A growing number of congressional Republicans are acknowledging the fact that unmitigated climate change poses significant risks to economies and individuals, and are starting to embrace innovation policies for low-carbon technologies. Whether or not their new stance will develop along that path or toward more comprehensive approaches to reducing emissions is uncertain. Writing in response to USA Today’s editorial board embracing a carbon tax, Senator John Barrasso from Wyoming, a leading supporter of clean energy innovation, says that workable approaches to climate change do not include new taxes. Arguing against the feasibility of carbon taxes, he misses some key points on how carbon taxes have broken down political barriers in recent years and could in the near future. If Senator Barrasso accepts that climate change poses significant risks to our economy and individuals, then he needs to forward policies that will effectively manage these climate risks.
The heart of Senator Barrasso’s argument is that a carbon tax will burden American families by raising energy prices, meet popular resistance, and add layers of red tape to business. We think a well-designed carbon tax policy can address all of these concerns.
The fundamental nature of a carbon tax is to increase the relative prices of high-carbon polluting sources and goods and direct consumer behaviour away from carbon-emitting energy in order to drive investment towards cleaner alternatives. For example, the 45Q tax credit for carbon carbon and sequestration (CCS) technology has reduced the upfront costs of this technology, which in turn is driving significant investment into this industry, with over half of global large-scale CCS facilities now located in the U.S. A carbon price would have similar effects throughout the economy and will properly incentivize the private sector to invest in important sources of carbon free electricity. Just as Senator Barrasso’s Nuclear Energy Innovation and Modernization Act helped incentivize investment in advanced nuclear technologies, a carbon price of roughly $50 per ton would further enable advanced nuclear technologies, such as small modular reactors, to compete with traditional fossil fuel sources. It’s clear that the relative price changes induced by a carbon tax will help drive investment and innovation towards cleaner alternatives. But will this impose unfair costs on consumers?
Senator Barrasso highlights how energy providers will pass on the costs of the taxes to consumers via higher electricity bills and fuel prices, and criticizes the dividend model of revenue allocation as “wishful thinking at best.” He points to recent votes in Washington state to block a carbon tax, and the yellow-jacket riots in France, as examples of the rejection of carbon pricing. However, economies around the world are embracing carbon pricing. According to the World Bank’s carbon pricing report, 57 carbon pricing initiatives are implemented or are scheduled for implementation, up from 51 in April 2018.
In fact, a closer examination of the riots in France demonstrate that the protests were not against the tax itself. Rather, they were in response to the rate of increase, and the fact that a majority of the revenues collected were going to the general budget of the French government, instead of measures to reduce the costs to consumers or driving energy innovation. Conversely, results of the recent federal elections in Canada were affirmation of voters willingness to embrace carbon taxes. As opposed to the French carbon tax, the Canadian carbon tax is designed so that 90 percent of the carbon tax revenue generated will be refunded to taxpayers. While far more needs to be done to make carbon pricing the central plank of climate policy globally, recent progress shows that political barriers can be broken down.
There are seeds of a bipartisan approach to climate based on a carbon tax in this very Congress. Representative Francis Rooney’s (R-FL) recently introduced the SWAP Act, with bipartisan support, which would reduce the payroll tax rate at the same time it levied a carbon tax–which research shows would keep total middle class tax burdens about the same. Even using a majority carbon tax revenue to fund infrastructure, with only 10 percent of revenue going to state-based grants to help low-income households (as Congressman Brian Fitzpatrcik’s (R-PA) carbon tax bill does) would increase the welfare of all households–except for those in the highest income quintile. These positive scenarios make it clear that the costs of carbon taxation, and the strategies to address them, are often misconstrued and oversimplified.
Note also that the bipartisan carbon tax measures mentioned above would forestall EPA regulations of greenhouse gases from power plants and industry regulations for at least a decade, and offer market alternatives to the centrally planned climate measures recently offered by House Democrats. Instead of reducing climate risks by pushing existing federal regulatory authority to its limits, ambitious and carefully designed carbon taxes will reduce climate risks and drive clean-energy innovation, without imposing unfair costs on American consumers.