Summary
We support imposing a $50/ton carbon tax on the carbon content of products produced in the U.S., with a comparable tariff on imports from countries that do not have a similar carbon tax. We also support using some of the proceeds from that tax for a proportional subsidy on carbon capture and sequestration. In addition, we support subsidies for basic research on alternative energy technologies and geo-engineering alternatives to mitigate climate change.
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Background and Detailed Proposal
If climate change is a real problem, and we believe that it is, it is an international problem. If we are going to act on dealing with climate change, it will only be effective if we can force global cooperation. We believe that this is possible.
We propose that the U.S. impose a carbon tax of $50/ton (with comparable taxes on other greenhouse gases). We should attempt to persuade as many other countries as possible to impose the same taxes on themselves. Canada and the European Union have already begun this process.
For context, this would result in about a $0.50 per gallon increase in the price of gasoline. Resources for the Future (RFF) indicated that a $22/ton tax, enacted in 2017, would have allowed the U.S. to meet its commitments under the Paris Agreements. (1) The International Monetary Fund (IMF) has recommended a $75/ ton carbon tax. A poll of a group of about 30 climate economists from around the world, taken ahead of the COP26 summit in Glasgow, produced a median estimate of $100/ton in order to reach net zero emissions by 2050. (2)
In order to encourage other countries to impose these taxes, we should place tariffs on goods from countries who do not impose greenhouse gas taxes on themselves, that are proportional to the estimated greenhouse gas emission content of the goods. This should rapidly result in a global, or nearly global, carbon tax of $50/ton.
Each nation could use the revenues from the tax for its own purposes. In the U.S., these revenues should be used for a comparable subsidy for carbon capture and sequestration, with the residual being used to reduce the deficit or to prevent it from increasing. Since money is fungible, this might also be viewed as funding new social welfare programs.
We favor a carbon tax over a cap and trade system for a number of reasons, including: ease of administration; applicability in most sectors (cap and trade works in the power generation and cement industries, but not in other sectors like transportation); and, the ability to raise revenues.
Since energy consumption is roughly proportional to income, this tax would not be significantly progressive nor regressive.
The carbon tax will encourage a shift to natural gas and other alternatives to oil and coal. Government policy may also be necessary to facilitate the growth of nuclear power. The point is not to subsidize nuclear power, but rather to remove governmental impediments to its use. The carbon tax by itself will provide a subsidy for nuclear and all other carbon free or low carbon technologies including solar, wind, and geothermal energy. The carbon tax would also provide an implicit subsidy for electric and hydrogen vehicles. We oppose direct subsidies for specific technologies.
Other Policies that Don’t Require International Cooperation
The taxes on coal, oil, and natural gas (described in the Environmental Policy section, for non-climate-change environmental reasons) would also shift energy demand in the U.S. toward less carbon intensive technologies.
The movement toward real time pricing of electric power, described in the section on Energy Policy will also provide an economically efficient, market-based, incentive for solar power.
The Developing World
Countries like China and India that are integrated into the world economy through trade will find that it is in their interest to impose carbon taxes on themselves and will, as a consequence, reduce their emissions of greenhouse gases. Other countries, like many in Africa, that are not significant exporters, may find that they would rather enjoy cheap fossil fuels and put themselves at a disadvantage in terms of international trade. The developed world could attempt to buy the cooperation of these countries through cash transfers. Our feeling is that these cash transfers will be very unpopular, politically, within the developed world. It might be a better strategy to subsidize technology transfer to the developing world to make the transition to a less carbon-intensive economy cheaper.
Geo-Engineering and other R&D
The downside of geo-engineering to reverse climate change is that it involves large scale experiments with the environment. The upside is that it may be possible for the U.S., acting alone, or with a few allies, to have a major impact on solving the problem, or at least buy some time.
One possible geo-engineering approach involves carbon capture and sequestration directly from the atmosphere. Unfortunately, while technologically feasible, this technology is far too expensive to be practical at this time.
We would support government investment in R&D on these alternatives and on basic research on low carbon energy technologies.
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