On Monday, La Plata County League of Women Voters will host a discussion about two hotly debated policies that seek the same goal: putting a price on carbon to effectively reduce the emissions of fossil fuels over time.
Think of it as conversation about carbon tax vs. cap and trade.
A cap-and-trade system is an emission reduction scheme that is quantity based, which fixes a total amount of carbon that can be released, and then allows prices of that energy to fluctuate according to the market.
A carbon tax, on the other hand, is a price-based system that fixes the cost of carbon-based energy and then allows emission levels to vary according to economic activity.
“One fixes the quantities (cap and trade), and the other fixes the price (carbon tax),” said Steven Ruddell, a member of the League of Women Voters who will moderate the discussion.
Two presenters will discuss the issue: Yoram Bauman, the architect of the state of Washington’s carbon tax ballot initiative; and Patrick Cummins, emissions trading expert at the Center for the New Energy Economy at Fort Collins, on behalf of cap and trade.
Cap and trade
Pros: A cap-and-trade system sets a cap on the amount of carbon emissions under a regulated program for entities such as power plants, transportation and industry operations. It can even include residential use.
The total emissions allowed under a cap are divided into individual permits. But because these permits are limited, they take on a financial value and can be traded, Ruddell said.
“Companies able to reduce emissions at a low cost can also sell surplus,” he said. “But basically, the cap is there to create the incentives for companies to invest in new technologies or conservation strategies to lower the cost of emissions.”
Over time, the cap tightens, thereby creating a more aggressive pollution reduction target. Companies, as a result, adjust their operation strategies to ratchet down emissions.
The system has been successful in California, where the state seeks to reduce emissions by 40 percent by 2030 from 1990 baseline levels, Ruddell said.
“When you look at the entities under the cap, that represents about 50 percent of all emissions, just in those sectors,” he said.
Cons: But, not all pollution sources are covered under a cap-and-trade system. Methane emitted from landfills, livestock (which accounts for 10 percent of all emissions, Ruddell said) and even forestry are currently not considered under the system.
“These aren’t capped,” Ruddell said, “but they could come under an offset market.”
And while there is certainty on the amount of emissions to be reduced, what’s not so sure is the price of carbon.
“The price in a cap-and-trade fluctuates, and it really depends on what your goal is,” Ruddell said. “And there could be issues with equity: How would it affect lower income households?”
Pro: A carbon tax would be established by a regulatory body imposed on fossil fuel suppliers at a rate that reflects the amount of carbon emitted when fossil fuels are burned.
The tax would be included as part of the price of coal, oil and natural gas to wholesale users, Ruddell said, and then passed on to consumers. Because coal generates the greatest amount of carbon, it would be taxed higher than other energy sources.
“By raising the price of these fossil fuels, a tax would create incentives to reduce energy use and promote a shift to cleaner fuels and renewable energies,” Ruddell said.
The tax would effectively impact all sectors, such as agriculture and food prices. There are no examples of a carbon tax in use in the U.S. The state of Washington, in 2016, rejected a ballot item that would have been the first in the country.
Cons: While a carbon tax would ensure a price on fossil fuels that increases over time, there’s no way to measure what the emissions reduction would be, Ruddell said. It’s more based on a theory that if you tax something, you generally get less of it.
“But we can’t say, in 10 years, what the emissions reduction would be,” he said.
Ruddell said a carbon tax, too, is criticized for the disparity it may create, such as disproportionately affecting low-income households with increased electricity and gas prices.
And, both the cap and trade and carbon tax would require a significant role from the government.
“With a carbon tax, we already have a taxing structure within the U.S. and states that it could blend into,” he said. “But a cap-and-trade requires a whole new administrative structure.”
Why have this discussion?
With the Obama administration’s Clean Power Plan, which seeks to drastically reduce the country’s fossil fuels emissions, hung up in the court system, it may be up to individual states to decide how they will combat climate change.
Historically, the cap-and-trade system has been more politically acceptable, Ruddell said, whereas the carbon tax is generally shunned as another cumbersome tax.
Ruddell said Monday’s panel will be a good chance for the public to hear both sides.
“We’re not for or against; the objective is to educate,” he said. “We want to help people understand the differences between the two and why they may want to support one or the other.”