Carbon Taxes: Worth the Price of Emissions?

June 25, 2018

…there is an easy, capitalist fix: return all the money raised directly to the people, thereby offering all Americans tangible benefits in the here and now.Ted Halstead

Tax Be Nimble–

A new group of well-respected business and government leaders formally entered the environmental fray in recent days. Led by the former Republican Senate Majority Leader, Trent Lott (R-MS), and the former Democratic Senate Deputy Majority Whip, John Breaux (D-LA), Americans for Carbon Dividends (AFCD) are advocating the adoption of the Baker-Shultz Carbon Dividends Plan (hereinafter Baker-Shultz).

The organization is new; the proposal is not. The Dividends Plan, named for the former secretaries of state James A. Baker III and George P. Shultz—both with long and distinguished careers in government and solid Republican conservative credentials—was released by the Climate Leadership Council in 2017.

The basics of the plan are this:

  • Levy an initial $40/ton tax on carbon dioxide emissions, with the tax increasing over time. The tax would be implemented at the refinery or the first point where fossil fuels enter the economy, meaning the mine, well or port.
  • Return revenues derived from the tax to the American people on an equal and monthly basis via dividend checks, direct deposits or contributions to their individual retirement accounts.
  • Protect US businesses–US companies exporting product to countries without a comparable carbon price would receive a rebate, while imports from these countries would be charged the tax.
  • Eliminate many of the existing regulations governing carbon emissions and much of the authority of the EPA to regulate them, including the outright rescission of the Clean Power Plan (CPP).

​Of the two organizations, it appears that AFCD will lead advocacy efforts in the political arena as a tax-exempt 501(c)(4) corporation. The designation allows the group to run paid advertising, lobby policymakers and otherwise undertake media campaigns to build support for the idea. CLC’s 501(c)(3) status constrains its political activities.

​According to the groups, the tax would raise the price of a gallon of gas by about 38 cents and similarly increase the prices paid for household energy use. To offset the higher costs the tax revenues would be returned to consumers as a “carbon dividend.” It is estimated that a family of four would receive about $2,000 in the first year.[i]

A national carbon tax has been spoken of and debated in earnest for several years. CLC’s founding in February of 2017 by political, corporate and thought leaders like Ben Bernanke, Stephen Hawking, Michael Bloomberg, Laurene Powell JobsRob Walton served as the “coming out party” for the Baker-Shultz plan. AFCD continues the building of a broad-based bi-partisan coalition. As with any potential culture-changing campaign, organization is critical.

CLC and AFCD are both supported by big businesses including Johnson and Johnson, GM, Met Life, ExxonMobil and Shell—and by renewable and nuclear energy companies like First Solar and Exelon. Also seeing the national carbon tax as a way through the swamp of partisan politics are the 70,000+ strong Citizen’s Climate Lobby, major environmental organizations like the World Resources Institute, and grassroots and environmental justice advocates like PutAPriceOnItDC.

The recent announcement by AFCD and the on-going activities of the various allied organizations are but a prelude to the introduction of an actual legislative proposal sometime after the November midterm elections. The current Congressional chaos is hardly a welcoming environment for the introduction of formal legislation—particularly of this scope and contentiousness. Near-term, the broad coalition of interests are committed to building interest, momentum and campaign coffers in anticipation of the 2020 national elections.

The gathering coalition of interests willing to support imposition of a national carbon tax is impressive. Most impressive—perhaps—is the willingness of so many Republicans to stand up and be counted as and with climate defenders. We are not speaking just of main-line southern Republican leaders like Lott and Baker but also a growing number of young Republicans—especially those in university chapters. Both are cohorts that the climate community has needed for it to have any prayer of enacting the national policies needed to combat climate change. It is not to say, however, that the way forward for climate defenders will be any easier tomorrow than it is today. Neither is it to say the proposal itself is the answer.

Conservative hardliners both in Congress and the administration continue to deny the science and decry any efforts to defend the nation from the climatic ravages already upon us. In the same week the AFCD announcement was made, H. Sterling Burnett of the Heartland Institute reminded the world that:

A group of 29 research institutes, legal foundations, and grassroots-activist groups, including The Heartland Institute…submitted a letter to Congress expressing support for a resolution introduced by House Majority Whip Steve Scalise (R-LA) and Rep. David B. McKinley (R-WV) that would put Congress on record again as opposing any carbon tax, which President Donald Trump also opposes.

According to Scalise: Congress [along with President Trump] is leading America toward energy dominance and strong economic growth, yet some liberal Washington special interests continue to pursue a radical agenda that includes imposing a job-killing carbon tax, which would raise costs on everything we buy from electricity and gasoline to food and everyday household products.

Americans for Tax Reform appears to have taken on the responsibility of aligning well-healed ultra-conservative groups like the Competitive Enterprise Institute, Americans for Prosperity, The Club for Growth, Energy and Environment Legal Institute, Tea Party Nation and others in opposition to any proposed carbon tax. As well, the billionaire Koch Brothers continue to defend reliance on fossil fuels and are investing heavily to keep conservative majorities in the Congress.

Centrist and progressive political groups are hardly of one mind when it comes to carbon taxes. Opposition, albeit for reasons other than a disbelief in climate science or the need to decarbonize the world’s economy, has been expressed in the past by some environmental, labor, community organizations and others. Opposition from the left has generally revolved around the question of how to distribute the tax revenues.

Although Baker-Shultz proposes to return the tax revenues to their original owners, i.e., consumers, there are other options on the table. Alternatives include using all or a portion of the sums collected to support research and development of new clean energy technologies and environmental remediation projects. Proposals have also been made for using the tax revenues to mend an increasingly frayed social safety net, e.g., to provide additional tax relief to low-income individuals and families, as well as for job training, community empowerment,  and other programs targeted to at-risk populations.

Often dismissed as just a “fight among family and friends,” the distribution question should not be under-estimated. How the collected revenues will be distributed goes directly to the question of whether a carbon tax is considered revenue neutral, i.e., a market-based solution, or a poorly disguised way to redistribute wealth and interfere with free-market operations. It was just this sort of a difference of opinion that led to the defeat in 2016 of Initiative 732. Had it been approved by voters; Washington State would have been the first in the nation to levy a carbon tax.[ii]

The difference of opinions in Washington State over what approach to take to limit GHG emissions was basically the difference between cap-and-trade and a carbon tax. Both mechanisms are market-based. Cap-and-trade controls the quantity of gas emitted, while a carbon tax controls the price of the emissions.

In an economically efficient market with perfect information, either a price (carbon tax) or quantity control instrument (cap-and-trade system) could be designed to achieve the same outcome. Because this market ideal does not exist, preference for a carbon tax or a cap-and-trade program ultimately depends on which variable one prefers to control–emissions or costs.

The Clean Power Plan would have effectively created a national cap-and-trade program, allowing states to trade pollution credits with each other — without setting up special interstate agreements beforehand. Opposition to the CPP was wide-spread and remains a hot-button partisan issue. Pursuit of a carbon tax could well be the way for calmer heads to prevail—more than that it offers a way for them to act.

​Baker-Shultz is heralded as being based on the conservative principles of free markets and limited government—offering the most popular, equitable and politically viable climate solution. (emphasis added) Whether Baker-Shultz can politically accomplish what the CPP could not—sufficient bi-partisan support to be enacted and implemented—depends on the details.

In the abstract, I agree that Baker-Shultz offers an easy, capitalist fix for the reduction of GHG emissions. What I wonder about is how easy it will be to return all the money raised directly to the people in today’s political reality. Call me crusty, but experience teaches to beware of politicians, policymakers, and pundits bearing easy fixes.

Baker-Shultz has a very narrow field in which to operate. It’s capacity to negotiate the Congressional landscape depends upon the ability to maintain the mantra of “revenue neutrality.” 

Questions remain

Spending by Trump-Republicans on tax reforms serving the wealthy and their shrinking of social programs places an immense amount of pressure on more moderate political decisionmakers wanting to redress the imbalance without having to raise deficit levels. The substantial revenues collected via a carbon tax will prove tempting targets at the federal level just as they have at the state.

Is the possibility of the tax proposal being amended to the point where it is no longer revenue neutral a reason to oppose the plan in the first place? Indeed not—it is, however, a reason to be ever mindful of the discipline needed to maintain the integrity of so easy a capitalist fix for the reduction of GHG emissions.

Other questions remain and must be addressed prior to introduction of legislation and all along the tax’s way through Congress for it to be the fix, it is claimed to be–

  • Termed the most viable option for combating climate change politically, is what we are willing to do the equal of what we need to do to avoid a climate calamity?
  • Climate change is about more than carbon emissions. It is about changing profligate and unsustainable practices in homes and factories. A tax on emissions raises costs on one end while refunding it on the other—in the meantime gases continue to be emitted.
  • Does the tax offer fair value for relaxed environmental regulations?
  • ​Will passage of Baker-Shultz suck the air out of other needed fixes to global warming, not the least of these being continued federal investments in new and emerging energy and environmental technologies and designs? What of federal efficiency standards for appliances and autos, and investment in the human and capital resources?

Tax Be Quick?

The potential of the proposed carbon tax for combating climate change cannot be denied. Will the promise become a reality? At this point, it’s anyone’s guess. Whether it does or not, Baker-Shultz has already accomplished what many have thought impossible in the Trumpian era—a platform for constructive bipartisan cooperation and discussion.

Questions remain; they are not without good answers if approached openly and within the broader context of environmental stewardship and justice. There are no single answers; however, there are singular opportunities which is what Baker-Shultz appears to be.

Senator Lott is right about it’s not happening overnightLet’s hope he is also correct about the tide turning.

[i] The distribution of the revenues would presumably be by the Social Security Administration on a monthly basis to those with a valid social security number.

[ii] A carbon tax differs from a cap-and-trade program in that it provides a higher level of certainty about cost, but not about the level of emission reduction to be achieved (cap and trade does the inverse).

Image credit: Montana State Fair/Flickr user tracyelizabeths

Joel Stronberg

Joel B. Stronberg, Esq., of The JBS Group is a veteran clean energy policy analyst with over 30 years of experience, based in Washington, DC. He writes about energy and politics in his blog Civil Notion (www.civilnotion.com) and has recently published the book Earth v. TrumpThe Climate Defenders' Guide to Washington Politics based on his commentaries. He has worked extensively in the clean energy fields for public and private sector clients at all levels of government and in Latin America. His specialties include: resiliency; distributed generation and storage; utility regulation; financing mechanisms; sustainable agriculture; and human behavior. Stronberg is a frequent presenter at conferences and workshops.

Tags: American politics, carbon tax