It's expensive to (not) mitigate climate change

Oct 25, 2018
It's expensive to (not) mitigate climate change
Joint Program Co-Director John Reilly explains how a carbon tax in America would play out (The Atlantic)

An economist and policy experts respond to a natural-gas worker’s worries that the fight against climate change will hurt Americans like him.

Read this email on The Atlantic website

Today’s Issue:

  • “I hear little discussion about how [a carbon tax] will impact the poorest Americans,” a Masthead member wrote to us, worried that attempts to lower carbon emissions will drastically damage industry economies.
  • An economist and two policy analysts try to convince him that’s not the case. They agree that “it’s important for any carbon-tax policy to help communities that have relied on past fuel sources transition to the future,” as one policy analyst puts it.
  • Join us for an experiment in argumentation. After reading their responses, our member will respond in the forums and let us know if the experts swayed him.

The Cost of Cutting Carbon

By Karen Yuan

The average global temperature will rise by 2.7 degrees Fahrenheit this century at the minimum, according to a new report by the UN’s Intergovernmental Panel on Climate Change. And that's the least-bad scenario. The authors of the report advise that the world will need to abandon coal and other fossil fuels in the next decade to avoid even worse consequences.

A Masthead member, Nels, wrote to us that he worries that this economic 180 will be too costly for the American middle class. Nels works as an operator for a natural-gas power plant in Washington State. One Sunday, a few months back, a speaker at his church described his work lobbying utility companies to replace carbon emitters with green-energy plants. “I was shocked when I heard him mention that they had recently convinced a utility company not to allow any more natural gas into their portfolio,” Nels wrote. “Recently a couple of utilities started looking into buying our power, but later informed us that we were too ‘dirty’ for them to buy. Now here is this guy bragging about killing that deal and possibly putting me in the unemployment line in the not-too-distant future.”

Nels concluded that mitigating climate change was economically unrealistic. “A carbon tax has been proposed as the only realistic way to sufficiently bring down emissions, but I hear little discussion about how that will impact the poorest Americans,” he added.

How would a carbon tax really work? How would it affect lower-income Americans? I reached out to a climate economist and two policy analysts to find the answers to these questions—and to see if hearing from experts might change Nels’s stance. They all agreed that it’s crucial to help people and industries reliant on carbon-heavy resources adapt to a greener future, but also that such a future must be ushered in—sooner rather than later.

Did the experts convince Nels? Read his upcoming response in the forums.

It’s Expensive to (Not) Mitigate Climate Change

The economist John Reilly explains how a carbon tax in America would play out.

I would favor a carbon tax as the most economically efficient way to address climate change. An example is a proposal by the Climate Leadership Council, a group of former economic advisors from past Republican administrations. They propose a tax starting relatively low at $43 per metric ton, and then rising at 3 to 5 percent per year. Existing coal plants would only operate when electricity demand is at a peak—in the summer months when air-conditioning demand is high. Studies show that reducing emissions in the U.S. by 50 to 60 percent might increase electricity costs by 30 to 50 percent. This would encourage gradual improvements in the efficiency of electricity use—but, as Nels suggests, at the same time, use of fossil fuels in other parts of the economy would become more expensive. In addition to electric vehicles, this might include expanded use of heat pumps for heating and cooling homes, and expansion of electricity for water heating, clothes drying, and other industrial demands.

Jobs in coal mining and the fossil-fuel industry would likely decline. In general, a carbon tax by itself would have a relatively larger negative impact on middle- and lower-income households.  However, my own research shows that if one took the revenue from a carbon tax and divided it up equally among all households, that would more than fully offset the extra cost of energy for 60 to 80 percent of households. Only the wealthiest households would end up worse off. The proposal by the Climate Leadership Council would see each household getting paid $2500 to $4000 per year. It is critically important that any policy address the possible negative effects on middle- and lower-income households, and on those whose jobs in the fossil-fuel industry are displaced.

The social cost of carbon, developed under the Obama administration, is a measure of the dollar value of the damages from emitting another ton of carbon dioxide into the atmosphere. They came up with a $40-to-$50 range per ton, but not everyone agrees with those numbers. There is now strong evidence that recent tropical storms are more powerful than they would have been. This is already leading to tens of billions of dollars a year in damage costs that each taxpayer ends up paying. Higher temperatures will mean higher air-conditioning bills. The environment will dramatically change—along with many other disruptions to food, health, and productivity.

— John Reilly, economist and co-director of MIT’s Joint Program on the Science and Policy of Global Change

Lessons from Successful Energy-Saving Policies

The policy analyst Heidi Bishop describes existing cost-efficient moves toward decreasing carbon output.

Natural gas has accounted for more than half of reductions in greenhouse-gas emissions from the power sector in recent years, and many studies show it will continue to play a significant role for years to come. However, the science is clear: These changes aren’t enough to avoid the worst effects of climate change.

The good news is that most of the technologies that will help are here today, and getting cheaper every year. New research from the Global Commission on the Economy and Climate shows that the shift to a low-carbon future would benefit the global economy. U.S.-specific analysis finds benefits to jobs: Millions of new roles in construction and manufacturing, for example, could outweigh losses in fossil-fuel industries. That said, Nels's worry about the effects on fossil-fuel workers is not unreasonable, and the policies that guide the shift to cleaner energy sources must offer a transition for those workers and  protect low- and middle-income Americans.

Aside from a carbon tax, economists have advocated setting up a system known as a cap-and-trade, in which an upper limit is set on the amount of carbon an entity may produce, but which allows said entity to buy more capacity from other organizations that haven’t used their full allowance. The nation has been using cap-and-trade systems successfully to limit sulfur-dioxide emissions since the 1990s. The Regional Greenhouse Gas Initiative, an example of the cap-and-trade system adopted by nine states in the Northeast, has also invested more than $4 billion in clean energy while lowering energy bills. The nation can and should look to replicate these successes across the country in the coming years.

— Heidi Bishop, policy analyst and manager, U.S. Electricity Markets at the World Resources Institute

How to Cut Carbon With Care

The policy analyst Bina Venkatamaran emphasizes the need to advocate for middle class–friendly policies.

What Nels experienced with the speaker at his church and with his power plant is unfortunate. There is a misperception, by people on all sides of the climate debate, that it’s necessary to cripple the economy or punish everyone who works in an industry to fight climate change. The reality is that putting a price on carbon emissions to account for their severe damage to American communities can be done with care for people’s livelihoods and protection for middle-class families.

The ideal carbon tax would use its revenue to cut income or payroll taxes, and also to give dividend checks or tax credits to lower- and middle-class families who will be hit harder by higher fuel prices. A portion of the revenue can also be used to retrain fossil-fuel industry workers and to invest in helping them start new businesses in the clean-energy economy. A Congressional Budget Office report from 2013 describes how such features can counterbalance the potential burden of a tax.

More than a dozen states and countries around the world have carbon taxes today, including Chile and Japan. British Columbia, which adopted a carbon tax in 2008, has sharply cut its carbon-dioxide emissions while economically growing at a faster pace than other provinces. Cap-and-trade systems have also curbed emissions without harming economies. Since the RGGI put a price on carbon in 2009, the states involved have cut emissions by more than 35 percent, while their economies have grown more than 20 percent and electricity prices have dropped an average of 2 percent.

Under a carbon tax, some fossil fuels would fare worse than others. Coal would be the hardest hit. That’s why it’s important for any carbon-tax policy to help workers, business owners, and communities that have relied on past fuel sources transition to the future. The way to make that happen is for people to advocate for national carbon-tax or cap-and-trade plans that include such provisions.  

I keep a cartoon from 1861 that appeared in Vanity Fair near my desk. It shows whales—once hunted as an oil source—clinking their champagne glasses upon the discovery of Pennsylvania oil wells. What the cartoon reminds me is that we’ve been through energy transitions in the past—and that there will be unexpected winners and opportunities that come from taking on climate change.

— Bina Venkatamaran, policy analyst and director of Global Policy Initiatives at the Broad Institute

Today’s Wrap-Up

  • Today’s question: What do you find persuasive in these arguments? What's left you wondering? In the forums, Nels is sharing his response, and we invite you to write yours, too. You join in at or write to us at


Photo: Putting a price on carbon, in the form of a fee or tax on the producers of fossil fuels, can be an effective way to curb emissions of greenhouse gases. (Source: MIT)