Price pollution to keep the future clean
February 8, 2023•397 words
Carbon pricing refers to policies that make it more expensive to pollute—ideally making polluters pay more to do business in such a way, without creating economic difficulties for everyone else.
A carbon price, or price for pollution, can be applied at various points, as fuel moves through the economy:
upstream (on the raw material—coal, oil, or gas);
midstream (on refined and processed fuels and other products);
downstream (where fuels generate emissions).
Applying the price upstream is the most direct way to ensure the cost of polluting is paid by those doing business with polluting fuels. They may "pass through" that cost to other businesses and to consumers. To avoid pass through costs falling on households, small businesses, and community economies, revenues from a carbon tax can be returned to those affected, or to everyone.
Carbon pricing policy options include:
Carbon tax—a direct tax on pollution, which can be upstream, midstream, or downstream.
Climate income—a carbon fee paid as far upstream as possible, with all revenues returned to households in regular checks or bank deposits.
Emissions trading—usually including a limit on the overall amount of pollution, with polluting businesses allowed to trade pollution permits, to facilitate their transition to clean energy systems. An emissions trading system, or ETS, is usually assessed midstream—on power companies, for instance.
Border adjustment—a carbon price assessed at the border, to ensure goods and services originating in countries that don't price pollution aren't artificially cheaper than goods and services that pay the costs of pollution.
Because climate change is imposing devastating costs on people, economies, and nations, it will be increasingly important to enact policies that make polluters pay the full costs of their business activity. Nations can work together in bilateral or multilateral cooperative arrangements to participate in shared emissions trading systems or to align carbon taxes and other policies, to increase the economic efficiency of their energy transitions.
For wealthy, industrialized countries, a carbon price can help to decarbonize their advanced industries, reducing overall pollution.
For low and middle-income countries, who may not pollute as much, a carbon price is needed to safeguard the country's future against a pollution-centered economic model that harms people and nature, and could undermine overall economic prospects in a clean economy.
A carbon price is a way to make future climate security and resilience more likely.