While the Environmental Protection Agency’s proposed Clean Air Act 111(d) regulation did not explicitly allow a carbon price, it acknowledges the need to consider a carbon tax before the final rulemaking. Allowing states to implement a carbon tax as a means of complying with the rule makes economic and environmental sense. It is also within the EPA’s legal authority in implementing the Clean Air Act.
Moreover, a carbon tax would fulfill the EPA’s requirements for state plans -- as established in the proposed rule’s explanation of state plans (Section VIII). In the final rule, the EPA must clearly state that a carbon tax is allowed as a means to reduce power plant emissions.
A carbon tax meets all of the EPA’s criteria for an acceptable plan
To be approved, a plan must include the following criteria:
[E]nforceable measures that reduce EGU CO2 emissions; projected achievement of emission performance equivalent to the goals established by the EPA, on a timeline equivalent to that in the emission guidelines; quantifiable and verifiable emission reductions; and a process for reporting on plan implementation, progress toward achieving CO2 goals, and implementation of corrective actions, if necessary.
A carbon tax qualifies as an enforceable measure
A carbon tax would qualify as a measure that reduces the emissions of power plants in a way that is both enforceable and in compliance with the Clean Air Act
. In order to qualify as a compliance mechanism, the standard of performance
must be an emissions standard that would perform as effectively as the “best system of emission reduction.” A carbon tax is an emission standard as clarified in the Supreme Court case Engine Manufacturers Association v. South Coast Air Quality Management District
, which found that a standard includes different methods of regulation. The EPA and states can demonstrate that a robust carbon tax would result in the required emission reductions with economic models, which the Supreme Court has found to be an acceptable method
of mandating reductions. Moreover, section 111(d) requires that the EPA use similar procedures as those used for national ambient air quality standard state implementation plans, which allow the use of fees
A carbon tax would lead to significant emission reductions
A carbon tax could match or even exceed the EPA’s emission reduction targets as proven by data from the Energy Information Agency. In order to accomplish this, the price must be meaningful and rise slowly over time. Even a starting price of $15 per ton — as would be required by the Managed Carbon Price Act of 2014 — would result in reductions of more than 40 percent. These projections are greater than the EPA’s goal of reducing emissions by 30 percent by 2030, which provides strong evidence that an individual state could design a carbon tax that could meet EPA’s emissions target.
Emissions as the result of a carbon tax are verifiable and reportable
A state would be able to quantify, verify and report on carbon dioxide reductions that occurred as a result of a carbon tax. Existing carbon prices from around the world demonstrate that tax-driven emission reductions can be accurately measured and evaluated. For example, Canadian researchers have demonstrated that British Columbia’s carbon tax has reduced carbon dioxide from gasoline consumption by more than three million tons. Ireland has also verified that their emissions have declined as a result of a carbon tax — 15 percent since 2008.
Strong support for cap and trade, but little mention of a carbon tax
The EPA has provided strong support for cap and trade as a means to comply with the targets. The proposed rule describes the “strong leadership” of states and the need to build on existing efforts and successes, such as the Regional Greenhouse Gas Initiative and California’s economy-wide emission trading program. The EPA holds up these cap and trade programs as proof that utility companies can reduce emissions when states require them to. In doing so, the EPA has given a strong signal to states that meeting their targets through cap and trade will be acceptable. This support will encourage states to join existing cap and trade programs or start new ones. The proposed rule does not give the same kind of explicit support for a carbon tax. Instead, it merely states that a carbon tax is an option worthy of public comment without explaining if it would be an acceptable compliance mechanism.
The EPA must make clear that the rule allows a carbon tax
The final rule should state explicitly that the EPA would find a sufficiently robust carbon tax a suitable compliance mechanism. This would include analysis on the price that would need to be set to result in the required emission reductions.
Even though no carbon taxes currently exist at the state level, carbon taxes have been successfully implemented in British Columbia and Ireland. Since most states have very little experience with or understanding of a carbon tax, a detailed explanation of how it works would also help states comprehend its benefits and how it could be administered. This would allow states to have confidence that a carbon tax, set at a certain price, would satisfy the EPA’s requirements for a state implementation plan. Without support for a carbon tax in the rule, states would be unlikely to put forward a carbon price for fear of wasting a year developing a plan only to be rejected and, thereby, risking loss of control over implementation.
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