10 February 2017

GOP statesmen propose a carbon tax compromise

Dana Nuccitelli

Dana Nuccitelli

Dana Nuccitelli is an environmental scientist, and author of Climatology versus...

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As The New York Times reported earlier, a group of Republican elder statesmen representing the Climate Leadership Council met with Trump administration officials this week to pitch a tax on carbon pollution in order to fight climate change—also known colloquially as a carbon tax. The group includes cabinet members from the last three Republican administrations; two former Secretaries of State, two former Secretaries of Treasury, and two former chairmen of the President’s Council of Economic Advisors.

The proposal would tax the carbon quantity of fossil fuels at the source—the coal mine, oil well, or port of entry. It includes a so-called “border adjustment” to protect American industry by increasing the costs for products from those countries that do not have a similar carbon pollution price of their own in place, thereby eliminating the problem of a “free-rider” nation gaining an economic advantage over carbon-taxed American domestic goods. This adjustment would also provide other countries with an incentive to implement their own carbon taxes (nations would prefer to keep any tax revenue within their own borders than see it go to the US government). Crucially, the Climate Leadership Council proposes that the carbon tax would replace existing EPA greenhouse gas regulations, and the revenue it raises would be fully returned to taxpayers via a quarterly refund check (estimated at a total of $2,000 per year for a family of four), making the policy revenue-neutral—meaning that it does not change the amount of money in the government’s coffers.

Those last points are key to bringing Republicans on board. Conservatives generally oppose taxes, regulations, and increasing the size of government. But if the government doesn’t keep the revenue, then it’s technically a fee (simply a charge to pay the costs of carbon pollution) and not a tax (which the government can apply to other uses). To conservative thinking, what they are proposing is a small government, free market solution that can replace EPA regulations with a potentially more efficient policy that’s also better for the economy.

A similar proposal was defeated in the state of Washington in the 2016 election because supporters didn’t make a strong case as to why liberals and environmentalists should support it. Some prominent greens like Naomi Klein  opposed the proposal because they would prefer to spend the revenue on green energy and retraining workers for the green economy.

But there are several reasons why they should support the proposal this time around.

First, their critique misses some important points: A price on carbon pollution causes energy prices to rise, and low-income households typically spend a larger fraction of their income on energy. But because the proposed policy dishes out equally-sized rebate checks to all Americans, low-income households would consequently come out ahead because they use less total energy than wealthier households.

Second, Republicans are in control of Congress and the White House. This means that no climate policy will pass without significant conservative support, and that requires revenue-neutrality. Democrats couldn’t even pass climate legislation in 2009 when they had the presidency, a majority of seats in the House, and 59 seats in the Senate. Therefore, compromising with Republicans is a necessity. Many liberals may also balk at swapping EPA regulations for a carbon tax, but again we must remember that Republicans are now in charge. A man who sued the EPA 13 times and fervently opposes carbon pollution regulations is poised to lead the agency. While Republicans may not be able to eliminate those regulations, they will be able to weaken them. A swap for a sufficiently high carbon tax would be a good deal for liberals.

And the proposed tax is sufficiently high—in fact, if implemented at the proposed starting price of $40 per ton of carbon dioxide, it would be among some of the highest carbon taxes in the world today—although Sweden’s does go much higher. For comparison, carbon pollution permits are currently selling for about $13 per ton in California’s cap and trade system. British Columbia froze its carbon tax at $30 per ton. And a similar revenue-neutral carbon tax proposed by the Citizens’ Climate Lobby starts at $15 per ton, rising $10 per ton per year. The Climate Leadership Council proposal rises at a slower rate—around 4 percent per year—for five years, at which point a panel would evaluate if the rate of change should be revised.

It remains to be seen whether the proposal will gain any traction with President Trump, who recently agreed with his potential science advisor that “the whole climate hysteria is greatly overblown.” But it’s worth noting that in private meetings with Republican members of Congress, there have been many reports that they recognize the reality and seriousness of the problem. As Senator Sheldon Whitehouse (D-RI) put it, “Talking to my Senate Republican colleagues about climate change is like talking to prisoners about escaping.”

The problem is that the Republican Party is reliant on campaign donations from the fossil fuel industry, and on votes from a base whose most enthusiastic members tend to deny climate science realities. However, Donald Trump has no such reliance on fossil fuel funds, and has a strong following among those same conservative voters. Were he to express support for a revenue-neutral carbon tax, it would create cover for many Republican members of Congress to come out of the climate closet and follow his lead. Liberals would then need to agree to the compromise proposal.

Will any of this actually happen? The odds are slim, but it would make for a great deal.