New expressions of oil-company support for a US tax on carbon-dioxide emissions should draw attention to existing mechanisms potentially adaptable to the mitigation of climate change.
The Climate Leadership Council, which advocates a carbon tax, reported on June 20 that founding members include BP PLC, ExxonMobil Corp., Royal Dutch Shell PLC, and Total SA. The CLC began life last February with publication of a policy on climate change notable for its Republican origins. Coauthors of the policy were party stalwarts James Baker and George Schultz, both former secretaries of state. In addition to a tax on carbon dioxide, the policy includes rebates of the proceeds to Americans, border adjustment to balance the levy with carbon taxation of US trading partners, and removal of regulations deemed to have been made unnecessary by the initiative.
Broader contexts
Merits of the plan and of carbon taxation in general needn’t be addressed here. It’s enough to say the idea profits from endorsement by four major oil companies; seven other corporate founders, including GM, Johnson & Johnson, and Unilever; and two nongovernmental organizations, Conservation International and The Nature Conservancy. Before the proposal gains momentum, however, the CLC founders and policy-makers they seek to influence should consider broadened contexts.
The US already taxes carbon emissions without being explicit about it. State and federal governments do so by taxing gasoline and diesel fuel.
Will Pack and Steven Lee, researchers at the Energy Policy Research Institute in Washington, DC, made this observation in an April policy note. “As policy-makers proceed to evaluate whether carbon taxes are an appropriate revenue-raising measure or an effective environment policy,” they argued, “it is worth noting that transportation fuels are already taxed.” Combined local, state, and federal taxes on gasoline and diesel amount to nearly $50/ton of CO2, according to Pack and Lee. The carbon tax CLC recommends would start at $40/ton, imposed “at the first point where fossil fuels enter the economy,” and “increase steadily over time.”
The federal gasoline tax, moreover, has theoretical room for expansion. In a separate research note published in May, EPRINC Pres. Lucian Pugliaresi, Special Projects Director Larry Goldstein, and Pack pointed out that the federal taxation rate has been 18.4¢/gal of gasoline since 1993. If the levy had increased at the intervening rate of inflation, it now would be 31¢/gal. Instead of the 2016 total of $26 billion, federal revenue from the gasoline tax at the inflation-adjusted rate would have been $44 billion.
The policy implications of this difference are interesting. Tax-reforming lawmakers in search of money to compensate for diminished corporate taxation should find $18 billion/year tantalizing. Pugliaresi, Goldstein, and Pack point out they’re already considering the revenue possibilities of a carbon levy, border adjustment of corporate taxes, and value-added taxation. They also point out that each option faces political opposition.
An increase in the gasoline tax would have similar appeal. But the case for it might prove more easily marketable than arguments for any of the other proposals. In real terms, after all, motorists have experienced 24 years of lightening federal taxation at the gasoline pump, albeit partly offset by increases in some states. Inflation adjustment should be more politically palatable than a new species of taxation. And many taxpayers would see compensating benefits in the economic boost from lowered corporate tax rates and in whatever contribution the higher gasoline excise made to abatement of greenhouse gas emissions.
Purpose and compromise
The political purposing of gasoline taxation as both revenue raiser and emissions limiter would test climate activists. To some of them, a political initiative that performs multiple duty might compromise too much. Too often, they act as though anything other than what they want compromises too much.
With political pressure high on politicians and companies for fiscal offsets and action on climate change, elevation of the federal gasoline tax deserves attention. It might be the least among evils. And the activist response to merging carbon taxation with the gasoline levy would be instructive.