The Fizz Has Gone: Time for the Left to Say Goodbye to Carbon Pricing
Volume 28, Issue 3, Winter 2019
The Green New Deal (GND) discussion currently taking place in the U.S. and around the world has drawn attention to the complete failure of the neoliberal approach to addressing climate change. At the heart of this approach is the “polluter pays” principle. When applied to climate change, this means putting a price on carbon dioxide (CO2) and other greenhouse gases (GHGs) either through government auctioning of pollution permits (“emissions trading schemes”) or by way of a direct carbon tax.
The thinking behind carbon pricing was captured by Nicholas Stern—a former World Bank chief economist—in a landmark 2006 report titled “The Economics of Climate Change”. Stern famously remarked, “The science tells us that GHG [greenhouse gases] emissions are an externality; in other words, our emissions affect the lives of others. When people do not pay for the consequences of their actions we have market failure. This is the greatest market failure the world has seen.”[1]
For neoliberals, carbon pricing is not simply a policy; in many respects it is the policy. It is a policy that’s saturated in ideology, in that it explicitly restricts government action to an arms-length “sticks and carrots” approach to changing economic behavior. Carbon pricing (the “stick”) is still considered by policy wonks and mainstream legislators to be the only economy-wide mechanism that can reduce emissions in a cost effective way. According to Stern’s Global Commission on Economy and Climate, “A strong, predictable and rising carbon price sends important signals across the economy, helping to guide consumption choices and investments towards low-carbon and away from carbon-intensive activities. It can also raise fiscal revenues for productive uses.”[2]
Price Carbon, Yes or No?
But given Stern’s assessment, it’s not surprising that many in the left think that “pricing carbon” (which is shorthand for pricing all GHGs) is a solid, progressive idea. It offers an incentive to polluters to reduce their emissions and it can generate revenue that governments can then redirect toward good stuff, like green job creation and “just transition” support for workers and communities. This largely explains why unions and environmental groups all over the world have actively supported efforts to get carbon pricing schemes up and running.
But the main voices behind the GND have rejected carbon pricing of any kind. The resolution for a federal GND submitted to the House and Senate by, respectively, Representative Alexandria Ocasio-Cortez and Senator Ed Markey in February 2019 makes no mention of either a carbon tax or emissions trading. As noted in the New Labor Forum’s fall 2017 “Earth to Labor” column titled “When Stopping Coal Plant Closures Makes Environmental Sense,” the turn away from carbon pricing is part of a leftward policy shift on climate change that’s being fueled by insurgent Democrats. Proposed legislation from Senator Bernie Sanders and others has focused more on dealing with the source of emissions (burning of fossil fuels) and less on having polluters pay for their “externalities,” namely GHGs.
. . . . [U]nions and environmental groups all over the world have actively supported efforts to get carbon pricing schemes up and running.
This shift has been a long time in the making, but why did it happen? Is the shift based on a rejection of the underlying logic of carbon pricing? Or is it based more on an assessment of the political obstacles that stand in its path? It’s important to try to answer these questions, because failure to do so could lead to a situation where carbon pricing could once again become “the policy of choice”—and the left that is beginning to rally behind the idea of a Green New Deal could find itself confused or divided on this important issue. In fact, there are clear signs that influential neoliberals are attempting to steer the discourse on climate action back toward support for an explicit market-focused approach. In recent months, for example, four former chairs of the Federal Reserve issued an unprecedented call for a carbon tax in the U.S., in order to “send a powerful price signal that harnesses the invisible hand of the marketplace to steer economic actors towards a low-carbon future.”[3]
A dozen or so years ago carbon pricing schemes were taking off everywhere. In 2005 unions in Europe supported the formation of the world’s largest carbon market, the E.U.’s Emissions Trading Scheme and have spent years trying to shape its design and to ensure that revenues from the sale of pollution permits got directed to job creation and “just transition” initiatives. In the U.S., unions backed the effort to establish a federal “cap and trade” system during President Obama’s first term and, more recently, progressives and unions have rallied behind state-level efforts, including a ballot initiative to establish a “pollution fee” in Washington State.
However, there are several compelling reasons why the left should now call time on carbon pricing. These reasons are empirical, political, and—importantly—ideological.
The Illusion of a Global Price on Carbon
The empirical evidence—in other words, the record of carbon trading as a mitigation tool—is crystal clear: after almost 30 years of trying to establish an effective global price on carbon, the results add up to a monumental failure. In terms of political strategy, progressives’ efforts to establish carbon pricing have mostly backfired, and it’s time to redirect activism toward more radical strategies and solutions. Carbon pricing has had little or no impact on emissions levels. Emissions are rising, not peaking.[4] According to NOAA’s latest data, emissions have risen a staggering 43 since 1990 when carbon pricing was first talked about as the most efficient means of reducing GHGs, and CO2 emissions from all sources hit record levels in in 2018.[5]
. . . [T]he turn away from carbon pricing is part of a leftward policy shift on climate change that’s being fueled by insurgent Democrats.
Advocates of carbon pricing insist that the rise in emissions is at least partially attributable to the fact that almost all of the world’s annual GHG emissions are either not priced at all or are not priced high enough to appreciably slow their increase. The way to deal with this problem is therefore simple: governments must introduce an effective global price. But this completely misses the point. Carbon pricing’s status as a core policy—more significant than any other–has precluded other forms of action to reduce emissions. Whatever its appeal in theory—it is not doing what it was supposed to do; instead carbon pricing’s only function is to provide cover for “business as usual.” And this at a time when the Intergovernmental Panel on Climate Change’s (IPCC) 2018 “Special Report on 1.5 Degrees” has concluded that, in order to stay within 1.5 degrees Celsius of warming, human-caused CO2 will need to fall by about 45 percent from 2010 levels by 2030, reaching “net zero” around 2050.
Many activists who today support carbon pricing often appear to be unaware of the fact that the effort to introduce an effective global price on carbon has been a major political disaster. The extent of this disaster is clearly visible in the World Bank’s own data, which is presented annually in its “State and Trends of Carbon Pricing”.[6] According to the Bank, in 2018 barely 14 percent of global GHGs were subjected to a price. And if all of the pricing schemes that are “scheduled for implementation” actually get put in place—and that could take several years[7]—then the percentage of priced GHGs would rise to 19.6 percent.[8]
Not only is the proportion of priced GHGs still small, but the price is far too low to have any meaningful impact on investment decisions. For the 14 percent of emissions that are currently priced, the weighted average is a little over $11 per ton.[9] The Stern-led Global Commission on Economy and Climate today acknowledges that carbon prices “are still too low to have meaningful impact” and that a global carbon price of $40 to $80 per ton by 2020 is needed, rising to $50 to $100 by 2030.[10] And the World Bank cannot point to a single instance where carbon pricing has had more than a barely measurable impact on emissions levels.[11]
. . . [T]he World Bank cannot point to a single instance where carbon pricing has had more than a barely measurable impact on emissions levels.
This assessment of the current status of carbon pricing is crucial in terms of shaping the left’s approach to climate policy. According to the Chinese proverb, “A journey of a thousand miles begins with a single step.” But on the basis of this evidence, the record of carbon pricing is so insipid that it would be better to plan a different route, identify a different destination, and embrace an altogether different means of getting there.
There is not enough space here to adequately explain why carbon pricing has not taken off. Large sections of business accepted, and apparently still accept, the need for carbon pricing. However, individual corporations undermine it in practice by demanding free pollution permits or, in the case of energy-intensive manufacturers, by threatening to close operations and relocate to less “carbon constrained” economies. Either that or they do their utmost to politically defeat efforts to introduce a price in the first place.
. . . [I]ndividual corporations . . .[demand] . . . free pollution permits or . . . [threaten] to close operations and relocate to less “carbon constrained” economies.
The behavior of BP oil and gas company sums up this contradiction perfectly. In early 2015, BP’s chief economist, Spencer Dale, described how, over the next twenty years, the use of oil and gas would grow 25 percent and, therefore, climate goals could not be reached. Dale suggested that, given this worrying situation, “Policy makers may wish to impose additional policies,” principal among them being a “meaningful global price for carbon.”[12] Three years later, in 2018, the same corporation spent $12 million dollars in an effort to defeat a ballot initiative in Washington State that would have introduced a relatively modest “pollution fee.”
Politically Toxic
There are also compelling political reasons for the left to reject carbon pricing. The last federal effort to price carbon—by way of an economy-wide “cap and trade” emissions trading scheme—took place during the first year of Obama’s presidency, with the 2009 Waxman-Markey bill. The bill was defeated in then Democrat-controlled Senate because of fears that pricing carbon would hurt business and lead to job losses. More recently, progressives and some unions rallied behind a ballot initiative in Washington State. The proposal went down to a heavy 56-44 defeat in what many regard to be a state that is pro-environment. It’s been suggested that the defeat can be attributed to the enormous amount of money–$32 million–that corporations spent to kill the proposal.[13] But the progressive coalition—one that included most unions as well as the likes of Microsoft—also spent close to $13 million, so the spending disparities cannot wholly explain why voters rejected the initiative.
In fact, the Washington defeat draws attention to one of the fundamental problems of carbon pricing. Introducing a price on carbon often does not change corporate behavior in any meaningful way. Rather, the carbon price simply gets passed downstream in the form of higher electricity, gas, or food costs for workers. This leads to the worst outcome possible: Workers, not corporations, end up paying for the carbon, but the carbon ends up in the atmosphere anyway. The struggle of the Yellow Vests in France began as a rebellion against a purportedly climate-friendly increase in the price of diesel fuel. By passing the additional charge down to users, the oil companies understood that most driving in France and across the developed world is unavoidable, particularly for workers who drive for a living or for rural dwellers with no access to a reliable public transport service.
. . . [T]he carbon price simply gets passed downstream in the form of higher electricity, gas, or food costs for workers.
In New York State, progressives have put considerable effort into designing legislation where up to a third of revenues raised through a “polluters fee” is directed toward middle-class and low-income people to offset the “downstreaming” of the fee by corporations. This portion will be used to provide tax credits, transit assistance vouchers, and to cover the increases in electricity bills. Even if this design turns out to be a success, it does not alter the fact that the whole idea of a carbon price is to steer corporations toward changing their business practices, not to move money around the economy like deckchairs on the Titanic. Thus far, carbon pricing has produced little noticeable change in corporate behavior, but it has in numerous instances turned workers against “environmental” policies and to drive them into the arms of the political right.
Thirty Years Is Enough
Almost 30 years have passed since carbon pricing became the “policy of choice” to address rising emissions and to combat climate change. From the outset, it was steeped in ideological content.
In adopting this policy, neoliberal elites asserted that there was no need for governments to step in with heavy-handed “command and control” measures. The overarching policy goal was for governments to create a “carrots and sticks” policy environment conducive to private sector investment in low-carbon economic activities in order to foster “green growth.”
By rejecting carbon pricing, supporters of a radical GND—as well as those who want to see effective action on climate change—will have taken an important step toward liberating climate policy from the clutches of neoliberal orthodoxy. Our message must be clear: Governments must act decisively to prevent emissions before they are generated, and this means that planning and cooperation must triumph over the chaos of the present investor-focused model. Governments must extend their control of carbon-intensive sectors, disrupt markets, and finance alternatives.
Notes
[1] Nicholas Stern, The Stern Review: The Economics of Climate Change, Summary of Conclusions: Climate Change Ethics and the Economics of the Global Deal,” https://www.cambridge.org/core/books/economics-of-climate-change/A1E0BBF2F0ED8E2E4142A9C878052204
[2] The Global Commission on Economy and Climate, page 41
[3] See https://www.clcouncil.org/economists-statement/
[4] See https://www.euractiv.com/section/climate-environment/news/bad-news-and-despair-global-carbon-emissions-to-hit-new-record-in-2018-iea-says/
[5] See https://research.noaa.gov/News/ArtMID/451/ArticleID/2455/RISING-EMISSIONS-DRIVE-GREENHOUSE-GAS-INDEX-INCREASE
Carbon Brief “Analysis: Global CO2 Emissions Set to Rise in 2017 after Three-Year ‘Plateau,’” November 13, 2017, https://www.carbonbrief.org/analysis-global-co2-emissions-set-to-rise-2-percent-in-2017-following-three-year-plateau; PBL Netherlands Environmental Assessment Agency, Trends in global CO2 and total greenhouse gas emissions: Summary of the 2017 report, September 28, 2017, http://www.pbl.nl/en/publications/trends-in-global-co2-and-total-greenhouse-gas-emissions; IPCC, IPCC Fifth Assessment Synthesis Report, 2015, https://www.ipcc.ch/pdf/assessment-report/ar5/syr/SYR_AR5_FINAL_full.pdf; Global Carbon Project, Global Carbon Budget 2017, November 13, 2017, http://www.globalcarbonproject.org/carbonbudget/17/presentation.htm.
[6] See World Bank, State and Trends of Carbon Pricing 2018, Executive Summary. See also: https://carbonpricingdashboard.worldbank.org/map_data
[7] See https://icapcarbonaction.com/en/news-archive/607-chinese-government-collects-2018-ghg-data-to-prepare-for-national-ets
[8] See World Bank, State and Trends of Carbon Pricing 2018, Executive Summary
[9] Ibid.
[10] The New Climate Economy, Unlocking the Inclusive Growth Story of the 21st Century: Accelerating Climate Action in Urgent Times, p. 23, https://newclimateeconomy.report/2018/
[11] World Bank, State and Trends, 2015
[12] 2015 BP Energy Outlook 2035 (published February 26, 2015). Presentation by BP Chief Economist Spencer Dale energy trends, available at https://www.youtube.com/watch?v=fyPBww4o_Do.
[13] See https://www.seattletimes.com/seattle-news/politics/after-another-election-failure-pricing-fossil-fuel-pollution-faces-an-uncertain-future-in-washington-state/
Author Biography
Sean Sweeney is the director of the International Program on Labor, Climate & Environment at the School of Labor and Urban Studies, City University of New York. He also coordinates Trade Unions for Energy Democracy (TUED) a global network of 64 unions from 22 countries. TUED advocates for democratic control and social ownership of energy resources, infrastructure, and options.
