Episode 6: Carbon Pricing Hits a Brick Wall on the Left [Full Transcript]
And the future of progressive climate policy
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Casey: Welcome to Pricing Nature from The Yale Center for Business and the Environment and the Yale Carbon Charge. I’m Casey Pickett.
Naomi: I’m Naomi Shimberg.
Jacob: And I’m Jacob Miller.
Casey: Over the course of this season, Pricing Nature has been telling a story about carbon pricing: how it works, why it matters, and how it fits in with the broader landscape of climate policy. If you’re just joining us, welcome. We recommend listening sequentially from episode 1 because of the way our series builds. In episodes 4, 5 and 6, we’re focusing on the politics and history of carbon pricing in the US.
Naomi: Welcome to Episode 6. If you’ve made it this far, you must be as nerdy as the three of us, so, I’m not quite sure what to tell you.
Jacob: Or you’re just here for the dad jokes.
Casey: Would you guys stop making fun of the dad jokes, please? Who doesn’t love a dad joke? I mean, sheesh. Sometimes I think you’re here for the dad jokes.
Jacob: I’m here for the dad jokes…
Casey: In today’s episode, we explore how we got from here:
President Obama: I have long believed that the most elegant way to drive innovation and reduce carbon emissions is to put a price on it”
Casey: To here:
President Biden: The American Jobs Plan will lead to a transformational progress in order to tackle climate change with American jobs and American ingenuity.
Naomi: On March 31st, President Biden introduced the American Jobs Plan: a $2 trillion dollar investment in infrastructure to move the U.S. towards a clean energy economy. Though it sounds pretty jobs-focused, the American Jobs Plan is truly a climate plan. It aims to drive greenhouse gas emissions to zero in the electricity sector by 2035. And to fully decarbonize the economy by 2050.
Jacob: President Biden proposes paying for the American Jobs Plan with a “Made in America” tax, which would raise the corporate tax rate to 28 percent and close loopholes that have allowed big corporations to evade taxes.
But there’s no mention of carbon pricing anywhere in the American Jobs Plan.
Casey: Today, we’re going to ask: Why? When we started planning this podcast, over two years ago, we thought we’d be in a very different place by now. I thought that if there was a Democratic Administration in Washington, they’d be negotiating a national carbon pricing bill. But in hindsight, I should have seen this coming.
In 2018, I went to the big climate event in San Francisco organized by California Governor Jerry Brown and former New York City mayor Michael Bloomberg. It was focused on getting companies, cities, states around the world to commit to significant climate action despite the Trump Administration’s opposition. And when I showed up on the first day, there was a big protest outside the event, with environmental justice advocates decrying carbon pricing as a threat to people’s health and as a giveaway to big business. I’m embarrassed to say I was surprised. And it was awkward. I had invited my boss to come and speak on a panel I’d set up on internal carbon pricing in higher education, and he looked at me like, “what’s going on? I thought we were doing the right thing with our carbon price at Yale.” I didn’t do a great job explaining the issue then. And it’s no wonder. In researching this episode, we found out just how deep and how complicated progressive opposition to carbon pricing is.
Last episode, we noted that politically speaking, carbon pricing’s journey has been like a romantic comedy where romantic interest flips back and forth: Republicans liked it, but once Democrats showed interest, Republicans got cold feet. Democrats pursued it alone for years, and then recently, some Republicans started showing renewed passion for the policy. And now that Democrats are back in the White House and in power in Congress, there’s significant opposition to carbon pricing on the left.
In this episode, we try to understand why carbon pricing may have run into a kind of a brick wall on the progressive left.
Naomi: To understand why we don’t see President Biden and the Democratic base embracing carbon pricing, we’ve got to understand what happened in California, which has the nation's largest cap-and-trade program.
Michael Méndez: as many people say as California goes, so goes the nation...
Naomi: Michael Méndez is professor of urban and environmental planning at the University of California, Irvine. He worked as a consultant to the California state legislature and has served as an advisor to the California Air Resources Board, which is the agency that oversees the cap-and-trade system.
Jacob: And like Professor Méndez said, as California goes, so goes the nation, at least as far as environmental and climate policy is concerned. California is a national leader in climate policy. The state has strong climate goals with an unprecedented emphasis on social justice and local air quality.
Naomi: Right, and while California has led the nation in combating climate change, the state’s story is also fraught with tension, controversy, and—quite frankly—a lot of unanswered questions, many of which are centered around justice: How effective is cap-and-trade at reducing emissions? Does cap-and-trade reduce air pollution in frontline communities? Are there more effective tools for reducing emissions in an equitable way?
Casey: What is California’s influence on national policy? We have a state with serious climate policy that has reduced its overall emissions and has a Cap-and-Trade carbon pricing system in place. But the federal policy proposed by the Biden administration doesn’t include a cap-and-trade system, and in fact, it doesn’t include carbon pricing at all. We’re going to talk about how carbon pricing fits into progressive climate policy in act 2, and we’ll get to President Biden’s climate policy in act 3 of today’s episode, but first, we’ll start in the Golden state...
Act 1 - What went wrong in California?
Naomi: In 2006, California adopted the most ambitious climate legislation in North America: the Global Warming Solutions Act, Assembly Bill 32. AB32 set a goal of reducing greenhouse gas emissions to 1990 levels by 2020, using a mix of policies including sector-specific regulation and a statewide cap-and-trade system. So, you might think that passing and implementing such a bold climate plan would take a unified environmental movement. But AB32 actually exposed a fundamental divide between two segments of the state’s environmental community: economists and policymakers in one camp, and environmental justice advocates in the other.
Jacob: Today, we’re going to examine this divide by talking about three big issues with California’s cap-and-trade system. First, the state government did not include important voices from frontline communities in critical decision making processes; Second, it’s not clear if the program was reducing local air pollution, and maybe it was even making it worse. And third, it’s not even clear if the program will reduce overall greenhouse gas emissions in the next ten years.
Casey: For the next few minutes, we’re going to get into the weeds on California’s cap-and-trade program. When we come out the other side, you’ll see why we need to start this episode about the progressive take on carbon pricing in California.
Michael Méndez: So the rub is with cap and trade, for many environmental justice groups, that they're essentially left out of the regulatory process. Putting a price on a ton of carbon and increasing that over the years is to them more transparent and equitable. Everyone could see who was contributing and paying that carbon tax because publicly available information, people could actually see that. However, under cap-and-trade, who’s buying, selling types of credits...it's considered proprietary and trade secret. So you oftentimes don't know who is exactly buying what to meet their obligations.
Casey: So with a carbon tax, there’s transparency about who’s polluting, how much they’re polluting, and how much they’re paying to pollute. But in California’s cap-and-trade system, the process of trading permits after the initial auction adds a layer of obscurity to the whole thing. There’s no publicly available data that documents how California permits are traded, and that’s to protect the private data of the regulated companies. This lack of transparency is one of the first things that environmental justice organizations took issue with.
Naomi: Right, so environmental justice groups, or EJ groups, felt that all of this private, protected data would make it difficult to critique the cap-and-trade system, if it wasn’t working. So, the California Air Resources Board, which is the agency that oversees the cap-and-trade program, created an Environmental Justice Advisory Committee. This committee was supposed to provide a formal method for community input. But the Air Resources Board was not receptive to the Advisory Committee’s concerns.
Michael Méndez: When the California Air [Resources] Board adopted its first implementation plan, its implementation of AB32, the global warming solutions act of 2006. When it implemented that first plan and adopted it in 2008, I believe, there was not one single person of color on that nine member board.
So this perspective of environmental justice was always bulldozed over, ignored and not dealt with appropriately.
Naomi: In 2009, seven of the eleven members of the advisory committee joined a lawsuit against the Air Resources Board. They charged that the board wasn’t taking their feedback seriously. This is an issue of what’s called procedural justice, or fairness in a decision making process.
But what was their feedback about? Distributive Justice. Distributive justice means fairness of outcome. And the EJ Advisory Committee had serious concerns about the outcome of the cap-and-trade program, namely its impact at a local level. While greenhouse gas emissions are a global problem, emitting greenhouse gases means emitting other co-pollutants that have local, public health impacts, most often for low-income communities and communities of color.
Jacob: Yeah, these co-pollutants, like particulate matter and Nitrogen Dioxide, they’ve been linked to increased rates of asthma, and hundreds of thousands of premature deaths.
Naomi: Right, and EJ advocates in California claimed that the cap-and-trade program made these issues worse by increasing the amount of air pollution in frontline communities. Many groups have cited a 2018 study that says in the first three years of the cap-and-trade program, in-state emissions actually increased at a majority of regulated facilities.
Jacob: Now you might be wondering, how is that even possible? Isn’t the whole point of the cap to ensure that emissions are decreasing every year?
Naomi: That would be a fair question, Jacob, but this study was looking at local emissions—California’s cap-and-trade program allows for the use of out-of-state carbon offsets to hit emissions targets.
Casey: Naomi did you say offsets? Ah, I think I see where you’re headed...
Now, listeners, we haven’t talked much about offsets yet on the podcast; we’ll explore them next season. People and organizations can purchase carbon offsets as a way of investing in emissions reductions occurring elsewhere—funding things like landfill methane capture, installation of low-emitting equipment in factories, and improved forest management. The idea is to direct capital to where it can reduce emissions at the lowest cost. For climate change, it doesn’t matter where emissions occur on the planet. But for local air quality, it matters a lot.
So in California, companies and organizations purchased enough of these out-of-state offsets that the overall emissions being counted in the cap-and-trade program went down, but the emissions occurring within state lines went up. So from a global standpoint, greenhouse gas emissions were decreasing, which is good. But from a local standpoint, greenhouse gas emissions, and their co-pollutants, were increasing, which is… very bad.
Naomi: Definitely very bad. And so this particular 2018 study said local air pollution was increasing for the first three years of the cap-and-trade program, but here we run into one of those unanswered questions I mentioned in the beginning. Because the bulk of the recent academic evidence suggests that cap-and-trade in California has delivered equal or greater air quality benefits to frontline communities.
Jacob: All that being said, it’s really hard to calculate how much cap-and-trade has impacted local air pollution. The introduction of the cap-and-trade program coincided with several other policy changes, so it’s hard to pin down how many emissions reductions came as a result of each specific policy. And on top of that, it’s challenging to model how air pollution is distributed from big emitters, especially at the neighborhood level, which is where these health effects come into play.
Casey: So, it seems like the academic jury is very much still out.
Naomi: Yes. But there is growing academic consensus about another, related question: how effective is cap-and-trade at reducing emissions overall? Economists and advocates have argued that cap-and-trade has not been the driving force for reducing emissions in California.
To understand why, we spoke to Danny Cullenward—he’s an energy economist-slash-lawyer and one of the leading thinkers on the implementation of climate policy. He recently published a book with Economist David Victor, called Making Climate Policy Work. The book examines why carbon pricing systems don't always work as well as economists expect them to. Danny Cullenward spoke to us about his criticisms of the program and one of the primary concerns he raised was something we talked about last episode—overallocation of pollution permits.
Danny Cullenward: The primary issue, which you see time and time again in cap and trade programs around the world is a persistent, excess supply of compliance instruments. We call this like in technical language, we call this over-allocation or oversupply, and it's basically referring to a persistent condition where the supply of allowances in the cap and trade program exceeds demand for those allowances. And if the supply demand is out of balance, you'll have low market prices and you'll have limited emission reductions.
Jacob: And not only will prices be low today, they also have a risk of staying low, long term. California’s cap-and-trade system allows for what’s known as “banking,” where a company can save their unused permits for future years—kind of like rollover minutes… remember that AT&T commercial Naomi?
Jacob: But she’s right, it’s the same, they don’t expire! So in a cap-and-trade system that assigns too many permits, there is a big pile of quote-unquote “banked” permits, that can be used by companies in the future. There’s a limit to how many banked permits an entity can hold, but it’s…pretty high.
Casey: So these banked permits make it more difficult to ensure future emissions reductions, because there’s no way to guarantee a cap on emissions in a given year. Regulated companies could always dip into their banked allowances when they need to.
Naomi: Yes. And Danny Cullenward says that these banked allowances could present a big problem for the Cap-and-Trade program in the next decade. Basically, companies could dip into their banked allowances to continue their business-as-usual emissions. And then on the other hand, if those banked allowances do run out, prices will increase all of a sudden, creating a political disaster.
Further, Cullenward says that the Air Resources Board has dismissed experts’ concerns here. There’s this really technical back and forth that we won’t get into in this episode, but we’ll link some good sources in show notes.
Casey: At this point we’ve talked about three big issues with California cap-and-trade: concerns about procedural justice—important voices from frontline communities were not part of the decision making process; issues with distributive justice—it’s not clear if local air pollution was decreasing, and now we see limited overall emissions reductions as well. These are clearly important issues, and now I’m curious: how have these events come to guide national policy? How did this local activism around cap-and-trade in California translate to a Biden climate platform that doesn’t feature carbon pricing at all?
Jacob: We spoke to Michael Méndez about this policy evolution—he too wrote a book, this one called Climate Change from the Streets, which examines the growing political strength of the environmental justice movement:
Michael Méndez: We see these coalitions advocating to be appointed by the governor and the speaker and the Senate pro temp to these powerful boards and commissions. And that is really changing the dynamic of how, after a law is passed, how it's regulated and how it's implemented on the ground.
We see that now happening in the Biden administration where environmental justice advocates or people doing environmental justice research or working at non-profit and research think tanks that had a strong equity lens are part of the Biden administration.
Naomi: In the 2020 presidential election, we saw serious climate platforms from pretty much every Democratic candidate, with justice as a crucial pillar of each platform. Professor Méndez says this is a result of procedural justice...voices from the environmental justice community are being included in the national climate policy conversation.
Progress in California also provides some evidence for the growing political power of environmental justice groups. In 2017, when the California cap-and-trade program was up for extension, environmental justice groups fiercely opposed renewing the program. Ultimately, EJ groups and legislators reached a compromise and the cap-and-trade program was extended. But rather than relying on climate change policies to deliver local air quality improvements, the state promised to tackle local air pollution through an entirely new bill, AB 617.
Jacob: And that’s not the only example of California environmental justice groups exercising their growing political influence.Mary Nichols was the head of the California Air Resources Board and was considered a top pick for EPA administrator under the Biden Administration. But she wasn’t chosen, largely because of a coordinated response from California’s EJ community. In 2020, they released a letter opposing Nichols’ nomination, on the grounds that she had disregarded the recommendations of the Environmental Justice Advisory Committee and implemented a system—cap-and-trade—that disproportionately burdened frontline communities with toxic co-pollutants.
Casey: So Jacob, was this the moment? When Mary Nichols’s potential nomination fell apart, that observers realized that carbon pricing was not likely to play a part in the Biden Administration approach to climate policy?
Jacob: I mean, if I’m totally honest, it was the moment I noticed.
Naomi: And maybe we all should have noticed, when all of the Democratic candidates were announcing their climate platforms with no mention of carbon pricing.
Casey: And so here we are, in 2021, with a Biden Administration climate bill on the table that makes no mention of carbon pricing as a climate policy tool. But let’s rewind for a second… When we first heard from Professor Méndez, he said that 15 years ago environmental justice groups supported a carbon tax—as opposed to cap-and-trade. That’s pretty different from what you hear today from EJ advocates, which is opposition to any market-based mechanism.
Michael Méndez: Initially, maybe 10, 15 years ago. A majority of California environmental justice groups were advocating for carbon pricing. While it's still a market-based solution or a neoliberal solution, it more closely aligned to their goals of having more stringent reductions in polluting facilities near the communities that they were living in. Over the time that evolution has changed a little and environmental justice groups have grown and have more influence in state legislatures and city halls, and to some extent at the federal government where they're advocating against all types of market-based mechanisms or neoliberal solutions. So we see that groups in general are moving towards that sort of more hard line approach towards command and control regulation of government setting the standards that are stringent. And having regulated entities comply on a very definitive and strict timescale.
Naomi: Here, Professor Méndez isn’t just talking about issues with distributive justice or procedural justice: he’s talking about a philosophical opposition to carbon pricing and “neoliberal market mechanisms,” in and of themselves. So as these groups are gaining power, they’re able to assert their underlying philosophies on the national stage.
Casey: And this is why what’s going on with California cap-and-trade is so important to understand. This case study provides an inside look at why carbon pricing is no longer the centerpiece of Democratic climate policy. What we’ve learned is that California’s Cap-and-Trade system led to skepticism about how effective cap-and-trade can be for issues of justice, and for reducing emissions overall. But that doesn’t mean that carbon pricing is completely off the table for all progressives. Some progressives see carbon pricing policy as one piece of a larger puzzle. That puzzle being a comprehensive climate policy platform. So where might carbon pricing fit into that larger platform? We’ll try to answer those questions in…wait for it….
Act 2: The climate policy puzzle: Is carbon pricing a missing piece, or is it not a piece at all?
Casey: When we spoke with Senator Sheldon Whitehouse, he explained where he thinks carbon pricing fits into the puzzle:
Senator Whitehouse: I think a carbon price is going to be the, you might say the center pole of the tent. There might be a lot of other poles that hold it all up and add value and make it stronger. But I do think that without a carbon price, the idea of being able to pull off, staying at 1.5 degrees just doesn't seem credible.
Casey: Senator Whitehouse argued that without a carbon price, we won’t be able to stay below 1.5 degrees celsius of warming. But this is clearly different from the messaging out of the Biden Administration. The American Jobs Plan, which is also, at its heart, a climate plan, makes no mention of carbon pricing. On Earth Day, President Biden announced his plan to cut emissions by at least 50 percent below 2005 levels by the year 2030. But he’s shied away from carbon pricing, mainly because of lack of political support for the policy.
Jacob: Right, the Biden Administration is instead favoring policies that focus on individual sectors, such as a clean electricity standard or a fuel economy standard.
Naomi: Now, there are several reasons for this shift away from carbon pricing. Raising prices on things like gas or electricity is unpopular, and raising prices fast enough to hit our targets will be an almost impossible political challenge. And as we learned last episode, carbon taxes never really saw the bipartisan support their backers always promised. But what I want to focus on now is what we learned from California, because it’s a big reason why you don’t see carbon pricing showing up on President Biden’s climate agenda.
Keya Chatterjee: There isn't an equitable way of doing a carbon price. There simply isn't.
Naomi: Keya Chatterjee is a progressive activist and climate advocate. She has done climate work at NASA, USAID, World Wildlife Fund, and today is the Executive Director of the U.S. Climate Action Network, or USCAN, which is a network of more than 175 organizations.
Jacob: In May of 2018, USCAN released the Vision for Equitable Climate Action, which is linked in our show notes. The document outlines a variety of climate policies and details the way those policies can be made equitable. Now, way down at the bottom of this document, there is a section detailing what a carbon price needs to look like if it can belong in USCAN’s Vision for Equitable Climate Action.
And honestly, it reads as a laundry list of everything that has or can go wrong with carbon pricing. We asked Keya Chatterjee to tell us more about those recommendations. First on her list may shock you.
Jacob: Okay but seriously, Keya Chatterjee provided some important commentary on the potential issues with carbon pricing.
Keya Chatterjee: Yes, we oppose it being seen as a source of revenue. That's kind of an obvious one because if you're succeeding, then that part of revenue is going away. Right? Like if you actually are winning, then there's no more carbon. And so there's no revenue source. So you don't want that to be a revenue source for anything you really deeply need cause you it's gonna go away, if it works. Obviously you don't want it to be regressive. You don't want it to hurt people who are already hurting. Obviously you don't want it to be a massive giveaway to polluters, as the free permits were seen to be in many of the carbon trading systems that exist at the state level and at national levels around the world. Obviously you don't want it to perpetuate environmental injustice and concentrate pollution in Black and Brown communities.
Casey: Okay, Keya Chatterjee just gave us a lot there, let’s dig into this for a second. Buzzfeed jokes aside, I think the first item on that list is rather surprising. She said carbon pricing should not be seen as a source of revenue for things we need in society. She's talking about all sorts of needs, like reliable public transit, or green space, or affordable housing. If we rely on the revenue from carbon pricing to fund and support those projects, then as the economy becomes fully decarbonized, we lose the revenue source, and these necessary projects suffer.
Jacob: Now my first thought when I heard this was… carbon pricing could generate a lot of money. Like a lot a lot. Some studies estimate that, in the U.S., a $50 carbon tax with 5% growth rate, so a pretty standard carbon pricing bill, would generate almost $2 trillion in revenue over ten years. But that wouldn’t even come close to matching Keya Chatterjee’s vision:
Keya Chatterjee: We are going to be pushing really hard for at least a $4 trillion investment in this country. It's in creating care economy jobs. It's in public transportation, it's in regenerative agriculture.
It's in insulating houses, it's in affordable houses. And yes, it's solar and it's wind. Yeah. And it's in a grid that actually functions and doesn't fall apart... And so we're going to be pushing a massive investment that meets our climate standards that meets our, our labor standards and that meets our equity standards.
Jacob: The vision that Keya Chatterjee and USCAN have for public investment is vast and intersectional. The $4 trillion investment they’ve been calling for goes well beyond clean energy development, or incentives for electric vehicles -- this investment would strive to lift up disadvantaged communities and create jobs that meet high labor standards.
Casey: If you’ve been paying attention to President Biden’s infrastructure plans, this vision sounds familiar. As we said earlier, the Biden Administration has been paying attention to the environmental justice community. $4 Trillion, Jacob, that’s remarkably close to the spending President Biden has proposed so far, COVID stimulus aside. Progressives are advocating for more spending than a carbon price could likely generate on its own. With that in mind, folks like Keya Chatterjee oppose carbon pricing as the central source of revenue for big investments.
Naomi: So Keya Chatterjee took us through the various elements of carbon pricing policy design that USCAN opposed on their Vision for Equitable Climate Action. She talked about the potential for the tax to be regressive, giving permits away for free, and revenue use. But what she said next is not in the document at all:
Keya Chatterjee: There's simply a philosophical opposition—particularly in many indigenous cultures, there's a philosophical opposition to the idea that you can give money to pollute. You can give money and continue to do something wrong as long as you pay to do that thing.
And that philosophical opposition is almost the most insurmountable thing and can't really be addressed by design. So what you'll see in a consensus document is us trying to outline the various elements of concern, but maybe not actually putting on the table, the fundamental, really deeply philosophical opposition to even the concept of it.
Casey: What Keya Chatterjee is saying here sounds a lot like Professor Méndez’s point about philosophical opposition to all types of “neoliberal” solutions to climate change.
Naomi: Yeah, and this is really where I think we hit a brick wall around environmental justice and market-based policy design. You know, you hear these proposals, like, let’s have local emissions reductions caps, or let’s weight emissions reductions in certain communities more within a cap-and-trade system. But at a certain point, you can’t design your way around a fundamental opposition to the concept itself.
Keya Chatterjee: There's just like one side that's like, no, I'm an economist. This is the most elegant solution. Pigouvian taxes are the best and you must internalize externalities and you have that on one side.
And on the other side you have, this is morally wrong. I'm not okay with this. And I'm, I'm walking away if this is where we're going. And what we ended up with was the list of problems of what's in there.
Naomi: USCAN’s Vision for Equitable Climate Action makes it sound like carbon pricing wouldn’t be the center pole of the policy tent…but to mix metaphors here, maybe it could be a side dish to the main course.
Casey: Naomi, is that a meat and potatoes joke going back to Episode 5…
Naomi: No of course not Casey. Here the main course is sectoral-based regulation, massive investments, and justice… and the side dish is carbon pricing. *gosh Casey, meat and potatoes, what are you on about…* But anyways, after talking with Keya Chatterjee, it really seems like for some progressives, carbon pricing has no role to play at all.
Casey: Regardless of whether carbon pricing is a side dish or doesn’t fit on the plate at all... I want to dig into the main course as progressives see it today: climate policy a la sectoral regulation, investments, and justice. Served for you on the plate.
Naomi: Right, and as we talked about in Episode 4, that main dish you’re describing sounds a lot like the Green New Deal… The Green New Deal has been incredibly important in influencing the development of progressive climate policy, by bringing together factions across the political left.
David Roberts I would say that the spirit of the [Green] New Deal and the core of the Green New Deal went on to kind of inform all policy development on the left, on climate change, which is happening all over the place.
Casey: Oh! David Roberts, back again! I’m so ready.
David Roberts: During the presidential election, like every democratic candidate hired people and put a lot of work into developing a really elaborate and robust climate platform. And there were these coalitions and groups of nonprofits, many of which kind of brought together factions of the left that had traditionally been somewhat at loggerheads and kind of brought them together in a process of developing climate proposals of their own.
Naomi: So what is the spirit and the core of the Green New Deal that Democrats—including President Biden—are now building on? David Roberts says it can be boiled down to three things:
David Roberts: Standards, Investments, and Justice.
Naomi: He first described this idea in an article in Vox that we’ll link in show notes.
Casey: Ok, can you walk us through these three areas?
Naomi: Yes, so first, as I said, is standards, and by that David Roberts means sector specific standards. Think fuel efficiency rules. For example, under the Obama-era EPA, automakers had to improve their vehicle’s fuel efficiency by 5% every year. That’s a sector-specific standard.
David Roberts: So, you know, you'd go after transportation, you go after buildings. Go after electricity, with specific standards designed for that sector.
Naomi: Now, this is a great place to start, because when David Roberts explained the power of sector-specific standards to us, he went back to the fundamentals of carbon pricing. You’ll hear him start with the economic case for carbon pricing, which then sets up the political case against it—and the case for sectoral reform instead.
David Roberts: What you want is to reduce carbon, right? You don't want specific technologies. You don't want specific changes in specific sectors. Your goal is less carbon. And so the most efficient way to get that is just to put a price on the carbon itself. And then the idea is if every ton of carbon costs the same across the entire economy, the people for whom it is most cheap to reduce carbon will reduce carbon first. That is the appeal of it.
But the problem is, and this is what Cullenward and Victor point out in their book is that the very thing that makes it attractive in terms of economics kind of damns it politically because as a matter of sort of fact, the politics are different in every sector.
Casey: Let me break down David Roberts’ point here… If you apply one carbon price to the entire economy, you’re using a pretty blunt tool to reduce emissions, and that tool becomes the target of political opposition from every sector. Take for example, the transportation sector. An economy-wide carbon price would likely raise the cost of gasoline, which is a very visible cost for consumers. People drive by gas stations every day and see the price of gas as it goes up and down. And now, every sector of the economy has a politically potent way to attack the economy-wide carbon price: by complaining about rising gas prices.
David Roberts: So, what happens is you end up kind of tethered to the lowest common denominator, you end up tethered to the least ambitious, most politically fraught sector. And that's kind of what's happening in California now because California, it's carbon pricing covers probably more sectors than any other carbon pricing system in the world. And it covers transportation too, but now it means if you want to raise prices at all, everybody has a perfect potent attack at you, which is, oh, you're raising gasoline prices. So the utilities come after you for raising gasoline prices and like, you know, plastic manufacturers come after you for raising gasoline prices, which has nothing to do with them. They just know it's a politically potent attack.
So the price ends up stuck at what the transportation sector can tolerate. It doesn't rise, like the theory says it should and will. So in covering the whole economy, you basically aggregate opposition. You get everybody against you at once.
Casey: So David Roberts is making a political argument here. He’s pointing out how an economy-wide carbon price is extremely vulnerable to political opposition, which keeps the price so low that it’s ineffective at decarbonizing most sectors of the economy.
David Roberts: Really where carbon pricing works is nudging you away from coal to natural gas. Like that's what carbon pricing has done in, in practice in a lot of places. It's really easy to get you those sort of incremental reductions in places where you have the technologies ready, but in a sector where you don't yet have the technologies, like a lot of areas like steel or cement… Sectors where the technologies need a lot more R and D right, and sort of scaling up and testing and demonstration projects. Carbon pricing is not good for that. It's such a blunt tool. You need a really, really, really high price. To push people to invest billions of dollars in long-term research that might not pay off, and if it does pay off, like if you do make a discovery, the discovery is also going to benefit your competitors. So you can't even really capture all the benefit of your own R and D spending. So like firms are loathed to do that, and it would take a really big price to force them to do that… and of course if your price is economy wide, that very high price, to make some action in heavy industry, is going to crush you in transportation or electricity or these other sectors, so again you’re back to the political problem.
Ultimately, if you want to change a particular sector, there's no substitute for learning what's going on in the sector, like who's doing what and what the capabilities of various technologies are. And you got to get in and get your hands dirty. There's no shortcut. There's no way around that work. And so that's another area where carbon pricing in practice falls short of theory.
Naomi: This critique of carbon pricing—that it’s unable to spur technology research and development—leads us to the next pillar of the core of progressive climate policy: Investment.
David Roberts: ...public investment, big investments of a lot of money in infrastructure, you know, transmission lines assistance for communities, job transition, blah, blah, blah, like just spending lots of public money.
Jacob: So here we encounter what might be the biggest issue with carbon pricing as the center of the climate policy tent. Progressives argue for massive investment from the federal government—and if your central policy mechanism is a carbon price, then it’s also probably your central revenue source for those investments. Politically, it would be difficult to pass a carbon tax alongside other taxes to pay for these new investments.
But as Keya Chatterjee argued, if the carbon pricing policy is working, then you lose your main source of revenue in the long term. Instead, progressive activists favor raising corporate tax rates and creating a wealth tax—which I should note is exactly how Biden plans to fund the American Jobs Plan.
Keya Chatterjee: We have massive income inequality in this country. We have massive racial injustice. We have a huge wealth gap between black and white people in this country, a massive wealth gap. There is nothing that we should be doing that puts any additional burden on people who have less. It should be quite the opposite.
If we need to pay to deal with the climate crisis . That money should come from the people who created the climate crisis, the polluters, if we need more money, it can come from a wealth tax.
Naomi: Keya Chatterjee told us that a carbon price wouldn’t generate enough revenue to fund the investments she’s calling for. But here she goes further—her argument is also philosophical. She says the money for these investments should come from corporations and wealthy individuals who have, on average, contributed the most to historic carbon emissions. This philosophy is tied directly to what David Roberts says is the final piece of the progressive climate policy puzzle: Justice.
David Roberts: Justice, which is sort of my umbrella term for efforts to compensate or make whole communities that are particularly affected by climate change.
Naomi: Roberts describes three groups that need justice in our transition away from fossil fuels. First, frontline communities, those who feel the hardest impacts of climate change. Second, fossil fuel communities, so communities that rely on fossil fuel jobs and income. And then third unions, so creating better jobs, and encouraging union work.
David Roberts: So standards, investments, and justice. And I think part of the justice piece also, which is not really policy, but I think they realized there just aren't enough environmentalists to do something this big. Like we're talking about remaking the entire economy. We're talking about revolutionizing the entire direction of the world, you know? And that's not something that the quote unquote environmental movement has the juice to do. If we want to do that, we have to build a coalition. We have to bring everybody together.
Casey: So now David Roberts is getting at the larger strategy of progressive climate policy, a strategy we explored in Episode 4. In order to pass climate policy, progressives are striving to build a massive coalition of popular support, one that is large enough to overcome the partisan divide on climate action.
David Roberts: I think the idea was the right is lost to us for who knows how long. And so if we want to get the biggest possible coalition together, we have to unite the left and that means bringing these communities and constituencies to the table and having them be a part of the policy development, not just going to them afterwards and asking them to sign on to the plan you came up with.
Naomi: And really, it all does come back to procedural justice.
David Roberts: Have them at the table, helping you make the plan. That's, you know, environmental justice communities, that's unions, you know, it's centrists and moderates. It's different industries. Like all the whole diaspora of the left, you need them all at the table from the beginning involved so that they're all behind the product at the end and that, so that spirit “SIJ” standards, investments, and justice, that is the sort of spirit that I think animated policymaking in all these other venues.
There used to just be these sort of completely incommensurate hostile camps. It was like cap and trade versus, you know, whatever the left had fixated on. There were just all these intramural fights. It's pretty remarkable to me on a political level and on a substantive policy level, how much alignment there is now among all these factions of the left around this basic framework of standards, investments, and justice. And you see it in Biden's plan… It’s fantastic, it's fantastically ambitious. It's like wildly more ambitious than any other national plan that any national politician has ever run on by multiples, much more ambitious than anything Clinton did and Clinton’s climate plans were much more ambitious than anything Obama did.
Naomi: Ok so David Roberts talks about this wildly ambitious climate plan...and we’ve already talked and you’ve probably heard of it. But can it actually be passed?
Casey: I think it’s time for one final act Naomi...
Act 3: The path to progressive climate action
Casey: It seems pretty clear at this point that progressive groups are not… in love with the idea of carbon pricing.
Keya Chatterjee: If you knock on somebody's door and ask them: what do you want in your community? They're going to give you answers that are going to be tangible things, right. They're going to be like, I need a bus that goes straight to the library. I want trees in my community. I want more affordable housing. It's going to be a set of things that they want. It is never going to be a carbon price.
Casey: And if what people want is not a carbon price, what might progresssive climate policy actually be? Well, as David Roberts said, probably some combination of standards, investment, and justice. These days, we’re hearing a lot about President Biden’s American Jobs Plan, a massive infrastructure bill that contains a clean electricity standard, investments in electric vehicles and resilient infrastructure, and provisions to reduce local air pollution in frontline communities.
Jacob: Right, and so looking at the big picture, we’ve got two big policy ideas on the table. We’ve got carbon pricing, which represents a more centrist approach to addressing the climate crisis. And on the other hand, we’ve got the Green New Deal approach which—at least according to David Roberts—is coming to define the left’s approach to climate policy. But those are just the policy ideas. We can weigh the pros and cons of each policy until the cows come home, but without the votes in Congress, neither type of legislation could pass. So where are we on the votes?
Jacob: Easy, Bessie…
Naomi: At first glance, you could argue it’s looking good for Green New Deal style economic mobilization. There’s a Democratic President in the White House who ran on a multi-trillion dollar climate plan. There are Democratic majorities in the House and the Senate. And in the midst of a global pandemic that has cost millions of jobs, there’s a lot of momentum for a big plan that could boost employment, similar to the New Deal at the end of the Great Depression. At the same time, though, U.S. politics are complicated. Especially with climate change, it’s not always enough to have public support and a simple majority, or a “light blue” congress as David Roberts calls it.
Casey: Hey, Naomi, can you cue the bit where David Roberts goes off on structural challenges in the U.S. Senate?
David Roberts: The larger strategy of this crowd is to get rid of the filibuster. Because if 40 Senators can block everything...there's always going to be 40 Republicans and they're always going to block everything. So, we got to get rid of the filibuster. We need statehood for D.C. and Puerto Rico--new Senate votes. We need voting reform. We need to change these structural factors that have given this minority veto power over national legislation. (13:58) They have a headlock on the country and the country can't do anything or solve anything because the declining minority represented by Republicans won't allow it.”
Casey: Yeah, that was the bit.
Naomi: The progressive left says that in order to pass climate legislation strong enough to tackle the climate crisis, we need a major shake-up of the levers of legislative power. It’s that simple. With the current Senate filibuster in place, it takes 60 votes to pass serious legislation—the sort of legislation needed to keep us below 1.5 degrees of warming. The Senate majority could get rid of the filibuster, but with a 50-50 split in the Senate, that isn’t looking likely. Here’s David Roberts again:
David Roberts: To get rid of the filibuster, you would need the votes of all 50 of those Democratic senators. And several of them have said publicly that they don't want to get rid of the filibuster, including Joe Manchin. I mean, think about it from Joe Manchin’s point of view. If the filibuster is in place, there's no pressure on Joe Manchin because nothing's going to pass anyway. But if there's no filibuster, a handful of conservative Democrats he will be the deciding vote on every single bill that comes up every priority from every democratic interest group. Every one of them will be looking directly at him. He doesn't want to be in that position. So the filibuster serves him quite well, all of which is to say, I am skeptical about the filibuster going away…”
Casey: So David Roberts doesn’t think the Senate will get rid of the filibuster any time soon… And his prediction about Joe Manchin seems to be coming true. In April, Senator Manchin published an Op-Ed in the Washington Post titled: “I will not vote to eliminate or weaken the filibuster.” Which, if you can read between the lines… is actually pretty clear. So is there any path forward for the Green New Deal-style legislation that some progressives are calling for?
Naomi: David Roberts says there may be another option for getting big legislation with just 51 votes using a legislative process that is getting a lot more press these days. If you’ve been listening to political commentary lately, you’ve probably heard the term “budget reconciliation.”
David Roberts: It's worth saying … there's one kind of bill, you can pass with a simple majority instead of a filibuster, and that is called a budget reconciliation bill. And now there are restrictions on what you can do in that
Naomi: Budget reconciliation bills must propose spending or saving money, and David Roberts says there’s a lot of regulatory policy and green spending you could fit into that kind of bill. But passing a budget reconciliation bill would still require winning the votes of those same Senators who currently oppose getting rid of the filibuster. So the question becomes, will centrist or conservative Democrats support this type of big investment to fight climate change? And if they don’t, what does that mean for Democratic-led climate policy?
Jacob: Right, and that takes us back to the other policy proposal on the table. Carbon pricing. Carbon pricing policy faces its own political challenges these days, as we’ve heard. However, a carbon pricing system could also be passed through the budget reconciliation process. Right now though, it doesn’t seem like there is critical support for carbon pricing among progressive legislators.
Naomi: There are still a few Democratic members of congress who are advocating for a carbon price, like Senator Whitehouse, and Senator Dick Durbin of Illinois. But the bulk of Democratic support these days is for more sector-specific climate policy, paired with trillions of dollars in investment spending.
Casey: Okay, I want to pause for a moment, because now I actually see a couple of scenarios that could play out from here... One, there could be a 51-vote Senate coalition to pass sweeping investment and standards legislation, if the Biden administration can win the support of centrist Democratic Senators like Kyrsten Sinema and Joe Manchin. But Joe Manchin has indicated he wouldn’t want to pass a bill like Biden’s American Jobs plan with the budget reconciliation method… If other Democrats can’t win his critical support, what other options are there to decarbonize the US economy?
Senator Mitt Romney has indicated possible support for a carbon tax, with a particular interest in the Baker-Shultz proposal we discussed last episode. Is there a path forward for a majority coalition on a carbon price across party lines? If we can’t do a jobs plan on budget reconciliation, can we do a carbon tax on budget reconciliation instead?
Jacob: Well, in the past, progressive Democrats, such as Senator Bernie Sanders and Representative Alexandria Ocasio-Cortez have said they could support carbon pricing legislation. But it seems unlikely that the most progressive wing of the party would get on board to support a hands-off climate mitigation bill proposed by two staunch Republicans. The Baker-Shultz plan is meant to build bipartisan support, but if it loses more progressives than it wins conservatives in the Senate, [slowly, like you’re thinking of the joke] it doesn’t stand a snowball’s chance on earth in 2075.
Casey: Okay, then as a mental exercise, let’s think about what would be required to win full progressive support for a carbon pricing bill. There are many aspects of carbon pricing policy to consider... the price and how quickly it rises, whether we’re using a cap-and-trade system or a tax, and how the revenue is distributed or invested… Naomi, if the current standards/investment/justice approach comes up short in Congress, what do you think it would take to get progressives to back carbon pricing as the primary climate policy?
Naomi: A lot, and I really don’t think it’s likely. I mean think about everything we talked about. We’d need a cap-and-trade system that guarantees large emissions reductions, and also includes local pollution caps to address air pollution in frontline communities. You’d need a really high carbon price to encourage R&D investment in sectors that don’t have a lot of cheap clean tech alternatives. You’d need a dividend component to protect low-income households from rising energy costs. But you couldn’t spend all of the revenue on a dividend, because you’d need money to support a fair energy transition for coal workers. Plus there’s just the philosophical opposition...and I could keep going.
Casey: No that’s plenty of… that’s plenty of things to be worried about. Thank you.
Jacob: Yeah if you ask me, that doesn’t look a whole lot like the Baker-Shultz plan. Casey, do you think there’s any chance Republicans get on board for a carbon pricing policy like Naomi just described?
Casey: Yeah, hard to guess, but the way it’s looking right now, I’d say the odds are meager at best.
Jacob: Yeah, I agree. So if there’s little chance to get Republicans on board for a progressive carbon price…the case becomes: why not just make a push for more sweeping legislation and try to pass it on party lines?
Casey: Right, once you game out the options, it’s a lot easier to understand why the Biden Administration has ended up where it is on climate policy.
Naomi: This makes me think back to the bipartisanship discussion we had last episode. We heard several Republican opinions about the importance of forming a coalition across the aisle. Bob Inglis said that in order for legislation to be lasting, it must be bipartisan. Jerry Taylor pointed out that in history, it’s been very difficult to pass meaningful legislation without bipartisan backing. So what does that mean for a Democratic approach to climate policy that faces unified Republican opposition?
Jacob: We’ve gotta remember the political theory of change of the Green New Deal… That is, bringing popular support from the outside in. The Green New Deal strives to build public momentum that can overcome the partisan divide in Congress. Advocates are building a coalition that aims to unite the whole left. And what if the thing that makes legislation lasting isn’t its bipartisanship, but its popularity? What if popular legislation develops bipartisan support in reaction to public opinion?
Casey: So what you’re saying, Jacob, is that maybe sweeping climate legislation, like the American Jobs Plan, could stand even without bipartisan support if it’s sufficiently popular. Is that a risk we’re willing to take?
Jacob: Well, right now, seems like the biggest risk we’re taking is not acting on climate change.
Casey: When we started planning this podcast in early 2019, we would have been somewhat shocked to learn there would be no momentum for a federal carbon pricing bill in 2021 under a Democratic President. Things change. The future continues to resist prediction.
Even in today’s politics, I wouldn’t write off carbon pricing. Just a few weeks ago, Washington State passed a huge carbon pricing bill—after several years of trying. And the architects of this bill clearly learned a lot from the mistakes of California: the program will issue a declining number of emissions allowances or permits, offsets will be guaranteed to come under the cap rather than enabling emissions outside the cap, and targeted investments will address environmental justice.
Naomi: Right, and the crucial thing with the Washington carbon pricing bill is that it’s a complement to several other ambitious climate and energy policies. Policies that are built on the foundation of standards, investments, and justice. In the case of Washington State, carbon pricing will be just a piece of the puzzle. David Roberts thinks this is precisely how carbon pricing should be used.
David Roberts: There are plenty of carbon pricing schemes you can think of that could integrate perfectly well with regulations. I mean, this is the system California has in place right now is it has a cap and trade system, which gets a lot of attention and gets a lot of press.
And, you know, people sort of look at the price of carbon in that system is like, Oh, that's the price of reducing carbon, but it's really not: it is the regulations and the industrial policies behind the scenes in California that are doing most of the work of reducing emissions and basically cap and trade is mopping up the residual and that's fine. They work together pretty well.
Casey: Ok, so David Roberts clearly sees carbon pricing differently from, say Bob Inglis or Carlos Curbelo, who we heard from in episode 5. Conservative backers see carbon pricing as this elegant, cure-all to the climate crisis. And progressives see it as a kind of helpful adjunct to a larger suite of policies. At a minimum, that larger suite of policies aims to decarbonize the economy, but if they have the impact progressives intend, they could transform our economy and fix persistent disparities in the social order.
Jacob: But if you squint your eyes and take two really big steps backwards...at a very basic level, both progressives and conservatives can agree that carbon pricing is a useful tool.
Casey: Yeah, I think that’s right Jacob. As I think about what we’ve been doing with this podcast… You know, we continue to focus on carbon pricing not just because it’s in the name of our podcast series, but because we’re worried that to limit global warming even to 2 degrees Celsius, we have to get market signals right; that without a price on carbon, markets may push to keep pulling fossil fuels out of the ground. And I think we also worry about future shifts of political fortune. In two or four or eight years, the U.S. could have leaders in Washington that want to roll back climate action, yet again. To guard against that, having a part of US climate policy that appeals to conservative values and neoliberal economists would be a reassuring hedge.
And one final thought. A pitch, really. It’s more useful to know how to use a tool—like a hammer, or a computer—before you have to, than to teach yourself on the job. So too with policy tools. If, in preparation for the next few years and decades, you think it’s valuable for more people to get familiar with climate policy, and the concept and story of carbon pricing in particular, please share this podcast with friends and colleagues.
Tusker and Haven, you want to take it away one more time this season?
Casey: This episode was written by Naomi Shimberg and Jacob Miller, with help from Casey Pickett and Maria Jiang. Sound engineering by Jacob Miller. Original music by Katie Sawicki. Thanks to all of our guests, to everyone who shared these episodes with friends and colleagues, and to Josh Rines, Anna Pickett, Ariela Zebede, and Gavin Weinberg for feedback on this season’s episodes. Special thanks to the Carbon Pricing Leadership Coalition for their partnership, and to Ryan McEvoy, Stuart DeCew and Heather Fitzgerald for making this episode possible. And a final thanks to you listeners for sticking with us, through weedy policy discussions and ham-handed attempts at levity. It’s been a pleasure.