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Jeff Todd

Abstract

The legal tools to avoid the potential disasters of climate change are already available, at least according to economists. Economists overwhelmingly prefer carbon pricing tools like carbon taxes and cap-and-trade programs to combat climate change and guide the energy transition. Carbon pricing is more cost effective at lowering carbon and other greenhouse gases (GHGs) than other legal options such as efficiency standards, renewable portfolio standards, subsidies, and tax credits and deductions. Unlike those other options, carbon pricing targets both the supply of and the demand for GHG-emitting products and services; moreover, it gives firms and consumers flexibility in how best to respond to the tax or the cap, whether by conserving more or switching to alternatives. For the most part, however, U.S. lawmakers have eschewed carbon pricing in favor of the less-effective and more-costly non-pricing alternatives. The preference is due in large part to concerns over the distributive implications of carbon pricing, namely that it would result in an unjust energy transition. Many scholars, policymakers, and environmental justice advocates worry that since carbon pricing by design raises energy prices, it will disproportionately burden the poor, who spend a greater share of their budget on energy. They also worry that carbon pricing will disproportionately benefit the rich, such as through capital tax swaps or grandfathered emissions permits. Numerous recent economic studies have addressed the distributional implications of pricing and non-pricing climate policy instruments, yet those studies have received limited attention from legal scholars. Nor have economists compared and contrasted the distribution of pricing with non-pricing policies. This Article therefore surveys those economic analyses to show that a just transition is possible with carbon pricing. First, the United States currently relies on non-pricing policies that are themselves unjust: performance standards add costs that impose a disproportionate burden on the poor while subsidies and tax expenditures primarily benefit the rich. Carbon pricing can displace many of these laws and thereby eliminate their unjust impact. Second, the cost burden and regressivity of carbon pricing are overstated, so the impact on the poor will likely be much lower than commonly assumed—and might even be progressive for the poorest households because of the indexing of government transfers. Third, the ways in which revenues raised from carbon pricing are recycled play an important role: lowering other distortionary taxes like those on capital while allocating some money for government transfer programs and lump-sum rebates to the poorest households can balance efficiency and equity. This Article therefore argues that concerns over a just transition should not be a barrier to implementing carbon pricing, which is the most efficient and effective means for lowering GHGs and thus avoiding the harms of climate change.

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