Cutting CO2e rapidly requires governments to price carbon. There are generally two ways to do that: a tax on carbon dioxide emissions, or the creation of a marketplace where emissions are capped and auctioned as credits allowing polluters to trade for the right to emit CO2e.
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Full Transcript:
[Plank] Carbon pricing. Where have we seen the most successful implementation of a carbon price?
[Orvis] The cap-and-trade program in California is probably the most successful carbon pricing program in the world. There are a couple different kinds of carbon pricing: there's cap and trade, and then there's a carbon tax where the tax just specifies a certain price, and cap and trade actually specifies the amount, and then the price is kind of discovered through the market. California actually has a hybrid system. They have a cap-and-trade system, but if for some reason it becomes very costly, California has a floor price which then converts the cap into essentially a tax--because even though it might be cheaper than that it just says, 'okay this is the floor price and it's not going below that.' Or what's happened more frequently is the emissions reductions have actually been much cheaper than advertised, and in other regions this has caused the price of the market to basically bottom out at zero. So that type of system is really effective for containing the cost of a carbon pricing program while also ensuring - within the reasonable range of costs - that emissions are capped at a target level. The program in California has also been linked with other regions. That provides, again, that idea of flexibility for compliance and helps lower the cost across all those regions. It's been really successful, and it's been one of the only programs that hasn't experienced, to put it bluntly, a comically low floor price. The emissions trading scheme in the European Union - which is now trending towards increasing because the EU recently passed a set of reforms that significantly strengthened it - but for years it sat close to zero and effectively drove no abatement. I think we've had a wave of pretty unsuccessful carbon pricing programs globally, but policymakers have learned a lot of lessons from those programs and are now strengthening them. China's in the process of rolling out its own emissions trading scheme. The details are still a bit up in the air on that, but it will be great to see the world's largest emitter start implementing this program.
[Plank] Maybe this comes along with the carbon tax - but that we need to start thinking about putting a tax on beef. Has anybody been looking at that?
[Orvis] It's a tough one. Taxing beef is an option, but one thing we focus on - and one of the reasons it's not prominently featured in the book - is we look at just not just the potential to reduce emissions, but also the difficulty or the feasibility of achieving those reductions through policy. So if you only have to target 50 utility companies or even 500 regulators, that's a lot easier than having to go manage 300 million people's dietary habits. Yes, agriculture is a significant source of emissions - not just in the US but in other countries - but especially in the US where we have very high meat consumption per capita, in particular beef and dairy are the biggest drivers of agricultural emissions. And taxing it may be challenging, both in terms of getting the outcomes we want, but also politically very challenging.
[Plank] Yeah, we talked about how they pushed back on the EVs in Georgia, imagine if we start taxing people's burgers and cheese, right?
[Orvis] Even the concept of it has already generated lots of feedback that has been all over different news media outlets. So it's hard to foresee a situation in which that really takes off.
[Plank] I hear you.
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Until next time, for TDC, I'm Bryce Plank. Thanks for watching.