After 25 Years of Futility, Democrats Finally Jettison Carbon Pricing in Favor of Incentives to Counter Climate Change

by Marianne Lavelle (Inside Climate News) The $370 billion Inflation Reduction Act is the nation’s first comprehensive climate plan to curtail greenhouse gas emissions and boost renewable energy and green technology. It relies on tax credits and other “carrots,” not sticks.

From the time that the world first agreed to act on climate change 30 years ago at the Earth Summit in Rio de Janeiro, environmentalists talked about putting a “price” on carbon as a core element of any strategy for reducing the fossil fuel pollution that was heating the planet.

Whether imposed by tax, fee or cap-and-trade system—such a price would discourage carbon-based fuel pollution and encourage investment in and deployment of clean alternatives, said advocates of the idea. And because such a scheme would rely on the market, rather than government mandates, to decide the best approach to decarbonize, proponents argued it was an idea both Democrats and Republicans could get behind.

Instead, Democrats are advancing their climate bill with no Republican support, and their program is one of carrots, not sticks. The idea is that an unprecedented $370 billion federal investment in clean energy—largely in the form of tax credits to encourage its development, as opposed to taxes on carbon to discourage use of fossil fuels—will be the push that transforms not only the economy but the politics of climate change.

The decision that the United States would spend rather than tax its way to a more sustainable future was in large part driven by political reality—Democrats had to win over the vote of a staunch fossil fuel industry supporter in their own party, Sen. Joe Manchin of West Virginia, who opposed carbon taxes. But the plan also was influenced by a new generation of climate policy thinkers who argued that lawmakers had spent too much time listening to the economists, and as a result, had played into the hands of the powerful foes of climate action.

Matto Mildenberger, political scientist at the University of California, Santa Barbara, whose anti-carbon tax writings have been influential among many of those working on the legislation, called the Inflation Reduction Act “serious, transformative industrial policy.”

“It’s about generating the conditions so that it is always the cheapest choice to adopt clean energy, carbon-free technologies, and about helping the public understand that the technology is not only better for climate change, but also for improved quality of life,” Mildenberger said.

One element of the reappraisal is that Wyden (Sen. Ron Wyden (D-Oregon)) and other Democrats focused on measures that would have a direct impact on the federal budget, which under the Senate’s arcane rules could pass with a simple majority. Another element was to back away from carbon pricing as the primary driver of change.

“Carbon pricing has the politics backward,” wrote Mildenberger and his UCSB colleague, political scientist Leah Stokes, in the Boston Review just before the 2020 election. Policymakers need to disrupt the political power of carbon polluters first, they argued. They should be focused on building coalitions around climate policy that give people something to fight for, instead of serving up an easy target—taxes—for foes of climate policy to rally against.

“We need to be thinking at least as hard about the politics of climate policy as we are about economic efficiency,” they wrote—in essence, the theme of Mildenberg’s book, Carbon Captured, released earlier that year.

“When I (Wyden) talked to my Republican colleagues, and I said, ‘Do you have any problem with a market-oriented, technology-neutral system that wouldn’t pick winners and losers and would have competition?’ They would all look at their shoes and say, ‘No.'”

Wyden said he also asked them to contribute ideas for cutting carbon, and assured them he would work to include them in the bill. “I think that a lot of them wanted to work on this issue,” he said. But in Wyden’s view, they wouldn’t cross the line in the sand drawn by Senate Minority Leader Mitch McConnell (R-Ky.), who was determined for the GOP to stick together in opposition to any Democratic climate plan.

The Intergovernmental Panel on Climate Change has called carbon pricing “central” to strategies for keeping warming below 1.5 degrees Celsius, while stressing the importance of a mix of policies.

He (Charles Komanoff, co-founder of the New York-based Carbon Tax Policy) says one problem with an all-carrots, no-sticks approach is that there’s nothing driving consumers to conserve energy—which he argues will be necessary even in a transition to clean fuels, especially given the constraints on siting new transmission lines and mining for raw materials.

“This is a bill whose theory of change is crushing fossil fuel demand,” he (Mildenberger) said. READ MORE

Excerpt from Climate Now: How do we finance the cost of mitigating climate change, while discouraging continued use of fossil fuels? The largest public statement of economists in history argues for a carbon tax - which would charge a fee for every ton of carbon dioxide emitted.

But, if one country charges a different carbon tax than another, what would happen to international trade? Would fossil fuel use and emissions-intensive industrial processes actually decrease, or just move to a country without a carbon tax?

Carbon border adjustments attempt to address these issues, and come with their own legal, economic and practical complexities.

Listen to Climate Now's new podcast episode featuring conversations with Dr. Adele Morris, former Policy Director for Climate and Energy Economics at the Brookings Institution, Dr. David Weisbach, Professor of Law at the University of Chicago, Dr. Brian Flannery, Visiting Fellow for Resources for the Future, and Shuting Pomerleau, Climate Policy Analyst at the Niskanen Center. These experts help us unravel how carbon border adjustments could work, and their role in building solutions to the climate crisis.

Time Codes: 0:00 - carbon border adjustment economics13:45 - carbon border adjustment logistics30:00 - carbon border adjustment legality34:30 - carbon pricing READ MORE; includes AUDIO