Yes, Tax Carbon. Ditch “Revenue-Neutral” Shibboleth

My response to “Progressives Need to Get Over Themselves and Support This GOP-Backed Carbon-Tax Plan” by Charles Komanoff (The Nation):

Mr. Komanoff blames environmental and environmental justice advocates for the failure of Washington State’s carbon tax ballot initiative, I-732. But the story is more nuanced.* Advocates of I-732 turned down a late offer from environmental and EJ groups to collaborate if carbon tax revenue were used for forestry management (in a state devastated by wildfires), water projects (to mitigate drought) and assistance for front-line communities. Credible polling showed their proposal was far more popular. But instead of collaborating, I-732 advocates stuck to their revenue-neutral approach intended to win support from Republicans and businesses. That support did not materialize.

Komanoff chides environmental advocates who don’t fully trust economists who assert that the “almost magic wand” of a rising price on CO2 pollution will transform the global economy from fossil dependence toward renewables and efficiency if only the tax level rises high enough. That’s a big IF. As Mark Jaccard and colleagues at Simon Frazer University in Vancouver have shown, carbon pricing tends to reach a political resistance point at a relatively low price. British Columbia’s revenue-neutral carbon tax rose briskly from $CN10/tonne CO2 to $30 where it is stuck. Yes, the new Baker/Shultz Carbon Leadership Council proposal is a welcome sign. But its proposed tax of $40/T CO2 would rise only 2%/year, nothing like the more aggressive $5/year Mr. Komanoff espouses and nowhere near the trajectory needed to reduce emissions 80% by 2050.

Elected Republicans have shown no interest in carbon taxes, revenue-neutral or otherwise. And even where carbon taxes have been enacted, they have not risen to levels or been comprehensive enough to induce the scale of energy transformation needed. Why blame environmental, EJ and climate activists for pressing to spend carbon revenue in ways that are popular and enhance the effect of its price signal? Let’s ditch the “revenue-neutral” shibboleth and start discussing constructive ways to spend (at least some) carbon tax revenue that can unite the climate, environmental and EJ movements. We don’t need more divisiveness and finger-pointing as we face Republican denialists and “lukewarmers” in all three branches of federal government.

* Both factions seemed to put their revenue preferences ahead of the larger goal: a rising price on CO2 pollution. On that score, I-732 was certainly worth enacting. See analysis by Sightline Institute.

Further Reading:

How To Use Carbon Tax Revenues, Donald B. Marron, Adele C. Morris (Tax Policy Center, 2016).

Putting a Price on Carbon: Ensuring Equity, ,

 

Author: James Handley

James Handley coordinates the Carbon Tax Network. From its inception in 2007 until 2016, James served as policy analyst and Washington representative of the Carbon Tax Center. In that capacity, he attended Congressional hearings, studied and digested climate economics and climate policy literature; providing timely reports, summaries and blog posts for CTC's website while building a network of activists, academics and policymakers to support and advance transparent taxes on carbon pollution. Prior to CTC, James represented environmental and citizen organizations, including Beyond Pesticides and the National Organic Consumers Association in public interest litigation. Prior to private law practice, he served 14 years at EPA, enforcing environmental law, where he also served as an officer in EPA's union, representing science and legal professionals, especially whistleblowers. Before law school, James specialized in environmental and energy-efficient design at Brown & Root, Inc. and Scott Paper Co. James holds degrees in Chemical Engineering (Economics minor), Law (JD), and Environmental Law (LLM, highest honors).

6 thoughts on “Yes, Tax Carbon. Ditch “Revenue-Neutral” Shibboleth”

  1. Komanoff asks EJ community advocates what progressive alternatives might work. He writes:
    “how do we craft a spending program that reconciles the claims of competing interests? And what is our blueprint for building political power to enact such a carbon tax, when “tax” remains a dirty word in national politics?”

    It seems clear that one value of a revenue neutral approach which gives most people a dividend is that these people may become engaged advocates for increasing the cap which is paying them $.

    The story the Republican Party tells about itself is important to consider when planning a strategy to price carbon. Advocates for a carbon pricing approach that is revenue neutral instead of one which ‘picks the winners’ scores points with those who tout the fiscal conservative narrative. As a result it puts pressure on both political parties to deliver an effective, popular and, perhaps, environmentally just carbon tax.

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    1. Thanks Robert,
      Just over half of voters now support a carbon tax (revenue use unspecified), according to a new national survey by University of Michigan & Muhlenberg College. Directing revenues to renewable energy R&D boosts support to 66%. Using revenue to reduce income taxes is a bit less popular, supported by 62%. Republicans don’t seem to prefer a “revenue neutral” approach. Forty-five percent of R’s support using revenue for R&D, the same level of support for an income tax reduction. http://closup.umich.edu/files/ieep-nsee-2016-fall-carbon-tax.pdf

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      1. If only popular positions translated into signed legislation. Don’t you think pick-the-winner approach will be defeated by Republicans? Using revenues to reduce income taxes will be challenged by progressives who will see it as a tax on the poor who use cars but don’t have significant incomes. Revenue neutral rebate to all seems way to go.

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  2. I’m in the Church of All Souls on the carbon tax revenue question. Many good options. I was thrilled that the Congressional Budget Office scored carbon tax revenue. As Donald Marron and colleagues at the Tax Policy Center pointed out, the CBO score indicates that a $25/TCO2 tax rising 2% real would generate $1.2 trillion in a decade. The figures from CBO and TPC are telling appropriators how they can build carbon taxes into budgets. http://www.taxpolicycenter.org/sites/default/files/alfresco/publication-pdfs/2000274-Taxing-Carbon-What-Why-and-How.pdf

    I get discouraged when carbon tax supporters lock into their revenue preferences even before there’s a legislative proposal. Insisting on “revenue-neutral” or even more narrowly on a “dividend” strikes me as a sure way to keep carbon taxes on the sidelines, especially now as tax reform seems to be on the Hill agenda. Let’s let up on “revenue-neutral” and give legislators a fiscal reason to consider carbon taxes.

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    1. I may not be understanding how you see economics or politics? Isn’t more money in the pockets of people who will spend it a fiscal (Keynesian) “fiscal reason”? And isn’t the time to get behind a substantive proposal for the benefits of any carbon tax before there’s a legislative proposal rather than after majorities are whipped together for one?

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  3. On the federal level, I see ZERO chance (any time soon) for stand-alone climate legislation such as “Carbon Fee & Dividend” or any 100% revenue-neutral carbon tax. But I see signs that we might have a shot at folding a carbon tax into some kind of fiscal or tax reform measure. Senate Republicans may need a few Democratic votes to pass a tax package. If we push for a carbon tax, it might show up in a compromise bill. But if climate activists insist on “revenue-neutral,” that tells Congress to leave carbon taxes on the shelf because we don’t have anywhere near the votes for stand-alone climate legislation.

    When the Washington State climate movement split over carbon tax revenue, we lost an opportunity. Similarly, insisting on “revenue-neutral” strikes me as making the perfect the enemy of the good.

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