I’d like to add one quick addendum to my previous post on cap-and-trade. When we consider the extent to which we need to reduce our emissions in the abstract, it can appear quite daunting. This is especially the case when we look at the needed reductions and then focus on how big a role coal and petroleum currently play in energy generation and transportation. And it is absolutely true that getting coal and oil out of the economy will be a challenge, and will be a proud achievement when we have accomplished it.
When you look at something like this Brookings report on carbon emissions, you begin to realize the millions of ways that small, individual decisions aggregate into a big, daunting picture — but that picture is nonetheless the product of small, individual decisions. People scrutinize their food packaging, comparing price against expiration date, farm conditions, point of origin, and so on, but at present there is no good way to measure the carbon content of one can of beans relative to another. Under carbon pricing, that data becomes built into every little thing you buy, such that the purchase of a pack of gum or one cucumber versus another reduces emissions.
American families are constantly weighing where to live — whether it’s worth the higher prices to be in a place like New York or California, whether a fourth bedroom and a big yard is worth a longer commute, and so on. At present, carbon output doesn’t figure anywhere in these decisions, despite the fact that where one lives has a huge impact on carbon footprint. No one considers the dirtiness of Appalachian power when choosing a home. No one thinks about high energy bills when debating a move to Houston, and practically no one calculates out the added cost of driving (including carbon) from moving deep into the exurbs, and whether that does or does not outweigh the savings on home prices. Often, folks don’t make these calculations because there isn’t a good way to do it; prices convey a lot of information, but one thing they don’t convey is how much carbon is embodied in a good or service.
That’s what a carbon price achieves. It inserts basic information about carbon costs into every little decision we make, and we don’t even have to think about it, because it’s right there in the price. It will be important to develop renewable technologies and to build green buildings and to invest in smart grids and transit infrastructure and all the big stuff, but no one should underestimate the extent to which we can trim a lot of waste out of our lives, simply by being made aware of where the waste is — through a carbon price.
That’s why, in a very real sense, the price created by both cap-and-trade and a carbon tax is not really a tax. The cost of carbon is in the decisions we make already, it’s just that at present, individuals don’t pay it. We all do, in the form of global climate change. These aren’t taxes, they’re monetizations. They take a cost we’re paying socially and turn it into a dollar amount paid at the checkout counter. (Similarly, congestion tolls don’t create a cost out of nothing; they take the time cost of congestion and turn it into the monetary cost of the toll.)
That’s what we’re after here, and a carbon tax and cap-and-trade are two versions of the same strategy.