Momentum Toward Carbon Pricing as a Solution for Climate Change

The Senate’s confirmation of Janet Yellen as Treasury Secretary was an historic event the moment it occurred, with Yellen becoming the first woman ever named to that post. Her unrivaled background and expertise, together with the enormous challenges we face as a nation, provide an opportunity for Yellen to be one of the most consequential leaders to hold the job.

The Biden administration has promised unprecedented action to confront the climate crisis. The president’s climate team includes heavyweights such as John Kerry and Gina McCarthy, and the appointment of Yellen at Treasury embodies this new government-wide approach to climate policy. 

Yellen is a longtime proponent of carbon pricing as a cost-effective, market-based solution to reducing greenhouse gas emissions that contribute to climate change. During her Senate confirmation hearing, Yellen’s support for a carbon price was clear and firm: “We cannot solve the climate crisis without effective carbon pricing,” she said.

As a longstanding advocate for an economy-wide price on carbon, I find this new wave of support in Washington invigorating.

As early as 2007, I spoke to Congress about the need for rational, nationwide policies to address the increasing threat that climate change posed to our environment and our country. Back then, the cap-and-trade program was the preferred approach, but it ultimately did not get the bipartisan support needed to advance. 

Fast forward more than a decade, and I continue to advocate for an economy-wide price on carbon, or an equivalent mechanism – as a member of the CEO Climate Dialogue and as part of our all-of-the-above “5 Things to Tackle Climate Change” strategy – to level the playing field for carbon-free resources such as nuclear, solar and wind as they compete with legacy fossil fuel generators. An economy-wide price on carbon is vital if we want to pursue a carbon-neutral future in the most economical and efficient way possible.

There are many mechanisms for pricing carbon. The carbon price concept works because – by adding a cost to the production of any product or process that produces carbon – it puts the cost burden of carbon pollution on the polluter. In that way, a carbon emitter has a financial incentive to reduce its emissions.

Whether we’re talking about tobacco, speeding or CO2 emissions, investors and consumers respond to price signals. Pricing carbon is just such a signal – a market-based policy lever that should reduce emissions and drive investment in cleaner energy sources. 

Avoiding the worst impacts of climate change will require us to decarbonize the electric sector and electrify large portions of our economy. The most cost-effective approach is a framework that leverages reductions across all sectors, including energy, transportation, manufacturing, housing and agriculture.

A price on carbon could generate substantial revenues, which could be used in a number of ways: to drive innovation by funding clean technology; to pursue environmental justice by offsetting high energy costs for low-income or vulnerable populations; to fund research into climate adaptation and resilient infrastructure; or – as Yellen has suggested – to be returned to the public as a dividend.

Even with this newfound support for a price on carbon in the executive branch, the concept still faces high hurdles in Congress. If lawmakers are resistant to the prototypical price on carbon, there are alternatives that can at least start us on a path toward our goals.

A clean energy standard, for example, could be structured to provide incentives to prioritize carbon-free energy resources such as nuclear and renewables. Unlike an economy-wide mechanism that would encompass all sectors – like transportation, the nation’s leading source of carbon and other GHG emissions – the carbon standard is limited in its impact to scale back our largest emitters and may not do enough in the early years to keep at-risk merchant nuclear plants – nuclear is the nation’s largest source of carbon-free generation – from retiring.

Another option worth considering is a Production Tax Credit for at-risk merchant nuclear generators to ensure that existing nuclear plants are valued for their carbon-free attributes just as renewable generators like solar and wind. After all, if the goal is carbon-free energy, then we should incentivize all carbon-free generators regardless of technology.

President Biden has pledged to make climate change a focal point of his agenda. He moved quickly to rejoin the Paris climate accord and elevated climate change as a national security matter; he has directed agencies to buy clean and zero-emission vehicles for government fleets; and ordered every arm of his administration to take climate change into account on policy, permitting and other government actions. Biden’s orders also call for making environmental justice a priority across the federal government and doubling U.S. offshore wind capacity by 2030.

For those of us who agree, regardless of politics, that climate change is a preeminent challenge of our time, it’s exciting to have a partner in the White House and even more encouraging to see that commitment to climate-focused policy shared throughout the administration.

By working together with the new administration, as well as our longtime climate and energy policy partners in Washington, such as House Energy and Commerce Committee Chairman Frank Pallone (D-N.J.), and in Trenton, such as Gov. Phil Murphy, I’m confident that PSEG can continue to make progress toward its long-term net-zero carbon goals, as well as our Powering Progress vision for the future.