The global COVID-19 pandemic has led to a decline in fossil fuel use of every sort. This has reduced drilling activities and carbon emissions, and many parts of the country are seeing big improvements in local air quality.
This drop in carbon emissions exposes an ironic problem for carbon pricing policies that many peddle as climate solutions: Lower emissions mean less money for clean energy and other programs. So a drop in dirty emissions is actually a big problem, if you depend on that revenue to make the transition to clean energy.
Cap-And-Trade Programs Fail When We Lower Emissions
The hallmark example of this is California’s overhyped cap-and-trade system. Like other models, California’s program is supposed to be simple: They place a limit (the cap) on some carbon-emitting energy sources, which is supposed to force polluters to choose between reducing emissions or buying credits to keep polluting.
In theory, cap-and-trade brings in money that the state uses to fund environmental programs. So what happens in a pandemic? Polluters don’t need to buy any new credits. The latest cap-and-trade auction in California was, by any measure, a disaster; raising just $25 million in revenue compared to hundreds of millions raised in previous auctions. This means massive cuts to programs that rely on pollution for funding.
While this budget problem was triggered by the pandemic, it exposes the inherent conflict of relying on emissions to raise money to reduce emissions: As pollution goes down, so does funding. So in addition to the other problems with market mechanisms like cap-and-trade — namely, the fact that they do not effectively reduce carbon emissions, and that they concentrate pollution in environmental justice communities who are already overburdened with it — we now see a more fundamental issue: Relying on pollution as a funding source for socially beneficial programs means that you need to keep spewing pollution in low-income communities to continue funding those programs.
Carbon Allowances Get Muddled When Emissions Are Down, Too
Other carbon markets are facing similar stress. European Union leaders expressed alarm that dropping fossil fuel demand has ruined the markets for carbon allowances, which scrambles the ‘signal’ that dirty energy companies are supposed to receive from the market. The premise is that we can make fossil fuels more expensive by increasing the costs of allowances; but if prices stay low, corporations will just buy up cheap credits when the getting is good instead of reducing emissions.
The pandemic also increases the call to suspend carbon taxes in places like Canada, which are paid by consumers. Making individuals responsible for paying to clean up corporate pollution was a bad idea to begin with, and raising regressive taxes in the middle of a massive economic crash makes this kind of policy even more politically unpopular — which is likely to make other, more effective forms of climate action more difficult.
Fossil Fuel Funding And Incentives That Don’t Make Sense If Reducing Pollution Is The Goal
The fossil fuel status quo creates perverse incentives for political leaders to prop up fossil fuels. New Mexico, for example, relies heavily on fossil fuel royalties to fund up to 25% of their state budget every year. Last year, Governor Lujan Grisham gained significant attention by announcing a plan for free college in New Mexico, paid for by fossil fuel revenue. Now due to the downturn in extraction, New Mexico is facing significant cuts across the board, and free college is all but off the table. Even without a pandemic, relying on fossil fuel extraction to pay for college is asking communities on the front lines of fracking to endure more air and water pollution in order to increase access to higher education.
This dynamic of pitting one community against another is present in Trump’s new plan to cut royalty rates on drilling on public lands, yet another desperate bid to help out fossil fuel corporations. This would certainly put more money in the pockets of oil and gas companies, but will put budgets at risk unless we allow substantially more fracking. While Trump has elevated divisiveness to an art form, pitting the need to support public programs against the health and wellbeing of communities near fracking wells is a new low.
New Mexico state legislators should be working with federal officials to develop more sustainable revenue streams, and break the state’s dependency on fossil fuels, not deepening its reliance.
States Like Pennsylvania Look To Create New, Bad Market Schemes With Fossil Fuel Revenue
While climate advocates have steadily moved away from market-based climate policies, some politicians are pushing to create new carbon pricing programs, or join existing regulatory gimmicks that have failed to produce meaningful results. Pennsylvania Governor Tom Wolf has spent over a year pitching a plan called Restore PA, which promises to create a new stream of funding for infrastructure upgrades by selling bonds that would be backed by a new fracking tax. This manages to combine two bad ideas at once: Staking the state’s finances to Wall Street financing and a flailing industry that is shedding jobs, and creating an incentive to keep fracking for decades to come if residents want to see those improvement projects continue.
Markets Fail — There Are Better Ways To Fund Our Needs Than Fossil Fuel Money
If the goal is to rapidly reduce greenhouse gas emissions at their source, there is one easy way to do that: Make policies that require direct reductions at the source. This has historically been the most effective strategy, and there is no reason to think we can magically reduce carbon emissions by creating markets to trade pollution credits. It’s just fancy math meant to hide the bad deal communities are getting.
The larger question, though, comes down to money. These programs are attractive because they give political leaders the appearance of doing something substantive on climate, and they create streams of revenue that (much of the time) do not require directly raising taxes on individuals. Can we support vital programs that help us limit the damage from a massive public health emergency? The short answer is yes — and it’s exactly what we’re doing right now. The COVID-19 pandemic has prompted governments around the world to spend an astonishing $8 trillion in a matter of weeks. A comprehensive climate mitigation program around the world would cost a fraction of that — and give us a real chance of meeting the emissions reductions goals to combat climate chaos.
So what can we do now? First and foremost, we must support lawmakers like Senator Merkley and Representative Barragan, whose ReWIND Act would stop the Federal Reserve and Treasury from handing out billions in economic stimulus money to fossil fuel interests. Longer term, Congress should invest in creating living wage jobs in clean energy development and energy efficiency.
Breaking our dependency on fossil fuels is not just a good way to create jobs, but it can also save money. The cost of installing new clean energy sources is on par with or cheaper than gas almost everywhere in the United States.
A real clean energy transformation is possible if lawmakers have the courage to stand up to fossil fuel interests and do what is best for people and the planet.
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