In a pair of recently introduced resolutions, Members of Congress have voiced their opposition to federal carbon taxes. Rep. Scalise introduced the House version last year and Sen. Blunt introduced the Senate version this week. Both find that a carbon tax is not in the interest of the United States, based on a series of findings about how it would increase energy costs, harm economic growth and international competitiveness, and regressively impose costs on American households. But, one could agree almost entirely with the statements made in either of these resolutions, and still conclude that a carbon tax is in the interest of the United States.
We have to do something about climate risk
Climate change has costs. While climate change could result in environmental and economic outcomes ranging from manageable to catastrophe, we currently don’t know which it will be. So we are left with a risk management problem which favors reasonable greenhouse gas emissions. The goal of public policy should be to find the least-cost way of reducing CO2 emissions at an appropriate rate. Setting a price on carbon is a favorable option, because it leaves decisions about when and how to reduce emissions to market actors.
Used properly, carbon revenues will help people
A meaningful carbon tax will raise a substantial amount of revenue (CBO estimates a $20 carbon tax might raise 100 billion dollars a year to start). That revenue should pay for reductions in other taxes or be returned to households paying higher energy bills. Such reforms salve the injury felt by those with increased energy costs, giving all households the opportunity to come out better off by cutting emissions, and provide for pro-growth reductions of taxes on labor or corporate income.
Presently, climate policy is carried out via a swarm of regulations, federal and state efficiency and renewable energy standards, and (increasingly) bans on infrastructure and production. All of those policies carry costs that are invisible to the consumer, unpredictable, and caught up by various special interests. Placing a price on carbon is not only simpler and more transparent, but allows for the policy debate to focus on preventing job losses or helping households.
A carbon tax can prevent command-and-control regulations
Republicans have overwhelmingly challenged the wisdom, efficacy, and legality of the EPA’s Clean Power Plan. In exchange for a meaningful carbon price, Republicans should be able to write EPA authority over greenhouse gases out of the Clean Air Act, preventing more stringent future regulations. A high enough carbon price will politically advantage Republicans and force the Left to take such a deal (but some environmentalists might wail). Carbon pricing legislation could also eliminate green and brown energy production subsidies and reform regulations to allow for a new generation of nuclear technology and carbon capture and storage to compete in the marketplace.
Public policies that aim to do something serious about climate change have to be significant in scale. They have to touch a lot of sectors, technologies, and decision makers, and that scope of influence carries the risk that government action will do more harm than good. By pricing carbon emissions with a tax, Congress could incentivize the adoption of low-carbon technologies faster than is already happening, and spur innovation without picking winners and losers and with minimal bureaucratic effort. Given what we know about climate science and the risks posed by climate change, this is a justifiable move.
Meanwhile, the carbon tax revenue can offset many of the negative aspects of higher energy costs cited in these anti-carbon tax resolutions. Low-income households can be made whole while pro-growth tax cuts can increase the competitiveness of U.S. industry abroad. Such choices are not presently available to Congress, because Congressional Republicans have ceded the argument to the Left and the Obama Administration through staunch opposition.
That need not be the case.
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