How to tax carbon

Sept. 17, 2018
Taxing carbon to manipulate the climate offers two advantages. It represents action undertaken in response to global warming and thus satisfies a persistent political demand, at least for a while. And it obviates consideration of cap-and-trade.

Taxing carbon to manipulate the climate offers two advantages. It represents action undertaken in response to global warming and thus satisfies a persistent political demand, at least for a while. And it obviates consideration of cap-and-trade.

A third advantage is that carbon taxation, if implemented properly, would moderate emissions of carbon dioxide, which contributes to observed warming. Proper implementation, alas, seems unlikely.

Outperforming targets

The Climate Leadership Council this month published a study showing that the carbon tax it proposes would enable the US to outperform CO2 emission targets, now in jeopardy, of the 2015 Paris Climate Summit. The group has gravitas. Founding members are formerly high-ranking officials of the US government and oil companies including ExxonMobil, Shell, BP, and Total. Credited with authorship of the carbon-tax proposal are former cabinet secretaries and White House officials James A. Baker III and George P. Shultz.

The CLC proposal would tax emissions of carbon dioxide at $40/ton in 2017 and raise the rate annually with a base escalator plus inflation. It would return revenue generated by the levy to households through flat-rate payments. If the program didn’t achieve targeted cuts in emissions of greenhouse gases, the taxation rate could be increased. According to the new study, modeling indicates the tax would lower emissions by more than the Paris target agreed by the Obama administration and awaiting abandonment or renegotiation by President Donald Trump.

As a climate-change remedy, carbon taxation is preferable to cap-and-trade. All such latter schemes implemented so far have struggled to remain viable, given the difficulty of sustaining markets for concoctions of the state. Worse, the cap-and-trade route to greenhouse-gas reduction is fundamentally dishonest. It hides the costs of replacing affordable energy forms with more-expensive but officially favored substitutes. And it creates complexities too easily exploited by fraudsters.

Carbon taxation illuminates the costs unless the politically clever promise to rebate payments. That’s where the CLC proposal stumbles. So-called revenue neutrality camouflages but can’t eliminate the imposed cost. The aim is still to discourage the use of affordable energy and boost costlier alternatives in an economically damaging tradeoff. Whether by carbon taxation or cap-and-trade, with or without rebates, Americans still would pay. The only question is how.

Maybe the cost is necessary. Maybe climate change really poses an imminent threat to human existence, as proponents of radical precaution insist. Much more likely is that it represents a problem subject, like all problems, to mitigation and adaptation.

Yet discussion of climate change is overwhelmingly apocalyptic in tone, intolerant in approach, and extreme in response—to the point of dishonesty. That needs to change. A welcome starting point would be public admission that manipulating the climate promises hardship—more hardship, indeed, than anyone now admits if people are to meaningfully influence global average temperature. Supposedly revenue-neutral carbon taxation pretends otherwise.

Carbon taxation nevertheless deserves consideration. The taxed energy users, however, must directly feel the cost. There should be no rebates. When taxpayers start asking hard questions, they should not be shouted down by activists and ignored by bewitched media.

Attention to proceeds

Carbon-tax proceeds, meanwhile, should receive strict attention. The money should fund one purpose: basic, noncommercial research into the full spectrum of responses to and preparations for climate change. That would include new forms and uses of energy; conservation; carbon-dioxide capture, sequestration, and reuse; adaptation to the geophysical changes of a warming planet; and improved understanding of the phenomenon itself. The effort should exclude favors for energy forms preferred by public officials, whose record with energy selection is abysmal yet profitable for the well-connected, and for radicals craving economic revolution.

Those are tough standards. The raucous US political system too often lacks the discipline to steer glorified agendas toward practicable results and scurrilous hands away from large flows of money earned by others. But it can and should seek transparency. On that, even people who differ over complexities of the climate should be able to agree.