The Hill: Acting Faster on Climate

By Bill Eacho

“We’re not acting fast enough.” President Obama said four times in a 24-minute speech recently in Alaska urging the world do more to combat climate change.

Scientists agree. While the president has done everything he can using the limited executive branch tools at his disposal, we will fall far short of achieving his goal of reducing U.S. greenhouse gas emissions 26 to 28 percent by 2025. 

Globally, even if every nation achieves the reductions each has pledged going into this December’s Paris conference on climate change, the reductions will be less than half those required to keep average temperature increases below levels most experts say could trigger crop failure, flooding and sea level rise.

Putting a price on carbon emissions is the cheapest and fastest way forward.  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. 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, British Columbia’s GDP growth has outperformed Canada’s.

The United States should join them. To find out if a carbon fee has political potential, the nonprofit that I helped establish, the Partnership for Responsible Growth, sat down individually with 175 Congressional offices, focusing on those who serve on the committees with jurisdiction over tax, environmental, and energy matters. These conversations strongly indicate there is bipartisan receptiveness to carbon-funded tax cuts, provided that the business interests most affected publicly endorse this solution.

Major oil companies are also open to the idea. In June, the CEOs of the six largest European oil companies wrote the UN requesting a dialogue about how to set an international price on carbon.

In the U.S. a carbon fee would have to be approved by Congress. A fee could start at $30 or $40 per ton of CO2, perhaps doubling over ten to fifteen years. It should be levied “upstream” where carbon fuels are introduced into commerce (either upon extraction or upon the first sale).  Such a fee could be levied using an existing administrative structure at about 2400 locations where carbon fuels are already measured for other purposes.  This approach is simple to envision and execute.  Like any fee, it would be passed along, raising energy prices.

Politically, the most significant question is how to allocate the proceeds of the fee. To keep it revenue-neutral, we suggest half of the revenue be used to bring the corporate tax rate from 35 percent (the highest in the industrialized world) to 25 percent. In recent years, Japan, Canada and the United Kingdom have reduced their top rate to keep companies from moving jobs and factories to lower-cost countries. Lowering the corporate tax rate produces economic growth which more than offsets any drag from higher energy prices. The remaining revenue could be returned to low- and middle-income families to offset higher energy costs.

Since climate change is a global problem and we need to motivate our trading partners to join us in pricing carbon, we should impose a border adjustment tax on imports and include a refund for energy-intensive exports when trading with nations that don’t match us. This would give other countries the choice of enacting their own price on carbon, keeping the revenue for themselves, or having their exporters pay it to the U.S as the price of entry into our markets -- an easy choice for any government. And, of course, as it becomes global, the competitiveness of American manufacturing is enhanced.

The bill could include a suspension of the Clean Power Plan rule, perhaps for six or seven years, to let the carbon fee prove it can reduce emissions faster and more cheaply than EPA regulation. In the unlikely event it fell short, the rule-making would be reinstated.

Recently Congressman John Delaney (D-Md.), a former business executive, introduced a carbon fee bill. So did Senators Sheldon Whitehouse (D-R.I.) and Brian Schatz (D-Hawaii). There are other bills, as well. We believe the best window for enactment may be 2017, after national elections.

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.

The president is right -- we aren’t doing enough. Let’s harness the power of the marketplace and put a global price on carbon.

Eacho is a visiting professor of the practice at Duke University’s Sanford School of Public Policy and co-founder of the Partnership for Responsible Growth.

This was originally published in The Hill on September 17, 2015.