The Cost of Carbon
Economists measure the value and therefore the cost of commodities and resources by assigning a monetary value to that thing. It costs some amount to grow, package, ship, and buy peanuts, for example. A peanut farmer will also know how much the production of this good costs him. But what about resources that do not pose a monetary value? Water, air, biodiversity, happiness; these are all things humans require and interact with every day, but they do not possess a dollar value. Think back to the peanut farmer for a moment. The only way the farmer knows the value of his peanuts is because a market exists in which to buy and sell them-a market that sets the price of the resource.
The rapid acceleration of greenhouse gas emissions is perhaps the greatest crisis we face today. The costs on human activity, let alone the health of the planet are only beginning to be felt. Experts have estimated that the US economy alone will lose hundreds of billions of dollars in GDP over the next 70 years. So why aren’t emitters of CO2 paying any of that cost? Because as long as companies do not have to directly pay for what they emit into the atmosphere, there exists no economic incentive for them to do so. By creating a regulated market where carbon can be bought, sold, and traded, we are able to limit polluters by means other than finger-wagging.
As the recent Australian wildfires ravaged the south, displacing millions of people, the north remained much less affected. In fact, across huge areas in the north, destruction from wildfires has been reduced by half over the past ten years. In large part this is due to state-sponsored support for the aboriginal practice of defensive burning-using small, timed, and contained fires to periodically burn away underbrush. The state-sponsored part of this equation is a result of the cap-and-trade system, which has awarded $80 million to organizations that implement the method, as deforestation is a major carbon producer. But what does cap-and-trade actually mean, and how could it incentivize the government to invest tens of millions of dollars in preventative measures?
Essentially, governments place an upper bound, or cap, on national carbon emissions across industries. Companies are then awarded vouchers, or credits of some form based on their initial carbon output, for example, one voucher might represent one ton of CO2. Possession of this voucher allows a company to emit a set amount of carbon, but they are not stuck at that level. These vouchers become part of a carbon market, where companies who realize ways to cut emissions sell vouchers to other, less energy-efficient companies. This price is determined by the market itself, allowing supply and demand for “dirty” energy to take control. Ideally, the cap on carbon declines over time as more and more companies transition towards clean, renewable sources of energy. America has actually done this before in the 90s with sulfur dioxide-a chemical used by coal plants that caused acid rain. Ten years after a sulfur dioxide market had been created, emissions were down by 43%.
Let’s look at the other major forest crisis we are experiencing- the Amazon. As the global demand for meat skyrockets, the systematic destruction of the rainforest in order to make room for cattle grazing has made the region more prone to wildfire outbreaks. Indeed, these slash and burn practices and resulting loss of forest worldwide account for one-tenth of global carbon emissions. Currently, an acre of forested land is far less economically valuable than an acre of cleared land. So what could incentivize the agriculture industry to turn away from this practice?
In the same way a carbon market uses CO2 as its currency, a recent standard laid passed by the California Air Resources Board paves the way for a more globally significant carbon offset market, a system of trade that assigns value to deforestation and environmental rehabilitation efforts. You may have heard about airline companies allowing flyers to purchase carbon offsets along with their ticket-the accumulation of these offset credits is a growing trend, with Amazon the company announcing it would be carbon neutral by 2040, the demand for verifiable conservation efforts is going nowhere but up.
However, carbon offsets are not regulated by any government, meaning that many are not verifiably reducing emissions. There is also no long-run guarantee that a reduction effort will last past the first few months or years of purchase. Experts from the NRDC stress that offsets are an alternative to much larger regulatory measures. For individuals wishing to purchase offsets for carbon-intensive activities such as flying however, ensuring that a purchase has been certified by a third party such as Gold Standard is a must.
Carbon and carbon offset markets are certainly on the rise, but are in sore need of support and regulation from the United States government if they wish to be considered as viable means of slowing climate change. In October of 2019, the White House filed a lawsuit against California’s statewide cap-and-trade program for entering into a deal with a Canadian province. While the constitution does not allow states to enter into such alliances with foreign governments, this move is only the most recent in a long line of Trump’s attacks on the state’s progressive climate agenda.
Sources
Fuller , Thomas. “Reducing Fire, and Cutting Carbon Emissions, the Aboriginal Way .” New York Times , 16 Jan. 2020.
Stalins , Robert, et al. “Lessons for Climate Policy: The US Sulphur Dioxide Cap and Trade Programme.” VOX CEPR Policy Portal , 12 Aug. 2012, voxeu.org/article/lessons-climate-policy-us-sulphur-dioxide-cap-and-trade-programme.
Gibbens , Sarah. “What Are Carbon Offsets? Here’s Why Travelers Are Buying Them.” National Geographic , 10 Dec. 2019.
Nepstad, Daniel. “How to Help Brazilian Farmers Save the Amazon .” New York Times , 24 Dec. 2019, www.nytimes.com/2019/12/24/opinion/amazon-deforestation.html?searchResultPosition=4.