Carbon Tax Proposal Deserves Attention, But Big Questions Remain
A group of prominent conservative political and thought leaders, under the newly-formed Climate Leadership Council (CLC), recently released a proposal for a carbon fee and dividend model for the U.S. economy that seeks to set the stage for future conservative and bipartisan discussions on tackling climate change.
The authors of this proposal are highly respected Republicans, and it is clear that they are taking this initiative seriously. Calling for a “limited government, free market approach” to reduce carbon pollution that is causing climate warming, the group is led by former Secretary of State James Baker, former Treasury Secretary Hank Paulson and former Secretary of State George Shultz. They have already met with White House officials on the proposal and it also got an endorsement yesterday from Exxon’s new CEO.
Their idea of a carbon tax is not new, nor is it particularly partisan. For experts concerned about ensuring ample pollution reductions, however, its plan to eliminate some or all of EPA’s authority to regulate greenhouse gas pollution is highly concerning, and is likely a non-starter for environmental advocates and many others who value regulatory stability.
On its face, the proposal is simple: a carbon pollution tax levied on upstream carbon sources that would increase over time (a standard, but crucial, design mechanism). The revenue raised from the tax would be evenly distributed back to the American people.
However, the proposal only applies to carbon pollution – not to other greenhouse gas pollutants such as common refrigerants. At the same time, some or all of the federal regulatory authority to deal with carbon pollution (not other greenhouse gases) would be phased out in an unspecified fashion. In recognition of the need to achieve actual carbon pollution reductions and in a nod to the need to bring environmentalists along, the level of the tax must be strong enough to generate more pollution reductions than all Obama-era regulations would have produced. The CLC calculates that starting at $40 a ton is sufficient (for reference, that is quite similar to the Obama administration’s calculation of the social cost of carbon, though it’s still far lower than figures proposed by many leading economists).
Reaction to this new proposal has ranged from enthusiastic to tempered support. Democratic U.S. Senators and climate advocates Sheldon Whitehouse (Rhode Island) and Brian Schatz (Hawaii) both released statements praising the overall intent of the proposal without commenting on specific details (they have introduced legislation with many similarities). The Natural Resources Defense Council’s reaction was quite simple: “carbon tax-yes, removing EPA authority-no.”
Most conservative think tanks, such as the Heritage Foundation, which generally question the science behind climate change, have come out in strong opposition to the proposal, but libertarian think tanks R Street Institute and the Niskanen Center have put forward decidedly more favorable and nuanced perspectives.
For the past year, Ceres has been working with our company partners in Business for Innovative Climate and Energy Policy, our investor partners in the Investor Network on Climate Risk, and others to understand and evaluate various carbon pricing proposals. Whether it is support for carbon pricing or the EPA’s Clean Power Plan (which – despite being a regulatory mechanism – is structured as a market-based solution), we have seen sustained and broad private sector interest in market-based solutions for climate change. Companies and investors also want solutions that provide long-term regulatory certainty and sufficient ambition to effectively reduce pollution at levels needed to avoid potentially catastrophic climate warming. Despite the current political landscape, business and investor interest in carbon pricing is not flagging – if anything, it’s growing stronger.
As for our take, we are encouraged to see prominent and respected conservative voices taking the threat of climate change seriously and putting forth a thoughtful proposal to address the problem and ensure that America is a leader in creating and capitalizing on innovative, effective global solutions.
But we also have concerns that trading a carbon price for EPA authority on carbon pollution is likely to have significant unintended consequences. For example, what if such a trade occurred, but then the carbon price that was used was insufficient for reducing pollution at levels needed? Or, even worse, what if a future Congress decided to repeal the carbon fee altogether? And what about the greenhouse gases that would not be addressed by the proposal?
Without some sort of “snapback” EPA authority or environmental integrity mechanism for sectors of the economy that don’t respond well to a carbon tax (such as transportation or agriculture), it will be increasingly difficult to build political consensus and support for such a trade.
In addition, even with a strong carbon price in place, there will continue to be a critical need for complementary policies that can help reinforce the effect of the carbon price and continue to spur innovation and emissions reductions across the economy – especially, as the need for broad national deep decarbonization becomes ever more apparent and urgent.
The authority to regulate carbon pollution is an essential backstop to ensure that a carbon tax achieves its intended results over time. That is why we appreciate that this proposal is not discussing removing all of the EPA’s regulatory authority over greenhouse gases.
We are hopeful this proposal will generate more discussion among conservative policymakers about the urgent need to address climate change. Hundreds of American companies and investors who are already committed to tackling the climate threat will surely need to be part of these conversations, too.
Ryan Martel is a senior manager in Ceres policy program.