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By Christine Cunha Missik, MD,

David Anderson, PhD

Climate change poses a serious threat to our natural environment and to our economic prosperity. It threatens our health, our crops, our infrastructure, our way of life. Kentuckians are already experiencing the harmful effects of extreme weather events. The damage will only worsen if we do nothing to mitigate climate change.

Now is the time for our representatives to take action. Addressing climate change requires effective national policies guided by sound economic principles. To that end, more than 50 professors of economics and related fields from 14 Kentucky institutions, are asking Kentucky’s congressional delegation to support the following policies:

Impose a carbon fee

We know that carbon dioxide created during energy production and the manufacture and delivery of many goods and services leads to rising global temperatures and other harmful consequences. It is therefore prudent to curb global carbon emissions.

A carbon fee offers a cost-effective lever to reduce emissions at the scale and speed necessary. It avoids the need for regulation while stimulating technological innovation and the development of carbon-efficient goods and services.

A carbon fee requires polluters to pay for the damage they inflict on society. When polluters are not held accountable for the harm they create, we experience a market failure. A carbon fee applies market forces to avoid the market failure by encouraging the use of cleaner energy sources and the purchase of less pollution-intensive goods.

Return the fee to Americans
as a carbon dividend

Revenue collected under this policy should be returned as regular lump-sum payments to Americans.  A dividend program increases the policy’s fairness. Importantly, the carbon fee and dividend policy would benefit most Kentuckians and households across the US, including the most vulnerable. The majority of families would receive a larger dividend payment each year than they pay in increased energy prices and prices of other goods.

Create a border tax adjustment

To ensure that American companies maintain their competitiveness and are not penalized for their energy efficiency, the policy should include a border tax adjustment on imported goods. The tax would be based on the carbon emissions associated with the production of the imported goods. In addition, the border adjustment would offer rebates to US producers that export to countries without carbon fees.

Meeting emissions reduction targets

The policy should include emissions reduction targets and mechanisms for enforcement. The carbon fee should start low, then increase each year until we achieve these targets. A carbon fee that gradually increases over time will give firms time to adapt to the new policy while also providing a strong incentive to quickly innovate and invest in new low-carbon technologies.

Effective policy

We present this as effective, practical policy, which should be enacted as soon as possible.