By Mitch Jones
As the UN meets this week to discuss our climate future, here’s one thing they probably won’t be talking about but should: how finance and regulating carbon don’t mix.
When Food & Water Watch created the Common Resources Program in April of 2011, we did so to push back against the finance industry’s desire to use nature as a new source for profits. In the international community this effort is referred to as the “financialization of nature”. The basic idea is that new commodities are being created, which then necessitates new markets for those commodities. On top of those markets, Wall Street hopes to build new financial markets and speculative financial instruments like those that brought down the global economy in 2007. The most egregious example of this may be Citibank Chief Economist Willem Buiter’s dream of a global water market that would not only rival, but also swamp the oil market in size and would have “futures markets and other derivative water-based financial instruments — puts, calls, swaps” built on top of it. Financial speculation in the housing market was bad enough, but in water? It’s unthinkable, unless you’re a Wall Street banker.
So, what’s this got to do with pricing carbon? Quite a bit actually, because the same failed economic myths that support the desire for water markets support the idea of pricing pollution. We’ve already documented the problems with pricing pollution, including carbon, through cap and trade. And while cap and trade is still being pushed at the state and regional level, nationally the push is for a carbon tax.
The problems with the carbon tax begin with its regressivity. A regressive tax is one that hits households with lower income harder than those with higher income. The Congressional Budget Office estimated that under a $28/ton carbon tax, the bottom 20 percent of income earners would pay 2.5 percent more in taxes, while the top 20 percent would pay less than 1 percent more.
The politics of passing a carbon tax will make this inequality worse. While the carbon tax is already regressive, the most likely proposals to get bipartisan and corporate support couple it with a reduction in individual and corporate taxes that make it even more so. Unfortunately, the politics that would have to come together to pass a carbon tax would likely necessitate just this sort of tax swap to get the votes to pass.
Beyond the regressive nature of any carbon tax that could get the votes to pass, we should also be clear that using “pricing” to reduce pollution is the wrong approach. Pricing relies on the idea that “market signals” are the best way to regulate pollution. Put a price on it, and businesses and households will respond by polluting less. The goal has been to replace environmental regulations with these price and market signals.
We should be clear, polluting companies want to have a set cost they can factor into their pricing of their products, that is, pass on to us, instead of having to respond to regulation that will clean up their businesses and reduce their pollution. And they want that cost to be unrealistically low.
Yvo de Boer, the former chair of the United Nations Framework Convention on Climate Change (UNFCC) has proposed a carbon tax he thinks can work. That carbon tax is set at €150 (or about $193) per tonne. For comparison, the current price for carbon in the EU’s trading scheme is about €6.30. Proposals for a carbon tax in the U.S call for a tax in the $20 -$30 per tonne range. Even if we accepted the questionable economics of financializing carbon, and we don’t, then these proposals are woefully inadequate when it comes to stopping climate change. But, it’s at a level acceptable to some major corporations that want to be seen as “doing something” on climate change.
Instead of a “price on carbon” we need an aggressive cap on emissions, a prohibition on allowing states to use gimmicks and false solutions to achieve the cap target (be it pricing, offsets, or switching to natural gas), a focus on efficiency, and greater investment in bringing truly renewable energy up to scale to provide the electricity we need. And these aren’t solutions we can wait for Wall Street to bring to us. We need to build power in our communities, put pressure on our decision makers, and ensure that we’re a unified voice calling for effectively regulating pollution.
The climate can bear no less.