Figuring out what carbon price is right to meet climate goals
By Steve Valk
Trying to figure out the efficacy of carbon pricing in reducing greenhouse gas emissions involves designing and running complicated models that can make the average person’s head hurt. Fortunately, we can turn to people like Columbia University economist Dr. Noah Kaufman to crunch those numbers and tell us what’s needed to reach the goals that could keep global warming from spinning out of control.
As we head into a new Congress with the opportunity to enact meaningful climate legislation, Dr. Kaufman joined CCL’s national call earlier this month to share his recent work on carbon pricing called Near-Term to Net Zero (NT2NZ).
The NT2NZ approach estimates the CO2 price needed in the near term to achieve net-zero emissions within a certain time frame. The good news, from a CCL perspective, is that the prices prescribed in the Energy Innovation and Carbon Dividend Act fall within the range needed to reach net zero emissions by 2050.
“Net zero is really important. It’s not just a slogan. At the global level, net zero is where warming stops,” said Dr. Kaufman. Getting to net zero by 2050 requires a carbon price “in the ballpark of $50 a ton in 2025 and $100 a ton in 2030.”
Combining a carbon price with other climate policies — regulations, subsidies, etc. — will probably be the best approach with harder-to-decarbonize sectors like transportation, Dr. Kaufman said.
“If we do want to get to zero, we need everyone to switch away from [internal combustion] vehicles. We want to combine the carbon price, which would raise the gasoline price, with a lot of other measures that would promote new technologies, invest in charging stations, impose fuel economy standards.”
While some politicians oppose carbon pricing on the grounds that it will put a damper on economic growth, Dr. Kaufman said, “There just isn’t that much evidence that the carbon price has a big impact on economic output one way or the other.”
He added that giving revenue to households would have a positive effect on the economy. “If you use the revenue in pro-growth ways, you could absolutely see a carbon price that added to GDP.”
CCL volunteers first became familiar with Dr. Kaufman’s work in 2019 when he led a team of researchers at Columbia that assessed the Energy Innovation and Carbon Dividend Act. The independent study found that the legislation would achieve substantial reductions in greenhouse gas emissions, provide health benefits by removing harmful toxins from the air, and benefit households financially. Specifically, “average low- and middle-income households receive more in dividends than they pay in increased economy-wide prices.”
Dr. Kaufman took his carbon-pricing expertise to Capitol Hill in December of 2019 when he testified before the House Energy and Commerce Committee, which has jurisdiction over bills like the Energy Innovation Act.
“For any policymaker with the goals of deep decarbonization and a strong economy, putting a price on carbon is a no brainer,” he told the committee.
He also testified that “the most straightforward way to protect those who cannot afford price increases is to use the revenue to provide compensation for the increase in expenditures caused by the carbon price: such payments are often called ‘carbon dividends.’” Dr. Kaufman noted that the Energy Innovation Act is a “highly progressive policy” that will benefit the poor financially.
To get more of Dr. Kaufman’s insights on carbon pricing, follow him on Twitter.