Carbon Pricing: What’s in a Name?

by | Dec 6, 2023 | Policy

Carbon Pricing: What's in a Name?

This is the first in a series of 4 blogs exploring carbon pricing policies that make the true costs of emitting greenhouse gasses visible at key decision points so climate futures are always present. Here are links to the second, third, and fourth in the series.

From an American perspective, pricing carbon seems to be down and out. It rarely makes the news, and it often seems as if environmental groups and those who fund them have given up on it, despite their standing endorsements for the policy suite strongly endorsed by economists and scientists

This may be true for the canonical carbon prices, a carbon tax or a cap-and-trade system, but these are not the only ways to make it more expensive to pollute. There are, in fact, many exciting efforts underway in the United States at all levels of government to make the cost of pollution more visible, and so affect decision-making about emissions. 

Before diving in, some context: why does anyone want to price carbon in the first place? In economic terms, when someone is able to burn fossil fuels without paying a price for the greenhouse gasses they emit, it is a market failure. It evokes the tragedy of the commons that British writer William Forster Lloyd wrote about in 1833. The original metaphor referred to a field, or a “common”, free for all to use, where farmers grazed their cattle. However, this led to overgrazing, the grasses on the field died, with the result that no cows could be fed. It came to be a foundational metaphor in both economics and ecology. In ecology, for similar human overuse of natural resources, and in economics for “market failures”, when a market fails to price appropriately a behavior that imposes costs on society.  

Environmental market failures are very common. It has proven very easy for humans to underprice the value we all receive from clean air and clean water. Pricing pollution dumped into a commonly shared atmosphere is an attempt to correct this failure, and to make polluters pay a fair price for this damage. 

While carbon taxes and cap-and-trade programs that put a price on fossil fuels at the point of sale are the most obvious and farthest-reaching ways to do this, they are not the only ways. After all, fossil CO2 is not the only carbon pollutant changing the climate. Chemically speaking, “carbon price” is a sloppy term, since other climate forcers such as methane (CH4), hydrofluorocarbons (HFCs), chlorofluorocarbons (CFCs), and of course fine particulates collectively known as “black carbon” all also include carbon. In the above list, it’s even spelled out in the name of each except methane. Usually, “carbon price” is understood to refer only to CO2. Making it more expensive to emit any of these greenhouse forcers into the atmosphere could, chemically, be properly considered a carbon price. 

Nor is the point of sale the only place where decisions on how much to pollute are made. Consumers make such decisions when they budget for the future, consider the lifetime costs of an appliance or a vehicle, and even where they want to live and in what kind of house. Companies do likewise when making a 5-year plan, evaluating their logistics, deciding on suppliers, and in how they market to which consumers. Businesses and consumers are of course not the only ones making decisions on emissions. Governments, with their enormous purchasing power, consider not only direct costs for their buildings, fleets of vehicles, and militaries, but how their decisions affect the voters they serve. It is easy to see how factoring in a price for emissions in any of the decision processes listed above could lead to outcomes that are better for the climate. 

When you consider all the greenhouse forcers with carbon in them, and all the decision points where a little price information about how consumer, business, and government actions will affect our common atmosphere, pricing carbon becomes a much more compelling policy space. In the coming weeks, we will be exploring where policymakers are pursuing this broader conception of pricing carbon in a series of blog posts. Limiting our consideration to current efforts or policies, we group them into 3 rough categories: carbon-equivalent prices, conceptual carbon prices, and variations on the canonical carbon price at different levels of government. We hope you will find this series informative, thought-provoking, and a source of that rarest of resources among climate advocates: hope.

Featured Photo by Thomas Richter on Unsplash

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