Gov. Schwarzenegger and Senator Fran Pavley Discuss Putting a Price on Pollution

The USC Schwarzenegger Institute and the USC Center for Sustainability Solutions co-hosted with the Los Angeles Cleantech Incubator the leadership council discussion on federal carbon pricing policy on Feb. 22 at the La Kretz Innovation Campus in downtown Los Angeles.

Former California Gov. Arnold Schwarzenegger gave opening remarks before former California State Sen. Fran Pavley of the Schwarzenegger Institute joined Price Professor Antonio Bento, the director of the nascent USC Center for Sustainability Solutions, in a panel discussion.

Ten states already are pricing carbon, and California took the lead in the effort in 2013 by adopting a cap-and-trade program as a result of AB 32, California’s historic climate change law that Schwarzenegger championed during his time as the state’s governor.

Schwarzenegger stressed the importance of people power in environmental efforts and the need for proper messaging to encourage them to become part of this crusade. He contended that global warming and climate change aren’t phrases that resonate with people.

“I keep telling environmentalists that it’s no different than selling a movie,” Schwarzenegger said. “If you can’t explain the movie in one sentence, you’re not going to bring the people in.”

Schwarzenegger advocates a message based on pollution and its health effects on communities today. Pollution is killing people right now – not 20 years from now – with the World Health Organization reporting that pollution kills 7 million people worldwide every year, including more than 200,000 in the United States.

Former US Congressman Carlos Curbelo spoke of gathering support for climate change policy in Washington D.C. during his keynote address.

Curbelo, a Republican, recalled that there were only four or five Republicans would even utter the words “climate change” when he entered Congress in 2015. To change that, he joined a Democrat colleague and fellow Florida representative, Ted Deutch, to found the Bipartisan Climate Solutions Caucus.

They proposed the Noah’s Ark rule: that anyone who wanted to join the Caucus had to do so with someone from the opposite party. He contended that this led to Republicans and Democrats talking with each other about the issue, and when he left Congress in January there were 45 Republicans who acknowledged, on the record, that climate change was a real phenomenon threatening the planet that required a federal solution.

“My hope for the Bipartisan Climate Solutions Caucus, now led by Ted Deutch and Francis Rooney (R-Fl), is that it becomes a true ideas factory and that, in the near future, it becomes an incubator for the solutions that we all need for this threat to humanity,” Curbelo said.

Curbelo asserted that he believes the solution is to put a tax on pollution. Last year, he introduced the Market Choice Act, which put a $24-per-ton tax on carbon.

“This is a simple economic principle,” Curbelo said. “If you want less of something, you tax it.”

Bento and Pavley were joined on a panel titled “Federal Carbon Pricing: From 3rd Rail to Fast Track for Building the Climate Smart Economy” by Richard M. Saines, head of Baker & McKenzie’s North American Environmental Markets and Climate Change practice, and Kirsten James, director of California policy and partnerships for Ceres. Julia Pyper, senior editor for Greentech Media, served as moderator.

Carbon pricing can be done in one of two ways: a simple tax on carbon emissions or the cap-and-trade system done in California, where emission caps are set and companies that operate efficiently under the cap may sell their excess carbon allowance on the market to companies that are above the cap.

An advantage of carbon tax is its regulatory simplicity, while the cap-and-trade system can encourage innovation.

Bento explained why we should be pricing carbon and what can be done with the revenue it creates.

 “Polluting factories and us consumers ignore the societal costs we cause on one another,” Bento said. “That requires pricing.”

Pavley explained how the market-based cap-and-trade policy has led to investment and innovation in new clean technologies beyond what she expected, creating more than 500,000 new jobs in California.

“Gov. Schwarzenegger was very insistent about wanting a business-friendly market-based approach for businesses to have some flexibility in how they reduced their emissions,” Pavley said. “I think it’s really important at the federal level that we focus messaging not only on health outcomes but also on the jobs side.”

Saines called California the epicenter of global leadership on carbon pricing.

“Our view is we don’t think we can regulate ourselves out of it,” Saines said. “We have to innovate ourselves out of it, and California is a great example of all the great innovation happening as a result of smart policy.”

Bento and Saines addressed the current House legislation addressing carbon pricing, the Energy Innovation and Carbon Dividend Act, introduced by a bipartisan group of seven legislators including Deutch and Rooney.

Saines expressed that he thought the $15-per-ton tax on carbon started too low, but the $10-per-ton annual increase was too aggressive. Bento noted that the revenues could be used better than to return them in a lump-sum fashion to all individuals in the economy.

“We probably want to do this redistribution in a way that we’re sensitive to those who are most affected,” Bento said. “If you’re a slightly lower-income individual, you probably drive an older car and therefore your tax bill will go up as a result of carbon pricing, so we might want to think about how to undo that regressivity. … If you want to add an equity consideration, then perhaps what we do here in California, by reinvesting in specific communities with targets of bringing them up to speed and bringing this innovation toward disadvantaged communities, should also be a priority.”

Following the panel, Mary Nichols, chairwoman of the California Air Resources Board, pointed out that the most important part of the cap-and-trade program is the cap.

“If you put a cap on the amount of emissions that you’re willing to allow and then allow for trading, the trading helps make that easier to achieve but the cap is what motivates people to go out and figure out what they’re emitting,” Nichols said.

The California program has raised more than $10 billion since 2013.

“The idea that California climate investments are paying for things that people like has made a big connection between climate and the public,” Nichols said.

Schwarzenegger concluded the event by asserting that carbon tax is another phrase in need of a script rewrite.

“Carbon tax: the idea is good but I think the name sucks,” Schwarzenegger said. “People are going to ask, ‘Why are we taxing carbon? If I have a carbonated drink, am I being taxed extra?’ Why not call it a pollution tax, because that hits the nail on the head and everyone will understand immediately what you’re talking about.”