Looking to the Free Market to Mitigate Climate Change

One way or another, climate change affects all of us. Are you a South Carolina resident trying to get your insurance company to deal with your flooded home? Maybe you took a hit in 2012 when Hurricane Sandy moved up the Eastern Seaboard. Or you might be one of the growing number of Americans who have built homes near western forests that have erupted in flames as drought has intensified. If you live in one of the 30 Alaskan villages being swallowed up by rising sea levels, you are near the top of the list of climate change victims.

The plight of those villagers was brought home to all Americans during the president’s August trip to the 49th state. The Economist’s account was titled “Tales of Atlantis.”

Is the country that became the most powerful on the planet because of its “can-do” spirit now saying “can’t do” when challenged by climate change? The Obama administration has taken a number of actions to combat this problem, but no expert believes that we are on a path that will reduce greenhouse gas emissions quickly enough to forestall truly awful consequences.

So what can we do? We should turn to our old friend, the free market. Since scientists have concluded that carbon is the primary culprit, let’s make it more expensive by creating a carbon fee. That’s the best way to reduce its use.

It is probably also the best way to get Republicans in Congress to be part of the solution. Of course, the GOP is not going to get on board if the fee revenue is used to fund the federal government. So the fee should be revenue-neutral. If we applied about half of the revenue to reducing the corporate tax rate from 35 percent (the highest in the industrialized world) to 25 percent, we would make U.S. companies more competitive in world markets. Since the fee would be passed along to consumers, it probably would be only fair to return the rest of the revenue to low- and low-middle-income families through the tax code. Couple a carbon fee with a WTO-compliant border tariff adjustment when trading with countries that don’t match us and watch it spread to all our trading partners overnight.

This is not pie in the sky. In fact, almost 40 nations and more than 26 sub-national jurisdictions have adopted carbon pricing, and these programs cover 12 percent of the world’s greenhouse gas emissions. The list includes Sweden, Norway, and New Zealand. British Columbia has had one since 2008 and has reduced fossil fuel consumption by 16 percent, while use in the rest of that country has risen by 3 percent. Meantime, B.C.’s GDP growth has outperformed Canada’s.

This market-based response to climate change would foster economic growth, create jobs, end the long-standing deadlock over tax reform, and replace an expensive and unpredictable regulatory mechanism with a cheaper, faster, more predictable, and more effective solution.

Congressman John Delaney (D-MD), a former business executive, has introduced a carbon fee bill. So have Senators Sheldon Whitehouse (D-RI) and Brian Schatz (D-HI). There are other bills, as well.

Perhaps the best window for enactment is 2017 after national elections. But we can’t wait long. With each passing day, the threats to citizens living on the coasts, near forests, and everywhere else are increasing.