COLUMN: Put price on carbon emissions now

In the El Paso Times/Opinion Section
By Louie Gilot / Guest columnist
Posted: 01/03/2010 12:00:00 AM MST

Imagine a commercial that would go something like this. "A ton of carbon dioxide: $40. A livable world for our children: Priceless." Pretty convincing, no? We pay a little now to avoid catastrophe later.

Now that the United Nations Conference on Climate Change ended without the much-needed accord to reduce greenhouse gas emissions, we must turn our attention Stateside. What wasn't accomplished on the international scene -- that is, to create an insurance policy against the predicted effects of global warming -- must now be worked out at the national level.

We must put a price on carbon-dioxide emissions.


Most of us believe in letting the market sort it out. Free-market forces work because the back-and-forth between buyers and sellers generally comes to an equilibrium that is most beneficial for society. Buyers are willing to pay "x" for a product, and at that price, producers will produce "y" amount of the goods, taking into account production costs.

But let's say we are not talking about socks or carrots but rather, about a product with a manufacturing process that generates greenhouse gas emissions, such as electricity from a coal-burning plant. In that case, the market fails to settle on the optimum quantity. Instead, we over-produce. Why?

Because the production costs don't include the costs of the emissions generated. Taxpayers are the ones burdened by the costs ofclimate-change disasters such as hurricanes, floods and droughts.

It's simple. Industries emit carbon dioxide because it's free ... for them.


There are two ways to price carbon dioxide emissions (CO2) and fix this classic example of market failure.

The first is a carbon tax, a political non-starter in America. The second is a cap-and-trade system such as the one proposed in a bill passed by the House in June, now awaiting action in the Senate.

Here's how it works. First, the government sets a limit to how much CO2 industries can emit (Under the bill, emissions must be reduced by 17 percent by 2020 over 2005 levels). Then, the government issues a limited number of permits to emit CO2; Economists suggest setting the price at $40 per one-ton permit.

Companies can then purchase permits and trade them in a regulated market. Companies that emit more can buy permits from those that emit less. Every year, the government issues fewer permits, thereby reducing emissions.

Cap-and-trade systems already exist in the United States, albeit on a smaller scale, to control acid rain, for instance. And since 2005, the European Union has had its own extensive carbon cap-and-trade program.

Cap-and-trade systems are not perfect. We must also acknowledge, as President Obama has done, that the extra cost will be passed on to the consumer in the form of increased utility bills. Estimates vary widely on how big an increase, from around $100 to $3,000 a year. We must therefore ensure that the revenue from the sale of carbon permits be returned to consumers in the form of tax breaks.

But cap-and-trade programs also afford businesses the flexibility to achieve needed emission reductions the way they see fit and stimulate innovation in the renewable energy area, something necessary to gain more energy independence and to maintain global competitiveness. Currently, less than 10 percent of our energy comes from renewable resources.

In the end, we'll pay for climate change one way or the other. So, let's put a price on carbon now, because our future is priceless.

Louie Gilot is a former El Paso Times reporter. She writes the blog, http://www.lagreenga.com/.