Gina McCarthy, the climate advisor to President Biden, recently said that the Biden administration will not support a carbon price if it prevents federal agencies from regulating carbon emissions directly. McCarthy’s remarks indicate the administration’s strong preference for command-and-control regulations on climate change. It’s puzzling, however, that the administration would oppose a national carbon price if it replaces equivalent emissions regulations. One of the benefits of a carbon price is that it incentivizes cutting carbon emissions more efficiently and at less cost than regulatory mandates. As such, the administration should consider carbon pricing and be open to removing duplicative emissions regulations.
At the Biden administration’s April climate summit, in which 40 world leaders were in attendance, President Biden announced an ambitious goal: that the United States will reduce emissions by about half by 2030 compared to the levels in 2005. Committing to an ambitious climate goal is certainly a positive step. Still, the problem remains that there is no uniform federal climate policy in the United States. The Biden administration has not articulated how they plan to achieve that ambitious goal.
The administration proposed a $2.3 trillion infrastructure package in March this year that included an Energy Efficiency and Clean Electricity Standard aimed at cutting emissions in the power sector. But McCarthy said that even if Congress passes a national clean electricity standard, the Environmental Protection Agency will still promulgate regulations to cut emissions from power plants.
The United States could continue to stack up more sector-based performance standards and mandates, or alternatively, implement an effective and durable policy that would incentivize decarbonization the fastest across the economy.
Economists believe a carbon tax is the most economically efficient policy to incentivize decarbonization throughout the economy. Prominent business groups like the Business Roundtable and leading financial trade groups including the Institute of International Finance have also endorsed carbon pricing. Treasury Secretary Janet Yellen and Biden’s climate envoy John Kerry have also publicly supported carbon pricing as the most effective policy to fight climate change.
A carbon tax is not only more economically efficient than command-and-control regulations, but it’s also less vulnerable to legal and administrative challenges. Jonathan Adler concluded in his new research paper that greenhouse gas regulations may be particularly vulnerable to “legal attacks, state resistance, and administrative delays” when compared to non-regulatory measures such as a carbon tax. If the goal is to address climate change quickly, Adler argues, then “prioritizing regulatory measures over fiscal instruments may be a strategic mistake.” One striking example Adler pointed out in his paper is the Clean Power Plan (CPP) proposed by the EPA under the Obama administration: the CPP was initially proposed by EPA in June 2014 and finalized in August 2015. It was published in the Federal Register in October 2015. The CPP never went into effect, as it was stayed by the Supreme Court due to the justices’ doubts about its legality in February 2016. It also took several years for the Trump administration to repeal the CPP.
There are several possible reasons as to why the Biden administration and some Democrats favor a command-and-control regulatory approach over a market-based approach to tackle climate change. Besides political considerations, emissions reduction uncertainty may also be a central reason. However, it’s important to keep in mind that both command-and-control regulations and carbon pricing need to address a similar set of uncertainties in policy-making—such as measuring the actual costs of negative externalities imposed on the society from the combustion of fossil fuels, and assessing the abatement cost it would take to decarbonize a specific sector. Additionally, researchers have proposed mechanisms to tie a carbon tax to emissions goals to reduce emissions uncertainty.
The United States needs a national climate mitigation strategy. Implementing an effective national carbon price and removing duplicative emissions regulations would be a good climate strategy that helps us achieve our climate goals.