This month’s Ticker will focus upon a worthy exercise proposed by Jacob Hollinger, Heather Cooper, and Carl J. Fleming of McDermott Will & Emery LLP. They write in the National Law Review that we should have a standard checklist by which to analyze carbon tax proposals—a splendid idea.
Also below you’ll find a brief discussion of the discourse surrounding the recently-published report from the National Academies of Sciences, Engineering, and Medicine titled “Accelerating Decarbonization of the U.S. Energy System.”
Many stakeholders have called for the United States to adopt a carbon tax. Such a tax could raise billions of dollars in annual revenue while simultaneously reducing greenhouse gas emissions. Several carbon tax proposals were introduced in the last Congress (2019-2020 term), and it is likely that several more will be introduced in the new Congress. Several conservative economists have endorsed the idea, as has Janet Yellen, President Biden’s Secretary of the Treasury. But the details of a carbon tax matter—for revenue generation, emissions reductions and fairness. Because Congress is likely to consider several competing carbon tax proposals this year, this article provides a way to compare proposals with a checklist of 10 questions to ask about any specific legislative carbon tax proposal, to help understand that proposal’s design and implications.
1. What form does the tax take: Is it an emissions tax, a fuel tax or a production tax?
2. Which greenhouse gases are covered? Which sources (if any) are exempt?
3. Who pays the tax?
4. How much is the tax, how is it set and how does it change over time?
5. How is the revenue used?
6. Does the tax include a border adjustment?
7. Does the tax modify or replace existing carbon-related tax credits?
8. Does the tax replace or preempt existing greenhouse gas regulations?
9. How transparent is the legislative language?
10. What does the modeling show?
This is a sensible set of questions. Each is important. I would, however, place my emphases differently. As a policy analyst, I prioritize principles, costs, and benefits. Writing on behalf of a corporate law firm, of course, brings with it different priorities.
The foremost questions from my perspective are (1) how much will the tax cost and (2) what will be the benefits?
On the question of “how much” (the authors’ fourth), we really ought to scrutinize the parameters used to establish the figure proposed. As we at IER have discussed at length, the standard justification for carbon taxes, the social cost of carbon, is vulnerable to manipulation. It may well be the case that greenhouse gas emissions generate meaningful harm, but that in and of itself does not endorse any particular carbon price. We must ask how the price being put forth was reached? As the Obama-era SCC working group put on display, a wide range exists. And as our David Kreutzer has shown, under certain conditions, one could even make a case for subsidizing emissions.
The authors only after posing nine other questions ask about the effects on emissions and global GHG concentrations of the tax presented. That question is of the utmost importance to the citizenry and should be central to any political discussion of a tax.
How much temperature rise will be deferred thanks to the tax?
The question of effects calls to mind, and is in fact dependent upon, another question: How will this proposal ensure that the sacrifices being demanded are not in vain, given that the United States is now responsible for only one-sixth of global emissions? Put another way, can you guarantee this tax will induce behavioral changes across the globe? If not, why are we implementing this burden?
Question 3 is interesting, if a bit didactic. We rarely discuss the specifics of the taxable event. To end-use consumers, of course, it isn’t of much consequence, but to the parties literally responsible for paying the tax, it certainly is.
Question 8 is essential, and increasingly forgotten. As the authors allude, Republicans, conservatives, and libertarians have been lured towards a carbon tax on the promise that it will replace more onerous regulation. As these discussions develop, it’s crucial that we apply pressure on potential backsliders on that very point.
The vast majority of the technology needed to realize a full decarbonization of the U.S. economy exists, and most of the technology is more cost effective than fossil fueled alternatives, according to the National Academies of Sciences, Engineering and Medicine. But a committee assembled by the NASEM to study decarbonization says all levels of government must do more to ensure the coming economic transition is just and fair to all.
The report, the first of two decarbonization studies planned by the NASEM, ultimately focused on the social factors that will determine the success of the U.S.’s energy transition, according to Pacala, who headed the 17-person committee behind the report.
A carbon tax and accompanying decarbonization policies would work perfectly, if not for the pesky interests and values of real human beings getting in the way.
This coverage from Utility Dive is emblematic of the prevalent attitude along the Acela and Eurostar routes that has driven so many people here in the U.S. and across Europe to populism. The reporter, to be fair, does capture the spirit of the NASEM paper, which treats the people who would find themselves subject to the decarbonization regime with utter condescension.
Certain passages from the report read as if they’re advice for parenting a toddler.
“Polls show that, across the political spectrum,” NASEM tells us, “a significant majority of Americans support urgent efforts to combat climate change and decarbonize the economy. That support is likely to be tested, however, as the United States navigates the complexities of the changes required and the disruptions they bring to people’s lives and livelihoods. Research has demonstrated a ‘social gap’ between widespread general support for renewable energy technologies yet relatively slow uptake. Public perception and opposition can be roadblocks to a carbon-neutral transition, especially where public engagement is perfunctory, carried out too late in the process, and where key decisions have already been made.”
The isn’t necessarily the goal of scientists or journalists—nor should it be—but to win political support for a carbon tax, proponents would be wise to abandon the habit of regarding the public as irresponsible children in need of guidance and of, as John Kerry put it “better choices.”
For more on this perhaps intractable dynamic, check out my February 26 American Spectator piece, “Joe Biden, Green Energy, and the Great Labor Realignment.”