We believe that putting a price on carbon, and all other greenhouse gases, is an indispensable step in the effort to achieve climate stability. Climate change is not caused by a shortage of rooftop solar panels or an excess of gas pipelines; even ocean acidification and extreme weather events are symptoms of a larger problem: the true costs of fossil fuels are hidden. We are not paying for drought relief, wildfire protection, or superstorm recovery when we fill our gas tanks or invest our 401ks in fossil fuel companies. The hidden costs of our energy choices - to the tune of hundreds of billions of dollars and hundreds of thousands of lives lost every year - will be paid by countless people who don’t get to choose, from inhabitants of low-lying islands to unborn generations. 

A price on carbon levels the playing field for renewable energy, reduces pollution, and generates jobs and revenue.

How does a carbon price work?

There are two mechanisms to price carbon, both of which harness the power of polluter accountability. The first is a “carbon tax” (sometimes called a “carbon fee”), in which polluters pay a scheduled price for each ton of carbon pollution contained in their product. The second is a “carbon cap”, in which polluters forfeit “tradable permits” (sometimes called “allowances”) to a regulatory agency for each ton of carbon pollution they emit. Since polluters would purchase allowances in an auction or secondary market, a carbon cap would achieve the same outcome as a carbon tax: it would make dirty energy less affordable.

A well designed carbon price would increase gradually, with a predictable schedule in the case of a tax, or with a steady reduction in allowances in the case of a cap.

Where the revenue goes

A carbon pricing policy would generate a significant amount of revenue, and there are many things to consider when determining how to spend the “carbon funds.”  Our Climate strongly believes that revenue allocation is a critical aspect of any carbon pricing policy, to ensure it is strong, built to last, and fair.  

Generally speaking, there are three ways carbon revenue can be spent. First, it could be invested in clean energy, community projects, job trainings, you name it. Second, it can go towards reducing taxes, whether income, corporate, or sales. Finally, the money can be returned to U.S. households in the form of rebates or dividends. 

There is much debate among carbon pricing advocates around which mechanism is most effective, and where the revenue is best spent. At Our Climate, we have developed a set of policy principles to evaluate and develop any carbon pricing policy. Please see those here -- and let us know what you think!

For more resources on carbon pricing, visit the Years of Living Dangerously library!