The Corner

Energy & Environment

Rethinking Carbon Taxes

(Larry Downing/Reuters)

For years, advocates of a carbon tax have insisted that they’d ultimately win over the general public, usually by using carbon tax revenue to offset other taxes or to finance a carbon dividend. Since the recent French protests against Emmanuel Macron’s proposed fuel-tax hike, however, enthusiasm for a carbon tax has dimmed. To some carbon-tax advocates, the problem with the French government’s approach to energy taxes is that the revenue wasn’t directed to taxpayers in a clear, transparent way. I’m not so sure.

For one, demand for carbon-intensive energy is more elastic for some than others, and a carbon dividend that flows to all citizens equally, or indeed in progressive fashion, would presumably leave some segment of the auto-dependent middle class at a disadvantage, at least until the prophesied transition to a green economy is complete. In Canada, for example, a new revenue-neutral carbon-tax plan will return all of the proceeds to households in the form of a rebate that will leave 70 percent of households (modestly) better off than before, and it seems to have majority support. So what’s the problem? Well, how much do you want to bet that the 30 percent who will wind up net losers will be more motivated to oppose the new tax than the winners will be motivated in its defense? It is this sense of unfairness, real or perceived, that fueled the gilet jaunes protests and that has made the cause of aggressive carbon pricing so polarizing in other market democracies, including the U.S.

Here in the U.S., Democrats who were once favorably disposed to carbon pricing are having second thoughts. In an interview with NBC News, Washington governor Jay Inslee, a Democrat who has long championed carbon pricing efforts and who championed cap-and-trade legislation while serving in the House, seems to back away from the idea, observing, correctly, that “to actually get carbon savings, you need to jack up the price so high that it becomes politically untenable.”

This isn’t necessarily a case against carbon taxation in any form. Rather, it is a case against a high carbon tax. It is worth noting that taxes on carbon-intensive fuels in France were already far in excess of U.S. taxes, even before the gilet jaunes protests. A number of more sober-minded carbon-tax advocates, such as Roger Pielke Jr., have backed a more modest approach, in which a low carbon tax would serve as a revenue source for clean-energy innovation, not as the chief driver of decarbonization across the economy. Using the resulting revenue to finance a dividend that would benefit transit-dependent urbanites (like myself) as much as auto-dependent commuters would, I suspect, be a lot more inciting than simply using the revenue to achieve larger national objectives. According to a survey conducted by the researchers Matthew Kotchen, Zachary Turk, and Anthony Leiserowitz in late 2016, large majorities favored using carbon-tax revenue to finance clean-energy innovation, as Pielke has suggested (80 percent); to improve U.S. infrastructure (77 percent); and to assist workers in the coal industry (72 percent). Less than half of respondents (46 percent) favored using carbon-tax revenue to finance a carbon dividend for all households. Regardless of how the revenue is used, the key is keeping the carbon tax very, very low, as Governor Inslee seems to appreciate.

Reihan Salam is executive editor of National Review and a National Review Institute policy fellow.

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