Putting a Price on Carbon: Who Pays, and How?

It’s not uncommon that a Carbon tax or Cap-and-Trade is dismissed as some sort of scheme, just another example of the government taking the people’s hard-earned money.

Thing is, this simply isn’t true, and both options carry some serious weight in terms of the impacts they could have on reducing pollution.

For one, neither a carbon tax nor Cap-and-Trade are funded out of the peoples pockets. 

Take California’s Cap-and-Trade program as an example. 

Not every business partakes or is required to do so in any capacity, rather 450 businesses including large electric power plants and industrial plants, as well as fuel distributors are directly involved. These businesses are responsible for around 85% of California’s total emissions. A significant number of the available emissions allowances are simply given away freely for companies in need or transition while the remainder are sold at auction. So, straight away, companies are choosing how much to buy in full awareness of their scale and with goals in mind to reduce their own emissions and increase efficiency, thereby reducing operating costs. On top of that, any revenue made from these auctions is deposited directly into California’s Greenhouse Gas Reduction Fund. From there, the California Legislature then determines to which state agencies those funds should be allocated with the end goal of further reducing emissions. Since their program started, California has raised $12.5 billion in revenue and reduced emissions by 5.3%.

In terms of “the people”, the good news is that “35 percent of the revenues are required by law to be directed to environmentally disadvantaged and low-income communities” (Center for Climate and Energy Solutions, n.d.), and has generated 5 billion dollars for ths communities since the program began in 2012.

I will agree though that the system isn’t perfect, and despite touting some impressive financial figures diverted towards low-income communities, there are some definite concerns in terms of equity.

It’s already a known fact that the “dirtiest factories, refineries, and power plants are already located in poor black and brown neighborhoods.” (Mazur, 2016). More than half of all people in the US who live within 3.0 kilometers (1.86 miles) of a hazardous waste facility are people of color, according to a report titled ‘Toxic Wastes and Race at Twenty’. In another report, it was found that “people of color make up nearly half the population in fenceline zones (11.4 million), and they are almost twice as likely as whites to live near dangerous chemical facilities.” (Center for Effective Government, n.d.)

This proximity and unequal distribution means simply this: while overall emissions may decrease, localized emissions disproportionately impact people of color and low-income individuals. In fact, a 2018 study actually found that there were increased emissions in communities made up of people of color and low-income, less educated, and non-English speaking residents. (Cushing & Morello-Frosch, 2018)

So, bottom line is this: while there is still work to be done, and definite areas of equity that need to be addressed, cap-and-trade is not a government scheme to steal your money.

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