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I. Mainstream scientists are finally speaking and writing explicitly about catastrophic climate scenarios. 

Until now — with a few exceptions — IPCC reports, other official publications, peer-reviewed science and economics have severely downplayed catastrophic climate risk.  It started in 1979 with the first National Academy of Sciences report by the Charney Commission which mentioned the need for carbon taxes but recommended only “further study.”  

The big models and studies assumed global warming would proceed on a more or less linear trajectory.  Nope.  That’s ignoring forcing feedback and tipping points.  It’s a dangerous over-simplification; climate scientists knew that in 1979.  (But don’t alarm the public.  Or risk being called an “alarmist.”  Besides, feedbacks and tipping points blow up our neat models.)  

A new paper in Proceedings of National Academy of Sciences breaks the silence:

“Temperature rise has a wide range of lower probability but potentially extreme outcomes. Remaining blind to these scenarios is naïve risk-management at best and fatally foolish at worst.” —lead author Dr. Luke Kemp. 

II. Democrats’ subsidy, subsidy and more subsidies climate bill, misleadingly titled the “Inflation Reduction Act” is not likely to help with inflation, though its methane fee will certainly help with climate.

The IRA’s major climate provisions are doing the easy thing, giving away money to renewable energy and rich drivers.  It avoids the necessary thing– raising the cost to pollute.   

“Democrats’ climate bill subsidizes non-fossil energy. But doesn’t recognize Climate Change as a global problem that requires cutting fossil fuel burning. A Carbon Tax is still necessary to actually solve the problem.” —Economist Tyler Cowen

A glaring problem with the IRA’s all-carrots, no-sticks approach: it doesn’t push consumers to conserve energy. Cheaper renewable energy will mean cheaper electricity and gasoline which encourages the opposite — it says “don’t bother to look for ways to cut waste or to improve efficiency.” Those “nega-watts” derived from conservation and efficiency are the cleanest energy in the world. No climate policy that ignores them can fairly be called “comprehensive” or even efficient.

And the bill’s “subsidy, subsidy and more subsidies” approach can’t be replicated across the globe. Even in the U.S., we can’t keep subsidizing non-fossil energy forever. As long as there’s more of the dirty stuff in the ground, and it’s cheap, someone will burn it. Subsidies for renewables increase total energy supply making dirty energy cheaper. That’s bound to be popular, but it’s not really climate policy, it’s more “all of the above” energy policy that brought us the fracking boom.

Unlike subsidies, a tax on climate pollution can go global, particularly if it becomes a revenue source for things voters want from government. Subsidies are only an option in rich countries; and even here they won’t do much for long. If we want to drive out fossil fuels not just spur renewables, we will need a carbon tax.

Subsidies often miss the mark. Think about ethanol. Congress enacted a subsidy and a mandate for adding ethanol to gasoline on the theory that it would displace (imported) petroleum. But for decades, numerous reports by the Congressional Budget Office have documented no climate and no energy benefit from the ethanol subsidy and mandate, mainly because growing corn for ethanol requires lots of fertilizer, almost entirely from natural gas. See e.g., Stop the Ethanol Madness The mainstay of the Renewable Fuel Standard is an unmistakable social and environmental failure. Why does it persist? (The Atlantic, November 2019.) Despite their cost and ineffectiveness, an entrenched lobby keeps ethanol subsidies and mandates going.

And how about the IRA’s subsidies for more attempts at thermodynamically bankrupt “Carbon Capture and Sequestration” demonstration projects? MIT professor Charles Harvey: “Every Dollar Spent on This Climate Technology Is a Waste.” CCS subsidies help justify continued production of coal, oil and natural gas at a time when the world should be ending its dependence on fossil fuels.

Expect more of those endless games with renewable and EV subsidies even if they don’t work as intended. Even before the IRA, it was clear that EV subsidies are going to the wrong drivers. As Kristen Eberhard at Niskanen Center reported, to maximize climate benefits, EV subsidies should go to heavy drivers, not to rich virtue signalers.

Subsidies make the politics of pollution taxes even harder by addicting renewable energy industries to subsidies, shielding them from the need to advocate and enact carbon taxes. A dozen years ago, we asked the American Wind Energy Association to support a carbon tax. Their reply: “Yes, it’s essential. Sorry, we’ve gotta keep our subsidies. We don’t want a fight with the fossil fuel lobby.”

And who benefits from subsidies? They’re terribly regressive.

“Energy subsidies are one of the few domains where there is a near full-throated consensus among progressives, governments, and economists over the need for reform. Nearly everywhere, energy subsidies are regressive, vastly favoring the car- and energy-consuming parts of the population that are often the least in need.” — From Regressive Subsidies to Progressive Redistribution: The Role of Redistribution and Recognition in Energy Subsidy Reform, NYU Center on Environmental Cooperation (November 2021.)

Though to be fair, the IRA does include a number of measures to help balance the distributional burden, so the goodies don’t all flow to the jet set and the Tesla crowd.

And while I rarely agree with Marc Thiessen, he hit the mark here:

“At a time when inflation is forcing many to choose between staples such as gas and food, the Biden administration is providing taxpayer subsidies to couples making $300,000 a year who can already afford a Tesla.”

And as Thiessen reports, despite its title as “Inflation Reduction Act,” various credible economic analyses conclude that the bill is not likely to reduce inflation.

By far, the best climate provision in the IRA is the methane pollution fee, crisply analyzed here, by the Congressional Research Service.

Methane is an extremely potent greenhouse gas, and in many places especially oil and gas drilling sites, it’s just vented to the atmosphere. New satellite imaging and atmospheric monitoring reveal that methane is a much bigger driver of global warming than was known even a few years ago. Equipment to capture methane is widely available and cost-effective, especially if drillers are prodded by a hefty and rising methane pollution tax. Enactment and success of a methane pollution tax could set a precedent for a carbon tax.

III. And yes, we still need that carbon tax.

Another nice try: Senator Sheldon Whitehouse (D-RI) proposed a Carbon Border Adjustment Mechanism, called the Clean Competition Act, a tax on carbon-intensive imports along with an equivalent tax on similar domestic goods. I recommend the short summary by Niskanen Center’s Shuting Pomerleau. And here’s trade expert Jennifer Hillman explaining and extoling CCA: “Congress can address competitiveness and climate change — without breaking trade rules.” 

So here we are. Facing the prospect of near-term human extinction. Today, Senate Democrats passed the “Inflation Reduction Act” without a single Republican vote. A bill that offers voters a measure of hope that Senate Democrats can address climate breakdown, strictly along partisan lines. And without the key policy that the NAS Charney Commission identified 43 years ago as essential to avoiding and curbing runaway global warming — a rising carbon tax to make climate polluters pay so renewable energy and efficiency can compete fairly and phase out fossil fuels.

So, here’s one cheer for the Inflation Reduction Act!

And here’s to electing a more responsive Congress in November. For years, polls have shown strong public support (roughly 2/3) for taxes on climate pollution. And yet it didn’t make the cut in the Democrats’ bill. (Was it Manchin, or some other Democrat who torpedoed a carbon tax? It certainly was discussed.)

Similarly, voters have long shown strong support (again, about 2/3) for the reproductive freedoms that until last month were guaranteed by the Supreme Court in Roe v. Wade. I hope the voters in Kansas, who this week resoundingly rejected and overcame the disastrous and politically reckless Supreme Court overruling of Roe v. Wade, are leading the way. Maybe, just maybe, a wave election in November could open the way for truly effective and globally harmonizable climate policy — a hefty and rising carbon tax.

I’ll give the last word to Dorothy:

If donning a wetsuit and diving into an Arctic lake to get a look at underwater craters boiling up methane gas sounds like an exciting adventure, let me introduce you to Katey Walter Anthony,[1] who did just that in an Alaska lake last summer. Last week, Dr. Anthony took a break from the meeting of the American Geophysical Union here in Washington, to offer a short briefing where she explained what she found.[2]

A bit of background: Methane (“natural gas”) like carbon dioxide, is a greenhouse gas. Greenhouse gases block infra-red radiation, reducing the amount of heat escaping from earth’s surface into space: Global warming. Methane is a more potent greenhouse gas than carbon dioxide, but it breaks down much faster.

Dr. Anthony has been studying the dynamics of Arctic lakes for a couple of decades. Thermokarst lakes form when arctic soil begins to thaw, leaving voids where ice crystals have melted, causing the soil to subside. Last year, native Alaskan groups contacted Dr. Anthony seeking her help finding methane seeps which they hope to use as fuel in their remote villages.[3] As lake bottoms thaw due to a warming climate, partially-decayed plants and animals, until now locked in permafrost, are starting to thaw and resume their decay, releasing carbon dioxide and methane. Increasing release of carbon dioxide and methane from thawing permafrost is one of about half a dozen amplifying climate feedback mechanisms that scientists have documented and begun to quantify.[4]

But what Dr. Anthony found at a lake that she named Esieh, just above the Arctic Circle, is even more troubling. She spotted the telltale signs of methane release — photos show that the lake doesn’t freeze over. And when she and her team arrived to set up camp, they were greeted by a steady eruption of grapefruit-sized bubbles rising to the lake surface. Carbon dating reveals that the gas is fossil methane, not the product of decaying material in permafrost, but gas from deeper geologic formations. Dr. Anthony surmises that as permafrost melts, it unseals fissures and crevices that connect to geologic gas deposits.

It’s not clear yet whether Esieh Lake is an anomaly, or part of a larger pattern of thermokarst lakes with underground connections to geologic methane, which would have ominous implications for earth’s climate. What we do know, as Dr. Walter put it, is that “these lakes speed up permafrost thaw. It’s acceleration.” And that the amplifying effects of releasing fossil methane at an accelerating rate are not included in current climate models.[5]

Footnotes: 

[1] “Katey Walter Anthony, 2009 Emerging Explorer,” National Geographic, https://www.nationalgeographic.org/find-explorers/katey-walter-anthony

[2] Thanks to Rafe Pomerance who arranged the briefing and invited me. Rafe’s long history as a champion of climate policy was reported by Nathaniel Rich in the New York Times last August: https://www.nytimes.com/interactive/2018/08/01/magazine/climate-change-losing-earth.html

[3] “Acrtic Caldroun,” Washington Post (9/22/18) by Chris Mooney with (splendid) photos by Jonathan Newton. https://www.washingtonpost.com/graphics/2018/national/arctic-lakes-are-bubbling-and-hissing-with-dangerous-greenhouse-gases/

[4] See, National Climate Assessment (2017), Chapter 15, “Surprises, Tipping Points and Compound Extremes.” https://science2017.globalchange.gov/chapter/15/, and
“The Study of Earth as an Integrated System,” NASA (2017),  https://climate.nasa.gov/nasa_science/science/.

[5] KW Anthony et al, “21st-century modeled permafrost carbon emissions accelerated by abrupt thaw beneath lakes,” Nature Communications,  August 15, 2018.  https://www.nature.com/articles/s41467-018-05738-9

 

 

Just one day after Donald Trump, surrounded by coal miners, signed executive orders to roll back Obama Administration energy and climate rules, the Partnership for Responsible Growth convened a symposium at the conservative Hoover Institution (two blocks from the White House) delving into prospects for carbon pricing. George Shultz, President Reagan’s Secretary of State and professor emeritus at Stanford, opened the event urging swift action to reduce climate risk with a rising tax on carbon emissions.

The first panel, discussing revenue, was led by Harvard economics professor and former Obama adviser Joe Aldy, who proposes a carbon tax to replace EPA regulations on coal-fired power plants. Aldy suggested that by funding cuts in business and payroll taxes, a carbon tax could spur economic growth; he also suggests a small fraction of revenue to fund much-needed clean energy research. He pointed out that British Columbia garnered popular support for its revenue-neutral carbon tax by initially sending revenue checks directly to households. Aldy expressed hope that mounting pressure to reform the U.S. tax code after three decades of stasis could offer a unique opportunity to interject carbon taxation.

Thomas Stephenson of Sequoia Capital, concurred that a simple upstream carbon tax is the uncontested climate policy of choice. Differences of opinion, he noted, are mostly about revenue options. In addition to replacing regulations, Stephenson suggested that carbon taxes could replace a myriad of costly energy subsidies and mandates. He suggested that many conservative objections to a carbon tax could be overcome if the tax is truly revenue-neutral.

Bob Perkowitz, president of eco-America, pointed out that states now face a $500 billion revenue shortfall. Consistent with conservative notions of federalism, Perkowitz suggested distributing carbon tax revenue to states via “block grants,” allowing spending decisions to be made on the state level.

Donald Marron, director of economic policy initiatives at the Urban Institute, stressed that a robustly-increasing carbon tax can be designed to meet any climate policy goal.

For example, Marron said, a modest tax starting at $25/T CO2, rising just 2% above inflation would easily achieve the Paris climate target while raising over $1 trillion in revenue over a decade. In the current Republican political environment, Marron suggested framing a carbon tax as a replacement for other taxes or as a source of funds to households, not as a source of revenue for government spending. He suggested that Republicans might feel more comfortable supporting proposals that “score” as truly revenue-neutral by the Joint Committee on Taxation and the Congressional Budget Office. Marron noted that block grants could be considered “spending,” but pointed out that the distinction between spending and “negative taxes” can become arbitrary.

During the question and answer period, Ted Halstead, founder of the newly-formed Climate Leadership Council, observed that FDR didn’t sell Social Security as a “payroll tax.” Similarly, he urged carbon tax supporters to emphasize near-term benefits. CLC’s proposal is framed as a “carbon dividend” to every household.

Maya Macguineas, president of the Committee for a Responsible Federal Budget, opened the second panel on political prospects. She stressed that unlike other policies, carbon taxes address both fiscal and climate problems simultaneously.

Jerry Taylor, director of the libertarian Niskanen Center, is skeptical of the near-term political prospects for carbon taxes. Taylor finds it “unimaginable for Trump or Republicans to promote carbon tax… they will not fly into the teeth of big coal. Until [coal magnate] Bob Murray buys it, no [carbon tax].”

Taylor pointed out that Rep. Scalise’s resolution condemning carbon taxes last year (supported by all but one House Republican), was a reaction to lobbying for a carbon tax. In Taylor’s assessment, “Republican leadership is just as adamant as Charles Koch.” Taylor pointed out the stark silence of Senators McCain and Graham, who formerly supported climate policy. Moreover, Taylor noted, “there is no evidence of the needed political capability at the White House. I would be stunned if either tax reform or infrastructure advance.”

Taylor cautioned against reading too much into reports that roughly 40 House Republicans and 10 Senate Republicans are uncomfortable with climate science denial. Taylor suggested that discomfort with denial does not necessarily lead to support for a carbon tax. Instead, Taylor suggested, climate-concerned Republicans might embrace Bill Gates’ “breakthrough” proposal for technology funding or proposals for geoengineering. Taylor concluded, “even if there were a political opening for carbon tax on the Hill this year, we would probably miss it because key advocates are not engaged.” But he offered a ray of hope: Perhaps an opportunity after the 2018 election — if we do the legwork now.

Adele Morris, Climate and Energy Policy Director at the Brookings Institution, articulated three sets of reasons for carbon taxes. First: To slow unchecked climate risk. Second: To avoid a proliferation of complex, inefficient and mismatched state and local programs. And finally: To preempt the lengthy implementation and litigation associated with EPA’s sector-by-sector regulatory approach, which is not globally replicable and which could be revived by the next Democratic administration. Morris lamented the lack of engagement by environmental and climate organizations to support carbon taxes. Their past “distraction” by EPA’s regulatory approach was understandable, but is now moot. “There is no distraction now,” she quipped. Moreover, she pointed out that “any substantial carbon tax would beat the pants off” the climate effectiveness of the Clean Power Plan.

Bob Inglis, former Congressman (R-SC) and founder of republicEn, offered assurance that “political orthodoxy is more fluid than it might appear.” As a case-in-point, Inglis recalled that he’d taken a beating from constituents and other Republicans for opposing the 2007 Iraq troop surge. Now, he noted, Trump and many Republicans, including Ron Paul, routinely criticize the entire Iraq war. Inglis urged carbon tax supporters to speak in terms of Republican values. He suggested that Trump could sell a carbon tax with border adjustments as way to “make China pay,” to avoid getting tangled by UN agreements and to “make American win again.”

Walt Minnick, another former congressman (D-Id) and a co-founder of the Partnership for Responsible Growth, urged framing carbon taxes as “carbon-funded tax cuts.” Minnick suggested that the costs of delaying climate policy are large and seem to be growing exponentially. “We cannot afford to wait 4 to 8 more years,” he said. At the same time, he stressed, the U.S. faces growing and unsustainable deficits. In over 100 meetings with members of Congress, he said only two have expressed willingness to continue increasing spending without some means to pay for it. He pointed out that the House’s Border Adjustment Tax is “taking on heavy water,” and noted that there is little stomach in Congress for cutting the business interest deduction or the home mortgage deduction. Other revenue options, such as imposing a new value added tax, are even less palatable. In short: Congress will need ways close budget gaps; a carbon tax offers a way. His focus, Walt said, is on enacting a rising price on carbon; in that effort, all revenue options should be on the table.

Phil Sharp, former Congressman (D-In) and CEO of Resources for the Future, stressed the unique opportunity to interject carbon taxes into tax reform. Sharp is confident that tax reform will (eventually) advance and feels that it offers by far the best vehicle for a carbon tax.

The panel’s moderator, Jessica Tuchman Matthews, whose illustrious career includes directing the Carnegie Endowment for International Peace, serving on the Council on Foreign Relations, as well as a stint on the Washington Post editorial board, succinctly summed up the panel’s comments:

1. A carbon tax must be bipartisan.
2. The vehicle is tax reform.
3. Advocates must mobilize.

In response, Jerry Taylor suggested another “vehicle” for a carbon tax could be to fund infrastructure. Ted Halstead also disputed the tax reform “vehicle.” He noted that to be effective, a carbon tax must not only put a substantial price on carbon emissions, it must continue to rise over time. To build ongoing support for that rising price, Halstead urges linking a carbon tax to a “dividend,” distributing revenue directly to each household.

Congratulations and thanks to the Partnership for Responsible Growth, the Hoover Institution, moderator Alice Hill and all the panelists for continuing and advancing this vital policy conversation.

(Link to video, courtesy of  Hoover Institution.)

A modest, steadily-rising carbon tax as proposed a month ago by the Climate Leadership Council would be more effective and globally-replicable than existing greenhouse gas regulations. That was the unanimous conclusion of three energy economists and one oceanographer turned climate lobbyist who spoke at a forum yesterday at the Johns Hopkins School of Advanced International Studies in Washington DC. Moreover, the panel stressed, both climate activists and legislators seeking to improve the efficiency and fairness of the tax code have good reasons to seriously consider such a replacement strategy.

Danny Richter, legislative director of Citizens’ Climate Lobby suggested that a revenue-neutral carbon tax can help depoliticize climate policy. In conversations on Capitol Hill, Richter said some Republicans seem to be looking for issues where they can show independence from the Trump administration and instead align themselves with science. Richter thinks climate policy may be their golden opportunity. Richter pointed out House Resolution 424, sponsored by 16 Republicans, calling for “American ingenuity, innovation and exceptionalism to create and support… to study and address the causes and effects of measured changes to our global and regional climates…” Richter said CCL is seeking support from another two dozen Republicans to create an effective, conservative pro-climate voting bloc in the House.

Marc Hafstead, a research fellow at Resources for the Future, discussed the results of the macro-economic model he developed with pioneering climate economist Lawrence Goulder. The model compares effectiveness and economic effects of climate policies. Hafstead reported that CLC’s proposed tax of $40/T CO2 rising 2% annually would easily surpass the emissions reductions from EPA’s Clean Power Plan. He seemed to prefer a more modest starting price of $20/T CO2 with a more aggressive 4% annual ramp-up, but he concluded that either carbon tax proposal would easily out-perform EPA regulations. CLC’s proposal to return carbon tax revenue as a lump-sum “dividend” is distributionally-progressive (benefitting low income households the most) but Hafstead pointed out that it is more costly in the aggregate (as measured by GDP) than using revenue to cut other taxes that slow economic growth. Hafstead finds that cutting the top corporate income tax rate, a long-standing Republican policy goal, is the most efficient revenue option. Hafstead concluded by underscoring the dual benefits of reducing climate risk by taxing carbon while simultaneously spurring growth by cutting distortionary taxes.

Adele Morris is a Senior Fellow at the Brookings Institution who served at the State Department as a climate negotiator in 2000. Morris congratulated the Climate Leadership Council for re-starting and focusing the conversation about how to design and implement a carbon tax which she finds more interesting than tiresome debate about “hoaxes” and whether climate policy is needed at all. Morris stressed that the substantial, growing revenue stream from a modestly-rising carbon tax offers attractive options for embedding it in broader tax reform. And she emphasized that a carbon tax would maximize U.S. leverage in climate negotiations; a price instrument would facilitate transparent comparison of national ambition in those negotiations. She observed that it’s relatively easy to compare prices, but it’s complicated to negotiate and verify achievement of quantity-based targets. Morris responded to critics of carbon taxes who assert that carbon taxes aren’t efficient unless the price is set optimally. She pointed out that because the incremental damage from carbon emissions increases non-linearly over time, the potential cost of excess abatement is likely to be tiny compared to the benefits of getting ahead of that ominous upward-curving climate damage function. Morris’ top-line message: a carbon tax will be much more cost effective, transparent, replicable than regulations.

Noah Kaufman, a climate economist at the World Resources Institute, recently served at the White House Council on Environmental Quality. Kaufman suggested that carbon taxes may not need to rise to the high levels that standard economic modeling predicts. Observing the brisk pace of recent energy technology innovation, Kaufman suggested that even a modest carbon price could spur even more rapid low-carbon energy innovation and implementation. He also pointed out that the carbon tax in British Columbia has been more effective than standard models predicted. He speculated that the high visibility of the carbon tax led to greater behavior change than equivalent price changes normally do. Finally, Kaufman pointed out that a modest carbon tax such as the CLC proposal could obviate the Clean Power Plan. He expects that even a modest federal carbon tax would reduce emissions enough that states would be in compliance with the EPA rule. That suggests a possible compromise, perhaps avoiding a conflict over repealing the CPP that environmental organizations struggled to promulgate.

Recommended Reading:

Climate Solutions Caucus expands to 24, Citizens’ Climate Lobby (February 10, 2017).

Macroeconomic Analysis of Federal Carbon Taxes, Marc Hafstead, Lawrence H. Goulder, Raymond J. Kopp, Roberton C. Williams III (Resources for the Future, June 2016).

Options for Reducing the Deficit (Option 42: Carbon Tax), Congressional Budget Office (December 8, 2016).

Methodology for Analyzing a Carbon Tax, John Horowitz, Julie-Anne Cronin, Hannah Hawkins, Laura Konda, and Alex Yuskavage (Department of the Treasury, January 2017).

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

 

Brookings economist Adele Morris and R St Institute’s Catrina Rorke shined like diamonds as they made the case for truth-in-energy pricing at Cato Institute yesterday. Morris argued that a carbon tax could help Trump and Republicans advance their stated goals of tax & regulatory reform and fund transition assistance to coal country.

Rorke pointed out that industrial policy propping up fossil fuels distorts markets and cheats us of technological innovation. Cato hosts Robert Bradley & Peter Russo seemed to inch away from Cato’s longstanding denialist stance, coming out as “lukewarmers” who at least admit global warming, but claim it may be beneficial. Tell that to folks battling scorching heat and raging fires in Australia and Oklahoma.

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, Noah Kaufman, Eleanor Krause (World Resources Institute, 2016).

 

This morning, at the historic Willard Hotel in Washington DC, where on a November morning in 1861 Julia Ward Howe penned the Battle Hymn of the Republic, Harvard economics professor and former Obama climate adviser Joseph Aldy issued a clarion call of his own. At a moment of palpable despair, Aldy urged climate policy analysts, advocates and policymakers to consider “The Great Swap,” a carbon tax to advance Republicans’ especially President-elect Trump’s avowed goals of reducing taxes that hold back U.S. economic growth, while also reducing regulatory burdens. Aldy suggested that if Trump wants to live up to his reputation as a deal-maker, he will not pass up the opportunity for a carbon tax to help fund tax reform and eliminate EPA greenhouse gas regulations, goals that Republicans have long espoused. He noted that a carbon tax would also provide businesses with climate policy certainty while cost-effectively avoiding the international repercussions of U.S. repudiation of the Paris climate agreement.

Aldy opens his glossy 38-page paper,[1] citing the robust economic consensus that a carbon tax would reduce CO2 emissions at far lower cost than the current unstable patchwork of regulations and subsidies. Aldy, who advised President Obama whose signature climate achievement was EPA’s Clean Power Plan, pointedly suggests that EPA’s sector-by-sector approach is grossly inadequate to meet long term climate goals and would achieve its near-term goals at unnecessarily high cost. In his remarks, Aldy went further: He suggested that Congress “repeal and replace” the Clean Power Plan with a carbon tax. Moreover, Aldy noted that a modest carbon tax, starting at $25/T CO2 rising 5% annually in real terms, would generate revenue of $100 – 200 billion that could be used to reduce individual and corporate income taxes without increasing the deficit.

Discussing design options, Aldy’s paper cites the growing body of economics literature showing that a carbon tax “swap” can be distributionally-progressive (e.g., by using revenue to cut payroll taxes[2]) and growth-inducing (e.g., by cutting corporate income taxes[3]) or both (by allocating some revenue for each[4]). He suggests that every five years Congress should adjust the carbon tax rate and its annual percentage increase based on emissions data supplied by EPA, tax revenue and economic data from the Treasury Department and data on other countries’ emissions reductions from the State Department. Aldy concludes by pointing out that a carbon tax with “border tax adjustments” to impose equivalent carbon taxes on imported goods would protect the competitive position of U.S. businesses, even energy-intensive industry.[5] He further notes that border adjustments offer leverage for the U.S. to induce similar policies by our major trading partners.[6]

The economic and political case Aldy presented was hardly new to those who have studied climate policy, but he did manage to articulate a plausible scenario in what appears now to be a dire political situation for climate policy.

Following Aldy’s presentation, Hannah Hess of E & E News moderated a panel discussion featuring John Larsen of Johns Hopkins University and the Rhodium Group, Jerry Taylor of the Libertarian Niskanen Center, Todd Wooten of the Senate Finance Committee and Catrina Rorke of R Street Institute. Taylor registered skepticism, quipping, “Business wants certainty? Here it is: no more federal greenhouse gas involvement.” And Wooton opined that Congress will not “repeal and replace” the Clean Power plan, it will just “repeal, ASAP.” For her part, Rorke called on Republicans not to stand aside on climate policy the way they have left health policy to Democrats. She urged them to enact conservative “free market” climate policy to avoid further alienating young voters who understand and accept climate science.

While Professor Aldy’s proposal assumes a decidedly rosy scenario, maybe it is not beyond the pale to hope that Mr. Trump and at least some Republicans get past their climate science aversion to advance policy that comports with their stated principles, advances their tax reform and regulatory relief goals and could even help the U.S. lead on low-carbon innovation and technology.

[1] Joseph Aldy, “Long Term Carbon Policy: The Great Swap,” Progressive Policy Institute, 2016.

[2] Gilbert Metcalf, “A Green Employment Tax Swap: Using A Carbon Tax to Finance Payroll Tax Relief,” Brookings Institution, 2007. Rep. Bob Inglis (R-SC) proposed a carbon tax for payroll tax swap in his “Raise Wages, Cut Carbon Act of 2009,” HR 2380, 111^th Congress.

[3] Donald Marron and Eric Toder, “Carbon Taxes and Corporate Tax Reform,” 2013.

[4] The “Tax Pollution, Not Profits Act” by Rep. John Delaney, HR 2202 (2015), would apply half of carbon tax revenue to reduce the corporate income tax rate, with the other half returned in lump sum to low and moderate income households and to fund transition assistance and early retirement for displaced coal workers.

[5] Jennifer Hillman, “Changing Climate for Carbon Taxes: Who’s Afraid of the WTO?,” German Marshall Fund, Climate Advisors, American Action Forum, 2013.

[6] Id.

Almost daily, we are pummeled by new scientific reports warning that Earth’s climate is heating up at a record-breaking clip.  Last week, as we celebrated Earth Day, world leaders gathered to sign the ambitious Paris climate treaty.  And some presidential candidates have opened debate about effective climate policy, daring to break the taboo against even mentioning the notion of taxing carbon pollution.

Accelerating climate trends, the bold promise of the Paris agreement and the nascent domestic climate debate must converge on broad, transparent policies that open up long term business opportunities for newer, cleaner energy and efficiency to displace dirty fossil fuels.  No single policy can possibly meet that enormous, multi-generational challenge.  But we need everyone’s active participation in this monumental transition that will affect every aspect of our lives.  The best way to crowd-source climate action is by arming each and every one of us with more truthful energy prices and leaving us charge of making sound investment and purchasing decisions that reflect climate costs.  Explicit and rising taxes on carbon pollution are the simplest and most direct way to convey the cost of climate risk through energy markets to every single investor and consumer so each of us can make the choices needed to drive down emissions.  And carbon taxes are transparent and flexible enough to work within existing trade agreements to encourage and reinforce similar policies abroad.  What’s more, carbon taxes offer tremendous opportunities to make our overall tax system fairer and more efficient by shifting tax burdens off productive activity and onto pollution, while assisting impacted communities and funding more efficient infrastructure.

My aim is to offer:

A timely selection of relevant analysis, writing and discussion about carbon taxes as well as options to reform and simplify other climate and energy polices so they more effectively and transparently price climate costs.  I am encouraged by the robust blossoming of climate policy literature in the past decade; I especially applaud and seek to disseminate the spade work: empirical analysis to confirm, quantify and refine theoretical predictions, in effect sharpening the available policy tools.

A forum linking policy analysts, climate activists and policymakers to one another and to a “reference library” of cutting-edge information.  I welcome your participation, feedback and support.