Time to charge the true cost of fossil fuels

There is a crucial disconnect impeding climate action.

As author and climate activist, Naomi Klein puts it, “Our economic system and our planetary system are now at war…. Only one of these sets of rules can be changed, and it’s not the laws of nature.”

Global warming and its impacts are determined by the laws of nature. When we burn fossil fuels their emissions trap heat in the atmosphere, which increases temperatures. Hotter temperatures cause polar ice to melt and seawater to expand, which floods coastal communities. Hotter air sucks moisture from land creating droughts and rendering forests tinder for wildfires. Warmer air holds more water, which now creates precipitation events so torrential they are called “atmospheric rivers.”

The laws of physics establish the rules on planet Earth. When scientists state that an increase in average planetary temperatures of 2 degrees Celsius will lead to irreversible climate catastrophes, this is not an opinion; it is based on well-established principles of climatology.

Economic systems are different. Economic rules are set by politicians. If economic markets are not producing the desired outcomes for society, governments can change the rules.

According to former World Bank chief economist Sir Nicholas Stern, “The problem of climate change involves a fundamental failure of markets.” Fossil fuel products have never been priced to include the true costs to society of the disease, death or planetary disruption they cause. Governments have allowed coal, oil and gas companies to pollute for free, leaving the costs of their pollution to be paid by the public. The effect is to make these fuels appear cheap, and thus disincentivize investments in clean energy. If the price of these dirty fuels reflected their true costs to society, clean energy alternatives would have driven them out of the market years ago.

For decades, fossil fuel companies, using their enormous financial and political power, have been able to shift the costs of their pollution onto the public. The pollution alone contributes to respiratory diseases that kill millions every year, currently more than 8 million deaths worldwide each year. The burgeoning economic costs to the public of climate-related heat waves, rising sea levels, chronic droughts, destructive wildfires and other extreme weather events are estimated to reach trillions of dollars.

Correcting this economic failure should constitute the core of climate mitigation policies. For decades economists have advocated using the taxing authority of government to require fossil fuel companies to pay a tax on their carbon pollution. Specific policies include a carbon fee, a cash-back dividend and a border carbon adjustment. With these policies in place, the demand for fossil fuels would decline and renewable energy would gain a competitive advantage. A border carbon tariff would incentivize all nations, including China, to adopt similar policies — and the tax revenue collected from the polluting industry and rebated to consumer households would off-set increased energy costs. These market-based policies are revenue-neutral, do not grow government, protect low-and-middle-income communities, and effect a global solution.

The climate policies contained in the recently passed Inflation Reduction Act are significant. The new law allocates billions of dollars in tax credits, rebates, investments and loans that will jump-start the transition to clean energy. The results will include millions of new jobs, reduced energy costs, cleaner air and restored hope to our grandchildren for a cleaner, healthier and safer future.

Yet, on its own this legislation will not get us to our climate goals fast enough. To avoid irreversible impacts, scientists say we must reduce emissions in half by 2030.

If there were no urgency to quit burning fossil fuels, if we had decades to make the transition to clean energy, markets would eventually sort it out. Already in most areas of the U.S. consumers and businesses are choosing clean renewable solar and wind energy because they are cheaper than fossil fuels. But fossil fuel companies and their political allies continue to do all they can to delay the transition and protect their profits.

In its most recent reports, the world’s leading scientists, the UN’s Intergovernmental Panel on Climate Change, concluded that the economic strategy of taxing carbon pollution is the most powerful and efficient mitigation policy — noting that the only obstacles to transitioning to a clean energy economy are political.

Rapid decarbonization is possible. Clean affordable renewable energy is available. The economic policies to speed the transition are ready to use. All that’s needed is the political will to do it.

Robert “Bob” Taylor is a freelance journalist who specializes in environmental issues and previously worked as an economic analyst for Shell oil company. He was a contributor to “Reaching Net Zero: What it takes to solve the global climate crisis,” published in 2021.  

Craig B. Smith,Ph.D., is an engineer and former faculty member at UCLA. He is the former president and chairman of international architect/engineering company DMJM. He is the author of several books on energy efficiency and global warming, most recently co-author of “Reaching Net Zero: What it takes to solve the global climate crisis.”