A Carbon-Cutting Proposal That Might Actually Work

It surely won’t become law in this political climate, but a new carbon tax bill floating through Congress right now could actually make a difference.

Backers of a carbon tax like to point out that it kills several birds with one large rock. You can cut emissions that lead to climate change and patch up national finances at the same time. What’s more, it is taking on a problem directly: taxing something normally means discouraging it.

Add in that an across-the-board tax is relatively fair (compared to, say, giving $535 million to a single solar company), and relatively easy to implement (easier, anyway, than cap and trade, which has a reputation for bureaucracy despite being "market-based"), and you see why economists and politicians of different stripes have supported the idea.

The latest proposal comes from representatives Henry Waxman and Earl Blumenauer, and senators Sheldon Whitehouse and Brian Schatz—all Democrats. It lays out per ton taxes of $15, $25, and $30, and annual increases of between 2% and 8%. The background document explains:

The discussion draft requires covered entities to pay a fee for each ton of carbon pollution reported under the existing Environmental Protection Agency (EPA) greenhouse gas emissions reporting rule. In contrast, previous proposals for a carbon tax have commonly levied the tax at the point of production or first sale of a fossil fuel. Advantages of the new approach include: more complete coverage of emissions; lower compliance burden for sources; lower administrative burden for the government; and appropriate deployment of agency expertise.

The proposal is framed as a debate document. It asks what we should do with the revenue raised:

What are the best ways to return the revenue to the American people? The discussion draft proposes putting the revenue toward the following goals, and solicits comments on how to best accomplish each: (1) mitigating energy costs for consumers, especially low-income consumers; (2) reducing the Federal deficit; (3) protecting jobs of workers at trade-vulnerable, energy intensive industries; (4) reducing the tax liability for individuals and businesses; and (5) investing in other activities to reduce carbon pollution and its effects.

Exactly how much money there would be to play with depends on several factors. A paper from the MIT Global Change Institute last summer predicted as much as $1.5 trillion over 10 years, based on a 20% fee, and annual increases of 4%. It’s likely that Republicans would only ever support returning revenue to taxpayers (in the unlikely event they supported a tax at all). But several academics have argued the most effective thing would be to reinvest in alternative energy.

The most advanced carbon tax regime is in British Columbia, which has reduced emissions, and decreased its deficit—just as carbon tax proponents have evangelized. China is the other major carbon tax regime, but its proposal is still on the drawing board.

Some may disqualify Waxman and co.'s proposal simply for being a tax, but their proposal bears thinking about. The alternatives in climate change policy—not to mention the budget debate at large—may be a whole lot worse.

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  • Dave W

    Make the polluters actually pay for a small percentage of the damage they do? Outstanding yet obvious idea. Way over the line for the party that got into a killing rage when Big Government proposed taking some kinds of incandescent lightbulbs away. When both houses of Congress are controlled by the Ignorance-Greed Lobby, good ideas, even the good ol' ones, drown in a bathtub.

    Maybe if we all take our wakey-wakey pills we can make this happen after the next election. Sometimes ya gotta just take the win-win.

  • luke warmwater

    Solution FREE 20MW turnkey parks to every major city in the US.
    Need to be located within 10 miles of city.Tremendous reduction in power consumption and therefore CO2.
    Teaching tool for schools and utilities to understand solar and the grid.
    Provides FREE electricity to area residents and businesses.
    Creates jobs, electricians, installers, engineers, panel manufacturing etc.
    Lower electricity costs mean a boost in economy. 
    Lower electricity demand leads to lower nat gas and coal demand.
    Lower demand NG and coal demand means lower NG and coal prices.
    Lower NG and Coal prices means lower power production. 
    Leading to lower costs for residents and business and industry.
    Mean they hire more. 
    Solar panels will be cheaper do to mass production leading to more installed around the world.
    Which has a multiplier effect on CO2 reduction and jobs.
    Repeat as needed.