How Carbon Taxes Can Work

How Carbon Taxes Can WorkLike most economists, I favor taxing carbon dioxide to cut carbon pollution.

A carbon tax makes fossil fuels like oil and coal more expensive. That, in turn, leads consumers and industries to use less of them. At the same time, it boosts demand for alternative energy sources like wind and solar powered electricity.

With the anti-regulatory Trump administration in power and a Republican majority controlling the Senate, however, no such national policy is imminent. Prospects for statewide efforts may look bleak too, after ballot initiatives in Washington state that would have created the nation’s first carbon tax failed in 2016 and 2018.

But other states may move in this direction. Having conducted extensive research about how climate policies are working around the world over the past decade, I believe that the effort to enact a carbon tax is worth it.

The headwinds

Based on my experience serving as the deputy assistant secretary for environment and energy at the U.S. Treasury Department for two years during the Obama administration, I recognize it won’t be easy to enact tough climate policies. Recent events in France underscore this fact. There, President Emmanuel Macron has backed down on the taxes on gasoline, diesel and heating oil that led to waves of so-called yellow vest protests that rocked France and left six protesters dead by mid-December.

Fairness is central to the French protests, which sprang from objections to what came across to many voters as an elitist, out-of-touch central government that has lowered taxes on the rich while hiking taxes on the poor. The 2018 French budget, enacted last December, cut corporate tax rates and wealth taxes while increasing a social levy on all income similar to our payroll taxes. This change skewed taxes away from the rich and made the poor pay more.

This law had already stirred discontent. The hike in fuel taxes, part of a carbon tax initially enacted in 2014, poured fuel on those flames. Framing the increase as an environmental tax did nothing to assuage rural and low-income voters. “We’re not anti-environmental,” a movement organizer said. “This is a movement against abusive taxation, period.”

Meanwhile, the failure of the Washington State ballot initiative illustrates the risks of trying to enact controversial policies at the ballot box. When vast amounts of money poured into the state from big oil corporations like BP to finance a campaign against a carbon tax, thoughtful policy debate was forced to compete with a slick media campaign. Supporters also had to overcome the legacy of a previous failed referendum that pitted climate policy advocates against each other.

How Carbon Taxes Can Work

The benefits

Designed correctly, a carbon tax can do more than reduce carbon pollution. It can also make tax codes more fair. Research by a group of economists demonstrates that carbon taxes can be progressive – meaning higher income households pay more in tax per dollar of income than lower-income households.

A carbon tax can also create jobs. Although instituting one in the U.S. would surely speed up the disappearance of U.S. coal mining jobs, that shift would continue no matter what while also expediting the creation of new employment opportunities. As of today, there are more than twice as many jobs in solar technology than in coal mining.

Finally, taxing carbon is unlikely to hurt the economy. Despite a roughly $135-per-ton tax on carbon dioxide, Sweden is doing just fine. Its GDP has grown by nearly 80 percent since it enacted a carbon tax in the early 1990s, while its emissions have fallen by one-quarter.

Sweden’s growth rate has actually exceeded that of the U.S. since 2000 despite high taxes on carbon pollution, in part because Sweden uses the revenue to cut other taxes. And the World Economic Forum finds the two economies to be about equally competitive.

How Carbon Taxes Can Work

How Carbon Taxes Can Work

Likewise, British Columbia’s carbon tax has not hurt its economy since going into effect in 2008. My analysis indicates, if anything, the tax has boosted growth in the Canadian province. That’s because some of the revenue raised was used, to cut marginal income tax rates on individuals and the tax bills for small businesses. Another economist based at the University of Calgary found that local employment increased by a small but statistically significant amount.

Politically feasible

When and if Congress is finally ready to enact a carbon tax in the U.S., it should consider a guiding framework as it debates the elements of the new tax.

President Ronald Reagan understood the power of establishing frameworks to guide tax policy. In his 1984 State of the Union address, he called for a tax reform that would raise no additional revenue but “make the tax base broader, so personal tax rates could come down, not go up.”

With that directive, Reagan launched the most significant tax reform in the history of the tax code. His directive made clear that he wanted lower tax rates without sacrificing revenue. This simple framework imposed an important discipline that kept lawmakers on track.

In my new book, “Paying for Pollution: Why a Carbon Tax Is Good for America,” I lay out similar guiding principles. In my view, carbon taxation should be revenue-neutral, make the tax code fairer, streamline climate policy and lead to significant emission reductions.

Republicans and Democrats have argued for years over the size of the federal government. It is a debate that should not ensnare climate policy. Revenue neutrality in this context means that all the money raised through a carbon tax should be returned to Americans through some combination of tax cuts and direct payments.

Fairness means that low to moderate income households are not made worse off by the tax. There are many ways to do this including a proposal from the Climate Leadership Council, a policy initiative backed by big corporations like ExxonMobil and General Motors as well as three big environmental groups and former Republican secretaries of State James Baker III and George Shultz, to give all U.S. households the money raised from carbon taxation through carbon dividends.

The government should also provide transitional relief to carbon-intensive industries and regions. The federal government should partner with state and local governments to develop transition plans for these communities.

How Carbon Taxes Can Work Wind power can create jobs for workers like these while cutting carbon pollution. AP Photo/Steven Senne

National climate policies generally include various tax breaks for renewable energy as well as mandates – which in the U.S. primarily consist of state-level renewable portfolio standards. With a carbon tax, it is possible to eliminate some of these overlapping policies and guarantee that emissions decline at the same time.

Reducing greenhouse gas emissions is the whole point of climate policies and therefore the highest priority when implementing them. As the latest U.N. climate report makes clear, cutting carbon pollution everywhere and quickly is an urgent priority. And the Swedish track record suggests that pricing carbon dioxide can help make it happen without hindering economic growth.The Conversation

About The Author

Gilbert E. Metcalf, John DiBiaggio Professor of Citizenship and Public Service; Professor of Economics, Tufts University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Related Books

InnerSelf Market

Amazon

YOU MAY ALSO LIKE

enafarzh-CNzh-TWdanltlfifrdeiwhihuiditjakomsnofaplptruesswsvthtrukurvi

follow InnerSelf on

facebook icontwitter iconyoutube iconinstagram iconpintrest iconrss icon

 Get The Latest By Email

Weekly Magazine Daily Inspiration

LATEST VIDEOS

The Great Climate Migration Has Begun
The Great Climate Migration Has Begun
by Super User
The climate crisis is forcing thousands around the world to flee as their homes become increasingly uninhabitable.
The Last Ice Age Tells Us Why We Need To Care About A 2℃ Change In Temperature
The Last Ice Age Tells Us Why We Need To Care About A 2℃ Change In Temperature
by Alan N Williams, et al
The latest report from the Intergovernmental Panel on Climate Change (IPCC) states that without a substantial decrease…
Earth Has Stayed Habitable For Billions Of Years – Exactly How Lucky Did We Get?
Earth Has Stayed Habitable For Billions Of Years – Exactly How Lucky Did We Get?
by Toby Tyrrell
It took evolution 3 or 4 billion years to produce Homo sapiens. If the climate had completely failed just once in that…
How Mapping The Weather 12,000 Years Ago Can Help Predict Future Climate Change
How Mapping The Weather 12,000 Years Ago Can Help Predict Future Climate Change
by Brice Rea
The end of the last ice age, around 12,000 years ago, was characterised by a final cold phase called the Younger Dryas.…
The Caspian Sea Is Set To Fall By 9 Metres Or More This Century
The Caspian Sea Is Set To Fall By 9 Metres Or More This Century
by Frank Wesselingh and Matteo Lattuada
Imagine you are on the coast, looking out to sea. In front of you lies 100 metres of barren sand that looks like a…
Venus Was Once More Earth-like, But Climate Change Made It Uninhabitable
Venus Was Once More Earth-like, But Climate Change Made It Uninhabitable
by Richard Ernst
We can learn a lot about climate change from Venus, our sister planet. Venus currently has a surface temperature of…
Five Climate Disbeliefs: A Crash Course In Climate Misinformation
The Five Climate Disbeliefs: A Crash Course In Climate Misinformation
by John Cook
This video is a crash course in climate misinformation, summarizing the key arguments used to cast doubt on the reality…
The Arctic Hasn't Been This Warm For 3 Million Years and That Means Big Changes For The Planet
The Arctic Hasn't Been This Warm For 3 Million Years and That Means Big Changes For The Planet
by Julie Brigham-Grette and Steve Petsch
Every year, sea ice cover in the Arctic Ocean shrinks to a low point in mid-September. This year it measures just 1.44…

LATEST ARTICLES

image
Why the UK is so unprepared for the impacts of climate change
by Liam F. Beiser-McGrath, Lecturer (Assistant Professor) in Politics and Director of the PECC Lab, Royal Holloway University of London
The UK is woefully unprepared for the dangers of climate change according to a report from the Climate Change Committee…
Rows of solar panels are separated by a walkable space between them
Solar power and energy storage combo boosts reliability
by Matt Shipman-NC State
New research shows that when a power system combines energy storage and solar power generation, the end result is…
Climate change: what G7 leaders could have said – but didn't
Climate change: what G7 leaders could have said – but didn't
by Myles Allen, Professor of Geosystem Science, Director of Oxford Net Zero, University of Oxford
The four-day G7 summit in Cornwall ended with little cause for celebration from anyone worried about climate change.…
How world leaders' high-carbon travel choices could delay climate action
How world leaders' high-carbon travel choices could delay climate action
by Steve Westlake, PhD Candidate, Environmental Leadership, Cardiff University
When UK prime minister Boris Johnson took a one-hour flight to Cornwall for the G7 summit, he was criticised for being…
Maggot burgers can help to solve world hunger
by Paul Brown
Fancy maggot burgers for dinner? Eating animals and plants which revolt many of us could cut hunger caused by climate…
The idea of green growth'is flawed. We must find ways of using and wasting less energy
by Michael (Mike) Joy, Senior Researcher; Institute for Governance and Policy Studies, Te Herenga Waka — Victoria University of Wellington
As countries explore ways of decarbonising their economies, the mantra of “green growth” risks trapping us in a spiral…
Four reasons why G7 climate finance initiative will struggle against China's Belt and Road
Four reasons why G7 climate finance initiative will struggle against China's Belt and Road
by Karen Jackson, Senior Lecturer in Economics, University of Westminster
During the G7 summit in Cornwall, the group of nations unveiled a global initiative to help low and middle-income…
image
Electric heat pumps use much less energy than furnaces, and can cool houses too – here's how they work
by Robert Brecha, Professor of Sustainability, University of Dayton
To help curb climate change, President Biden has set a goal of lowering U.S. greenhouse gas emissions 50%-52% below…

 Get The Latest By Email

Weekly Magazine Daily Inspiration

New Attitudes - New Possibilities

InnerSelf.comClimateImpactNews.com | InnerPower.net
MightyNatural.com | WholisticPolitics.com | InnerSelf Market
Copyright ©1985 - 2021 InnerSelf Publications. All Rights Reserved.