Steven Chu was meeting with the president for his "exit interview" when the outgoing Energy secretary told his boss that the best way to attack climate change is with a carbon tax.
That marked a shift in thinking for the physicist who shared the Nobel Prize in 1997. Chu supported President Obama’s earliest efforts to apply a cap-and-trade system to the economy nationwide. But the program’s use of carbon credits, and the way they could be given to favored industries, made him realize that cap and trade is "easier to game."
A carbon tax is simpler and cheaper. And that’s what Chu told Obama in their last private conservation in late 2012, after Obama won re-election in a campaign that rarely mentioned the issue that now dominates his agenda — climate change.
Obama’s response was politically realistic, Chu said in an interview yesterday.
"He said, ‘It’s not gonna happen,’" Chu said. "And in his term, he’s right."
The conversation happened two years after major climate legislation failed to find traction in the Senate. But Obama suggested yesterday that he still believes that an economywide carbon price is a better option than the Clean Power Plan, the regulatory approach he’s using to advance a global agreement on climate change over the next two weeks in Paris.
"I have long believed that the most elegant way to drive innovation and to reduce carbon emissions is to put a price on it," Obama said yesterday in a press conference in Paris.
He echoed economists who describe greenhouse gas emissions as "externalities" — things of value that aren’t correctly priced by the market. The economic impact of carbon emissions on sea-level rise, for example, isn’t counted in the price of gasoline.
"And so, you know, I think that as the science around climate change is more accepted, as people start realizing that even today you can put a price on the damage that climate change is doing — you know, you go down to Miami, and when it’s flooding at high tide on a sunny day and fish are swimming through the middle of the streets … there’s a cost to that," Obama added.
A slam against ‘fighting weather’
He noted that as businesses, like property insurers, begin to identify climate risks, it might prompt lawmakers to put a price on emissions.
"And the more the market on its own starts putting a price on it because of risk, it may be that the politics around setting up a cap-and-trade system, for example, shifts, as well," Obama said. "Obviously, I’m not under any illusion that this Congress will impose something like that."
Many Republicans don’t see a significant risk from rising temperatures. So putting a price on it, to them, seems like an expensive government program without a clear goal. Terrorism, however, is a threat that voters easily understand, some of them say.
"Instead of focusing on the perceived threat to national security of the SUV in your driveway, President Obama should be standing up and leading to defeat radical Islamic terrorism," Texas Sen. Ted Cruz, a Republican candidate for president, said yesterday in the Capitol. "But he refuses to confront the very real threats facing America today."
Sen. Dean Heller (R-Nev.), who has previously expressed belief in climate change, dismissed Obama’s discussion about pricing carbon as a distraction from the risks of the Islamic State terrorist group known as ISIS.
"I wish that all these leaders back in Paris right now would be talking about coalescing around fighting ISIS instead of talking about fighting weather," Heller said yesterday. "Because that’s where the American people are."
Chu: Tax carbon at $60
Chu is one of 32 experts to sign an open letter urging climate negotiators in Paris to use carbon taxes in their respective countries to confront rising temperatures, rather than the buffet of policies being presented by individual nations. Others include George Shultz, secretary of State under President Reagan; conservative economist Greg Mankiw; and Nobel Prize-winning economists Joseph Stiglitz, Thomas Schelling and Kenneth Arrow.
"This single policy change — explicitly using prices within existing markets to shift investment and behavior across all sectors — offers greater potential to combat global warming than any other policy, with minimal regulatory and enforcement costs," says the letter organized by the Carbon Tax Center.
It’s another signal to Sen. Sheldon Whitehouse (D-R.I.) that liberal and conservative climate advocates are "unanimous" in their support of pricing carbon.
"There’s a huge move toward a carbon price," he said yesterday. "Wherever you go where Republicans have come up with a solution on climate change, it’s always a price on carbon, let the market work with that price, make it fair, and bring the revenues back to people with price reductions or other benefits, so we’re not growing the size of government. We’re there."
Chu said he had been "agnostic" about whether cap and trade or a carbon tax was the better tool to address climbing temperatures before he entered office in 2009. But he said his thinking "evolved" after the bitter fight over cap and trade ended unsuccessfully in 2010.
Now he likes the idea of a revenue-neutral carbon tax that ramps up to $50 or $60 a ton by 2030. Much of the economic pain from rising energy costs could be minimized by using the revenue to reduce payroll taxes and increase Social Security benefits for retirees, he said.
"Other people say it needs to go to $100 a ton," Chu said. "I don’t know if that’s needed. I think if it’s, let’s say, $60 a ton by 2030, that’s gonna spur a lot of innovation."