructure Investment & Jobs and Inflation Reduction Acts are catalyzing a much-needed buildout of renewable energy power plants and electric vehicle charging networks. Investments are also being made in not-yet-ready but clearly critical technologies, like green hydrogen from electrolysis, carbon capture and sequestration for hard-to-electrify industries, and atmospheric CO2 drawdown. In 2023, 86% of new electric power capacity was carbon-free, EV’s made up nearly 10% of new car sales, and the DOE’s new Office of Clean Energy Demonstrations began to scale up fledgling industries by investing tens of billions in public-private partnerships. It will still be a few years before sustained emissions reduction becomes evident, but it is certain that we are witnessing an historic break in our energy economy. The scope of change is by now too extensive to reverse.
Yet it is also obvious that something more is badly needed in the policy toolkit. To see why, look no further than the expansion of fossil fuel production and infrastructure that is happening alongside the green energy buildout. In 2023 the US produced nearly 13 million barrels (546 million gallons) of crude oil per day, more than any other nation at any time in history. US natural gas production increased by about 5% in each of the past two years, also reaching historic highs. Both oil and gas production increases are enabled by fracking technology, while dramatic expansion of the liquified natural gas (LNG) industry has allowed the US to export increasing amounts of that fuel to Europe and other markets. LNG export capacity is projected to double within the next four years. Among the three major fossil fuels, only coal is in decline – but even here regional reliance on mining and anti-regulatory Supreme Court rulings help the industry to persist.
Of course, we know exactly where the problem lies. The IIJA and IRA laws are based almost entirely on offering carrots in the form of subsidies and tax credits for green energy, but are notably lacking in sticks to push private firms toward new business models that rely less on fossil fuel operations. And so it is hardly surprising that the burgeoning demand for energy is being met by an “all of the above” expansion in renewable energy and fossil fuels alike.
Without federal policy, the battle against constructing ever more fossil fuel infrastructure has to be fought at the state and local levels. In parts of the country with strong advocacy for healthy climate and reasonably forward- looking governance, we do see progress. California’s historic role as an oil producer has been sharply undercut by its sustained refusal to grant new drilling permits, while Oregon, Washington and British Columbia have successfully resisted industry initiatives to build no fewer than 40 fossil fuel export terminals in the past decade. Throughout the country, grass roots advocates take on fossil fuel projects one by one – and score historic victories like the defeat of the Keystone pipeline, which would have moved enormous quantities of petroleum from West Canadian “tar sands” deposits to the US Gulf Coast.
The hard work and courage of healthy climate advocates keeps the damage from fossil fuels in the public eye and offers a beacon of hope for those living in parts of the country where such successes have not yet been possible. The value of these efforts is not diminished by noting that they are not enough. The hard truth is that the capacity of the environmental movement is too small, and fossil fuel interests far too well entrenched, for a facility-by-facility approach to do more than inspire. Rather, we need national policy that will be effective even inside the anti-regulatory ethos bestowed by an ideological Supreme Court. That policy, of course, is an economy-wide price on carbon.
One of the very few “sticks” in the new laws is a move, however tentative, in this direction. The IRA includes a methane fee to be imposed on manufacturing facilities that report emissions under EPA’s Greenhouse Gas Emissions Reporting Program. The fee begins in 2025 and is set high enough to give regulated firms an incentive to spend some money plugging methane leaks in their natural gas lines. It is paired with a grant program targeted to the same companies, a further spur for them to deploy equipment and processes to reduce methane emissions.
The new methane fee is noteworthy because it is the first time that the US has imposed a financial penalty of any kind for greenhouse gas emissions, but it is purely palliative and will do nothing to reverse the juggernaut of oil and gas production. An aggressive and escalating price on carbon, however, would correct the market failure associated with the fact that, in the US, most greenhouse gas emissions still come at no cost. Rather than asking the public to bear the cost of climate damages, as we do now, a carbon price would shift the burden to the firms that mine fossil fuels. Solar, wind and other green technologies would get a huge competitive boost in the marketplace, as they pay no tax. And oil and gas companies would be forced, by financial exigency, to pivot toward offshore wind, low-carbon hydrogen, advanced geothermal energy and deep geologic carbon sequestration – all climate-friendly technologies that are a natural bridge from the expertise they already have.
In 2019, a group of over 3600 economists spanning the ideological spectrum stated publicly that a US federal carbon tax coupled to return of the revenues to American households offers “the most cost-effective lever to reduce carbon emissions at the speed and scale that is necessary.” And yet considerable skepticism, in no small measure fueled by oil and gas company misinformation, still exists as to the policy’s effectiveness. Analyses of regional carbon pricing programs that take the “cap and trade” approach show that carbon pricing works, but they are inevitably complicated by the fact that other policies like subsidies or government regulations are also in place. Other criticisms have also been levied – the taxes are too low, the revenue return or other uses for the funds are unfair, fuel prices will skyrocket and lead to recession, and so on. The persistent drumbeat of negativity contributes to a sense that a national carbon price is politically out of reach.
Remarkably, until last month no systematic study to assess the comparative merits of the literally thousands of climate policies implemented worldwide had been completed. But now an international team of climate policy experts has accomplished this feat by taking an entirely new approach. Rather than analyzing a small handful of individual policies inevitably complicated by differences in social and geographic settings around the world, the team started instead with greenhouse gas emissions data. Using a careful statistical approach, the group identified “breaks” in the data where specific countries reported sharp drops in emissions. They then cross- compared the emissions data with a comprehensive climate policy database to identify the most effective policies from a universe of about 1500 measures enacted by 41 countries over the past two decades.
And the winner is? You guessed it, carbon pricing. Among the 1500 policies evaluated, just 69 specific examples passed muster under the demanding statistical tests imposed to decide what counts as a data “break.” Comparing the various policy instruments within this select group, the authors state: “…taxation is a notable exception in effectively causing large emission breaks alone. It stands out as the only policy instrument that achieves near equal or larger effect size as a stand-alone policy across all sectors.” In other words, many policies can be effective, but only carbon pricing yields good results on its own. And adding some of the other policies to carbon prices improves outcomes. For example, the United Kingdom achieved significant emissions reductions when it imposed a carbon price “floor” for UK power producers within the European cap and trade system. The new analysis showed that the effectiveness of that pricing was enhanced further by being part of a policy mix that also included a top-down requirement for new renewable energy, strict air pollution standards, and other measures. Carbon prices really do appear to be a silver bullet in some cases, but adding more to the package – silver buckshot– is even better.
Most healthy climate advocates are probably not holding out hope that this study will shift the conversation about carbon taxes – but at some point, people, something’s gotta give. What passes for transformative climate policy in Washington now is Senator Joe Manchin’s permitting reform bill, which would slash environmental reviews and ease deployment of renewable and fossil fuel energy projects alike. The bill includes provisions that would streamline siting and approval of new transmission infrastructure, widely viewed as the biggest roadblock hindering the rapid greening of the electricity grid. Given the crucial importance of transmission within US borders, the expansion of fossil fuel leasing and additional perks for LNG are tolerable because oil and gas are global commodities – other countries would fill any gaps in fossil fuel demand that might appear if the US pulls back. But any benefit to the fossil fuel industry is a bitter pill to swallow, and Manchin’s bill is quite obviously shoveling more of the “all of the above” energy narrative that is at the root of the problem.
Even in Joe Manchin’s world, we do eventually move to a carbon-free energy system. This will happen because renewables are simply superior technology: lower cost once they reach economies of scale (as solar and wind already have), and gaining further advantage because of the much higher efficiency of electrified end uses driven by clean power plants. The issue is simply how long the transition will take, and how much additional climate damage we will have to suffer (and pay for) along the way if we continue to resist pricing.
Domestic politics may continue to be unfavorable for a carbon price, but the US does have to play ball in an international economy where pricing is increasingly accepted. The World Bank’s carbon pricing dashboard provides details about policies around the world, showing over 100 measures enacted in 53 countries. In many cases the prices are quite low and/or applicable to only some economic sectors, but the European Union’s cap and trade emissions trading system (ETS) is a major exception. The ETS covers about half of EU emissions and has recently traded at prices up to $100 per ton. Significantly, the EU is now beginning to impose a carbon border adjustment mechanism, levying tariffs on imports of carbon-intensive goods (like steel) from countries (like the US) that do not price carbon themselves. Such a border adjustment has always been an essential element of US carbon tax bills, which proponents had envisioned would apply against laggards like Russia and India. But it is now the US that finds itself increasingly in the role of the bad guy.
These international developments are the key driver for bipartisan legislation that has a decent chance to pass Congress soon. The PROVE IT Act (Providing Reliable, Objective, Verifiable Emissions Intensity and Transparency) authorizes studies to calculate the carbon intensity of US goods that would fall under EU or other border adjustment tariff schemes. Some Republicans support this bill because they see the data it would provide as a basis to eventually levy tariffs on imports. This would be based simply on the fact that US manufacturing is already more energy efficient and less emissions intensive than many less developed countries. But this information could also be used as a basis for border adjustments in a US carbon tax bill, and that is the reason to support it now. The far right, anti-regulatory Competitive Enterprise Institute lays this out very clearly in a recent blog post, urging all Republicans to oppose the bill because of the horrors it might lead to. It would be hard to find a more revealing example of the fear gripping the hearts of fossil fuel executives when the phrase “carbon tax” comes up. The CEI is perfectly right: a Democratic trifecta is well within reach this Election Day, and budget reconciliation could indeed be used to pass a carbon tax through a Democratic Senate no longer held hostage by the soon-to-retire Joe Manchin. This is an outcome that every healthy climate advocate should work for.