WPC-CFTC

Dear New Hampshire Representatives,

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

Last week, a Commodity Futures Trading Commission (CFTC) 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 the 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 reduced climate risk, the subcommittee found.

The carbon price that is required is known. Leading groups around the world say $100 per ton of CO2 from fossil fuels is needed by 2030 (see carboncashback.org/carbon-cash-back and this new study in Nature) and growing after that.

Where are we now? In New Hampshire, the Regional Greenhouse Gas Initiative (RGGI) is putting about $5 per ton of CO2 on about 20% of the state's fossil fuel use. RGGI was a good experiment but it is not nearly enough.

It will be easier on our state's businesses, municipalities, and citizens to adjust to a $100 carbon price gradually over time rather than all at once ten years from now. By starting now we can reduce the state's carbon footprint at less cost, making New Hampshire more competitive against other states and countries when federal (and global) carbon pricing starts.

How can New Hampshire afford to do this first, especially when carbon pricing can be extremely regressive, hitting low-income families the hardest? US Economists are in near-universal agreement that rebating all the money collected from a carbon fee charged on fossil fuel production and imports as a cash-back dividend to households is the best solution. The dividend creates a highly progressive result because nearly all low-income households end up with more money back than they pay in trickle-down higher prices. Middle income family budgets are protected too, and no one can claim this is unfair. Carbon Cash-Back simply prices climate pollution at the source and rebates in equal shares all the money collected back to everyone in compensation for damages from the pollution:

How does HB 735 work? Our state's Carbon Cash-Back bill takes this all into account. It puts a gradually increasing carbon price on fossil fuel imports and reduces itself by any carbon price at the regional and federal level so there is no double-charging. It starts at $20 and grows by $10 a year until it reaches $110. All the money collected minus administration costs is rebated back to all New Hampshire families. New Hampshire carbon cash-back legislation will encourage adjoining states to follow (they are all considering their own carbon pricing bills), and send a strong signal to Congress that cash-back carbon pricing is a viable, beneficial way forward to address climate risks.

This is a small-government solution that benefits families and has a global reach. It showcases the power and ability of an efficient market to make things better, and it will make the US stronger.

At the federal level, border carbon adjustments can be used to push our carbon price around the world as needed for our own climate safety. Our neighbor to the north, Canada, is already doing Carbon Cash-Back now ($30 a ton CO2 this year and rising $10 more each year). The EU, a major trading partner, will start using border carbon adjustments on us to account for their $27 per ton carbon price by 2023 if we are not pricing carbon by then - that's money we can instead return directly to NH households! Forty-six countries now cumulatively cover 20% of the world's CO2 emissions from fossil fuels under some from of carbon pricing, and that is growing each year.

Businesses don't like unknowns, and future climate policy is a big one. By pricing carbon now our state won't be leading the world, but we will be taking a practical approach to address a growing risk. By addressing climate risk in this way, we are making a sensible choice, using the least-cost method to address the risk in a way that protects families. New Hampshire can show Congress how to save money using this business-friendly approach.

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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