As long as energy prices remain low, you can forget about asking hundreds of millions of American consumers to drive less or turn down their thermostat.
A few committed environmentalists will conserve energy just because it’s the right thing to do. But experience has shown that for the average American, morality is a poor motivator compared to pocketbook issues.
Fortunately, recent surveys have shown that more than 70% of American adults think climate change is a problem, but unfortunately, few of them are doing anything about it. The spirit may be willing, but the flesh, unfortunately, is weak.
“We can’t take on climate change without properly pricing coal, oil, and natural gas. But it’s a huge political challenge,” writes Umair Irfan in a Vox article entitled “Fossil fuels are underpriced by a whopping $5.2 trillion.”
Irfan focuses on subsidies for fossil fuels, which do turn out to be maddeningly huge, at trillions of dollars a year worldwide and billions in the USA alone. Some of those subsidies come as the traditional handouts like tax breaks for drilling. But one big subsidy for dirty energy that we sometimes forget is that oil, gas and coal companies get a license to emit carbon pollution free of charge.
If fossil fuel companies had to pay to pollute CO2, they’d pass the cost along to consumers. And that would cause energy prices to go up.
When Gas Prices Rise, People Drive Less
You don’t need much financial savvy to know that when things get cheaper people buy and use more of them. And when things get more expensive, people use less of them. That goes for energy as much as it does for any other consumer staple.
For instance, anybody who remembers how gas prices spiked in 2008 to $4 a gallon and beyond in some places knows that higher gas prices cause people to cut back on driving to buy less gas.
It’s the same whenever oil prices prices spike — people find ways to cut back on buying gasoline. They take fewer optional trips and combine errands. They drive alone less and carpool more. They even start walking and taking transit. If gas prices stay high for a long enough period, drivers trade in their gas guzzling SUVs for high-mileage sedans. Sales of hybrids and EVs increase.
In short, high gas prices encourage conservation and clean energy. That’s a good thing to fight climate change — but it comes at the cost of pain at the pump in the pocketbook. And that hurts low- and middle-income people the most.
So, does that mean we should pray for gas prices to stay low forever? Even while the climate continues to fry?
Absolutely not! There’s a better way.
Plan Energy Price Increases and then Pay Consumers Back
It turns out that you can raise prices on dirty energy while giving payments to American families to help offset the increase.
But you have to have a good plan to raise dirty energy costs intentionally, through public policy rather than just letting the international oil market figure it out.
Back in 2008, gas prices went up because global oil supply couldn’t keep up with demand. And in the United States at least, that’s usually why prices of oil and other fossil fuels go up. It’s just the swings of the market.
That’s a bad way to get people to use less dirty energy.
Oil market swings are unpredictable and can ripple across the economy, leading to a recession or worse. This is exactly what happened in 2008 — high oil prices, along with the crash of the housing bubble, led to the Great Recession.
Effective to Fight Climate Change and Popular Politically
The better way is to have an orderly increase in fossil fuel prices, driven by public policy like a carbon fee that increases in planned increments over time. For example, the first year the fee could be assessed at $15/ton of carbon. The next year, the rate could go up to $20 and then rise in $5 increments until it had reached a reasonable level. That would give everybody time to prepare and reduce uncertainty.
Economists, leading climatologists like James Hansen, and climate activists including Al Gore and Bill McKibben agree that a carbon fee is one of the most effective ways to reduce climate emissions. Both progressives and conservatives even like the idea.
“Even without new technologies, restrictions on fossil fuel supplies, and changes in consumption patterns, simply pricing fossil fuels in line with their damage to society would take a massive bite out of global greenhouse gas emissions,” writes Irfan in Vox.
The main objection is that a carbon fee, or tax, would still hurt low- and middle-income people, by raising their costs for energy the same way that market-based oil price increases have. That’s why French motorists in the “Yellow Vest” movement protested a new gas tax and got the measure rolled back at the end of last year.
The answer?
First, don’t make it a tax. For example, don’t let the government keep the money and put it into some kind of fund to support clean energy research or development. That’s not really needed — clean energy is ready to go today without any more research — and if the government keeps the money, the carbon fee will be unpopular politically. Instead, take all the proceeds from the carbon fee and refund them 100% to American families.
Second, make the refund plan simple. Also last year, a carbon-tax proposal failed in Washington State. It would have refunded some of the money as a tax cut, but the plan for the tax cuts was too complicated. A better plan would have been to send every family a monthly check, like Social Security does for seniors. The carbon dividend plan will be even simpler if you make the amount the same for every family, regardless of income. This will make the dividend fair to consumers and it will be easy for the federal government to run.
In some proposals for a carbon dividend, seven out of ten Americans would come out ahead. That is, they’d get more money back than they spend on energy price increases. And that will make it popular politically.
— Erik Curren