Massachusetts Mulls an Economy-Wide Price on Carbon

One of six states considering carbon pricing to combat climate change, Massachusetts weighs two bills that could make the state a trendsetter.

Carbon pricing is an increasingly popular solution to climate change.
State Sen. Michael Barrett testified on behalf of his carbon pricing bill at the Massachusetts Joint Committee on Telecommunications, Utilities and Energy on Tuesday in Boston. (Credit: Climate XChange)

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“We have to step up our fight against climate change,” Massachusetts state Sen. Michael Barrett told a packed committee hearing in Boston on Tuesday. Barrett’s solution: put a price on carbon.

Barrett laid out his plan in Senate Bill S.1747, one of two carbon price options before the legislature. Massachusetts joins five other states—Connecticut, Oregon, Rhode Island, Vermont and Washington—with proposed legislation exploring this option for cutting greenhouse gas emissions.

Although the idea of a carbon price is not new, it is increasingly seen as a key climate solution in the leadup to the U.N. climate talks in Paris in December. Six major oil and gas companies, including BP, Shell and Statoil, have said they support carbon pricing. In recent weeks, Germany’s Chancellor Angela Merkel and Norwegian Prime Minister Erna Solberg voiced support for a global price on carbon. So have the heads of the World Bank and International Monetary Fund, along with many global leaders in business and politics.

Responding to such calls for action, U.N. climate chief Christiana Figueres said on Tuesday that pricing carbon will not be part of the upcoming climate treaty; but she expressed optimism that it will happen in the future.

“The idea of putting a price on carbon is catching fire as one of the best ways we can cut emissions and deal with the worst effects of climate change,” Kenneth Kimmell, president of the Union of Concerned Scientists, a climate research and communications nonprofit told InsideClimate News. “I do think the Paris agreement is going to galvanize that further.

“People have to recognize that right now, fossil fuels are getting an enormous subsidy because the harm of their emissions are not being captured in their price.”

Carbon pricing, whether through a cap-and-trade program, a carbon tax or carbon fee, seeks to encourage communities, organizations, even individuals to use less carbon-intensive energy sources by raising the prices of fossil fuels to reflect their associated carbon pollution.

Massachusetts has already been pricing carbon for the electricity sector for more than five years through a cap-and-trade program called the Regional Greenhouse Gas Initiative, or RGGI. It involves a regional carbon cap and a market for its nine member states to sell and purchase carbon credits.

But for Massachusetts, the power sector accounts for only 20 percent of the state’s emissions; the remaining 80 percent comes from sources not covered under RGGI––such as heating fuels, construction, transportation and manufacturing. The new carbon pricing proposals aim to fill that gap.

Massachusetts Weighs Two Approaches

Tuesday’s hearing of the Massachusetts Joint Committee on Telecommunications, Utilities and Energy in Boston was packed. Attendees overflowed the limited seating, sat on the floor, lined the walls, and spilled into the hallway of the State House. The majority of the nearly five-hour meeting focused on the competing carbon pricing schemes, and many of the speakers favored Barrett’s bill.

Barrett, the second person to testify, said a carbon price is necessary if Massachusetts is to slash its carbon emissions 25 percent by 2020 and 80 percent by 2050 compared to levels before 1990, a mandate laid out in the state’s Global Warming Solutions Act of 2008.

Under Barrett’s bill, prices of fossil fuels in the state would rise at the gas pump or in heating bills. The more carbon-intensive the fuel, the higher its fee––and that fee would gradually go up from $10 per ton of carbon in the first year to $40 per ton in the seventh.

“Carbon pricing is really full pricing,” Barrett said at the hearing. “It’s effectively a user fee on pollution.”

Using what’s called a revenue-neutral strategy, all the money generated by the fees would be collected by the government and rebated back to all state residents and businesses at the year’s end.

In contrast, an alternate proposal by Sen. Marc Pacheco, in Senate Bill S.1786, proposes funneling 20 percent of carbon price earnings into a specific fund to be used for public transportation and energy projects to help Massachusetts transition from fossil fuels. The remaining 80 percent of the revenue would be rebated to all state residents. This bill does not set a specific carbon price or offer explicit details about how the revenue generated would be collected, managed and rebated. Sen. Pacheco, vice chair of the Telecommunications, Utilities and Energy committee, referred to his own proposal during his comments throughout the hearing.

Barrett’s proposal is modeled after a carbon pricing scheme used in British Columbia, Canada for the last nine years; it was the subject of a Massachusetts study in 2014.

According to the study, low-income residents in Massachusetts would come out slightly ahead with the fee in place, and higher income residents would come out slightly behind, said Marc Breslow, the co-founder of Climate XChange who contributed to the 2014 report, on Tuesday. Massachusetts’ economy, however, would be a big winner. That’s because the state doesn’t generate any of the fuels it uses, so most of the profits derived from selling it goes back out of state. Adding the fee would keep more revenue in the state and spur new jobs, Breslow explained to the committee.

“Simply putting a price on pollution is the most cost-effective way of meeting our greenhouse gas reductions,” Breslow told InsideClimate News.

But not every industry would benefit––namely construction, transportation and heating fuel providers.

Michael Ferrante, president of the Massachusetts Energy Marketers Association, a trade group for the heating fuel industry, is one of the bill’s opponents. “I find this bill to be really vexing,” he said. While he applauds Barrett’s intended  rebate for low-income families, for example, he wants more details about how the rebates will be calculated and distributed.

He also said the proposal does not acknowledge the steps already taken by the energy industry to bring down emissions, such as increasing the percentage of biofuels blended with heating fuels.

During the hearing, Sen. Pacheco repeatedly argued that Sen. Barrett’s bill would fail to win the support of Republican Gov. Charlie Baker’s administration. Pacheco’s carbon pricing plan, however, would avoid this hurdle because it seeks to amend an existing law, rather than drafting new legislation.

“The Baker Polito Administration is fully devoted to a clean energy future that reduces Massachusetts’ greenhouse gas emissions, in accordance with the Global Warming Solutions Act, and encourages the innovation of our growing clean energy technology sector,” said Peter Lorenz, communications director of the Massachusetts Executive Office of Energy and Environmental Affairs. Gov. Baker’s office did not respond to a request for comment on carbon pricing.

The committee will likely either vote to approve the existing bills in their current form or make amendments.

Both Climate XChange’s Breslow and the Union of Concerned Scientists’ president Kimmell are hopeful the revenue-neutral carbon price plan will pass.

Massachusetts has “a track record of success with programs like RGGI and the renewable portfolio standard and energy efficiency, and I think the carbon pricing bill is a natural evolution of a path that we’ve been on to successfully deal with carbon emissions—and also benefiting our economy,” said Kimmell.