Pricing carbon is a crucial tool to reduce greenhouse gas emissions and account for the negative environmental and health impacts caused by carbon pollution. While there are some regional mechanisms that price pollution, such as the Regional Greenhouse Gas Initiative in the Northeast, and the Western Climate Initiative in California, there has yet to be a direct fee on carbon pollution in the United States. The Energy Innovation and Carbon Dividend Act (H.R. 763), introduced in the House in January of this year, attempts to do this at the federal level, and has gained 48 cosponsors to date.
An analysis of the bill by Regional Economic Models, Inc. revealed that the policy would reduce carbon emissions in the country by 40% in the first 12 years, saving as many as 295,000 lives during this time as a result of better air quality. The proposal is also expected to create 2.1 million jobs in the country.
So what exactly does the Energy Innovation and Carbon Dividend Act do? How does it interact with state carbon pricing programs? Can its revenue-neutral design be equitable?
These are some of the questions tackled by Adele Morris of the Brookings Institution, and Daniel Richter of Citizens Climate Lobby (CCL) in the most recent Climate XChange webinar. As Senior Fellow and Policy Director of the Climate and Energy Economics Project, Morris is an expert on the design of carbon pricing policy and has served as an advisor to Congress on environmental policy. Richter is Vice President of Government Affairs at CCL, a grassroots environmental group that has mobilized thousands of Americans across the country to lobby for the proposal. He was a key figure in developing CCL’s legislative and research strategy.
Below is a recap of the webinar, which you can watch here.
The Bill Design
There are four key ideas to understand about the design of the bill: the price, revenue allocation, border carbon adjustment, and regulatory pause.
The proposed fee begins at $15 per ton of carbon emitted into the atmosphere, and increases by $10 each year until it reaches $125 in 2030.
What this fee seeks to accomplish is “to shift the relative prices of different forms of energy depending on how polluting they are to the climate.” Morris explained, “the whole point is to get the economy to start substituting away from climate-damaging goods and services and moving towards cleaner goods and services because, now, those things are going to be more cost-effective than they were before.”
H.R. 763 is a revenue neutral bill, meaning that all revenue is rebated back to Americans via a Carbon Dividend Trust Fund. The bill calls for equal dividends to be paid to all adults, with half portions paid to minors.
- Border Carbon Adjustment
Importantly, the bill includes a border carbon adjustment, which establishes a tariff on carbon-intensive goods that are imported from countries without comparable carbon pricing regulations. This serves to both protect the competitiveness of U.S. manufacturers, and incentivize other countries to price carbon in order to avoid the tariff.
- Regulatory Pause
A more controversial element of the bill is a ten year regulatory pause that limits the EPA’s ability to regulate greenhouse gas emissions.
This pause in existing regulations has worried some environmental groups, Richter however, clarified that it only restricts authority on regulations based on other greenhouse gas effects, “effectively the Clean Power Plan,” which had not come into effect yet. Further, “the only reason it’s in there at all is because members of Congress—Republicans specifically—said this needs to be in here or we’re gone.” Accepting this element as the price of bipartisanship, CCL made sure to “preserve the environmental integrity of the final bill text.”
Morris added that “the rule-making process takes a long time, and compared to the carbon fee approach, would be a much more protracted and costly way to go about it.”
Nothing is taken off the table here, but given the amount of uncertainty over current regulatory authority and the amount of time rule-making would take, it was a worthwhile tradeoff to pause the regulations to keep Republicans at the table and move forward this more targeted plan.
Interaction with State Carbon Pricing Policies
Most of the work of the SCPN is focused on state carbon pricing policies, so an important question to consider is how this federal carbon fee would interact with existing programs.
Richter noted that the bill explicitly specifies that nothing in the regulation preempts or supersedes state programs, a “kind of federalism…that Republicans appreciate.”
Morris further explained that “with a carbon fee at the federal level, states can be more ambitious, which adds to the environmental benefit.” To be sure, a carbon fee would affect state cap-and-trade programs, likely making the current emissions caps less binding and thus, the prices lower. However, this is not necessarily a problem, as states are then free to determine a new lower cap and strengthen their programs, allowing the two policies to be complementary.
The Question of Equity
H.R. 763 calls for equal dividends to be paid to all Americans, regardless of income. According to a Department of Treasury analysis, 53% of households would receive a net economic benefit from the bill, including nearly 90% of households below the federal poverty level.
Richter explained CCL’s rationale in the bills design like this: “Our two red lines are number 1, whatever passes needs to take a big chunk out of emissions, and number 2, you have to make sure that at least the bottom two quintiles [of household incomes] are made whole.” He added, “north of that, we can have discussions. South of that, we’re not going to support it.”
The organization considered further emphasizing equity with means testing to distribute the carbon dividends more heavily towards lower-income households, but anticipated pushback on the right at the idea of ‘wealth redistribution.’
When asked if CCL had considered using the revenue for targeted investments in vulnerable communities, Richter explained the organization is open to these conversations, but that changes in bill design need to come from members of Congress.
Morris weighed in on concerns of wealth redistribution by adding, “unchecked climate change is pure wealth destruction. If we’re worried about wealth and wellbeing of households of all income classes, we have to do something about the increasing risks of these climate damages. We’re talking about policies whose benefits outweigh the costs.”
Bridging the Ideological Divide
A critical piece for any federal legislation to succeed is the question of bipartisanship. While CCL has successfully recruited members on both sides of the aisle, and HR 763 technically boasts bipartisan support, only one of the 48 cosponsors is Republican.
Richter shared some insights on what it takes to bridge this divide. “We all have the same values, but if you prioritize those values differently, that can lead to a completely different set of valid decision making. The piece that I’ll highlight is for conservatives, loyalty is higher up on the priority list […] They need to figure out how come out in favor of this, while remaining loyal to the people they identify as important in their lives.” He remains optimistic though, for a “dam break scenario” in the future, where once a few Republicans get on board, it makes it easier for the rest of them to do so.
Morris added that “a lot of people who align themselves with the Republican Party are repulsed by the thought of growing government […] they picture in their mind a policy to protect the Earth’s climate as being synonymous with this policy approach that they find quite antithetical to their values.” On the contrary, there are policy designs that “have a very targeted, relatively simple, intervention that harnesses market forces, aligns capital deployment with the needs of the economy and the environment […] I like to think that we have a good place for those Republicans to land when they do come forward and start addressing concerns on climate.”
What the Future Holds
During CCL’s recent lobby day in DC, the organization successfully recruited eight new cosponsors, including three new members of the Ways and Means Committee. The organization will continue to seek more sponsors in an effort to build inevitability, “earning the inside track,” as Richter put it.
Whatever the outcome of this particular bill, it serves the important role of moving the carbon pricing conversation forward and getting the issue on people’s minds at the federal level.
This webinar is part of the State Carbon Pricing Network’s Deep Dive Webinar Series. Each month, we explore a carbon pricing topic in depth, bringing in experts and pushing forward the conversation. Keep an eye out for July’s webinar on the Transportation and Climate Initiative, a proposed cap-and-invest program that seeks to cap transportation-sector emissions in ten Northeast and Mid-Atlantic states.