President Joe Biden’s inauguration day was marked by his first major steps in addressing climate change – rejoining the Paris Agreement and vowing to “review” the Trump administration regulatory actions that propped high-emitting industries. Biden’s ambitious climate goals include carbon-free electricity by 2035, more wind and solar to get the nation to net-zero emissions and 100% clean energy by 2050. But also – a carbon tax.
In order to help fund his $2 trillion green infrastructure and energy plan he released during his campaign, and adhere to the Paris Agreement commitment of net-zero country emissions by mid-century, Biden is preparing a set of proposals, including a potential carbon tax. Putting a price on carbon dioxide is what economists, some politicians and many activists are prioritising as a reasonable, market-based solution for tackling the climate issue.
Carbon Tax for Multiple Sectors
A carbon tax is a fee imposed on the burning of carbon-based fuels. It should work across sectors like energy, transportation, agriculture and housing to make emitting greenhouse gases more expensive and by consequence – renewable energy cheaper and more popular. The resulting revenue from the tax could go for lowering individual and corporate taxes, reducing the budget deficit, investing in clean energy and climate adaptation and of course improving U.S. infrastructure.
The investment in green technology also means new sustainable jobs. “Biden’s proposal will make sure national infrastructure and clean energy investments create millions of middle-class jobs that develop a diverse and local workforce and strengthen communities as we rebuild our physical infrastructure,” according to the campaign’s plan. Biden also announced in a memo that the new social cost of greenhouse gas schedule accounts for the full costs of greenhouse gas emissions, including climate risk, environmental justice and intergenerational equity.
As part of the carbon pricing structure, the US could impose a tariff on goods like steel that come from countries without a carbon tax. Europe is also on the verge of accepting a carbon border tax adjustment and Canada, China and Japan already have some experience with carbon pricing. The tax is not new in California and Massachusetts either. So the new administration has plenty of examples to look from and compare with what could be improved.
One can only speculate what the amount of the carbon tax could be at this point. In California, the Low Carbon Fuel Credits market is currently trading at $195 per metric ton of CO2. A potential carbon tax of $100 per metric ton, would mean an additional $0.89 per gallon of gasoline and $100 per 1,000 kWh for coal generated electricity.
Climate Change Challenge
While it’s true that some things would become more expensive, if climate change continues being unmitigated, costs will increase for individual citizens as the world would experience active weather disasters and pandemics. Since 1980, the cumulative cost for climate disasters for the US exceeds $1.75 trillion and the covid pandemic is expected to total $16 trillion.
The new administration could also work to minimize the disruptive impacts of the carbon tax on industries especially if it wants it to appeal to moderate Democrats and some Republicans in the Senate that are needed to pass the legislation. Potential ways that are brought forward are funding research and development for increased carbon reuse, winter crop development and green hydrogen. The tax can fund rebates and investment credits for greater conservation in buildings and building materials and for switching capital equipment to lower carbon fuel sources.
One hurdle to pass a carbon tax legislation though, remains the US Senate – that chamber has been reluctant to address climate change with major new laws. However, after election victories in Georgia on Jan. 5, Democrats have the control of the Senate so a new carbon tax for cleaner energy seems like a realistic possibility.
Carbon Pricing Becoming a Necessity
“We cannot solve the climate crisis without effective carbon pricing,” Janet Yellen said in a written statement to senators, “The President does support an enforcement mechanism that requires polluters to bear the full cost of the carbon pollution they are emitting.” Her support of a proposal that would tax emissions is a clear indicator that environmental justice has become a real priority for the Biden administration. It seems like this time around Democrats could leave a mark in history.
As the US is trying to rebuild environmental justice in the country, a carbon pricing scheme could be the means in acting on one of the greatest challenges of our time. If successful, it could be a real breakthrough in achieving climate stabilization at the lowest possible cost as revenue from the tax could go back to the people in some ways. Not to mention, other countries might follow suit and even bigger visions for environmental stability could come to reality. The Biden-Harris administration does have a chance to be remembered as the one starting the big move, ensuring a safer and more prosperous future for all.