The MARKET CHOICE Act of 2019 (H.R. 4520) was introduced by Republican Congressman Brian Fitzpatrick of Pennsylvania and several colleagues in September. The bill would swap out the federal gas tax for a carbon tax to fund infrastructure spending, while at the same time achieving significant reductions in greenhouse gas emissions. Like many carbon pricing bills, it has drawn skepticism from conservatives, even some who support climate action.
Writing for the American Conservation Coalition, Karly Matthews argues that the Market Choice Act is anti-market and doomed to failure. In the course of making those arguments, Matthews badly mischaracterizes the bill, carbon taxes generally, and the near-term effects of putting a price on carbon.
The core objection is that a carbon tax is overly punitive, and instead we need to reward innovation in clean energy. In particular, Matthews cites innovation in nuclear power and carbon capture as areas of unlimited potential. Climate advocates on the left probably have underappreciated the potential of nuclear and carbon capture, but a carbon tax — and the Market Choice Act in particular — would create market conditions to deploy more of each and spur further innovation. As my colleague Jerry Taylor has argued, the innovative potential of the private sector is easily forgotten, especially when it is not properly incentivized.
How would a carbon tax, and specifically the newest version of the Market Choice Act, inspire innovation and emissions reductions? Let’s take a short look at nuclear and carbon capture.
On nuclear, Matthews says:
“Nuclear is the largest source of carbon-free energy, so encouraging this industry, along with other renewables like solar or wind, is essential to addressing carbon emissions. Instead, legislators are pursuing a carbon tax and hoping that it will eventually help turn the energy industry to renewables.”
Innovation policies cannot keep existing nuclear reactors online. Innovation policies are designed to support new technologies. Meanwhile, a carbon-free resource is being beat out on price by cheaper and more flexible resources, primarily natural gas, in energy markets that do not value the fact that nuclear energy is emission-free. If energy markets priced carbon emissions, then the competitive landscape would look better for nuclear. Energy modeling shows that a carbon price would help at-risk nuclear plants remain competitive, and would maintain the current level of nuclear power generation over the next 10 years. This is especially important considering that 35 percent of our current nuclear fleet is at risk of early retirement or already slated to close by 2022. That is one reason why companies that own nuclear power plants support ambitious carbon pricing.
The role that a carbon tax can play in maintaining nuclear generation is important for Pennsylvania, where nuclear plants have been closing and grid operators are planning for more closures. States such as Illinois, New York, and New Jersey have policies that subsidize nuclear plants to keep them open, but those same policies have not found a foothold in Pennsylvania. In fact, Pennsylvania’s most famous nuclear facility, Three Mile Island, closed just last month. And even if targeted subsidy programs can help in the short term, what we really want is policy reform so that the market demands clean generation. In practice, that means either expanded regulations or carbon pricing.
New, advanced nuclear technologies could prove to be cheaper and more flexible than current technology, but that may not make them competitive against alternatives without a price on carbon. Recent work from the University of Chicago has found that a carbon price of roughly $50 per ton would enable advanced nuclear technologies, particularly small, modular reactors and generation IV high-temperature reactors, to compete with natural gas. At the very least, a carbon price will provide the market signals that investors use to drive private sector investment into the R&D necessary to develop such technologies.
On the effectiveness of a carbon tax compared to encouraging carbon capture, Matthews argues:
“A federal carbon tax would not magically lower emissions, and big polluters would likely keep polluting at least in the short-term. Encouraging the development of cleaner energy and technology like carbon capture are key in this fight against climate change. In fact, some in the fossil fuel industry are supporting such research, so punishing them, as well as consumers, for innovating is unequivocally wrong.”
A good approach to climate change does not have to eliminate emissions immediately. While some argue that a carbon tax needs to be very high to meet the emissions reductions implied by severe climate goals (and those estimates have their own problems), but short-term emissions reductions are the most predictable effect of a carbon tax. The carbon price calculator hosted by the energy and environmental policy think tank Resources for the Future shows that a carbon tax at the rate proposed in the Market Choice Act would reduce greenhouse gas emissions from fossil fuels by about 30 percent against today’s levels in 10 years.
In the long term, to deeply decarbonize the economy, we will need to develop technologies to provide flexible low-carbon power, such as carbon capture. Matthews overlooks that the newest version of the Market Choice Act responds to that very need, and in doing so is probably the most generous piece of legislation for supporting innovation in carbon capture.
- The MCA dramatically increases research dollars for carbon capture, storage, and utilization by devoting over 2 percent of carbon tax revenues (approximately $2 billion per year) to such research programs at the Department of Energy;
- The MCA supports early deployment of carbon capture technologies by extending the commence construction date for carbon capture projects to qualify for the 45Q tax credit program. It also allows qualified facilities to claim that tax credit for 12 years and at the same time they receive a rebate against the carbon tax itself;
- The MCA includes language from the Carbon Capture Modernization Act (H.R. 1796) to provide investment tax credits for retrofitting of coal-burning facilities with carbon capture equipment; and
- The MCA includes funding for supporting the construction of CO2 pipelines, to ship captured CO2 to areas where it can be stored and used for enhanced oil recovery — a method of extracting hard-to-reach crude by injecting an oil field with gas.
All of these provisions are elements of the blueprint for federal action to support carbon capture published last spring by the Carbon Capture Coalition, a group of industry, labor, and environmental interests all supporting carbon capture. So rather than punishing the fossil fuel industry for innovating, the Market Choice Act is both directly supporting innovation for carbon capture and building a market structure (the carbon tax) that will allow successful innovators to scale their business models up and and help drive deep emissions reductions.
Matthews’ last line of objection is that carbon pricing is divisive and has failed in the past, so it’s a waste of time to keep trying. Of the recently introduced bills, she writes, “Trying to pass the same, doomed legislation over and over again is not a valuable use of time.” This is an underwhelming argument. We know that the American political system deliberately makes achieving big, comprehensive reforms — be they in education, health care, or taxes — hard. This is frustrating when we are faced with urgent problems like climate change, but the best we can do is ensure that the best policy options are known and well-vetted when windows of opportunity open.
Thankfully, we can be relatively confident that the Market Choice Act would help reduce emissions now, fund infrastructure, create market demand for nuclear and carbon capture, and supercharge the innovation environment for carbon capture.