September 11, 2018

Measuring The Ambition of The Market Choice Act: A Quantum Leap for Carbon Pricing

The Market Choice Act (MCA) introduced by Carlos Curbelo ended the decade long hiatus on any Republican-sponsored carbon pricing initiative, and represents an increasing prevalence of this topic in U.S. climate policy discussions. The $24 per ton tax on CO2 emissions indicates that climate change is a serious issue that deserves our attention and requires immediate action.

Although the MCA is a significant effort, from within the ranks of the GOP House Caucus, to address concerns associated with rising CO2 emissions, the bill has received muted praise from environmentalists. David Doniger and Derek Murrow, from the Natural Resources Defense Council, note in their article that Rep. Curbelo’s bill is a notable breakthrough; however, they lament that the bill’s “targets and tax rate escalation clause are not adequate to ensure that we will achieve the near and long-term emission reductions required by science.”

This criticism is understandable and might true, if you want to use science-based emissions targets to judge its ambition. We know that carbon emissions have to fall dramatically to slow global warming. But that the proposed policy may fail to meet that particular decarbonization goal is not a indication that it is unambitious. An alternative evaluation starts with where we are today (with paltry carbon pricing in the United States and  internationally) and where we would be if the MCA were to become law. In short, it would be the largest and most ambitious carbon pricing scheme in the world.

In 2020, the implementation year of the MCA, the tax is expected to generate $93 billion dollars and nearly $1 trillion dollars in the first 10 years. This achievement is even more impressive when put into context of the revenue generated by all the current carbon pricing schemes around the globe. The World Bank’s 2018 report on the State and Trend of Carbon Pricing found that $33 billion of revenue was generated by all carbon pricing schemes in 2017, up from $22 billion in 2016. The MCA tax scheme alone generates almost triple the revenues in only the first year of implementation than the sum total of all  carbon pricing schemes from the globe, combined.

This comparison sheds light on just how substantial an achievement the MCA would be in terms of placing a meaningful carbon price across a wide base. Murrow and Doniger voice concerns that the bill will not reduce carbon pollution enough to protect Americans from the worse effects of climate change. However, in comparing the emissions pathway of the MCA with the pathway expected under the Clean Power Plan or expanded regulatory measures, it is difficult to understand why Murrow and Doniger stipulate that Curbelo’s bill does not do enough.

Marc Halfstead provides an insightful analysis of the emissions pathway of the MCA and finds that the bill will reduce CO2 emissions in the power sector by 56 percent below 2005 levels in 2030. For comparison, the Clean Power Plan was expected to reduce emissions by 32 percent below 2005 levels. It is clear that the MCA’s estimated emissions reduction achievements are considerable relative to the current state politically feasible policy options for emissions reductions

The MCA is a novel and important proposal and should be critically evaluated. However, critiquing the bill’s tax structure and claiming it lacks ambition completely ignores the reality of climate policy today. Judging by the revenue, the MCA made law would be the most ambitious carbon pricing program in the universe. It would be a quantum leap above the rest.