Build on EPA Rules with Revenue-neutral Carbon Price

The Environmental Protection Agency has announced new rules to curb carbon emissions, under the Clean Air Act. The program is called the Clean Power Program and aims to reduce emissions from coal-fired power plants by more than 30% within 20 years. It is the single most significant step toward reducing power plant greenhouse gas emissions ever taken by the US government.

Many environmental activists are celebrating; predictably, opponents of climate action are warning of grave economic costs. The real impact is less, and less immediate, than many suspect. If the targeted emissions are reduced by the target percentage, then overall US greenhouse gas emissions from industrial, household and transportation sources, will decline by roughly 10% over 20 years.

The rules are not the kind of intrusive “boots on the ground” policing many in the fossil fuels sector had feared. Instead, the plan calls for states to produce enforcement plans that make sense locally or regionally. Some might use command-and-control regulation, though that is unlikely; most will provide some incentive for a transition, possibly a price on carbon.

The EPA will have the authority to vet or to veto state or multistate plans, to make sure they bring emissions to within the limits stated to be in the interest of public health and safety. It is likely some states will see this new regulatory standard as an opportunity to start the flow of new capital into new kinds of energy investing and job creation.

California and the states that have begun to work with its carbon pricing plan, as well as the nine northeastern states that are part of the Regional Greenhouse Gas Initiative (RGGI) may see a cost-effective way to strengthen their emissions reduction goals and expand the scope of their systems. New Jersey, which was found to have pulled out of RGGI illegally, may now have a new option: to rejoin RGGI or to meet its obligations or go still further, by finding another way to price carbon.

Ultimately, the question of how effective these rules will be comes back to economic efficiency. Opponents of regulation could reduce funding on a “boots on the ground” program; they cannot defund standards that require state enforcement protocols. The states can adopt cost-effective carbon pricing strategies that let the market lead the transition.

But the most cost effective way to achieve the goals set forth in the EPA rules, while requiring no new spending, no unfunded mandates, no new regulations, and no new bureaucracy, would be to pass a national fee and dividend plan. Such a plan would put a steadily rising fee on carbon-based fuels and return 100% of the revenues to households.

Two-thirds of households would come out even or better, ensuring the Main Street economy keeps chugging along, the costs fall back on fossil fuel companies and their investors, and private capital flows in large volume and at accelerating pace into low-carbon alternatives. A national fee and dividend plan, with a fee assessed at the source, would cover all sectors, correct a pervasive market failure, build economic efficiency, create jobs and grow the economy.

And, it would get us to where the EPA (at the orders of the Supreme Court) wants us to go, faster and at lower cost.

The result will be a more robust and resilient American economy, free of damaging distortions and unmanageable stranded asset risk. The EPA rules should be seen as motivation for such efficient tax-driven market-focused reform. Taking this approach will bring millions of new jobs, revitalize communities overdependent on mining and drilling, secure our economic future, and expand the middle class.

We cannot build a secure and reliably prosperous future by adding carbon emissions anywhere; we can achieve security and reliable prosperity by first acknowledging the hidden costs of burning hydrocarbon molecules to get energy and then setting the most cost-effective policies to move capital from those practices into others that reduce emissions while expanding our capabilities.

– – –

Originally published June 5, 2014, at

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: