Support is growing for a carbon tax to reduce planet-warming emissions as the window to act on climate change narrows, and those proponents include the head of New Jersey's largest utility company.
“While I understand what needs to be done in the power sector, and in the gas and in the energy sector writ large, I don’t have that same visibility to agriculture, industrial processes, and various other ways that we might be able to reduce carbon,” Ralph Izzo, the chairman, president, and CEO of Public Service Enterprise Group (PEG), told Yahoo Finance Live (video above).
“So if the market had a visible, transparent price," he continued, "the market would act most efficiently to achieve the carbon reductions.”
Should lawmakers decide to tax carbon emissions, a number of details would still need to be ironed out, such as whether a carbon tax would be economy-wide or exempt certain industries, the rate at which carbon would be taxed, and how that revenue would be spent.
'You want to have every option at your disposal'
Carbon pricing programs have been touted as a market-based solution to incentivize industries to invest in renewable energy by putting a price on pollution.
Several carbon pricing bills have been proposed in recent years that use the revenue for tax credits or as a direct payment, or dividend, to households to help offset what would likely be higher prices for gas and electricity. Many of the bills also intend to use carbon fee revenues for shoring up infrastructure and to help pay for damages caused by climate change.
Notably, Democrats have not ruled out a carbon tax policy in negotiations over climate provisions in the $3.5 trillion budget reconciliation bill, which is the primary vehicle for attaining President Biden's goal of halving U.S. carbon emissions by 2030. And the scope of the climate legislation in the reconciliation bill has broader global significance as well in that it will be crucial for securing stronger commitments from other countries at COP26, a major climate summit that will be held in November 2021.
There are currently 64 carbon pricing and trading instruments in operation, according to the World Bank. This includes Canada, which prices a ton of carbon dioxide at a minimum of USD $23.88. (Canadian provinces and territories can set their own tax rates above the federal backstop.)
“I just believe that if you want to reduce carbon in the most efficient way possible, you want to have every option at your disposal,” Izzo said.
“And the truth of the matter is we're at a state now where we probably need to do some of all of the above to get to where we need to be," he added, staving off the notion that a carbon tax would be a silver bullet for limiting global warming to the Paris Agreement target of 1.5°C.
'Action has to begin yesterday' to cut carbon emissions
Izzo noted that even though he prefers an explicit price on carbon, the other proposals that Congress is debating can help to “effectively create an implicit price on carbon.”
He pointed to a few proposals in the reconciliation and bipartisan infrastructure bills that would help utilities transition to clean electricity.
“I think we all recognize that action has to begin yesterday,” Izzo stated, “and the areas that we're zeroing in on are the technology-neutral production tax credits that will help any carbon-free source of electricity whether that's wind, solar or nuclear power.”
“In addition, there’s a very encouraging piece of the legislation that’s been proposed called the Clean Electricity Performance Program, which seeks to make sure that we have no backsliding in terms of the current resource base that's carbon-free and that we accelerate the growth of the resource base by 3% to 4% per year to achieve the president's targets which are reflective of what the IPCC says we need to do,” he said.
The Clean Electricity Performance Program, similar to the Clean Electricity Standard, would pay utilities that exceed annual clean electricity targets and penalize (in the form of a fee) those that don't.
When it comes to utilities transitioning away from fossil fuels, “we’re going to need some help,” Izzo said. “So the fact that [climate change] is getting the kind of attention in Washington is phenomenal news, and we're focused in on preserving the nuclear fleet and investing in offshore wind and doing a variety of other things to achieve net-zero by 2030.”
Becoming net-zero by 2050 'wasn't good enough'
Recently, Public Service Enterprise Group (PSEG) revised its carbon emission targets to become net-zero by 2030.
When asked how confident he was in reaching net-zero by 2030, Izzo replied: “It's not just a question of confidence. It's a question of need.”
“We've long been, as a company, believers that climate change is real,” Izzo said. “We originally ... said that we would be 80% lower by 2045 and then we said we’d get to net-zero by 2050, but various reports and scientific analysis that have come out recently made us realize that that wasn't good enough.”
“Not only did we shorten the timeframe by 20 years, we expanded our scope,” he continued, “and we said we're not going to limit carbon-free just to the operations of our power generation business, we’re going to also include our electric distribution and our gas distribution business.”
Izzo stated that PSEG will partner with the state of New Jersey to help build the electric vehicle infrastructure base "to help reduce its number one source of carbon emissions today, that being vehicle emissions.” He also noted that while the utility doesn't have all the answers yet as to how it will slash both scope 1 (direct) emissions and scope 2 (indirect) emissions, PSEG has already taken some steps to transition to renewable energy.
“As a matter of fact, by the end of this year we will have closed all of the coal plants and we will have sold all of our natural gas plants," Izzo said, adding that along with pursuing investments in offshore wind, “we will have increased our energy efficiency investments by a factor of 10.”
Grace is an assistant editor for Yahoo Finance and a UX writer for Yahoo products.