Carbon Free Economic Growth Requires a ‘Green New Deal’

Carbon emissions in the United States rose by 3.4% in 2018.

This is according to a new report released by the Rhodium Group, and is the first time since 2005 that emissions have risen in the US. The reason? As the US economy grew at a strong pace in 2018 and emissions from cars, trucks, factories, and more soared, with very few policies to stop them.

The takeaway from this unprecedented increase is that we as a nation have not yet successfully decoupled US. emissions growth from economic growth. Only a policy as bold as the Green New Deal will be able to fundamentally shift the US economy away from fossil fuels and truly decouple economic growth from emissions growth.

The Climate Curse of Growth

In the past decades, decoupling economic growth from fossil fuel usage has been a central goal of policymakers interested in combating climate change. Simply put, this means that as the economy grows, it is not at the cost of increasing carbon emissions. Basic economics dictates that with more money in their bank accounts, people and businesses are apt to spend more in general. Historically this has always meant economy-wide increases in consumption of electricity, fossil fuels, and gasoline. However, decoupling growth from emissions would allow individuals and companies to use more electricity, drive more, and have a high standard of living during periods of economic growth without increasing their carbon footprint. This can be achieved through a carbon-neutral electric grid, the decarbonization of transportation, and the electrification of home heating.

A 2018 IMF paper revealed global economies were moving in the right direction, showing that modest gains in decarbonizing the electric sector had started to decouple Western economies from emissions growth. In the US, this is the direct result of state and regional initiatives such as the Regional Greenhouse Gas Initiative (RGGI) and the Western Climate Initiative (WCI), which have reduced reliance on the worst fossil fuels, like coal and oil, in the production of electricity. But electricity is just the tip of the iceberg when it comes national emissions. In 2016, 28% of emissions came from transportation, followed by the building sector which accounted for 22%.

From a public policy perspective, the electric sector is the low-hanging fruit. It has been and still is highly regulated, offering state and national policymakers a variety of tools they can use to decarbonize electricity. On the other hand, in areas such as transportation and buildings, the government has a lot less existing regulatory leeway when to comes to encouraging decarbonizing (the exception is public transit). Therefore transitioning to clean energy and reducing emissions has historically been more challenging.

Achieving Green Growth

Due to inherent difficulties in decarbonizing the transportation and building sectors, government  needs to be creative in its approach by utilizing market-based mechanisms and leveraging new innovative technology. Affordable technology exists that allows us to grow the economy while reducing emissions, but according to the Rhodium Group’s report we need policy in order to effectively deploy those technologies in the market.

Our current challenge is that there has been essentially no policy of this kind at the federal level over the last few years. The Trump administration withdrew the US from the Paris agreement, has done a 180 on clean car standards, and is threatening the modest gains the federal government has achieved in reducing national electric sector emissions.    

With each passing month, the damage being done by climate change becomes greater, and the window of opportunity to head off future damage shrinks. In the face of this only a bold policy agenda that adequately incentivizes the affordable existing technology will allow us to truly decouple economic growth from emissions growth. The only approach of such scope is the ‘Green New Deal.’

The Green New Deal & Carbon Pricing

The Green New Deal is less of a policy, and more of a rallying cry for bold climate action. The idea is rapidly growing support from across the political spectrum, and will likely drive much of the discussion surrounding climate solutions on the state and national levels. The underlying promise of a Green New Deal is a promise to combat climate change, guarantee jobs, and more generally, ‘usher in the green economy’.

In a sense, the Green New Deal is less of a policy and more of a burgeoning movement, lacking for now, in specific measures to achieve its goals. Some on the left are calling for direct wealth transfers similar to that of the original New Deal, with funds used to guarantee jobs in clean energy. Other more moderate folks think that a Green New Deal should give a big fiscal boost to existing federal subsidies for clean energy producers, which they argue is sufficient in creating jobs and reducing emissions. A third option that combines both of these approaches is instituting an economy-wide carbon price.

A carbon price, within the scope of a Green New Deal, will be bold enough to finally decouple economic and emissions growth, while dealing with the tricky public policy realities of reducing emissions in the transportation and heating sectors. It starts by placing a fee on fossil fuels, signalling to businesses and individuals to reduce their consumption of gas and oil, which is most often reduced by switching to energy savings technologies. Then it equitably rebates the majority of this revenue back to consumers and businesses, ensuring the impact of fee is not unfairly placed on low-income individuals and small businesses. This rebate could be 100% of revenue, or a portion of it can be invested into the economy by creating green jobs, establishing new clean energy incentive programs, and directing billions of dollars to new public infrastructure.

The result of a carbon price on the scale of the Green New Deal would simultaneously allow economic growth and deep decarbonization of the US economy, all while creating hundreds of thousands of jobs in clean energy. The market incentives for businesses and individuals to switch to newer energy saving technologies for travel and heating would also fundamentally alter the US economy, finally decoupling growth from emissions.

Now What?

Democrats in the House of Representatives are increasingly eager to explore the possibility of a Green New Deal, with bipartisan support growing for a carbon price. Yet with President Trump in the White House for the next two years, enactment is all but impossible. Into this policy vacuum states have taken the lead, with multiple state legislatures this year introducing bills to establish a carbon price. Among them are Massachusetts, Utah, New York, Pennsylvania, Connecticut, Maryland, New Jersey, Rhode Island and Vermont.

In Massachusetts, momentum behind a carbon price has reached a fever pitch. Last session, the state senate unanimously passed a bill that included carbon pricing, with support from Republicans and Democrats. In the current session, two carbon pricing bills are being introduced in the coming weeks, with about half of all legislators expected to co-sponsor the proposals. Both carbon pricing bills will include mechanisms to reinvest large portions of the revenue into job creation, clean energy, and technologies that make statewide decarbonization possible.

Climate leadership like that in Massachusetts will do more than just establish a ‘Green New Deal’ for state residents. Passing a carbon price will further push national policymakers towards enacting a national carbon price, one big enough to transform the national economy and finally deal with the threat of climate change.