Today, the Democratic Members of the House Select Committee on the Climate Crisis released an impressive report outlining how Congress should set a net-zero by 2050 goal for the United States and legislative recommendations to get there. Among the many recommendations for sector-by-sector regulations and subsidies, the report has a short section on carbon pricing. In it, the authors recommend seven principles for how Congress should implement a carbon price. Each is listed in italics below, with an initial response on how that consideration can be met by existing carbon tax designs.
Congress should establish a carbon pricing system designed to achieve America’s economy-wide greenhouse gas emissions reduction goal of net-zero by no later than 2050.
One of the chief concerns about carbon pricing is if it will be sufficient to meet the ambitious emissions target of net-zero by 2050. This line hints at the need for emissions certainty, as in a cap-and-trade system. But even carbon tax policies can include mechanisms for achieving emissions certainty, which adjust prices or revenue allocation when national emissions do not fall in line with expectations, and support for these mechanisms is common in industry coalitions (CEO Climate Dialogue, Climate Leadership Council). Early versions of these mechanisms are included in several of the bipartisan bills that have been introduced in the House (the SWAP Act, the MARKET CHOICE Act, or the Energy Innovation and Carbon Dividend Act) and in Senate legislation.
Congress should consider a carbon price as only one tool to complement a suite of policies to achieve deep pollution reductions and strengthen community resilience to climate impacts. Carbon pricing is not a silver bullet.
Silver bullet or not, there are powerful arguments for putting a carbon price at the center of climate mitigation strategies. Congress has clear constitutional authority to levy taxes. A carbon tax is economically efficient and does not discriminate between industries based on their technical capacity to decarbonize or geographical or political influence. Firms pay based on the carbon-intensity of their production. Meanwhile, it clearly demonstrates practical ambition internationally by setting a public price instead of relying on complex regulations. And with a relatively low administrative burden at the Treasury, the carbon tax frees up other agencies (DOE, EPA, FERC, and others) to implement complementary efforts.
Lastly, a carbon price is unique in its ability to raise revenue that can lower the costs imposed on households, smooth the energy transition, and invest in innovation or infrastructure. The revenue point is critical if Congress wants to use all the building blocks to assemble a national climate policy. For example, the MARKET CHOICE Act uses a small portion of carbon tax revenue to support innovation in carbon capture and storage–and is more generous than any previous piece of legislation.
Congress should ensure that energy-intensive, trade-exposed domestic industries that are working to reduce pollution remain on a level playing field with foreign competitors that use dirtier technologies.
Provisions to avoid disadvantaging domestic industry with a carbon price, and prevent leakage of emissions to other countries, are a canonical piece of carbon pricing policies. As my colleague Shuting Pomerleau has written, a carbon tax bolstered by a border adjustment would level the playing field for domestic producers in domestic and international markets. It will also provide a powerful diplomatic signal for other countries that might otherwise want to free-ride on unilateral policies out of the U.S.
Congress should ensure low-and moderate-income households benefit from a national carbon price.
The effect that carbon pricing will have on the energy bills and, therefore, the pocketbooks of lower- and middle-income Americans is cited on the left and right as a reason to avoid a carbon tax. But it is also a concern that is immediately answerable by policy design. My colleague Ed Dolan has done a deep dive into how different rebates and tax swaps can make a carbon tax beneficial to low- and moderate-income households. And the bills in the House of Representatives each set aside revenues for rebates to low-income households, reductions in the payroll tax, or dividends to households. Even in the case that most carbon tax revenue is used for investment–as in the Market Choice Act–low and middle-income households (particularly young households) see net gains throughout their lives.
Congress should pair a carbon price with policies to achieve measurable air pollution reductions from facilities located in environmental justice (EJ) communities, which face chronic and acute health impacts from a legacy of industrial development in their neighborhoods.
Carbon dioxide is not the only pollutant emitted by the burning of fossil fuels, but other air pollutants can be reduced by well-designed carbon pricing policies. As my colleague Nader Sobhani has argued, a carbon tax at levels consistent with introduced legislation, the economic and health benefits of reducing those pollutants are potentially trillions of dollars per year. Considering local pollution levels probably favor a carbon tax design, (as opposed to a cap-and-trade strategy) because trading can encourage companies to cut emissions from new efficient facilities and use the extra permits to keep old facilities polluting. With a tax, each facility is incentivized to lower its emissions–carbon and otherwise.
Congress should respect states and localities that have led the nation in climate action, ensure that a national carbon price complements and builds on their programs, and apply the lessons learned from their experiences and other international approaches.
States that have created their own carbon taxation programs should be credited and given space and time to redesign their agenda for the existence of a federal carbon price. In both the Market Choice Act and the SWAP Act, emitters paying into state carbon pricing systems (California’s cap-and-trade system and the Regional Greenhouse Gas Initiative) are credited against their federal carbon tax liability on a five-year schedule that starts at a full credit and declines to zero. That gives each state time to adjust its program to reflect the federal system’s existence, either maintaining a price on top of the federal price or winding down local pricing, without shocks to state revenue.
Congress should not offer liability relief or nullify Clean Air Act authorities or other existing statutory duties to cut pollution in exchange for a carbon price.
Swapping a carbon tax for regulations has, for a decade or more, been seen as a way to win Republican support for a carbon tax. As my colleague Jerry Taylor argues, it provides a model for conservatives and Republicans to fully participate in the climate debate. Republicans, wary of expanding the administrative state, might favor a policy that encourages the private sector to decide how to decarbonize its operations cost-effectively, and business will support the policy stability instead of the uncertainty that comes with regulations. While there is a strong case that pricing can replace most regulatory efforts at lower cost (not to mention subsidies), most recent legislation has not nullified Clean Air Act authority or offered liability relief for fossil producers. Instead, they have proposed moratoria on the implementation of new rules for a decade or more. After those windows, Congress could extend or revise the moratoria based on how effectively pricing mechanisms are reducing emissions.
Wrap-up
The Select Committee’s Democratic Staff report is an impressive effort to assemble a national climate policy from an assortment of building blocks. While it is clear they see a carbon tax as playing a subordinate role to other policies, it is also clear that off-the-shelf legislation can answer all of the principles they have laid out with at most minor tweaks. Existing bipartisan carbon pricing bills that meet or address the principles set out by the committee and would each, on their own, constitute the most ambitious national climate policy in the world. Legislators in this Congress or the next would be wise to consider including them in their plans to build a national climate strategy.
Photo by Sara Cottle on Unsplash