Editorial: A Republican Carbon Tax

Source: By Editorial Board, Bloomberg • Posted: Thursday, February 9, 2017

Some Republicans have grown tired of fighting the rest of the world on climate change.

As economists, religious and military leadersordinary Americans and even oil companies have joined the push to lower greenhouse-gas emissions, Republicans have, for the most part, resisted. But now, a group of conservative economists and former Republican officials are recommending their party reverse course — dramatically. The U.S., they say, should enact a nationwide tax on carbon emissions. It’s a smart idea that deserves support from President Donald Trump and congressional leaders.

The rogue group, which includes James Baker, George Shultz and Henry Paulson, proposes a tax on carbon that would start at about $40 a ton and increase regularly. The idea is to ensure that the cost of climate damage is factored into all activities that emit carbon, whether it’s burning coal or burning gasoline. That way, the market would encourage carbon producers to find the most efficient ways to cut back. And it would make clean energy, from wind and solar to nuclear, more attractive financially.

This could lead to bigger emissions cuts than were expected from former president Barack Obama’s Clean Power Plan. And a carbon tax has the built-in flexibility to push emissions lower and lower over time.

The Cost of Carbon

Countries that already have carbon taxes — or cap and trade systems that effectively set a price on emissions — have demonstrated that they do cut greenhouse gases. And when the taxes are well-designed, they don’t hurt the economy. On the contrary, if the revenue is used to cut other taxes, a carbon tax can boost GDP. The payroll tax is an especially good one to offset, because its burden falls disproportionately on the working poor.

The Republicans now arguing for a carbon tax suggest that the money simply be returned to Americans via tax-free quarterly dividends, which they say would add up to about $2,000 a year for a family of four. That’s another plausible way to keep the tax revenue-neutral and thus adhere to conservative principles of limited government.

All this said, energy-intensive businesses could be expected to take a hit. In enacting any carbon tax, Congress would need to consider job losses and find ways to help the people most affected.

Alas, President Donald Trump and conservatives in Congress have already rejected the notion of a carbon tax. Perhaps this collection of eminences can open the Republican mind. As they point out, even if you don’t believe that humans are fully to blame for climate change, a carbon tax is the just the kind of insurance policy everyone needs.

To contact the senior editor responsible for Bloomberg View’s editorials: David Shipley at davidshipley@bloomberg.net.