Last month, when American Petroleum Institute, the largest trade association representing the country’s oil and gas industries, endorsed putting a price on carbon emissions as a strategy to push major polluters to reduce activities that contribute to climate change, the climate activist community’s reaction wasn’t all that positive.
This, in fact, is often the response whenever the fossil fuel industry expresses support for some climate policies. Activists often claim these policies will always be nothing but greenwashing, which won’t require the industry to make meaningful changes to its extractive business model and won’t go far enough in reducing greenhouse gas emissions.
While this apprehension isn’t entirely unfounded, that’s not the lesson to take from API’s move, not with the need for climate action growing more urgent by the day. The lesson should be that we need to focus on designing the most just and effective policies possible rather than rejecting a potentially promising solution like carbon pricing simply because of who its supporters are. If global warming is to be kept below 1.5 degrees Celsius, we don’t have the luxury of leaving anything off the table.
The consensus view among economists holds that pricing emissions of carbon equivalent by the largest emitters, either in the form of a tax per unit of carbon equivalent or a system of tradable emissions permits known as cap-and-trade, is more efficient than direct regulation. This is because carbon pricing incentivizes polluters to reduce their emissions as much as possible in order to avoid paying the price, rather than reducing emissions to the maximum level allowed by regulations and stopping there.
Moreover, carbon pricing gives companies the flexibility to reduce their emissions in the most cost-effective way. Carbon pricing also generates government revenue that can be used to further promote the transition away from fossil fuels or pay dividends to consumers to shield them from emissions-heavy goods’ becoming more expensive.
Under a cap-and-trade system like California’s, companies that don’t use all of their allocations of emissions permits can sell them to other companies that need more. Because the total number of permits distributed by the state is finite — constituting the cap in cap-and-trade — and decreases over time, the system brings about cumulative emissions reductions. California committed to a goal of reducing greenhouse gas emissions to 1990 levels by 2020 and met that goal at least two years early.
However, California’s cap-and-trade system hasn’t prevented corporations from continuing to emit both greenhouse gases and other dangerous air pollution from their operations, at least in the short term. Companies can compensate for up to 8 percent of their allocated emissions by purchasing offsets, thus bringing about emissions reductions somewhere else — for example, by investing in a reforestation project. This registers as an overall decline in those corporations’ emissions, but that doesn’t mean much to those that live near fossil fuel operations, often low-income communities of color, who are disproportionately affected by the health risks of air pollutants like volatile organic compounds and particulate matter.
Analysts have also argued that California’s cap-and-trade system has distributed too many emissions permits to the market, thus setting the price of carbon too low for the policy to be a major driver of the state’s emissions reductions, at least in comparison to market forces favoring renewable energy development and California’s host of regulations to promote clean technologies. The cap must get much lower for California to meet its next goal of 40 percent below 1990 levels by 2030.
These intersecting problems — environmental injustice due to the failure to address air pollution in disadvantaged communities and an overly lenient handling of large emitters — constitute the main criticisms of carbon pricing schemes. However, activists often present these criticisms not as a rational weighing of the harms and benefits of carbon pricing but as a consequence of the principle of carbon pricing being fundamentally flawed — thus justifying why any policy put forth by industry is inherently suspect. This is not a helpful approach when the policy fixes to address these negative aspects of carbon pricing do exist, if there’s a will to fight for them.
California reserves 25 percent of cap-and-trade revenue for projects benefiting disadvantaged communities, but there is room for more direct efforts to promote environmental justice. The state could modify the cap-and-trade system by ending the exemption for oil refineries from cap-and-trade’s purview, restoring the power of local air quality districts to regulate refinery emissions or requiring the offsets that companies buy to compensate for their emissions to have in-state benefits. A further action could be mandating setbacks between oil and gas drilling and any homes or schools, as a recently failed bill would have done.
The California Air Resources Board, which administers the cap-and-trade system, determines how many permits will be available in coming years; with the program’s having entered a new and stricter phase last January, activists should push CARB to follow through on its commitments to strengthen the program so that the state can meet its 2030 goal.
When it comes to API’s support for a carbon price, we shouldn’t lose sight of the monumental change it represents, either. Just over 10 years ago, API played a leading role in lobbying Congress to sink the Waxman-Markey bill, which would have created a national cap-and-trade system.
Even if API’s carbon pricing proposal would also include reducing “duplicative regulations” — in other words, API hopes a carbon pricing scheme would be accompanied by some deregulation for the industry — it doesn’t detract from the fact that the fossil fuel industry is willing to theoretically support a policy that, if implemented in the best possible way, could have a major effect on emissions.
The fact that a carbon price is now the “centrist,” or even “pro-business,” policy by itself speaks volumes about how much the conversation around climate change has shifted. Climate activists have themselves to thank for that.
Ben Reicher PO ’22 is from Agoura Hills, California. He joined his high school newspaper in ninth grade because he loved to argue, and he hasn’t stopped since.