Is Massachusetts ready for carbon pricing?

Many economists across the political spectrum agree that carbon pricing could provide a cost-effective strategy to accelerate a transition to a low-carbon economy and reduce carbon emissions that play a key role in global climate change. Drawing on their research, legislators in several states are now working to enact bills that impose a per-ton fee on carbon emitters, but it’s no easy task to win political support for such measures.

On Jan. 25, a panel at MIT explored the benefits, costs, and political challenges involved in translating carbon pricing from concept into law in Massachusetts and beyond. Hosted by the student-led MIT Climate Action Team and held at the MIT Stata Center, the panel disucssion included Massachusetts state Sen. Michael Barrett and state Rep. Jennifer Benson, authors of two different carbon-pricing bills; Marc Breslow, research and policy director of the carbon-pricing research and advocacy group Climate XChange; and three experts on the topic who are affiliated with the MIT Joint Program on the Science and Policy of Global Change — Department of Urban Studies and Planning Associate Professor Janelle Knox-Hayes, Joint Program Co-director and Sloan School of Management Senior Lecturer John Reilly, and Center for Energy and Environmental Policy Research Director and MIT Sloan Professor Christopher Knittel. The panelists weighed advantages and disadvantages of carbon pricing as a climate-change solution, clarified differences between the two pending bills, and discussed political challenges faced by these bills.

Both bills would ultimately impose a $40 per-ton fee on carbon dioxide-equivalent emissions. Barrett’s bill is revenue neutral, returning 100 percent of revenue to state taxpayers and businesses; Benson’s bill, which is revenue positive, would return 80 percent of revenue to these constituents while applying the other 20 percent to clean energy projects. The intent of these rebates would be to compensate consumers for the higher prices they would pay under either bill for carbon-intensive products.

Barrett predicted that putting a price on carbon would lead to lower consumption of such products while reducing the “social cost of carbon” — what society must pay to meet the added health care, water infrastructure, emergency management, and other expenses associated with carbon emissions. Benson maintained that it’s critical to divert a portion of revenue raised by statewide carbon pricing to fund energy efficiency, renewable energy, and climate adaptation infrastructure.

Preferring the passage of either bill to the status quo, MIT panelists viewed carbon pricing as an optimal way to lower carbon emissions.

“At this point, any carbon-pricing bill is a positive move, and both of yours sound strong,” said Reilly, who nonetheless noted some challenges that carbon pricing cannot solve on its own. “We also face a big challenge in adapting infrastructure to climate change; one way or another we’re going to have to come up with funds to do that. Then there’s the issue of public infrastructure that affects fossil emissions. If you raise the price of gasoline, you can buy a more efficient vehicle, but if there’s not an effective subway system near you, you can’t use that. So I think some of those sorts of actions [would make] a stronger case.”

Knittel favored subsidizing solar panels and electric vehicles through a progressive income tax rather than via a carbon pricing scheme. “But at the end of the day, we’d be more than happy to have either one of these bills, and a price on carbon is by far the most efficient way to reduce [carbon dioxide] emissions,” said Knittel.

One key concern among members of the audience was the potential adverse effects of a carbon-pricing bill on low-income citizens.

“The most progressive thing to do if you care about working people is to have absolute revenue neutrality,” said Barrett, who, like Knittel, argued that solar and other renewable energy programs could best be funded through a progressive income tax. “I want to make sure that 100 percent of a carbon fee goes back to working people.” Concerned that a revenue-positive carbon pricing bill would be framed by opponents as a tax, he cautioned that such a bill would be politically unviable for fellow legislators.

Benson countered that anyone opposed to a carbon-pricing bill would still call it a tax, and that Massachusetts state polling shows that over 70 percent of people polled say they are willing to pay more for energy if they know the money is going toward environmental protection or improvement. “We don’t currently have such a revenue source to go toward these areas,” said Benson, noting that less than 1 percent of the state budget addresses environmental concerns. “If we really care about the environment, we have to be willing to put money into it at the state level.”

To overcome political resistance to carbon pricing, Knox-Hayes urged legislators to consider the cultural framing of proposed bills. “What’s really important when putting together policies is to connect the language of the policy to what the local polity cares about,” said Knox-Hayes, suggesting that the carbon-pricing bills avoid the use of the word “tax,” focus on benefits, and show how these bills can generate positive outcomes that address local concerns.

The panel also explored how Massachusetts could serve as a pilot project for additional statewide, national, and international carbon-pricing measures.

“In my optimal scenario, a state like Massachusetts passes a carbon tax, which shows the rest of the country that the economy hasn’t gone into the tank,” said Knittel. “British Columbia has served as a demonstration project for Senator Barrett and Representative Benson. In 2020, the [U.S.] Congress can use either bill as a poster child to show that carbon pricing actually works.”

Reilly pointed out that mechanisms will be needed to enable carbon pricing to work across state and national borders, but ruled out the possibility of any international carbon fee set by the United Nations, replacing those set by member nations.

“From an economic standpoint, we’d like to have the same price across the whole world, so we want to think about how we work toward that,” said Reilly. “The challenge there, is that we think that poorer countries must bear the same costs as richer countries, so that’s one of the reasons to think about ways we could set up transfers to assist them. It will be an issue to see how we balance things out and get closer to the ideal.”

Addressing another audience question of what MIT can do to help support passage of carbon-pricing bills in Massachusetts, Barrett acknowledged Knittel for providing technical and economic advice to him and Benson over the past four years, and MIT for convening forums such as this one.

“Over the last year, I’ve been at MIT a lot for conferences like this, and these exchanges really help,” said Barrett. “Just maintaining the dialogue is critically important.” Looking ahead, he added, “I think the Massachusetts State Senate is likely to enact carbon pricing this year. … We need the critical involvement of university people, regardless of what school you’re from, all around Greater Boston, because we’re actually on the cusp of doing something.”

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