The Carbon Tax Solution

Would you pay 36 cents more for a gallon of gas if it reduced the worst impacts of climate change AND you got a dividend check in the mail as an incentive? That’s how a carbon tax could work.

Smoke emission from factory pipes

Five Figures to Consider

$5 trillion cost of estimated climate change-related damage to coastal property through 2100
40 countries currently charge a carbon tax
$40 proposed carbon tax per ton, which is about 36¢ per gallon of gasoline
$2,000 estimated carbon tax rebate for family of four
12,000 American lives saved annually by 2100

No amount of light bulb swapping or bicycle commuting would do as much to protect us from the worst impacts of climate change as a carbon tax would.  The tax would value the future damage caused by a ton of carbon emitted today and attach that price to carbon-emitting fuels as they enter the marketplace. We would reduce carbon emissions and limit future climate change damage. Consider that from now until 2100 without additional carbon reduction efforts, damage to coastal property from sea level rise and storm surge in the U.S is estimated at $5 trillion, and that is just one measure of the costs of climate change.   We tax other harmful products –  alcohol and cigarettes for example. Both conservative and liberal economists say it makes sense to tax carbon.

Close to 40 countries already have a carbon tax, and in the U.S. the idea is gaining wider support.  Democratic Senators Sheldon Whitehouse and Brian Schutz recently reintroduced their American Opportunity Carbon Fee Act, and Republican elder statesmen James A. Baker III and George Shultz traveled to the White House to pitch pitch a carbon tax proposal developed in partnership with the Climate Leadership Council.  Both plans would levy a tax on carbon and return some or all of the revenue raised back to taxpayers. Yes, you heard right. You would get a check in the mail or a credit on your tax return! Energy guzzlers would likely pay more in a carbon tax than they receive in their carbon dividend, but energy-conscious consumers could come out ahead.

The Baker-Shultz carbon tax plan proposes a $40 per ton tax, which works out to about 36 cents per gallon of gas.  It’s not much considering our current federal gas tax of 18.4 cents per gallon hasn’t risen since 1993, and it is much less than the $1 federal excise tax levied on a pack of cigarettes. The Whitehouse-Schutz plan proposes a $49 per ton tax. Both tax rates are based upon EPA estimates of the future economic damage done by an additional metric ton of carbon emissions in areas such as agriculture, property and human health. The carbon tax rate would rise over time, reflecting the compounding damage of carbon as it builds up in the atmosphere. For example, a metric ton of carbon emitted in 2015 is estimated to cause as much as $105 in damage over time, but by 2050 an additional ton of carbon would cause as much as $212 in damage.

A carbon tax would cause consumer prices for many products to rise, particularly gasoline, electricity and air travel.  But that carbon dividend would soften the blow. The Baker-Shultz plan proposes giving back to taxpayers 100% of the revenue raised, an estimated $2,000 for a family of four in the first year. This would make 70% of taxpayers whole on their increased costs. The Democratic plan would return half of the revenue raised, an estimated $550 per taxpayer. The rest of the revenue would be used to cut the corporate tax rate and for block grants to states to be used for things like renewable energy infrastructure, flood protection, public transportation or assistance to displaced coal miners.

The American will to reduce carbon emissions is strong. According to a recent survey 70% of registered voters support a revenue-neutral carbon tax. Additionally, hundreds of American businesses and municipalities have signed on to the “We Are Still In” movement to meet Paris Climate Accord targets.Four of America’s six biggest energy producers as well as General Motors are supporters of the Baker-Shultz carbon tax proposal. Climate change deniers, says Baker, will be “mugged by reality.”  Instituting the carbon tax would simply accelerate green trends already in motion. Natural gas, solar and wind would replace coal at a faster rate.  Fuel-efficient cars and public transportation would get a boost.  Local apple farmers would gain an advantage over New Zealand producers that ship their fruit halfway around the world. We could also clean up the tax code, eliminating redundant incentives, such as federal tax breaks for solar installations, and review carbon emissions regulations.  A well-priced carbon tax could achieve the same goals more equitably and with less economic drag. Indeed, analysts say a carbon tax would help us exceed our Paris Accord 2016 emissions targets by 28% or more and save 12,000 American lives a year.  So what’s holding up Congress?

FIVE FIGURE THINKING
Carbon is too cheap relative to the harm it produces. A carbon tax would be a win-win-win for America. Consumers would cut their consumption of carbon-intensive products thereby reducing greenhouse gas emissions, improving the health of our population and our environment, and spurring a clean energy economy. In the process most Americans would receive more in a carbon rebate than they paid in a carbon tax.  What’s not to like?