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Carbon Pricing Alone Won’t Solve the Climate Crisis

Decarbonisation cannot be achieved through ineffective and counter-productive carbon pricing measures which fail to raise enough revenue to fight climate change, reports Thomas Perrett

The oil refinery at Grangemouth in the Firth of Forth, Scotland. Photo: Ashley Cooper/Cavan Images/Alamy

Carbon Pricing Alone Won’t Solve the Climate Crisis

Decarbonisation cannot be achieved through ineffective and counter-productive carbon pricing measures which fail to raise enough revenue to fight climate change, reports Thomas Perrett

Carbon pricing remains one of the most popular policies aimed at mitigating climate change. Recently endorsed by the G20 as a mechanism for transitioning to a low-carbon economy, it has figured prominently in climate policy for decades – former US President Bill Clinton proposed a carbon tax back in the 1990s, and 12 US states including California currently adopt forms of carbon pricing.

Theoretically, market-based carbon reduction measures – which include both indirect taxes and cap and trade schemes in which companies can buy and sell permits allowing them to emit a certain amount of CO2 – disincentivise the production of harmful emissions.

Consumers are supposedly incentivised to give up petrol cars in favour of bicycles and electric vehicles, allowing companies to switch to cleaner alternatives. In practice, however, the limited amount of revenue raised by carbon taxes, in addition to their adoption by cynical fossil fuel companies evading more serious punishments, means that far more substantive, direct measures will likely be required to decarbonise our economies by the middle of the century.

The Ineffectiveness of Carbon Taxes 

Attempting to address the climate crisis through carbon pricing suggests that climate breakdown is simply a market failure which can be corrected by incentivising companies and consumers to switch away from carbon, driving innovation in renewable alternatives.

In reality, climate change cannot simply be mitigated through market reforms. The scale of the problem requires pragmatic state intervention to facilitate infrastructural investment and the provision of alternative, cleaner energy sources.

Research by Columbia University’s Centre on Global Energy Policy has found that, if the United States implemented a carbon tax at $50 per ton, emissions could fall as much as 46% below 2005 levels by 2025. To reach a target of an 80% emissions reduction by 2050 – which itself is inadequate in addressing the scale of the climate crisis – carbon would need to be priced at more than $100 per ton. The research acknowledged that even these ambitious tax rates would “likely be insufficient to reduce US greenhouse gas emissions 80% below 2005 levels by 2050”.

Part of the reason for the ineffectiveness of carbon pricing in reducing the incentives for fossil fuel companies to pollute is that a carbon tax would almost exclusively target the dirtiest fuels, such as coal. Research has shown that around 80% of the emissions reduction caused by a carbon tax would fall on the electrical sector. Many fossil fuel companies, however, are developing other environmentally harmful energy sources such as oil and natural gas, involving methane production which is approximately 80 times deadlier for the environment over a 20-year period.

Following a meeting last February between representatives of several prominent fossil fuel companies including ExxonMobil, Shell and Chevron and the UK’s former Transport Secretary Conor Burns, a spokesperson for ExxonMobil told Channel 4 News that oil and gas would “continue to play a critical role in meeting the world’s demand for energy”. Fossil fuel companies are aware of the loopholes in market-based carbon reduction schemes and intend to exploit them using a diverse energy mix which still excludes clean energy. 

Rather than acting as a mechanism for preventing fossil fuel companies from investing in harmful energy sources or for driving investment in cleaner technology, carbon taxes have been embraced by some of the world’s biggest polluters as a means of gaining immunity from more punitive legislation.

ExxonMobil – currently facing a lawsuit in Colorado for damages from the 2010 Fourmile Canyon fire which destroyed 169 homes – supports a carbon tax modelled by the Republican-led Climate Leadership Council, which has a proposal for a modest $40 tax on each ton of carbon and also aims to “make possible an end to federal and state tort liability for emitters”. 

In a private conversation revealed by Greenpeace Unearthed, Exxon lobbyist Keith McCoy described a carbon tax as an “effective advocacy tool”, acknowledging that Exxon’s embrace of the tax made it easier to avoid more stringent legislation targeting emissions. He added that other lobbying groups such as the American Petroleum Institute have announced their support for a carbon tax because “they’ve got nothing else, so it’s an easy talking point to say, ‘look I’m for a carbon tax’”.

Stoking the Fires of Populism 

Market-based environmental policies, by focusing exclusively on how to disincentivise the problem as opposed to providing a solution, propose measures that often hurt the poorest hardest – as the indirect burden of carbon taxes can be shifted on to consumers.

The gilet jaunes’ revolts in France during 2018 and 2019, which morphed into wider protests against economic inequity, were driven by a fuel tax. Similar protests have occurred in Mexico, where fuel taxes sparked demonstrations in 28 of the country’s 32 states during 2017. While it is often claimed that the revenue collected from fuel taxes can be reinvested in local communities, these impacts may be negligible at first, in contrast to the immediate and damaging impact of fuel duty hikes.

The impact that carbon taxes can have on ordinary consumers has led climate change deniers and right-wing media outlets to pose as allies of ordinary consumers and motorists against supposedly bloated, over-subsidised environmental NGOs.

The Sun ran a campaign entitled ‘Keep It Down’ in response to fuel duty hikes imposed by Chancellor Rishi Sunak. The initiative attracted support from industry-funded lobbying group Fair Fuel UK, the leader of which – Howard Cox – is frequently quoted in the newspaper and has described environmental policies as “virtue-signalling”.

Outlining Substantive Alternatives

Carbon pricing schemes are unlikely to raise significant amounts of revenue and have proven to be ineffective at removing the incentives to pollute from sectors that find it difficult to transition away from carbon.

Expanding renewable energy alternatives – which have rapidly falling costs, making them an attractive prospect for investors – emphasises the benefits of positive action over tepid reform.

According to a recent report from the International Energy Agency, which called for a “complete transformation of the global energy system”, reaching net zero carbon emissions by 2050 will require tripling annual clean energy investment to around $4 trillion by 2030. 

The roadmap for achieving the rapid electrification of transport and divestment from fossil fuels could take many forms.

Economist and anthropologist Jason Hickel has advocated a scenario in which state control over the money supply could facilitate unlimited investment in clean energy sources and create a universal jobs guarantee, keeping inflation down by using taxation to curb the excess demand. It has also been suggested that nationalising and downscaling the fossil fuel industry, alongside providing worker protections that create well remunerated employment for former fossil fuel workers, could significantly mitigate the climate crisis.

As the climate crisis intensifies, and the ramifications of our inaction become ever more apparent, it is clear that pragmatic solutions to decarbonise our economies and switch to cleaner energy alternatives are urgently required.

Decarbonisation by the middle of the century cannot be achieved through ineffective and often counter-productive carbon pricing measures which fail to raise enough revenue to fight climate change. Only significant investment in renewable energy and pragmatic legislation targeting the fossil fuel industry can provide a future vision for a more sustainable society.

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