Note to legislators: Boost the development of renewable energy technology by enacting a carbon fee and dividend program in your state. A carbon fee will speed the development of low-cost renewable energy technologies such as hydrokinetic power from rivers and ocean currents, wind, and solar. Note to the rest of us: Lobby our legislators for a carbon fee and dividend program.
I work for a renewable energy startup that is developing hydrokinetic systems that will convert the energy in the Gulfstream and similar ocean currents into electricity and hydrogen. All renewable energy technologies face the challenge of generating electricity at a competitive cost. Like all breakthrough innovations—the typewriter, the automobile, the airplane, the Xerox copier, the personal computer—renewable energy technologies must eventually bring initial costs down to achieve widespread distribution.
But renewable energy technologies are also competing against the fossil fuel industry’s ability to transfer the social, health, environmental, and planetary costs of carbon emissions to everyone else on the planet. Using fossil fuels increases the incidence of asthma, cancer, and other diseases along with the financial impact of taking care of those directly affected. Using fossil fuels to power cars, businesses, trucks, heating and cooling, data centers, manufacturing, and the Internet contributes to environmental degradation, including Global Warming, which contributes to more and bigger wildfires in the Northwest and more devastating hurricanes in Gulf Coast states. Repairing the damage costs money—huge amounts of money.
Who pays? You and I and everyone else on the planet do. We pay the social, health, and environmental costs of burning fossil fuels. It’s as if an industrial hog farm dumped all its garbage and sewage on your and everyone else’s lawn or an empty lot next to a school to earn more money. We would call the cops or file a lawsuit and, under long-established legal principles, we would win.[1]
The dollar costs of fossil fuel damage are substantial. For example, in 2013 the health impacts of fossil-fueled power in the United States alone clocked in at between $0.14–$0.35 per kilowatt hour of electricity, according to economists who studied the problem.[2] In 2011, another study concluded that cancer-related costs attributable to coal burning totaled 0.6¢ per kilowatt hour, adding that their estimate might be lower than the actual costs of “the cancer burden associated with coal.”[3]
The authors of a book-length study published by the National Research Council in 2010 computed the costs unrelated to climate change as well as the attributable costs of Global Warming for each of the major categories of energy production (coal, natural gas, nuclear, and renewables). “Just the damages from external effects . . . add up to more than $120 billion for the year 2005.”[4] They also concluded that “all of the model results available to the committee estimated that the climate-related damages per ton of CO2-equivalent would be 50-80% worse in 2030 than in 2005.”[5]
It’s not fair. And it’s not right.
It’s wrong.
The owners of the fossil fuel industry make a lot of money. Perversely, they have used some of the money saved by externalizing the damage of their activity to persuade state and federal legislators not to do require them to pay the costs of that damage. So, we don’t (yet) have carbon fee and dividend regimes on a broad scale.
A carbon fee and dividend system will make coal, gas, and oil producers bear the full cost of burning fossil fuels. For example, the Citizens Climate Lobby proposes “an initial fee of $15/metric ton on the CO2 equivalent emissions of fossil fuels, escalating by $10/metric ton each year, imposed upstream — as near as feasible to the mine, well, or port of entry.[6]” The companies paying the fee would pass the fee on to utilities, consumers, and businesses who buy the fuel. But, under this proposal, all carbon fees (minus administrative costs) would be returned to households each year.[7]
It is a fee, not a tax. When we use a common good such as a park or swimming pool, we often pay a fee to help pay the cost of maintaining it. Taxes are different. They are how we pay to run a government. Carbon fee and dividend regimes will not generate income for the state. Rather, they will shift the cost back to those who produce and sell fossil fuels, where it belongs.
This 2-minute video explains the concept:
So, what does all of this have to do with renewable energy? To answer that question, I must share some jargon used in the energy industry.
The Levelized Cost of Energy (LCOE) is a formula the energy industry uses to compare energy costs from all energy producers. It is a “measure of the average net present cost of electricity generation for a generating plant over its lifetime. It is used for investment planning and to compare different methods of electricity generation on a consistent basis.”[8] Importantly, the LCOE dollar cost number does not include the health, infrastructure, environmental, and planetary costs of burning fossil fuels.
But scientists at the National Renewable Energy Laboratory (NREL) in Colorado have supplemented the LCOE concept with that of the Levelized Avoided Cost of Energy (LACE) to help us calculate the costs we avoid by using renewable energy technologies.[9] Wind, solar, and hydrokinetic power (rivers, canals, and ocean currents) emit zero particulate matter, zero carbon dioxide, zero sulfur dioxide, and zero oxides of nitrogen. In other words, these renewable technologies shift none of the fossil fuel costs onto society and the planet because they don’t produce them in the first place.
Let’s make this simple. You and I pay to properly dispose of business and domestic waste. If business people avoided these costs by dumping their waste on to your property, they would have an unfair advantage in the economy. (And you’d be pretty ticked off as well.) The fossil fuel industry gets to load the social, health, and environmental costs of their waste products onto the rest of us. All of us are subsidizing the fossil fuel producers.
I repeat: It’s not fair. It’s not fair to humans and other animals on the planet. And it’s not fair to companies developing and deploying renewable energy technologies.
Of the ways to make the playing field even somewhat level for renewable energy technologies, a carbon fee and dividend regime may be the easiest and simplest to administer. Just add the true cost per kilowatt hour of fossil fuels to the price of electricity and gasoline. Rebate most of the fee to consumers. Perhaps use some of it to fund general research for renewable energy technologies.
Individual renewable energy companies do not need, nor do they want a direct subsidy. The financial markets can assess the viability of various projects. But that viability should not be impeded by the indirect subsidies to the fossil fuel industry all of us are paying now.
You can do something about this. Speak with your state and federal representatives about enacting a carbon fee and dividend now. You can also join the enlightened shareholders of Shell, Exxon Mobile, BP, and other Big Oil companies to pressure boards to support a carbon fee and dividend as well. (More on this in a coming post.) Also, add to your repertoire of books that can help you understand the impact of our capitalist system on our ability to enact a carbon fee. I recommend Rebecca Henderson’s Reimagining Capitalism in a World on Fire (Hatchett Book Group, 2020) and the Moral Money section of the Financial Times as good places to start.
Mike Palmer is the Executive Vice President of Waterotor Energy Technologies Inc., editor of About Right & Wrong, and founder of The Police Governance Project.
[1] Climate damage lawsuits are making headway in the United States and other countries based in large part on the ancient legal prohibition of creating a nuisance. See, e.g., Climate Change Litigation Databases, Sabin Center for Climate Change Law (retrieved July 2021).
[2] Ben Machol and Sarah Rizk, “Economic value of U.S. fossil fuel electricity health impacts,” 52 Environmental International 75 (2013). The impact has likely increased since 2013, when this study was published.
[3] Paul R. Epstein al., “Full cost accounting for the life cycle of coal,” 1219 Ecological Economics Review 78, 82 (2011).
[4] National Research Council, Hidden Costs of Energy: Unpriced Consequences of Energy Production and Use 21 (2010). This study was prepared with contributions from Committee on Health, Environmental, and Other External Costs and Benefits of Energy Production and Consumption; Board on Environmental Studies and Toxicology; Division on Earth and Life Studies; Board on Energy and Environmental Systems; Division on Engineering and Physical Sciences; Board on Science, Technology, and Economic Policy; Policy and Global Affairs; National Research Council.
[5] Id. at 19.
[6] “The Basics of Carbon Fee and Dividend,” Citizens Climate Lobby (retrieved July 4, 2021)
[7] Id.
[8] “Levelized cost of energy,” Wikipedia (July 4, 2021).
[9] See, e.g., Philipp Beiter, Walter Musial, Levi Kilcher, Michael Maness, and Aaron Smith, An Assessment of the Economic Potential of Offshore Wind in the United States from 2015 to 2030 (National Renewable Energy Laboratory, 2017); Philipp Beiter, Walter Musial, Aaron Smith, Levi Kilcher, Rick Damiani, Michael Maness, Senu Sirnivas, Tyler Stehly, Vahan Gevorgian, Meghan Mooney, and George Scott, A Spatial-Economic Cost-Reduction Pathway Analysis for U.S. Offshore Wind Energy Development from 2015–2030 (National Renewable Energy Laboratory, 2016)