Last week, the staff of 30 or so congressional offices, mostly Republican, gathered for a briefing. The executive director of the conservative Alliance for Market Solutions (AMS), Alex Flint, moderated a panel of speakers from the American Action Forum, the Tax Foundation, and the Niskanen Center — who discussed a policy that has the potential to hush the climate debate, unleash a wave of innovation, and make American energy markets more competitive.
There was one major catch. That policy was a tax, specifically a carbon tax.
The concept of a carbon tax is not especially novel. In 1993, the Clinton administration attempted to levy a Btu tax — a tax based on the number of British thermal units generated by different forms of energy. The policy, however, was ultimately scrapped after facing heavy opposition from both parties in the Senate and was replaced with Clinton’s infamous gas tax. In the same decade, lobbyists in Minnesota pushed for the passage of the Energy Efficiency and Pollution Reduction Act (EEPRA), which sought to impose a $50-per-ton carbon tax on all fuels and electricity consumed in the state — a burden that would have been offset by a lowering of payroll and property taxes. The proposal received heavy opposition from, well, almost everyone, and was back-burnered sempiternally.
In the United States, support for a carbon tax has cost several elected leaders their seats. Around the globe, it has ignited the Yellow Vest protests in France and elicited populist uprisings in Australia. If even the Aussies couldn’t stomach a carbon tax, it’s hard to deny that those who endorse the policy in the U.S. risk political suicide. But even so, the tides are turning.
In the past few years, several think tanks across the political spectrum have come out for a carbon tax, and several bills have been introduced in Congress outlining ways to implement one. With greenhouse-gas emissions on the rise and pressure mounting for a Green New Deal, several conservative leaders have pointed to a carbon tax as a market-friendly way to minimize emissions.
Why has carbon tax suddenly advanced in popularity? For one, climate issues are becoming more and more important to voters across the board. A survey administered by the Energy Policy Institute and the AP-NORC Center at the University of Chicago finds that 44 percent of Americans would support a carbon tax, 25 percent would neither support nor oppose, and 29 percent would oppose. (However, the surveyors interviewed a skewed base: 50 percent identified as Democrats, 36 percent as Republicans, and 14 percent identified as independents.)
There are four main carbon-tax proposals from the past year or so, three with at least some conservative support. All of them have essentially the same structure. The tax would be collected primarily from the producers and importers of fossil fuels — coal would be taxed at the mine, natural gas at the processing plant, petroleum at the refinery, and imported fuel at the border. The tax would be based on the carbon content of the fuel, and the rate would increase over time.
One effect of a carbon tax is the one its critics focus on: it would make it more expensive for companies to produce fossil fuels, which would make fossil fuels more expensive, which would make the generation of electricity more expensive, which would increase the cost of everything from utilities to shipping. In short, the consumer would feel the tax’s impact immediately, not just in energy bills but across the market.
However, this isn’t the full story. A carbon tax would also usher in a wave of investment in energy innovation, galvanizing the private sector to find creative solutions and bring down prices. Renewable energy — hydroelectric, wind, solar, nuclear — would become much more competitive. The nation would rely less on imported fuel. And of course, a carbon tax could reduce greenhouse-gas emissions so dramatically in a short period of time, perhaps 25–45 percent by 2030, that we could lay the climate debate to bed once and for all.
There’s also the matter of where the money would go. Would it provide extra revenue to the government? Fund tax cuts? Simply be distributed back to the American people? This is an area where the existing plans differ.
Congressman Carlos Curbelo (R., Fla.), a member of the House Climate Solutions Caucus, last year introduced the MARKET CHOICE Act, a bill cosponsored by two other Republicans, Brian Fitzpatrick (Pa.) and Francis Rooney (Fla.). This bill would impose a tax on greenhouse-gas emissions and dedicate the revenue to funding highways, grants for low-income households, and “other specified energy, environmental, infrastructure, and research and development priorities.”
Representative Francis Rooney (R., Fla.) has established himself as a somewhat heroic supporter of a carbon tax. He was the only Republican to remain a cosponsor of the Energy Innovation and Carbon Dividend Act of 2019 (EICDA) after two other Republicans jumped ship. The EICDA, if passed, would impose a carbon tax of $15 per ton, a number that would increase $10 each year, subject to further adjustments based on the progress in meeting specified emissions reduction targets. The revenue would be distributed back to the American people in the form of equal rebates, but the steep acceleration of the tax rate renders this plan infeasible from the start.
Yet another plan comes from the private sector and enjoys support from America’s major energy corporations. The Climate Leadership Council, a coalition of economists, scientists, corporations, and leaders in the energy industry such as Shell, BP, and ExxonMobil, put forth “The Conservative Case for Carbon Dividends” with a letter of approval signed by 3,554 U.S. economists. Most co-authors of the plan have ties to the Reagan or Bush II administrations, or a lot of money. In short, the CLC is deeply rooted in the pre-Trump GOP — establishment Republican to its core.
In this plan, similarly to the Rooney plan, “all proceeds from a nation’s carbon fee would be divided equally among its citizens, and returned to all adults through a quarterly dividend check automatically deposited in their bank accounts.” In other words, the tax wouldn’t be absorbed by the government, but rather would go directly into the pockets of the American citizen to offset the increased costs of turning the lights on and buying groceries. The report suggests that the tax “might begin at $40 a ton” and increase gradually.
The CEO of Shell, a supporter of the CLC, argues that a well-designed price mechanism “would accelerate the transition to cleaner energy and drive innovation — allowing society to meet the climate challenge without sacrificing economic growth or quality of life.” This points to one of the most persuasive aspects of the plan — that the major market players who would be the most affected by a carbon tax are the ones who support it most fervently. Big energy producers understand that the nature of energy production is shifting and will continue to shift, as it ought to. Companies such as Shell, BP, and ExxonMobil, who invest gargantuan sums based on such trends, would rather be out in front than lagging in the rear.
The CLC’s plan, although still in an abstract form, shows promise amongst voters. A survey of registered voters by the Yale Program on Climate Change Communication and George Mason University found that 58 percent would favor a Republican-proposed carbon tax that would return all revenue to households in the form of monthly rebate checks. The CLC itself reports that its plan has a 3:1 favorability rating amongst Republicans.
Of course, there are plenty of conservative critics of the idea as well.
Americans for Tax Reform (ATR) has not held back. Given that the organization “opposes all tax increases as a matter of principle,” this comes as no surprise. Yet the desire for “a system in which taxes are simpler, flatter, more visible, and lower than they are today” is one that could arguably be achieved best by a carbon tax, especially if the proceeds were used to replace other forms of taxation. A fixed tax levied on each metric ton of carbon produced would be broad, predictable, transparent, and safe from complicated exemptions and preferences — essentially the antithesis of the American tax code as it stands.
And even some environmentally focused conservatives remain suspicious of the benefits of a carbon tax. Their goals are generally the same as the tax’s supporters — to encourage American innovation and let the market solve the problem of pollution through advancements in technology — and they support policies that focus on funding energy research, encouraging investment in renewables, and keeping the energy sector competitive. But they balk at a sizable new tax.
Senator Lindsey Graham (R., S.C.), who has recently stepped into the limelight of promoting environmental awareness amongst conservatives through the launch of the Roosevelt Conservation Caucus (RCC), is one such conservative. His reticence towards a carbon tax stems primarily from the inherent challenges of gauging the effects of such a big policy. At the press conference introducing the RCC, Senator Graham was asked about the possibility of a carbon tax, and replied:
Taxing is something that most of us are leery about doing. . . . I don’t know what ripple effect that would have on the economy at a time its humming. And the one thing I have learned . . . is that the innovation coming from the private sector is going to do more to solve this problem than any government mandate, and I want to focus on that.
Robert Dillon, who serves on the advisory board of ConservAmerica, a conservative organization that assisted in the formation of the RCC, was hesitant for similar reasons. For Dillon, “central planning often has unintended consequences,” especially with a potential policy that would be as totalizing as a carbon tax.
Dillon’s vision in environmental policy is to work from the ground up — to find points of agreement across the aisle, and build up from there: “We need to look for more ways that we are similar, and build on those common values.” Dillon believes that incremental, cross-party progress in the environmental sector — encouraging advanced research on carbon-capture technology, energy storage, and renewables, and tax-credit incentives to lower carbon emissions — will foster better solutions than a top-down approach. “There is not one big bill that is going to fix everything,” Dillon has asserted.
Another reason for conservative skepticism of a carbon tax is that different states rely on very different sources of energy. An article from the New York Times published over a year ago illustrates this quite well. Missouri, for instance, which produces 80 percent of its electricity by burning coal, would be much harder hit by a blanket carbon tax than would South Dakota, which produces 75 percent of its electricity from wind and hydroelectric power. For all of the pros to a carbon tax, this might be the biggest con.
Yet even if most Republicans are too cautious to rally behind a carbon tax, there are still forward-thinking environmental initiatives coming from the right side of the room. Senator Cory Gardner of Colorado has been one of the most active Republicans in Congress in this regard. He has been a major supporter of advanced energy research, having sponsored a plethora of bills that promote crucial innovations in the energy sector. He also co-sponsored the bipartisan Nuclear Energy Leadership Act, a good reminder that nuclear energy is the most obvious solution to a multiplicity of climate qualms.
As the green wave grows mightier, so should the demand for conservative solutions to our environmental woes. Let’s hope Republican leaders can warm up to the idea of combating climate change in a realistic and pragmatic way.