WPC-CFTC

Dear New Hampshire Legislators,

Why should New Hampshire prepare for a national carbon price of $100 per ton CO2 in 2030? Because the voices calling for carbon pricing are growing, and this is the right price.

The IPCC, WEF, IMF, and OECD say carbon pricing will play a critical part in any successful global climate solution.

This month, a US Commodity Futures Trading Commission subcommittee consisting of JP Morgan, Citigroup, Morgan Stanley, and two dozen other members released a report that says the financial sector is unprepared for climate impacts and that carbon pricing is the best way to address that exposure (https://www.utilitydive.com/news/morgan-stanley-citi-jpmorgan-cftc-panel-climate-report/585004/):

"Financial markets today are not pricing climate risk," wrote Bob Litterman, a former Goldman Sachs executive, who leads the subcommittee. "Until this fundamental flaw is fixed, capital will continue to flow in the wrong direction, rather than toward accelerating the transition to a net-zero emissions economy."

Forcing businesses to pay for their greenhouse gas emissions would be the most efficient way to ensure financial markets reduce their climate risk, the subcommittee found.

Also this month, the Business Roundtable issued a declaration of support for carbon pricing. This groundswell of support from the business community for carbon pricing reflects businesses' overwhelming preference for this efficient mechanism to reduce climate pollution.

The carbon price that is required is well known. The expert consensus indicates a price of $100 per ton of CO2 on all fossil fuel emissions is needed by 2030 to achieve the 2˚C warming limit (see carboncashback.org/carbon-cash-back and this study in Nature). Additional complimentary policies will be required for a safe future, but this is our best first step.


Where are we now? After ten years, the Regional Greenhouse Gas Initiative (RGGI) is putting a price of $5 per ton of CO2 emissions on 20% of our state's fossil fuel use. RGGI demonstrates that a cap and trade approach cannot achieve a high enough carbon price or provide broad enough coverage compared with what is needed.

What can we do? Let's assume that ten years from now the experts' guidance will have been heeded and there will be a carbon price of $100 per ton CO2 from fossil fuels across the entire US economy, coming at us from above (internationally or nationally). We can help our state's businesses, municipalities, and citizens adjust over time rather than get hit with it all at once later by starting with a low carbon price now and adding $10 more to it each year. This will reduce our state's carbon footprint at far less cost, avoid major disruption to our economy, and let us avoid significant stranded costs that will otherwise result from making incompletely-informed energy decisions this decade. We'll enable our families, towns, schools, businesses, and the state to make sensible decisions right now, which will make New Hampshire more competitive when federal (and global) carbon pricing starts. In the meantime, it will cost us almost nothing and make us more healthy by reducing pollution.

How can New Hampshire afford to do this first, especially when carbon pricing is usually regressive, hitting low-income families the hardest? US Economists are in near-universal agreement that cash-back carbon pricing is the most cost-effective and equitable way to reduce climate pollution. This involves charging fossil fuel producers and importers a steadily increasing fee based on the carbon in their products (coal, oil, and gas) and rebating all the money collected as a cash-back dividend to households on an equal basis. The dividend has a highly progressive effect because nearly all low-income households have smaller-than-average carbon footprints, and anyone with a smaller-than-average carbon footprint ends up getting more money back than they pay in trickle-down higher prices from carbon fee paid by the fossil fuel companies. Middle-income family budgets are protected. No one can claim this is unfair when we put a transparent price on climate pollution at the source and rebate all the money collected back to everyone in equal shares in compensation for the damages from the pollution. The cash-back carbon pricing solution is simple, efficient, and effective:

How does HB 735 work? Our state's Carbon Cash-Back bill uses the right approach - putting a gradually increasing carbon price on fossil fuel imports and deducting any carbon price at the regional and federal levels to avoid double-charging. It starts at $20 per ton of CO2 emitted and grows by $10 a year for ten years. All the money collected (minus administration costs) is rebated back to all New Hampshire families, one equal share per adult.

HB 735 is a small-government solution that benefits the families, businesses, and towns of New Hampshire. It showcases an efficient market's power and ability to make things better, and it will help make our state and country stronger.

All our neighboring states are considering their own carbon pricing bills. New Hampshire carbon cash-back legislation will encourage adjoining states to follow, and it will send a strong signal to Congress that cash-back carbon pricing is a viable, beneficial way forward to address climate risks.

At the federal level, border carbon adjustments will protect US jobs and push our carbon price worldwide as needed for our climate safety. However, whether Congress leads or follows, carbon pricing is coming our way. Our neighbor to the north, Canada, uses cash-back carbon pricing now ($30 a ton CO2 this year and rising $10 more each year). The EU will start using border carbon adjustments to put their $27 carbon price on our exports by 2023 if we are not pricing carbon by then - that's money we can instead return directly to NH households in dividend checks if we are using cash-back carbon pricing! That's money we can instead return directly to NH households in their carbon dividend if we have cash-back carbon pricing! Forty-six countries now cumulatively cover 20% of the world's CO2 emissions from fossil fuels under some form of carbon pricing, and that is growing every year.

Businesses don't like unknowns, and future climate changes and climate policies are big ones. Our state can take a practical, proven approach to address a growing risk by starting to price carbon now. By using the least-cost method to manage that risk in a way that protects families and is favored by businesses, New Hampshire can show Congress how to save money and use a family and business-friendly approach. By gradually putting the price on carbon emissions we know is coming eventually, we can ease our way through a transition that will be difficult any other way.

I am happy to answer any questions you have about this bipartisan, effective, and beneficial climate solution. I would also be happy to help engage a major university in New Hampshire if you would like to participate in a Q&A with experts in climate science, economics, or both. Many of New Hampshire's most prestigious economists are included in the list of over 3500 US economists who signed a statement endorsing federal cash-back carbon pricing: clcouncil.org/economists-statement. That's the most US economists that have backed any policy ever.

Respectfully,
John Gage
12 Fordway Extension
Windham, NH 03087
603-965-1586

This is the third in a series to help inform the NH state legislature about the best first step we can take to address the climate risks we face. There are many co-benefits to the carbon cash-back approach. See carboncashback.org/benefits for more on that. Previous "Why Price Carbon" letters are available.

Response from Representative Harrington

On 9/14/20 5:14 PM, Harrington wrote:

John, you left out one thing. The state is one of the biggest consumers of energy in NH. The muni’s and schools also consume a lot. As there is no provision in the bill to rebate money to any of these, there will have to be massive tax increases on both the state and local level to pay for the CO2 tax

Rep Mike Harrington


Reply to Representative Harrington

Dear Representative Harrington,

You raise a valid concern, and I would be happy to set up a time to discuss the details with you. CCL has several economists and one of them recently did a study on this. The short answer is that since we are not a fossil fuel producing state, New Hampshire has little to worry about, and a lot to gain. Poor rural towns would certainly benefit from additional programs to help increase their energy efficiency, because as fossil fuel energy prices rise, investments in energy efficiency will pay back even more than they do already. But those and other details can be worked out by your and the other members of the House STE Committee in separate policies over time. There will be time because the policy starts with a low price and increases gradually. That's the benefit of starting to head toward $100 per ton of CO2 by 2030 now rather than waiting until we suddenly need a high carbon price immediately.

You are correct that muni's and schools are not given any relief by the Carbon Fee and Dividend policy, which puts a price on climate pollution by charging fossil fuel producers a steadily rising carbon fee and returns all the money collected (net) to all households on an equal basis. As some of their costs will go up, munis and schools will likely have to raise taxes to cover those costs. They will not be massive increases - the $10 per ton of CO2 price adds about 9 cents per gallon of gas and 1 cent per KWh for fossil fuel-generated electricity in a year (with a total max increase of about 3 cents per KWh before the price starts to fall again). The annual increases are what we already see from natural market variability.

Just as it does for businesses, a predictably rising carbon price will incentivize munis and schools to work to reduce their carbon footprints. They will work to become more energy efficient and plan future energy purchases in ways that minimize their costs. They will look to solar, electrification, and other clean energy solutions just as businesses and consumers will do. That's efficient market forces at work. When the price of climate pollution is reflected in the cost of goods, our whole economy will work to reduce that pollution in the least-cost ways through thousands of independent choices every day.

But now, consider where all the carbon fee money is going. It's going to tax payers! The cash-back dividend makes it possible for people to pay more for goods, services, and muni and school taxes during the transition to a clean energy economy because all the money collected is going to them. Even after all those higher costs, most families will still come out ahead - receiving more money in their cash-back dividend than they pay in trickle-down higher prices from the fee paid by fossil fuel producers and importers that shows up in the cost of goods, services, and taxes they pay. See the Household Impact Study at carboncashback.org/benefits to see just how good this is for household budgets, even after those higher prices and taxes are taken into account. Try some sample family scenarios in the Personal Carbon Dividend Calculator to see who is likely to come out ahead: energyinnovationact.org/carbon-dividend-calculator/.

Although there are certainly some spots that will be hard-hit, such as fossil fuel producing states, that is not New Hampshire. We have a lot to gain. Our state currently loses billions of dollars a year out of our economy to pay for energy from out-of-state. Our state is also highly exposed to economic loses due to warmer winters, warmer nights, more several precipitation, and sea level rise due to a warming climate. Let's not forget about the opportunity cost of giving up our winter sports industries, maple syrup farming, and other natural resources that are highly exposed to climate change. And in a clean energy economy, New Hampshire could even become a clean energy solutions producing state. (We're never going to become a fossil fuel producer state).

You did not say that you prefer to do nothing, so perhaps you have an alternate proposal to deal with the problem? If not, doing nothing but wait for the market to fix itself has already proven to have failed. We tried that for thirty years, and the Keeling Curve and the major meteorological climate tracking measures show that has failed terribly:

Keeling curve (350 ppm is good):

Global average temperature graph (already too warm, and rising):

Currently the energy market fails to account for the full costs of producing and using fossil fuels in their price, and that causes producers and consumers to make incompletely-informed energy decisions. This failure to account for the true costs is a classic market failure. If the role of government is to protect life, liberty, and property, then by not addressing this market failure our legislators are failing to perform the central role of government. Real economists say it better than I can: clcouncil.org/economists-statement.

Please let me know 1:1 if you would like to talk, or if you would like me to set up a meeting with the CCL economist who has written a draft paper on this subject.

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