‘Is a car­bon tax the right way to go in fight­ing cli­mate change?’

Cecil Whig - - OPINION - Tri­bune News Ser­vice (TNS) Ken­neth Richards is a pro­fes­sor of en­vi­ron­men­tal eco­nomics, law and pol­icy at In­di­ana Univer­sity. He is also a con­sul­tant at Gnarly Tree Sus­tain­abil­ity In­sti­tute where he works with na­tional gov­ern­ments, in­ter­na­tional agen­cies

— Car­bon taxes are a mech­a­nism that puts a price on emis­sions of car­bon diox­ide, gen­er­ally fo­cused on fos­sil fuel sources.

When the price of car­bon diox­ide emis­sions go up, so does the cost of fos­sil fu­els, so con­sumers and pro­duc­ers use less en­ergy and con­se­quently emit less.

In Fe­bru­ary 2017 James Baker III, Ge­orge Schultz and a group of con­ser­va­tive politi­cians and econ­o­mists pub­lished a clear and con­vinc­ing call to adopt a car­bon tax in the United States.

Seventy gov­ern­ments around the world have al­ready adopted car­bon pric­ing schemes. It is time for the United States to join them. It is not only a good idea, it is now fea­si­ble.

In the past month, there has been a con­ver­gence of events that all point to­ward the po­ten­tial for a U.S. car­bon tax.

In Oc­to­ber, the In­ter­gov­ern­men­tal Panel on Cli­mate Change pub­lished a re­port in­di­cat­ing that the ex­pected dam­ages as­so­ci­ated with 2.0 de­grees Cel­sius warm­ing are much higher than at 1.5 de­grees — ma­rine fish­eries losses would dou­ble, sea lev­els would rise an ex­tra two inches and hu­man ex­po­sure to ex­treme heat would dou­ble. This adds to the sense of ur­gency to mit­i­gate green­house gas emis­sions.

Lead­ing up to the 2018 midterm elec­tions, Repub­li­cans called for a sec­ond round of tax cuts. With crit­i­cism over the mas­sive deficits as­so­ci­ated with the 2017 tax cuts, how­ever, they should be cau­tious about any move that fur­ther ex­ac­er­bates that im­bal­ance.

And of course, now that the Democrats have re­gained con­trol of the U.S. House of Rep­re­sen­ta­tives, they should be look­ing for ini­tia­tives that all our lead­ers in Wash­ing­ton can sup­port.

En­ter car­bon taxes. To see why car­bon taxes make sense for a broad range of in­formed politi­cians let’s start with two im­por­tant ob­ser­va­tions.

First, price sig­nals are key to en­abling mar­kets to al­lo­cate re­sources ef­fi­ciently. Taxes on cap­i­tal and in­come dis­tort price sig­nals in mar­kets, lead­ing to in­ef­fi­cient use of re­sources.

This means that the cost to so­ci­ety of putting a dol­lar of money in the gov­ern­ment trea­sury can be much more than a dol­lar.

Sec­ond, in the United States, a tax on car­bon would be less dis­tor­tionary than a tax on la­bor or cap­i­tal.


These two ob­ser­va­tions create the pos­si­bil­ity for a win-win tax re­form.

Be­cause it costs the econ­omy less to raise rev­enue with car­bon taxes than with la­bor and cap­i­tal taxes, a shift to­ward the more en­vi­ron­men­tally friendly tax could also re­duce the over­all cost of our tax sys­tem, and stim­u­late em­ploy­ment and in­vest­ment, even as it in­duces emis­sions re­duc­tions.

Anal­y­sis by two lead­ing pub­lic fi­nance econ­o­mists, Ian Parry and Rober­ton Wil­liams, demon­strates that a tax of $33 per ton of car­bon diox­ide — about 25 cents on a gal­lon of gas and less than a cou­ple of cents per kilo­watt-hour of elec­tric­ity — could si­mul­ta­ne­ously re­duce U.S. car­bon emis­sions by 8.5 per­cent and save the econ­omy $4.5 bil­lion per year, even ig­nor­ing en­vi­ron­men­tal ben­e­fits.

The key to re­al­iz­ing those sav­ings, how­ever, is that Congress must si­mul­ta­ne­ously cut the more dis­tor­tionary in­come taxes.

To off­set the po­ten­tially re­gres­sive na­ture of a car­bon tax — the fact that it is likely to take a dis­pro­por­tion­ate amount of low­in­come house­hold bud­gets — the tax cuts could be sup­ple­mented by tax cred­its, or even pay­ments, to those house­holds.

To suc­ceed, how­ever, our rep­re­sen­ta­tives in Wash­ing­ton will need to first de­sign a sys­tem that de­liv­ers both eco­nomic and en­vi­ron­men­tal ben­e­fits.

That will take dis­ci­pline, re­sist­ing ef­forts to carve out tax ex­emp­tions and ear­mark the rev­enue. And, be­cause the pos­i­tive ef­fects of a car­bon tax are less di­rect than sub­si­dies or div­i­dends, Congress and the White House will need to care­fully ex­plain to the vot­ers why the car­bon tax makes sense.

If they suc­ceed, a move to car­bon taxes leaves room for both par­ties to claim vic­tory.

The Democrats can point to the en­vi­ron­men­tal pro­tec­tion and sup­port for re­new­able en­ergy that are in­her­ent in a car­bon tax. Repub­li­cans can claim credit for im­prov­ing the ef­fi­ciency of the fed­eral tax sys­tem. Both sides can show that they are able to work to­gether to find win-win op­por­tu­ni­ties.

— The U.S. nat­u­ral gas and oil in­dus­try is meet­ing the cli­mate chal­lenge head-on, in­vest­ing in high-tech in­no­va­tion, ef­fi­ciency im­prove­ments and cleaner fu­els.

The U.S. leads the world in re­duc­ing green­house gas emis­sions. Car­bon diox­ide emis­sions in the United States have plunged to their low­est level in a gen­er­a­tion, while CO2 emis­sions around the globe have risen 50 per­cent since 1990.

As the Amer­i­can En­ter­prise In­sti­tute re­ported, 2017 marked the ninth time this cen­tur y we’re re­duced emis­sions more than any other na­tion.

How did we do it? In­creased use of nat­u­ral gas in power gen­er­a­tion is the sin­gle big­gest fac­tor. With tech­no­log­i­cal ad­vances unlocking pre­vi­ously in­ac­ces­si­ble nat­u­ral gas re­serves, the af­ford­able, re­li­able fuel has be­come the lead­ing source for elec­tric­ity gen­er­a­tion — re­duc­ing car­bon emis­sions to lev­els not seen since 1992.

It’s not just car­bon. The com­bined emis­sions of six key air pol­lu­tants dropped 73 per­cent between 1970 and 2017 even while GDP soared 262 per­cent and en­ergy con­sump­tion rose 44 per­cent in­creased.

Tailpipe emis­sions have plunged thanks to ad­vances in clean fu­els and ve­hi­cle tech­nol­ogy. New cars, trucks, SUVs and heavy-duty trucks and buses run about 99 per­cent cleaner than mod­els pro­duced in 1970, ac­cord­ing to the EPA help­ing re­duce pol­lu­tion even as ve­hi­cle miles trav­eled nearly tripled.

It’s im­por­tant to rec­og­nize this suc­cess — not as a vic­tory lap, but as a roadmap. If we draw the right con­clu­sions, we can build on our progress.

For starters, the trend lines con­vinc­ingly show that en­ergy de­vel­op­ment and en­vi­ron­men­tal progress are not mu­tu­ally ex­clu­sive. Key emis­sions have dropped as oil and nat­u­ral gas pro­duc­tion has sky­rock­eted, gen­er­at­ing a slew of eco­nomic ben­e­fits.

If there’s a com­mon thread in the promis­ing emis­sions re­duc­tion data, it’s in­no­va­tion.

The oil and nat­u­ral gas in­dus­try has in­vested an es­ti­mated $339 bil­lion from 1990 — 2016 to­ward im­prov­ing the en­vi­ron­men­tal per­for­mance of its prod­ucts, fa­cil­i­ties and op­er­a­tions — $1,045 for ev­ery man, woman and child in the United States.

One re­sult: EPA data show that nat­u­ral gas sys­tem meth­ane emis­sions de­creased


16.3 per­cent while nat­u­ral gas pro­duc­tion jumped more than 51 per­cent between 1990 and 2015.

The en­ergy in­dus­try formed The En­vi­ron­men­tal Part­ner­ship last year to build on that progress through col­lab­o­ra­tion and tar­geted ac­tions in­clud­ing re­pair­ing leaks and re­plac­ing or retrofitting equip­ment. More than 50 of the na­tion’s oil and gas pro­duc­ers have joined so far.

The oil and nat­u­ral gas in­dustr y has worked with reg­u­la­tors in sup­por t of smar t reg­u­la­tions. The most ef fec­tive reg­u­la­tions share two char­ac­ter­is­tics.

One, they rec­og­nize ex­ist­ing suc­cess and har­ness, not hin­der, the in­no­va­tions re­spon­si­ble. Two, they’re based on sound sci­ence.

In the case of en­ergy, that means ac­knowl­edg­ing that nat­u­ral gas and oil will sup­ply an es­ti­mated 64 per­cent of the en­ergy the U.S. uses in 2050, even un­der op­ti­mistic sce­nar­ios for re­new­ables, ac­cord­ing to the En­ergy In­for­ma­tion Ad­min­is­tra­tion.

Any reg­u­la­tory pol­icy not based on that re­al­ity risks rais­ing con­sumer costs and jeop­ar­diz­ing U.S. en­ergy se­cu­rity. Given the sig­nals from House Democrats that en­vi­ron­men­tal reg­u­la­tions will be a fo­cus when they take con­trol in the new Congress next year, those are im­por­tant facts to keep in mind.

As a re­cent Amer­i­can pres­i­dent noted: “The all-of-the-above en­ergy strat­egy I an­nounced a few years ago is work­ing, and to­day, Amer­ica is closer to en­ergy in­de­pen­dence than we’ve been in decades.”

That was Pres­i­dent Barack Obama, speak­ing in 2014, and he added that nat­u­ral gas “can power our econ­omy with less of the car­bon pol­lu­tion that causes cli­mate change.”

The same for­mula that worked then — an “all-of-the-above” ap­proach bol­stered by nat­u­ral gas and in­no­va­tion — is still work­ing to re­duce emis­sions with­out sac­ri­fic­ing jobs and af ford­able en­ergy. We have a road map to suc­cess.

By fol­low­ing it, the United States can con­tinue its re­mark­able streak: break­ing records in both en­ergy pro­duc­tion and emis­sions re­duc­tion.

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