Many economists champion a carbon fee, but isn’t it one of those ideas that is nice in theory but has never been tried in the real world?
20 nations and 2 subnational jurisdictions (British Columbia and Alberta) have implemented a carbon fee, and these initiatives cover 4.4% of global GHG emissions. These nations include Norway, Mexico, and Japan. The results are encouraging. British Columbia implemented a revenue-neutral carbon tax in 2008 and reduced fossil fuel consumption by 16 percent, while use in the rest of Canada country rose by 3 percent. Meantime, British Columbia’s GDP growth outperformed the country as a whole. Prime Minister Trudeau has announced that by 2022 Canada will have a single national carbon price no less than $50 CAD. This effort has the support of the four largest provincial governments, much of the nation’s hydrocarbon industry, the Canadian Mining Association, and most citizens.
How would carbon be priced under this plan?
A fee at $49 per metric ton of carbon dioxide emissions and increasing annually by 2 percentage points over inflation per year will be levied upstream where carbon fuels are first introduced into the economy - for example, at the coal mine, at the oil refinery gate, and at gathering stations for natural gas. A fee at this level beginning in 2019 would generate $2.2 billion by the end of 2028.
Why not apply the fee closer to the end user?
An upstream tax can be levied using an existing administrative structure in which carbon fuels are already measured for other purposes. This approach is simple to envision and execute, applying to fewer than 2,400 taxpayers. It would involve very little additional cost or administrative structure, would be very transparent, and would make it relatively easy to track the exact amounts collected each year.
Why not adopt a cap-and-trade approach, which the House passed in 2009?
That cap-and-trade bill, passed by a 219-212 vote in the Democrat-controlled House, died in the Senate. While a well-designed cap-and-trade system theoretically could put a relatively predictable “price” on carbon, such an approach has far less Congressional support than it did six years ago. One of the reasons: Cap-and-trade systems in Europe, California and the Northeastern states proved that too many credits tend to be given away to powerful interest groups, creating artificially low prices and reducing effectiveness in limiting greenhouse gas emissions. Prices in cap-and-trade systems also tend to be highly volatile, robbing the system of the predictability needed for business decision making. There are also concerns about the risk that financial players will manipulate a cap-and-trade system and siphon off most the “economic rents.”
If we approve a carbon fee, wouldn’t countries without one have an advantage over U.S. companies?
To encourage our trading partners to price carbon and to make sure that U.S. companies would not be at a disadvantage, the United States would impose a WTO-compliant border carbon adjustment on imports and include a credit for energy-intensive exports. This would make it in the self-interest of our trading partners to impose a similar price on carbon in their economies and keep the money for themselves rather than have their exporters pay it to the United States at our border.
This fee would generate significant revenue. What would be done with that money?
Any carbon pricing plan must start by returning about half of revenue raised to low and middle-income families to protect wages against loss of purchasing power during an energy transition. Much could be done with the remainder to grow our economy. A portion of the almost one trillion dollars leftover could be directed to deficit reduction, minimizing impacts on the already high national debt. Debt held by the public equals $14 trillion today, and it is on track to grow to $24.9 trillion (89% of GDP) in 10 years. The rest could be pumped into priority infrastructure needs and could be used to strengthen coal communities to promote economic transition.
Wouldn’t the fossil fuel-based energy industry fight this fee, making it impossible to enact?
U.S. energy producers and utilities see the merit in a simple, predictable broad-based price mechanism. ExxonMobil CEO Darren Woods supports a carbon tax, and the CEOs of the six largest European oil companies wrote to the UN requesting a dialogue and negotiation about setting a single European or global price on carbon. The hydrocarbon and mining industries in Canada have largely supported a national-wide carbon price on the grounds that such an approach is central to the competitiveness of their businesses and of Canada’s economy. Many in the industry not only are open to the idea of a carbon tax, but already internally price carbon.
What is The Partnership for Responsible Growth?
Created in 2014 by three political leaders and business executives, the Partnership for Responsible Growth is a 501(c)(3) nonpartisan advocacy organization that supports a free-market, pro-growth approach to combating global climate change. Our office is in DC, and we do outreach on Capitol Hill and in select states, promoting the message that a carbon fee is the the most effective policy tool currently available in order to raise revenue and mitigate climate risk.