Politics & Policy

Let the Carbon-Dividends Debate Begin

(Photo: Pancaketom/Dreamstime)
Where critics of our climate-change plan are misguided, we’re happy to set them straight.

One test of the power of an idea is the debate it sparks. With that in mind, we could not be more pleased to see a group of fellow conservatives take aim at our much-publicized carbon-dividends proposal in a published letter to Gary Cohn, the director of the National Economic Council, with whom we previously met. Their concerns are misplaced, yet we welcome the contest of ideas.

By way of background, the Climate Leadership Council released “The Conservative Case for Carbon Dividends” on February 8, which we co-authored with James Baker, Martin Feldstein, Gregory Mankiw, Henry Paulson, Tom Stephenson, and Rob Walton, a group that includes three former Republican treasury secretaries, two former Republican secretaries of state, two former Republican chairs of the Council of Economic Advisers, and the former chairman of the world’s largest private employer. In the opposite camp are Thomas Pyle, Grover Norquist, Michael Needham, Myron Ebell, and Adam Brandon, who released their letter to Cohn on February 15.

The cornerstone of our opponents’ argument is that our plan would be regressive and place “undue economic burdens on American families,” especially those who are among our “nation’s economically disadvantaged.” This feels a little like we’d unveiled a new sports car only to have a reviewer publish a critique of a horse-drawn buggy. Alone, a carbon tax (the buggy) might well be regressive, but that is hardly what we are proposing. Our four-part program centers around a carbon tax whose proceeds are returned equally to the American people in the form of monthly dividends.

Under our plan, which would begin with a carbon tax rate of $40 per ton, a family of four would receive approximately $2,000 in the first year. According to the Treasury Department and several independent studies, the bottom 70 percent of Americans would come out ahead if our plan were enacted, meaning that they would receive more in dividends than they would pay in increased energy costs. In other words, we could help alleviate climate change while benefiting 223 million Americans economically.

If our critics have reason to worry, it is because our program might be so popular with working-class Americans that it would lead them to support continued increases in the carbon tax to increase their dividends, in addition to promoting the clean-energy alternatives that the vast majority of voters, including Republicans, clearly favor.

The letter writers also charge that our program “would destroy American jobs, particularly in the manufacturing sector.” Once again, that might be true of a stand-alone carbon tax, but it is not true of our plan. In misreading our proposal, our critics ignore the clear inclusion of border carbon adjustments in our report:

Border adjustments for the carbon content of both imports and exports would protect American competitiveness and punish free-riding by other nations, encouraging them to adopt carbon pricing of their own. Exports to countries without comparable carbon pricing systems would receive rebates for carbon taxes paid, while imports from such countries would face fees on the carbon content of their products. Proceeds from such fees would benefit the American people in the form of larger carbon dividends.

These border carbon adjustments would end today’s implicit subsidy for dirty producers overseas, which puts American firms at a disadvantage. And they would further favor domestic production by factoring in the environmental costs of transportation, thereby making it more economical to manufacture at home.

Indeed, the beauty of border carbon adjustments is that under most circumstances, they would make American manufacturers more competitive. Our trade with China provides a case in point: Goods produced in the United States are much less carbon intensive than those produced in China. As such, under our plan Chinese exports would be penalized at the American border if Beijing failed to implement comparable carbon pricing, thereby benefiting American manufacturers and creating American jobs.

Regardless of one’s belief in climate science, the risks of inaction have grown large enough that the only prudent course is to take out an insurance policy.

The fourth and final pillar of our program is the elimination of regulations, including the Clean Power Plan, which would no longer be necessary upon enactment of a rising carbon tax whose longevity is secured by the popularity of dividends. The result would be less government and less pollution. This would free the economy from excessive regulation and steer America toward more durable economic growth. It would also send a powerful signal to the market, encouraging technological innovation and large-scale substitution of existing energy and transportation infrastructures, which in turn would stimulate new investment and job creation.

The final argument put forth by our critics is that Republicans would be foolish to trade a carbon dividends plan for regulatory relief, as the party is now in a position to roll back all Obama-era climate measures without giving anything up in exchange. Here, our critics display irresponsible, short-term political thinking that doesn’t serve the GOP’s long-term interests. Just as it would be unwise and unpopular for Republicans to repeal Obamacare without offering a better alternative, so it would be misguided to undo Obama’s climate policies without replacing them. Regardless of one’s belief in climate science, the risks of inaction have grown large enough that the only prudent course is to take out an insurance policy.

A repeal-only climate policy would be shortsighted in other important ways, too. For one thing, it would deprive the GOP of a prime opportunity to exercise leadership and showcase the full power of the conservative canon. For another, it would betray a lack of confidence in the ability of free markets and limited government to solve a critical challenge of our era, which would then leave open the door to greater government intervention should Democrats retake power in the future.

Our critics are so blinded by their reflexive opposition to carbon taxes and their straw-man arguments against our plan that they fail to see the forest for the trees. What we are offering the GOP is a way to advance all of President Trump’s stated objectives at once: Our plan is pro-growth, pro-jobs, and pro-competiveness. It would deregulate the economy and rebalance trade, all while helping the working-class Americans who elected Trump. You’d be hard-pressed to find an alternative policy framework that ticks all of those boxes while significantly expanding the GOP’s base.

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