This week, diplomats are gathered in Bonn, Germany to hammer out the latest details of the 2015 Paris Climate Agreement. While the minutiae of the negotiations are important, the real action isn’t at the UN. The climate pact is bottom up, which means it’s up to each country to meet the goals set forth in Paris.
One of the simplest tools for making progress would be a tax on carbon. Few people like taxes in the abstract, but they help address a real, pressing problem. A carbon tax would bring the price of fossil fuels closer to its true cost to the climate and to public health.
How big should the carbon tax be?
Earlier this year, Nobel prize-winning economist Joseph Stiglitz and former World Bank chief economist Nicholas Stern said that in order to rein in destructive carbon pollution, countries should implement a tax on carbon of $40 per ton by 2020 that would rise to as much as $100 per ton over the following decade.
What would that mean for consumers?
“$40 per ton translates into roughly 36¢ per gallon of gas, and the average American family would see this in terms of increased energy prices,” said Ted Halstead, head of the Climate Leadership Council (CLC), a coalition of conservative luminaries making the case for a revenue-neutral carbon tax. Halstead is in Bonn, Germany this week for the 2017 UN Climate Conference, where he is making his case for the plan.
“If we started now, or in the next couple of years, with a carbon tax at $40 per ton, rising every year, you would meet the high end of America’s commitment under Paris,” Halstead said. By discouraging the consumption of coal, oil and natural gas, he estimates the tax would cut emissions by at least 28 percent by 2025, meeting the US pledge under the Paris Agreement, which President Trump plans to exit in 2020.
“Any activity that includes that production of carbon — whether it’s heating your home, whether it’s taking an airplane, whether it’s driving your car — would go up in cost in direct relation to your carbon footprint,” Halstead said. “If you want to pay a lesser tax, you pollute less, or you carpool more, or you insulate your home more, or what have you.”
It would be for hard the average American to zero out her carbon footprint overnight — not only because she relies on oil to fuel her car and natural gas or coal to power her home. Anything she buys — be it a gallon of milk or a new computer — is likely produced and shipped using fossil fuels. With a carbon tax, the cost of most consumer goods would rise. And, because lower earners spend a larger share of their wages on power, transport and food, their pocketbooks will take the biggest hit.
What would the government do with the revenue?
Supporters of the plan say increasing the cost of energy doesn’t have to hurt working families. Regressive taxes are only such if they’re designed that way. “Nobody likes paying extra money, even though they’re concerned about the climate,” Halstead said. “The way that we’re suggesting solving this at the Climate Leadership Council is to take all the money raised and return it directly to the American people in the form of equal monthly dividends.”
Under the plan, the average family of four would pay more in month-to-month energy costs, but they would then see approximately $2000 a year in dividends. For wealthier Americans — who tend to drive more, fly more and buy more stuff — the dividends wouldn’t fully cover the increased cost of energy. But given their greater earnings, the difference would impact them less. Halstead says 70 percent of Americans would be better off.
Americans would also see a growth of jobs in clean energy. A steadily rising tax on carbon would drive investment in wind and solar power, as well as electric vehicles, as businesses work to limit their tax liability.
“What companies most want is regulatory certainty. They want to know what their pricing structure and regulatory landscape is going forward,” Halstead said. “Utilities, for example, they build plants with a 30- or 40-year time horizon, so if they know that the price of carbon is not only going up, it’s going to continue going up, they will make investments now that are based on less carbon.”
There is a catch to CLC’s plan, however. It would also block the Environmental Protection Agency from regulating carbon dioxide as a pollutant—a detail intended to get businesses and conservative lawmakers on board. While most green groups have declined to support the measure, it has the support of a broad coalition of business leaders. “We went out of our way to create a plan that appeals to all sides of the political spectrum,” Halstead said.
Is this politically viable?
The CLC plan is backed by a who’s who of conservative luminaries, major corporations, as well as a small number of environmental groups. Its chief proponents include James Baker and George Shultz, secretaries of state under George H.W. Bush and Ronald Reagan, respectively, as well as Henry Paulson, treasury secretary under George W. Bush. It also has the support of BP, Shell, ExxonMobil, Stephen Hawking, Michael Bloomberg, Larry Summers, Conservation International and the Nature Conservancy.
“It’s a free-market idea based on correcting a market failure,” Halstead said. Currently, polluters get to pollute for free. They don’t have to pay for the asthma, heart disease, cancer or climate disruption caused by burning fossil fuels. A tax on carbon would account for these costs. “It turns out that taxing carbon is an inherently conservative idea,” Halstead added.
Despite its popularity among the chattering classes, the plan would be a tough sell to Congress right now. Climate denial is dogma in today’s Republican party, funded as it is by fossil fuel firms and wealthy donors — groups who have the most to lose under the plan. It’s little surprise that the conservatives who support the CLC plan are largely elder statesmen who will never again have to court the favor of conservative media or win the backing of oil tycoons.
Even if Republicans were to suddenly come around on climate change, it’s not certain that the CLC plan could win in the court of public opinion. Economists like policies that make markets more efficient, which are often policies the average American would abhor. For example, many economists support eliminating the corporate income tax and raising the personal income tax. But try telling that to Joe Six-Pack. Only around one in four Americans wants to cut taxes for businesses.
Most Americans do support a tax on carbon, but not like the one Halstead proposes. When asked how much they would be willing to pay to fight climate change, the average answer was around $177 dollars a year per household — far less than what the CLC plan calls for.
When asked what to do with the revenue, however, very few said they wanted to see it returned to taxpayers. Most said they would want to invest the earnings in clean energy or infrastructure, or assist coal workers who will lose their jobs in the transition to clean energy.
Source: Yale/George Mason University
People wants policies that tell good stories. They want to punish polluters and use the money to fund industries like wind and solar. In this narrative, there are clear villains (fossil fuel companies) and heroes (solar and wind). A modest carbon tax would do little to discourage the use of fossil fuels, but huge investments in renewables could radically accelerate the shift to clean energy.
What does this mean for climate policy in the United States?
While the CLC plan is currently politically infeasible, it’s a sign that leading conservatives and major corporations — including a small number of fossil fuel companies — acknowledge that climate change is a serious problem and support policy to tackle the problem.
“The majority of big companies want to lead on climate change, and they have fundamentally parted ways with the [Trump] administration on this issue,” Halstead said. When the president was weighing whether to leave the Paris Agreement,dozens of companies, including Bank of America, General Electric, Dow Chemical, Proctor and Gamble and Walt Disney pushed back.
“In my whole career, I have never seen an example of greater unanimity among major corporations than all the companies that came out pushing the White House to stay in the Paris Agreement,” Halstead said. “This White House is not reflecting the business opinion or the popular opinion. Eventually, we’ll get to a point where those majority positions — business and public — will win the day.”
More recently, blue-chip companies like Walmart, Target, Microsoft, Apple, Nestlé and Mars Inc. have joined a coalition of 2,500 cities, states and businesses determined to meet the goals laid out in the Paris Agreement. Representatives of multiple firms are in Bonn this week for the UN climate talks, eager to tout their achievements on clean energy.
“I think that the business community has skin in this game,” said Lisa Manley, senior director of sustainability at Mars, speaking to an audience of US advocates, policymakers and business leaders. “We need to be part of these conversations.”