March 13, 2017 — Recently some U.S. conservative leaders proposed a carbon tax to hedge the risks associated with climate change. We welcome these leaders to the climate realist caucus — and as we do, we also respectfully urge them to reconsider their support for a new tax scheme.
The idea of a carbon tax has been around for years, based on the notion that all products and services should be subject to a tax to internalize the societal costs of the carbon pollution they generate. The revenues from the tax would either go to “good” programs chosen by politicians, bureaucrats and lobbyists, or be returned to taxpayers to make up for rendering everything they buy a lot more expensive. In the meantime, the tax would serve as a deterrent to carbon emission.
The plan put forth by the conservative leaders would tax every product and service at the rate of US$40 per metric ton (1.1 tons) of carbon emitted. Assuming the U.S. emits 5.5 billion metric tons (6.1 billion tons) of carbon dioxide a year, that would yield US$220 billion a year that the federal government would hold before returning every penny to taxpayers in the form of dividend checks.
But here’s the problem with that approach: We just witnessed a presidential election in which the winning candidate tapped into Americans’ frustration with a lagging economy and an inefficient and ineffective federal bureaucracy. Then-candidate Trump focused on his view that the federal government was bungling trade, health care, education, veterans affairs and more. And it resonated with a public that has increasingly lost faith in the government.
Regrettably, the federal government’s history of commandeering entitlement trust funds isn’t going to make people confident either; doling out stimulus dollars to favored constituencies would make anyone skeptical about its ability to pursue a massive carbon-tax scheme without deciding to use the money for what they consider to be more pressing needs. For example, three years after the 2009 financial crisis, support for the ’09 stimulus package had lost one-third of its support, falling to 37 percent — in large part because of stories about the things lawmakers put into the bill, including, infamously, a $219,000 study of college “hookups.”
And, at least until we get the economy revved up again, conservative elected officials will likely view girding to fight for a carbon tax with as much enthusiasm as the British cavalry did for the Charge of the Light Brigade, and with good reason: Their hard-pressed constituents hate taxes even more than they do. Two recent polls on this point are instructive. First, 57 percent of respondents in a Gallup poll think the income tax they pay is “too high.” More directly relevant to the carbon tax scheme, Republican voters continue to overwhelmingly favor tax reform in huge numbers — the key data point to us being that 78 percent of GOP voters feel the tax code is too complicated.
We estimate that a zero emissions energy tax credit — ZEEC —would cut Americans’ electric bills by at least US$5.5 billion a year.We agree that prices affect behavior, because that’s the essence of the marketplace. But it’s a bidirectional phenomenon: prices going down work just as effectively as prices going up. So, yes, we can manipulate pricing to increase green innovation, reduce air pollution and address climate change — but, instead of taxing carbon and raising prices for everyone, let’s selectively remove taxes from electricity sources producing zero (or nearly zero) emissions (nuclear, wind, solar, geothermal, hydro) and incent further reductions in emissions from coal and natural gas facilities.
Since electricity is taxed across the board, providing a tax cut opportunity for zero-emissions facilities and a tax cut for reducing emissions from natural gas and coal plants will reduce utility bills for every ratepayer — and provide even greater relative benefit to the economically disadvantaged. We estimate that a zero emissions energy tax credit — ZEEC —would cut Americans’ electric bills by at least US$5.5 billion a year out of a total federal budget of around US$3.8 trillion. The best part is that a tax code approach allows us to cut from the nearly US$30 billion a year in existing subsidies.
But, more than that, a ZEEC would unleash investment into reducing the carbon footprint of energy generation. Today, about one-third of our country’s electricity comes from zero-emissions sources. A ZEEC would reward and incentivize growth and innovation in this crucial sector. And it would boost innovators seeking to reduce and capture emissions from natural gas- and coal-fired plants.
The potential benefits of a ZEEC would be huge. Not only would carbon be cut; so too would the sulfur and nitrogen oxides, mercury and particulates that contribute to asthma, emphysema and related human diseases and harm other animal and plant species.
The ingenuity and innovation spurred by a ZEEC would create new approaches to carbon capture and sequestration that would reduce emissions of pollutants and toxins across the planet.And the benefits would spread beyond our shores. The United States has 323 coal-fired power plants, but there are nearly 8,000 such plants worldwide. Because the U.S. is the patent capital of the world, the ingenuity and innovation spurred by a ZEEC would create new approaches to carbon capture and sequestration that would reduce emissions of pollutants and toxins across the planet.
And let’s not forget that a tax credit doesn’t require the bureaucracy to collect it, hold it and distribute it — and that saves every American even more hard-earned money.
Simply put, a ZEEC is the better way to proceed today. We hope that advocates of a carbon tax will find our alternative suggestion a more compelling one to solve the pressing problem of carbon pollution, and work with us to move swiftly towards a win-win-win for our ratepayers, our economy and our environment.