Carbon Pricing for Leftists: The Politics and Policy Design of Reclaiming Market-based Tools

We do not have the luxury of turning away from policies that have been usurped by corporate interest-- rather, it is our job to diligently and carefully reconstruct those policies so they can become effective parts of a just climate movement.

Photo by  Philip Swinburn .

Photo by Philip Swinburn.

The climate-conscious neolib’s policy darling: carbon pricing. It generates revenue, minimizes government involvement in the private sector, and harnesses market forces to push for the cheapest, most innovative solutions to growing climate woes. In theory, all of these virtues would suggest that carbon pricing has support across the political spectrum; indeed, environmental advocacy groups and oil companies, international financial organizations and centrist Democrats sing its praises.

But what about the perspective of the climate left? Where do we stand on carbon pricing? It’s easy to see how the qualities that make carbon pricing so appealing to liberals and centrists are exactly what makes the policy an ideological nightmare on the left. Carbon pricing has been excoriated as an ineffective nothing-burger that placates environmentalists while doing nothing to end the extraction of fossil fuels; see, for example, the critical perspective of the Indigenous Environmental Movement: “Carbon pricing, including carbon trading, carbon taxes and carbon offsets, are false solutions to climate change that do NOT keep fossil fuels in the ground.”

Though these critiques often reflect very real issues, it would be a mistake to remove carbon pricing from our policy toolkit altogether. Market-based tools have long been extended as a conciliatory gesture to mega-polluters, with the intent of demonstrating that we can pass climate policy without threatening corporate profits and wealth accumulation. But if designed correctly, carbon pricing doesn’t need to be a free-market peace offering. Instead, carbon taxes and markets could be one more way of applying pressure to polluters while redistributing their wealth to those most impacted by climate change. Rather than drawing a line in the sand based on (valid) ideological concerns, we should use political strategies and policy design to wrest market-based policies from neoliberal hands so that we can employ carbon pricing as part of a fair and expedient energy transition.

Before getting into strategy and design, a brief note on how carbon pricing works.

Carbon pricing takes the form of either a carbon tax or a carbon market. Under a taxation system, the government charges polluters for each ton of carbon they emit. In a market, the government auctions off allowances, again assigning a set price that polluters must pay in order to be allowed to emit. By attaching a monetary cost to pollution, either through a tax or an allowance price, carbon pricing legislation incentivizes polluters to cut down on their emissions in whatever ways they see fit (for example, investing in new technologies, cleaning up old habits, etc.).

These are the bare bones of carbon pricing. But how do we make it work within a leftist climate platform? In other words-- how do we design and talk about market-based policy so that it is advances the priorities of redistributive justice and public good?

The first step is reframing the conversation around carbon pricing.

This is an issue of politics rather than policy design, but it’s a crucial one. One of the most troubling elements of carbon pricing isn’t the policy itself, but the pedestal it’s been placed on. Environmental groups, climate advocates, and economists often push pricing as a stand-alone policy that will harness the power of the market to propel us into a clean energy future all by itself. Carbon pricing must be seen not as the first (and only) method for curbing corporate pollution, but rather as the goalie, an additional line of defense against carbon emissions. If we commit ourselves to carbon-cutting policies like higher regulatory standards, subsidies for clean tech implementation, grid overhauls, public transit projects, better municipal waste management, reforestation, and so on, carbon pricing becomes one among many tools for eliminating carbon, rather than our only hope for surviving climate change.

How do we change the carbon pricing conversation? Simply by talking about other climate policies more. Each time pricing comes up with pundits, policy wonks, average Joes, and advocates, the conversation needs to be steered toward other policy tools that work alongside pricing to fight the climate crisis. Pushing this perspective is significant for two reasons. First, a problem like climate change will require an “everything but the kitchen sink” attitude, not a single tool. Talking about carbon pricing as part of an arsenal of options rather than as a silver bullet redirects attention to the need for a full policy portfolio.

Second, talking about carbon pricing as one tool among many sends the message that the climate movement will not allow its policy platforms to be usurped by private sector priorities. The fact that companies like ExxonMobil back carbon market policies should make us optimistic-- but not for the reasons a neoliberal might expect. Far from a heartwarming sign that cozy partnerships with corporations are a viable way forward (as market sentimentality might have us believe), corporate backing of carbon pricing reveals that Big Energy understands and fears the building power of the climate movement. Rather than opposing climate legislation outright, these corporations are hedging their bets by backing their least-worst option: carbon pricing. This should embolden us to keep pushing for rapid energy transition rather than accept a feeble compromise with those who would continue to sell us down the river for a high enough price. To this end, if we relentlessly frame carbon pricing as both insufficient and inseparable from the rest of of a climate left toolkit, we send the message that no policy, not even a market-based one, will remain a shelter for corporate interest.

Now for the policy design:

#1. Carbon pricing should, you know, actually reduce carbon.

This is so obvious and fundamental it should be listed as #0 instead of #1, but carbon pricing instruments need to set strict enough limits that they actually produce results. There’s been significant debate about whether or not that’s actually happening with current carbon pricing mechanisms. For example, Jeffrey Ball points out, “The existing carbon-pricing schemes tend to squeeze only certain sectors of the economy, leaving others essentially free to pollute. And even in those sectors in which carbon pricing might have a significant effect, policymakers have lacked the spine to impose a high enough price. The result is that a policy prescription widely billed as a panacea is acting as a narcotic. It’s giving politicians and the public the warm feeling that they’re fighting climate change even as the problem continues to grow.”

Corporations and interest groups will always lobby to keep a carbon tax low or an auction cap high, thereby watering down any effect the pricing instrument might have on emissions. In designing good carbon pricing schemes, we must make sure we’re not waylaid by corporate complaints of squeezed profit margins, or held hostage by threats of layoffs. The climate left will never back a carbon pricing scheme that doesn’t set a serious price on carbon for fear that it will hit polluters too hard. (A discussion of the economics behind a rigorous price on carbon can be found here*.)

#2. Revenue from carbon pricing has to be used right.

A lot has already been written on this so we don’t need to get into it too much here, but the way tax or auction revenue is used plays a big role in whether or not the policy fits within a leftist platform. Here are some options for how carbon pricing revenue might be used to advance a wider climate left platform:

  • Paying for grid restoration, infrastructure overhauls, or implementation of clean technologies.

  • Funding green jobs training programs. When polluters have to pay to emit, some inevitably respond with layoffs. This could be countered with green job creation and training so that climate interests don’t become opposed to labor interests.

  • Sending lump sums to households to make up for increased electricity prices. If a power plant’s costs go up due to carbon pricing, it might pass off some of these new costs by raising prices on consumers. This could be rectified by compensating families for their increased energy bills.

  • Replacing or defraying income taxes or payroll taxes for low-income families. Giving low-income families a take-home-pay bump would help these families deal with their vulnerability to the climate crisis, and might also help generate populist support for climate policy.

#3. We need to think about the people who are locally affected by polluters.

Carbon pricing has the potential to make cuts to carbon emissions if done right, but it does nothing to help people who experience the daily health hazards of living in the proximity of polluters. If we are going to continue to let polluters exist under carbon pricing rather than pass policy to close their doors altogether, we need to take into account the communities that are locally affected by polluters’ continued existence. (Unsurprisingly, these communities are most often poor, indigenous, or of color). This means that if carbon pricing policy is to be integrated into a leftist climate platform, it must be accompanied by mandatory air and water quality inspections, bolstered public health resources, and general increased economic investment in the affected communities. (These policy recommendations could be another use for the revenue generated by the carbon tax or market, per the above section).

Ultimately, incorporating carbon pricing into the climate left platform shortens our odds on surviving the climate crisis and weakens the neoliberal chokehold on so-called “climate pragmatism.”

We do not have the luxury of turning away from policies that have been usurped by corporate interest-- rather, it is our job to diligently and carefully reconstruct those policies so they can become effective parts of a just climate movement. In other words, if leftists refuse to even go near carbon pricing, carbon pricing won’t go away. Instead, carbon markets and taxes will just continue to be defined by the priorities of private wealth accumulation, while leftists will be dismissed as unpragmatic and disengaged from the nitty-gritty of policy debate. Corporate interest will continue to worm its way into the climate movement via neoliberal versions of carbon pricing policies, and we will have lost a chance to round out our platform with a policy that has potential for real emissions cuts. This does not mean we need to pander to centrist priorities or take Fortune500 companies as our unsavory bedfellows. What it does mean is that we need to commit ourselves to the wonky task of fine-tuning each policy tool and political strategy available to us so that we can work for a just and democratic energy transition as quickly as possible.

*Note that the linked article discusses the economics of a carbon tax specifically, and not carbon pricing generally. However, the analysis has broad lessons for carbon markets as well as taxation because according to economic theory, taxation and cap-setting are symmetrical policies.

Soren Dudley is a Political Theory PhD student at Harvard University. Her research interests include leftist thought and critiques of capitalism, especially as they pertain to climate change. She tweets @sorendudley.

Guess what didn’t fund this article…advertisements! Big corporations! Billionaires! What did fund this article? Just donations from our readers and the odd grant. You could be one of those people funding new essays on the most important issue of our time. And if you already are, thank you!