(co-authored with CTC senior policy analyst James Handley)
Sheldon Whitehouse gained renown last year for his series of 52 weekly speeches on the Senate floor addressing the climate crisis. Today, the Democratic Senator from Rhode Island took his climate leadership further as he introduced a comprehensive bill intended to end free dumping of climate pollution into the atmosphere.
Whitehouse calls his 30-page measure, which is co-sponsored by Democratic Senator Brian Schatz of Hawaii, the “American Opportunity Carbon Fee Act.” It builds squarely on the growing consensus that clean energy will rapidly and fully displace fossil fuels only when polluters are made to pay for causing climate damage. AOCFA would impose fees on both CO2 and non-CO2 greenhouse gases including fugitive methane from shale gas wells and coal mines. AOCFA also includes a border tax adjustment to impose equivalent climate pollution fees on imported goods from nations that have not enacted their own climate pollution fees. (Click here for background on border tax adjustments.)
AOCFA pegs its pollution fee to U.S. EPA’s estimate of the “social cost of carbon.” The fee would start at EPA’s current estimate of that cost, now $42 for each ton of carbon dioxide, and would rise by 2% annually in real terms. Emissions of methane and other greenhouse gases would be charged in proportion to their estimated per-unit global warming impacts relative to carbon dioxide.
The Senator’s office estimates that AOCFA would raise $2 billion in revenue in its first ten years, money that would fund an “American Opportunity Trust Fund” to be returned to the American people in as many as nine different ways including tax cuts, dividends, infrastructure investments and debt relief. E&E News reporter Jean Chemnick wrote today that the bill “leaves open the question of how those revenues would be spent as an invitation for would-be Republican collaborators to negotiate.”
Sen. Whitehouse’s decision to link his bill’s climate pollution fees to the social cost of carbon could be problematic, however. Published estimates of the social cost of carbon vary from as little as $10 per equivalent ton of CO2 to over $300, depending on what is counted as climate damage, what discount rate is assumed to convert future losses to present terms, and how heavily if at all catastrophic risk scenarios are factored in. And while hitching the pollution fee to the EPA social-cost estimate may resonate with some stakeholders, it could limit the level of the carbon tax and, thus, its ability to drive down U.S. emissions rapidly enough, let alone global emissions.
Indeed, we ran the Whitehouse bill through the Carbon Tax Center’s 7-sector price-elasticity spreadsheet model and found both good news and bad. The proposed starting price of $42 per ton of CO2 would quickly reduce US emissions by about 15%. (Though our graph shows the full drop occurring immediately, the decline would actually materialize over several years due to lags in behavioral and equipment changes.) But the bill’s subsequent 2% annual real price increases would serve only to offset the rising emission tide due to increased affluence, resulting in essentially flat emissions rather than a declining curve. [Read more...]