Earth Day Planted Seeds for Action on Climate. Is a Carbon Tax a Good Idea?

by | Apr 27, 2016

During the Earth Day festivities, President Obama once again reiterated the United States’ commitment to reducing carbon emissions. But he went beyond his initial pledges of cutting such emissions by 28 percent by 2025 from 2005 levels and to 80 percent by 2050 from the same baseline. How to achieve that?

Obviously, the aim is t0 burn cleaner fuels — whether they be wind and solar and other sustainable sources, or by dusting off fossil fuels. Just to how to encourage that, though, is up for debate. Cap-and-trade programs whereby companies trade credits with one another is a free market mechanism. But it has had so-so success in Europe, if you can call it that. Then there’s the carbon tax, which has the word “tax” tied to it but which may be the fairest way to quantify carbon releases.

Under a carbon tax, government would tax utilities according to their carbon footprints that can be readily measured. NextEra Energy says that it is a fairer way to compute results and that it is easier to administer than a cap-and-trade system. The proceeds from the carbon fee would then be targeted directly to an account that would help fund the development of new technologies.

“Supporters believe that an economy-wide, revenue-neutral carbon tax might gain bipartisan support as an efficient way to limit greenhouse gas emissions if revenue were used in large measure to reduce the corporate income tax,” says Brian Flannery, with Resources for the Future in Washington, DC. “While trade-related effects are likely to be small, legislation must also address concerns from labor and business in specific sectors and regions where manufacturing, jobs, and emissions will shift to nations with less-stringent controls.”

He goes on to say that, surprisingly, the economic effect for many larger industrialized like the United States are “quite small.” The greatest risk of the carbon tax, he continues, is to alienate the developing nations.

A piece in the Wall Street Journal says that prior research performed by Resources for the Future and Stanford University concluded that a $45 per ton tax on carbon would achieve around 80 percent of what Obama wants by 2025. Beyond that, the story says that it becomes too iffy to even speculate given the advances in technology.

Meantime, a joint report issued by the Brookings Institution and the American Enterprise Institute has said that pricing carbon is the most efficient way of reducing carbon dioxide releases that are tied to global warming. A $16 tax per ton would raise $1.1 trillion in the first 10 years.

But why would coal dependent communities support this? The outlook for coal, no matter what one’s persuasion, is not positive. The Brookings Institution says that it is the best way to raise revenues to fund a transition to a modern economy.

“With any ambitious climate program, the outlook is worse, both because coal is the most carbon-intensive fuel and because it faces a number of lower-carbon substitutes, including natural gas, renewables, and nuclear power,” says Adele Morris, senior fellow at the Brookings Institution. “But unlike the regulatory approach the Environmental Protection Agency is pursuing under the Clean Air Act, a carbon tax would raise revenues that can ease disproportionate burdens and meet the needs of retirees, workers, and coal-reliant communities as they transition to more diverse economic base.”

George Shultz, former U.S. Secretary of State under President Reagan, also supports a carbon tax. His argument is that the producers don’t bear the environmental price; rather, it is the broader society. And a carbon tax would even the playing field.

Shultz adds that that British Columbia has such a carbon tax. In that case, the government there gradually increased the tax and then redistributed it to individuals, making it popular. He adds that the Republicans have historically been known as the party that issued policies to protect the environment, noting that it was under President Nixon that the 1970 Clean Air Act passed.

During President Obama’s first few months at the White House in 2009, the focus was on a cap-and-trade scheme, where carbon ceilings are set and utilities must meet them, or they must buy credits to allow them to exceed such limits. Much of that talk died down after the Republicans regained control of the U.S. House in 2010. And the partisanship  may prevent any action for the foreseeable future.

However, the president’s Clean Power Plan could make up ground. It would give states the latitude that they will need to reduce their emissions — anything from burning cleaner fuels to installing modern technologies to trading credits. The northeastern United States will agree, having long complained that dirty air from southeastern and midwestern states are drifting its way.

As we know, the Clean Power Plan is tied up right now in court. It still has a pretty good chance of going forward, given the appellate review of  — where it now stands — is favorable. And the US Supreme Court is evenly split on this issue at 4-to-4, which is where it will ultimately head.

A carbon tax, however, is a lot more tenuous. That would require a majority of lawmakers in both the US House and Senate to go along. That’s unlikely for a host of different reasons, notably because US lawmakers can’t seem to agree whether manmade climate change is an issue or if it is, whether the cost of fixing it is worth the benefits. Add in there is the whole notion of a carbon tax that is, well, a tax, and you have the makings of dead-on-arrival.

What good then is it to even have this conversation? Debate is always healthy, as it airs any issue in a democratic fashion and lets those without ties to any special interest choose for themselves. If enough people were moved by this specific issue, they in turn would pressure their elected representatives.

No doubt, the wheels of democracy slowly churn. But they do spin and progress does occur. Witness the evolution of global climate change talks and how the world has agreed, in theory, that action is needed. To that end, the seeds were both planted and watered on Earth Day last week. Whether they sprout or whether they are trampled over is yet to be seen.

Ken Silverstein is editor-in-chief of Business Sector Media, publisher of Environmental Leader and Energy Manager Today.

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