Solving the Climate Crisis:
Carbon Pricing 101
Basics of Carbon Pricing
Dr. Linda Dismore (Diz) Swift
© http://PriceonCarbon.org
Carbon
Pricing
101
Putting the Market to Work
PriceonCarbon.org
Costs of fossil fuel use are not included in the current price
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Hurricanes (Sandy $65b), drought, health costs, sea level rise
Social Cost of Carbon estimates from $37 to >$400/ton CO2e
Fossil fuels are artificially inexpensive
Put a price on carbon emissions so users pay the fair price
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Fossil fuel use will decrease; CO2 emissions will decrease
Alternatives become more affordable and grow
The economy can also grow
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Pricing Carbon is not a new idea
Figure from World Bank report, 2014
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How Do You Price Carbon?
Carbon Pricing Elements
Pricing
Mechanism
Emissions
Included
Revenue Use
© http://PriceonCarbon.org
How Do You Price Carbon?
Carbon Pricing Elements
Pricing
Mechanism
Emissions
Included
Revenue Use
Carbon Tax or Fee
Cap and Trade
© http://PriceonCarbon.org
Pricing Mechanism
Cap and Trade
Carbon Tax
Emissions
Declining emissions cap
set by government
Price
Price based on market
Emissions volume
based on market
Rising price set by
government
Both mechanisms have been tried;
both can be effective.
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Cap and Trade
Declining Cap Set by Government
Company A
Maximum
Emissions
Allowed
Year 1
Linda Swift © 2015
Year 2
Year 3
Year 4
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Cap and Trade
Permits Auctioned by Government
Cap
Company A
Emissions
Company A emits above
cap, needs more permits
Permits
Cap
Company B
Emissions
Linda Swift © 2015
Permits
Company B buys more
permits than needed
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Cap and Trade
Company A
Emissions
Permits
Company B sells
permits to Company A
Company B
Emissions
Permits
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Cap and Trade
Company A
Emissions
Permits
Company B sells
permits to Company A
Company B
Emissions
Linda Swift © 2015
Permits
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Complications
Cap
Permits
Company A
Emissions
Allocations
“Free Permits”
Allocations
Allowances (permits) can be
given by government to
select companies or
industries
“Free permits”
May decrease with time
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Complications
Offsets
Cap
Permits
Company A
Emissions
Projects which sequester
carbon can offset some
emissions/permits
Offset
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How Do You Price Carbon?
Carbon Pricing Elements
Pricing
Mechanism
Carbon Tax or Fee
Cap and Trade
Emissions
Included
Revenue Use
Electricity generation
Transportation
Industrial
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Emissions Included
EIA
© http://PriceonCarbon.org
How Do You Price Carbon?
Carbon Pricing Elements
Pricing
Mechanism
Carbon Tax or Fee
Cap and Trade
Emissions
Included
Electricity generation
Transportation
Industrial
Revenue Use
Government Programs
Mitigate/adapt
Reduce deficit
Infrastructure, etc
Revenue Neutral
Return to people
Reduce other taxes
© http://PriceonCarbon.org
How Do You Price Carbon?
Carbon Pricing Elements
Pricing
Mechanism
Carbon Tax or Fee
Cap and Trade
Revenue Use
Government Programs
Mitigate/adapt
Reduce deficit
Infrastructure, etc
Revenue Neutral
Return to people
Reduce other taxes
© http://PriceonCarbon.org
How Do You Price Carbon?
Carbon Pricing Elements
Pricing
Mechanism
Carbon Tax or Fee
Cap and Trade
Revenue Use
Government Programs
Mitigate/adapt
Reduce deficit
Infrastructure, etc
Revenue Neutral
Return to people
Reduce other taxes
© http://PriceonCarbon.org
How Do You Price Carbon?
Carbon Pricing Elements
Pricing
Mechanism
Carbon Tax or Fee
Cap and Trade
Revenue Use
Government Programs
Mitigate/adapt
Reduce deficit
Infrastructure, etc
Revenue Neutral
Return to people
Reduce other taxes
© http://PriceonCarbon.org
How Do You Price Carbon?
Carbon Pricing Elements
Pricing
Mechanism
Carbon Tax or Fee
Cap and Trade
Revenue Use
Government Programs
Mitigate/adapt
Reduce deficit
Infrastructure, etc
Revenue Neutral
Return to people
Reduce other taxes
© http://PriceonCarbon.org
For more information…
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