The US needs to decarbonise power and energy by 2035 and implement national carbon price, says PRI.
With US President-elect Joe Biden set to begin his four-year term from January 2021, Heather Slavkin Corzo, Head of US Policy at the Principles for Responsible Investment (PRI), said the US should take the opportunity to consider carbon pricing alongside the country’s readmission to the Paris Agreement.
“[The PRI] believes that it is essential the US moves to completely decarbonise the power and energy sector by 2035. We will therefore continue to recommend the Biden administration implements a national carbon price, as well as exploring border carbon adjustments,” Corzo said in a webinar discussion yesterday.
Corzo added that there has been support for a carbon tax from the likes of former Federal Reserve Chair, Janet Yellen, who is also Biden’s candidate for Treasury secretary.
“I do see Republican support, and not only Democrat support, for an approach that would involve a carbon tax with redistribution – it’s not politically impossible,” Yellen told Reuters in October.
Yellen, who served the Federal Reserve from 2014 to 2018, has put forward a proposal alongside the Climate Leadership Council that would half US carbon emissions from 2005 levels with a tax starting at US$40 per metric tonne by 2035.
According to The World Bank, around 40 countries and more than 20 cities, states and provinces have implemented carbon pricing mechanisms that cover about half of their emissions, translating to 13% of annual global greenhouse gas emissions.
Executive branch to circumvent Congress
Corzo said the likely Republican dominance in the Senate over the next two years may make it more difficult for the Biden administration to “implement its policies around climate change”, hampering efforts to restrict carbon emissions.
Biden has yet to make specific pledges to decarbonise emissions, Corzo noted, but bodies such as the Environmental Protection Agency (EPA) “may be able to regulate emissions directly, [as the EPA] doesn’t require congressional action”.
Biden may have to rely on the executive branch and federal agencies like the EPA in order to effectuate policy changes, as opposed to relying on securing majority votes in both the House of Representatives and on the Senate floor.
“With Senate Majority Leader Mitch McConnell controlling the floor, it is going to be hard to get any Democratic priorities through to the Senate,” Corzo admitted. McConnell has historically opposed climate-related measures and publicly supports the continuation of the coal industry.
Is a carbon tax the most effective measure?
However, there is still debate around whether a carbon tax is the most effective tool to enact change given the difficulties of calculating a net price on climate change risk – particularly if not every country commits to decarbonisation.
“[A carbon tax] is likely to simply relocate emissions rather than cut them,” said Dr Jamie Whyte, Director of Research at the Institute of Economic Affairs (IEA).
“A carbon tax applied in the US will shift (marginal) industrial production to places that don’t apply it […] there is no point doing something unless (almost) everyone does it, too. The gains from breaking ranks are too great,” he continued.
In Europe, carbon price adjustments are expected to be imposed on industries including cement, steel and chemicals under a carbon border adjustment mechanism (CBAM), which will be proposed formally in 2021.
Commissioner Allison Herren Lee of the US Securities and Exchange Commission (SEC) has been vocal in recent weeks about the need for increased regulatory involvement in the US to address climate risk and to facilitate adoption of globalised sustainability reporting standards, although not necessarily calling for a carbon tax or carbon border adjustments.
“I think we can look to Commissioner Lee’s statements as a potential direction or insight into her priorities and the agenda for the SEC over the next few years,” Corzo said.
What to expect from Biden administration in short-term
Corzo said she is optimistic that the Biden administration will re-join the Paris Agreement and will set a net zero emissions target for the US upon his assumption of the Presidency.
Much of Biden’s short-term climate priorities will likely centre around undoing policies introduced under President Trump’s regime, she continued.
“We do see some immediate opportunities for the Biden administration to move in the right direction, such as reverting back to [Former President] Obama’s Clean Power Plan.”
The Clean Power Plan aimed to achieve a 32% decarbonisation by 2030 compared to carbon emissions measured in 2005. This was replaced last year by Trump with the Affordable Clean Energy rule, “which only plans to reduce emissions by half a percent from existing sources in the electricity sector,” Corzo said.
“This is an area in which the PRI thinks the Biden administration can move relatively quickly to undertake rule-making and restore regulations around power and reduce emissions in the near-term,” she continued.
A reversal of Trump policies is supported by fossil fuel majors such as Shell, which has reported it will push for the reversal of Trump’s rollback of methane emissions rules that have currently placed the energy industry in a “backwards-facing position”.
The PRI webinar discussion follows the body’s recent ‘How Government and Investors Can Deliver Net-Zero in the US’ report, which outlines recommendations as to how the US may reach climate change targets by 2050.