It is imperative that the United States acts further to address climate change – 2023 was a record setting year for the most billion-dollar disaster events worldwide and in the U.S.,[1] causing loss of human life and damages to health as well as damage to infrastructure and property with major implications for our economy. Despite growing attention and commitments, global carbon emissions are not declining, and the world is not on track to limit global average temperature rise to less than 2°C, and ideally less than 1.5°C as called for by the Intergovernmental Panel on Climate Change and the Paris Agreement. [2] More ambitious actions are needed to avoid catastrophic and cascading impacts.
A carbon fee and dividend approach has numerous economic benefits for the U.S. economy. It can reduce dependence on foreign sources of energy and incentivize the use of renewable energy and energy efficiency measures and provide jobs and economic opportunities. [3] Moreover, households can increase their disposable income (and spending) by cutting energy expenses and hence carbon fees through increasing efficiency or by switching to sustainable energy. [4]
Polluters Pay: the U.S. will benefit from effective carbon pricing.
Leading economists and organizations like American Chemistry Council, American Petroleum Institute, Business Roundtable, C2ES, Carbon Pricing Leadership Coalition, Ceres, Citizens Climate Lobby, Climate Leadership Council, Electric Power Supply Association, Environmental Defense Fund, Portland Cement Association, republicEN, World Resources Institute, and World Wildlife Fund agree that carbon pricing is the single most effective means of reducing greenhouse gas emissions. One carbon fee design which has gained support from a broad range of stakeholders includes four components: a steadily increasing carbon price, a corresponding household dividend, a border adjustment to enhance the competitiveness of U.S. firms and increase global climate ambition, and a package of regulatory simplification to offer businesses and innovators a more certain investment environment. This framework has been endorsed by over 3,500 economists, including four former Fed chairs and 28 Nobel Laureates. [5] Similarly, a research report by Greenleaf Communities’ Drs. Don Wuebbles (lead atmospheric scientist who advised the Obama Administration, all U.S. National Climate Assessments, IPCC and National Academy of Sciences reports, and the global Montreal Protocol), Roy Wehrle (senior economist at the Brookings Institution who served on President Kennedy’s Council of Economic Advisers), and Francine van den Brandeler (advisor to the United Nations Global Environmental Outlook for Cities) recommends a domestic carbon tax and dividend approach along with a global Climate Club to rapidly and equitably meet climate goals. [6]
A dividend will help lower- and middle-income households and communities in transition.
A carbon fee and dividend policy is fair. [7] Wealthy households consume the most carbon-intensive goods, thereby dispersing the most greenhouse gasses into the air. Thus, they would pay the largest part of the carbon fee. Lower-income households receive dividends that exceed payments, providing cash benefits. In every state, the average household in the lowest seven income deciles is better off with the carbon dividends plan than without it. [8] Part of the revenue from the carbon fee could also support communities dependent on fossil fuel industries to transition to robust and diversified clean economies. [9] A carbon fee will energize our economy by creating millions of jobs, provide health benefits through cleaner air, and ensure a fair energy transition for all. A carbon fee will increase the price of all carbon fuels and carbon-based goods over time, incentivizing consumers and businesses to switch to alternatives with a lower carbon footprint.
The transition from fossil fuels to clean energy is underway.
The demand for coal is already in decline as it is undercut by the decreasing price of sustainable fuels. As well, employment in the coal industry has declined sharply due to productivity gains as machines have replaced miners. [10]
Dr. Robert Litterman stated in his testimony to the Senate Committee on the Budget: As lower carbon technologies become cheaper, demand for fossil fuels will decline. This process can lead to stranded assets in carbon intensive sectors. Central banks have estimated the losses in the energy sector at up to $4 trillion, and up to $20 trillion in the broader economy. Even if U.S. policymakers made no further effort to reduce emissions, Europe and other nations are making such commitments including policies that price and tax carbon related emissions. The demand for carbon intensive products will crater, and with it the value of carbon-intensive assets. [11] The projected losses in the carbon related energy and other sectors will be replaced by gains in non-carbon-based markets by those companies and countries that act.
The International Maritime Organization (IMO) has proposed a net-zero framework including an economic and pricing mechanism to incentivize the transition. The shipping industry understands the need for decarbonization and the benefits of pricing carbon emissions. [12]
The U.S. has a competitive advantage over its trading partners.
A border carbon adjustment levels the playing field and prevents countries without carbon fees from undercutting U.S. efforts. As carbon pricing initiatives – and border carbon adjustments – continue to expand, the formation of a Climate Club of nations becomes a superior method of leveling the playing field by using easy-to-administer, universal single rate fees. [13] It makes the most sense to implement a carbon fee before imposing a border carbon adjustment, to simplify accounting and calculations of the border adjustment as well as reducing the potential for global trade retaliation.[ 14]
Additionally, the U.S. has a carbon advantage over key trading partners (3X that of China and almost 4X India). U.S.-manufactured products are more carbon-efficient than the global average, and twice as efficient in oil and gas extraction. [15] China’s clean energy sector has become a major part of their economic growth and could dominate the clean tech market without a full U.S. market response. The U.S. can accelerate its renewable energy manufacturing sector with carbon pricing given its relative carbon competitive advantage and its innovative capacity. [16] The U.S. benefits from having a robust and equivalent carbon fee to the rest of the world. The current estimated social cost of carbon is approximately $200 per carbon equivalent metric ton and rising. It is time to implement a carbon price to accelerate climate mitigation commitments in the United States to its advantage.
“There is no other climate policy that simultaneously addresses the emissions footprint of our supply chains, drives manufacturing investment back onto U.S. soil, and forces foreign manufacturers to compete on the basis of carbon efficiency.” – Dr. Robert Litterman, Kepos Capital; chair of CFTC climate-related Market Risk Subcommittee [17]
[1] NOAA, Climate.gov, 2023: A historic year of U.S. billion-dollar weather and climate disasters, https://www.climate.gov/news-features/blogs/beyond-data/2023-historic-year-us-billion-dollar-weather-and-climate-disasters
[2] IPCC, Global Warming of 1.5 ºC special report, https://www.ipcc.ch/sr15/ and UNFCCC, Key aspects of the Paris Agreement, https://unfccc.int/most-requested/key-aspects-of-the-paris-agreement
[3] Brookings, Carbon Taxes as Part of the Fiscal Solution, https://www.brookings.edu/articles/carbon-taxes-as-part-of-the-fiscal-solution/ and Greenleaf Communities, Employment Effects of the Energy Transition, https://greenleafcommunities.org/wp-content/uploads/Employment-Effects-of-the-Energy-Transition-December-2019.pdf
[4] Greenleaf Communities, Employment Effects of the Energy Transition, https://greenleafcommunities.org/wp-content/uploads/Employment-Effects-of-the-Energy-Transition-December-2019.pdf
[5] Statement Of Robert B. Litterman, PhD Chair, CFTC Climate-Related Market Risk Subcommittee Concerning “The Cost Of Inaction On Climate Change” Delivered To United States Senate Committee On The Budget April 15, 2021, https://www.budget.senate.gov/imo/media/doc/Robert%20Litterman%20-%20Testimony%20-%20U.S.%20Senate%20Budget%20Committee%20Hearing.pdf
[6]Greenleaf Communities, A Path To Rapidly And Equitably Meet Climate Mitigation Goals, https://greenleafcommunities.org/wp-content/uploads/PATH-TO-RAPIDLY-AND-EQUITABLY-MEET-CLIMATE-MITIGATION-GOALS-Recommendations-for-COP27-2022-09-22.pdf and Greenleaf Communities, U.S. Climate Policy Driving Foreign Policy, https://greenleafcommunities.org/wp-content/uploads/U.S.-Climate-Policy-Driving-Foreign-Policy-Updated-October-2021.pdf
[7] Nature, Protecting the poor with a carbon tax and equal per capita dividend
https://www.nature.com/articles/s41558-021-01228-x
[8] Statement Of Robert B. Litterman, PhD Chair, CFTC Climate-Related Market Risk Subcommittee Concerning “The Cost Of Inaction On Climate Change” Delivered To United States Senate Committee On The Budget April 15, 2021, https://www.budget.senate.gov/imo/media/doc/Robert%20Litterman%20-%20Testimony%20-%20U.S.%20Senate%20Budget%20Committee%20Hearing.pdf
[9]Greenleaf Communities, U.S. Climate Policy Driving Foreign Policy, https://greenleafcommunities.org/wp-content/uploads/U.S.-Climate-Policy-Driving-Foreign-Policy-Updated-October-2021.pdf
[10] Greenleaf Communities, Employment Effects of the Energy Transition, https://greenleafcommunities.org/wp-content/uploads/Employment-Effects-of-the-Energy-Transition-December-2019.pdf and Brookings,
Increased automation guarantees a bleak outlook for Trump’s promises to coal miners, https://www.brookings.edu/articles/automation-guarantees-a-bleak-outlook-for-trumps-promises-to-coal-miners/
[11] Statement Of Robert B. Litterman, PhD Chair, CFTC Climate-Related Market Risk Subcommittee Concerning “Climate-Related Economic Risks And Their Costs To The Federal Budget And The Global Economy” Delivered To United States Senate Committee On The Budget February 15, 2023 https://www.budget.senate.gov/imo/media/doc/Dr.%20Robert%20Litterman%20-%20Testimony%20-%20Senate%20Budget%20Committee3.pdf
[12] International Maritime Organization, IMO agrees possible outline for maritime “net-zero framework”, https://www.imo.org/en/MediaCentre/PressBriefings/pages/IMO-agrees-possible-outline-for-net-zero-framework.aspx and NYT, A First Step Toward a Global Price on Carbon, https://www.nytimes.com/2024/03/28/climate/a-first-step-toward-a-global-price-on-carbon.html
[13] Greenleaf Communities, U.S. Climate Policy Driving Foreign Policy, https://greenleafcommunities.org/wp-content/uploads/U.S.-Climate-Policy-Driving-Foreign-Policy-Updated-October-2021.pdf
[14] Brookings, Why the U.S. should establish a carbon price either through reconciliation or other legislation, https://www.brookings.edu/articles/why-the-us-should-establish-a-carbon-price-either-through-reconciliation-or-other-legislation/
[15] Climate Leadership Council, America’s Carbon Advantage https://clcouncil.org/carbon-advantage/
[16] Climate Leadership Council. America’s Carbon Advantage, https://clcouncil.org/reports/americas-carbon-advantage.pdf
[17] Statement Of Robert B. Litterman, PhD Chair, CFTC Climate-Related Market Risk Subcommittee Concerning “The Cost Of Inaction On Climate Change” Delivered To United States Senate Committee On The Budget April 15, 2021, https://www.budget.senate.gov/imo/media/doc/Robert%20Litterman%20-%20Testimony%20-%20U.S.%20Senate%20Budget%20Committee%20Hearing.pdf