“A Politically Palatable Path to Emissions Reductions – More Than a Carbon Tax”

“A Politically Palatable Path to Emissions Reductions – More Than a Carbon Tax”

 

With our national carbon goals now set by the COP21 Paris agreements, the hard work of charting an effective, efficient path toward emissions reductions must begin. At present, the United States’ carbon abatement approach is an odd mix of top-down and bottom-up measures; these regulations and the actions of businesses and individuals are making a difference in our emissions but not on the kind of scale that will be needed to meet our new goals. A more direct carbon pricing mechanism will be necessary, and a 2013 carbon tax proposal from the non-partisan Brookings Institution provides a creditable blueprint for an environmentally successful and politically feasible policy (Morris, 2013). The proposal aims to reduce carbon emissions while also shielding the poor from its regressive effects, eliminating state and federal energy regulations, lowering corporate tax rates, and reducing budget deficits. The crux of the law is an excise tax on producers that would start at $16/ton of CO2 emissions and increases at 4% plus inflation annually until 2050. The result would be emissions reductions of 12% in 20 years and 33% in 40 years relative to 2012 rates – outcomes that would make significant progress toward our INDC goals.

 

Given the slow emergence of bipartisan interest in revenue-neutral climate policy, this proposal’s wide-ranging reforms have the potential to cut through the political brouhaha of other climate bills and find a larger receptive audience. The relatively low initial tax rate allows for a more market-based approach to replace the carbon rules, energy mandates, tax preferences, and direct spending that currently serve as an inefficient command-and-control substitute for comprehensive climate policy. Appealing to those who stress supply-side economics, this plan would reduce the corporate income tax rate from 35% to 28% and reduce the federal deficit by $199 billion over 10 years and $815 billion over 20 years. For those concerned with more populist priorities, the proposal allocates 15% of the new revenues to low-income households in order to address any undue burden that may result from the tax’s costs being built into the prices of everyday goods and services. Specifically, revenue spending would go to social safety net programs rather than directly offsetting higher energy prices, a temptation that would ultimately decrease the incentive to conserve energy and undermine the policy’s environmental results. The elimination of current mandates would not include research and development in energy efficient technologies, while the tax would motivate producers to pursue their own research, development, and demonstration. Most importantly, the environmental outcomes are substantial: cumulative emissions reductions of 9.2 billion metric tons of CO2 and $148 billion in climate benefits in the first 20 years. Additionally, the law covers other greenhouse gas sources in its tax base and border tariffs on select goods from countries without analogous carbon prices. This could drive further emissions reductions by influencing the behavior of foreign producers. To ensure that the policy remains adaptable in the face of uncertainty and to mitigate against the risk of interest groups corrupting the efficiency of the tax scheme, there would be regular expert agency reviews of the policy’s environmental and economic performance and congressional authority to revisit tax rates when reviews find it justified. And finally, economic analysis shows that the policy would create a net welfare gain for American households.

 

This plan raises the price of carbon, incentivizes more carbon efficiency in consumption and production, and eliminates the many subsidies and tax preferences that make up our convoluted, piecemeal climate policy at present. While it is ambitious in its breadth of reforms, the proposal has profound environmental and economic outcomes and constitutes a prudent strategy toward political balance and feasibility.

 

Our next president will have little support in continuing or furthering the current regulatory approach to climate policy, so a carbon tax coupled with other repeals and reforms is a promising option for setting a new course. If the threats posed climate change and the wisdom of a market-based solution can gain some ground in conservative circles, then the concessions of regulatory repeals, corporate tax cuts, and deficit reductions could tip the balance and win over those who find ideological objections to most climate policies. In a recent sign of hope, a small but growing number of conservatives have begun to voice support for “balanced” climate action (Goldenberg, 2015). With the expected down-ticket boost in Democrats’ representation in 2016, our next congress could realistically pass a bill such as this with the votes of as few as 20 Republicans. We should be aggressively laying the strategic groundwork to achieve our INDC goals, and considering this proposal would be a practical place to start.

by

Edward Yeilding

Candidate for M.S. in Energy Policy and Climate, Class of 2017

 

Goldenberg, Suzanne. “Republicans to break rank with party leaders in call for climate change action.” The Guardian. 2015. Available online at <http://bit.ly/1ROArxq>.

 

Morris, Adele C. “The Many Benefits of a Carbon Tax.” Brookings Institution. 2013. Available online at <http://brook.gs/1ROAqJN>.

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