The Economics of Carbon Pricing & the Transition to Clean, Renewable Fuels


Putting a price on carbon creates a contextual incentive for diversification and innovation in the energy economy. When Germany shifted its tax-base from income to energy, it spurred a decade of aggressive public and private investment in renewable resources. In just four years, it became the world leader in clean energy export, taking 70% of the world market just eight years after the initial policy shift.

German firms are driving investments of €400 billion in the Desertec solar project in North Africa, part of a plan to connect two continents via multi-gigawatt undersea transmission cables and advanced smart-grid technology. The project will revolutionize the energy sector in Europe and Africa, creating wealth for businesses and communities large and small. Morocco, for instance, plans to use its desert and mountain terrain, as well as its wind-intensive coastal areas, to generate enough renewable energy to become an export leader for the European market. This model can be duplicated in mountainous, desert-rich and coastal states across the U.S.

Concerns that coal country will be adversely affected by a price on carbon are understandable but somewhat unfounded. Communities dependent on coal for employment are not generally more prosperous than the national average, so a transition to clean renewable resources can help to overcome problems of endemic persistent poverty. Studies comparing cost-benefit analysis for mountaintop removal mining and wind energy show wind is more effective at generating prosperity over the long term, for all but a narrow group of interests.

The regional disparity in impact from a carbon tax is projected to be negligible, starting at just two-thirds of one percent and moving to just one-third of one percent over time. If revenue from a carbon fee is returned to all households, any wider regional disparity might be reduced by targeted dividend adjustments. Communities in remote areas, or which rely on coal for cheap energy or for employment, can benefit economically from diversifying into and taking ownership of clean renewable-energy technologies.

Job creation will be the hallmark of the clean energy revolution. Studies show the potential for millions of new jobs in industries ranging from manufacturing to installation and maintenance, as well as administration, marketing, energy efficiency and other related fields. The potential for efficiency gains from clean energy and smart-grid technologies will free up massive amounts of consumer spending over time and relieve dependence on fossil fuels from hostile states.

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