Earlier this month, conservative elder statesmen issued a “Let’s Make a Deal” on climate: Nix Obama-era regulations in return for a carbon tax and dividend.
So far, the idea has gained little traction from unretired Republicans who could actually make a deal. But if that changes, should Democrats and pro-environment independents accept it?
The proposal was issued with great fanfare by the newly formed Climate Leadership Council. Conservative economists Martin Feldstein and Gregory Mankiw and former secretaries of State George Shultz and James Baker III touted the plan in op-eds for the The New York Times and The Wall Street Journal. The council launched its effort at the National Press Club the same day.
A carbon tax appeals to free-market conservatives by empowering markets to find the cheapest ways to cut emissions. By returning the money through a dividend, the tax would not grow the size of government. The council estimates the dividend would start at $2,000 for a family of four, and rise with the carbon tax.
{mosads}However, the council isn’t offering something for nothing. Their proposal calls for ending President Obama’s climate regulations. Specifically, they would nix the Clean Power Plan, tougher fuel economy standards for heavy-duty trucks and additional regulations yet to be specified. Fortunately, the council is not seeking to weaken light-duty fuel economy standards, appliance efficiency standards or the hydrofluorocarbon deal signed in Kigali, Rwanda, last year.
Obama pledged under the Paris climate agreement that the United States would aim for 28 percent emission reductions by 2025 from 2005 levels. As I wrote last year, the U.S. had already cut emissions 9 percent by 2014. The Environmental Protection Agency (EPA) just announced that emissions fell another 2.2 percent in 2015.
The council estimates that continuation of Obama-era policies would leave the U.S. about 12 percentage points shy of its Paris pledge. That’s why 2016 Democratic nominee Hillary Clinton had proposed an ambitious agenda for further progress.
With President Trump and congressional Republicans calling to reverse Obama’s policies without replacement, we’d likely fall further behind.
To meet our Paris pledge, the council proposes a carbon tax starting at $40/ton and rising with time. Unlike weaker taxes discussed before, the new proposal would likely be more than sufficient for that goal. A recent Treasury Department analysis estimates that a $49/ton tax would far surpass the emission cuts needed for Paris.
Meanwhile, Resources for the Future modeled various sets of carbon taxes that could achieve the Paris pledge. As co-author Marc Hafstead explained via email, their modeling shows a tax rising to $38/ton (in year 2013 dollars) by 2025 would meet the target. The council’s proposal would exceed that level with its annual increases, and yield further benefits for decades to come.
Interestingly, Hafstead noted that their calculation of a $38/ton threshold for Paris compliance assumes the U.S. abandons efforts to control more potent greenhouse gases like methane. That may be the case, as the House voted this month to overturn rules on methane emissions from oil and gas drilling.
But if we don’t abandon progress on other pollutants, Hafstead estimates a tax of just $22/ton would be sufficient.
Ditching methane controls is a bad deal for many reasons. Methane is the leading source of ozone smog worldwide. That’s why researchers such as Jason West of the University of North Carolina and Arlene Fiore of Columbia University have shown that methane reductions can save tens of thousands of lives.
Leaking methane also means wasting a valuable fuel. Since methane is short-lived, it actually causes more warming near-term than traditional 100-year outlooks would suggest. Controlling methane while keeping the council’s $40-plus/ton tax proposal would accelerate U.S. progress toward its ultimate goal of 80 percent emission reductions by 2050.
Environmentalists have little to lose trading the Clean Power Plan for a carbon tax. As I wrote with Leah Parks last year, the U.S. is well ahead of schedule to meet the plan’s targets. That’s because cheaper natural gas and renewables are already displacing coal, even as the Clean Power Plan remains tied up in court.
The main importance of the Clean Power Plan is preventing a swing back to coal if natural gas prices rise. But a carbon tax averts that scenario. A $40/ton tax would add 4.2 cents per kilowatt hour to the cost of coal electricity, but just 1.6 cents for natural gas combined cycle plants. Solar and wind would pay nothing.
With many coal plants already losing money, coal would quickly give way to cheaper and cleaner forms of electricity. Meanwhile, the tax on natural gas is comparable in size to existing tax credits for wind and solar. Even without those tax credits, wind and solar are already as cheap as new natural gas plants. Taxing natural gas would help renewables extend their recent dominance of new generation capacity without the need for subsidies.
For transportation, the effects of a carbon tax would be far milder. A $40/ton tax would add just 36 cents to the cost of a gallon of gasoline. That’s not going to convince many people to drive less or buy an electric car, especially since electricity prices would rise a bit too. However, with fuel economy standards set to tighten, electric car sales would continue to rise.
Looking beyond the 2025 Paris target, swapping regulations for a carbon tax becomes an even more attractive deal. The Clean Power Plan ends in 2030. However, a steadily rising carbon tax would continue to drive down emissions for decades to come.
Carbon taxes have traditionally been criticized as regressive, since the poor spend a greater share of their income on energy. However, by rebating the tax through a per-person dividend, the Climate Leadership Council’s proposal would leave many low-income families better off.
So should Democrats and independents welcome this deal?
In a word, yes. Writers in The Nation, the The New York Times and Mother Jones have reached similar conclusions. I’d bargain for tougher methane regulations, but could accept waiting to restore those later.
Trouble is, conservative economists and retired Republican statesmen are in no position to seal this deal. RepublicEn, Citizens Climate Lobby and the Climate Solutions Caucus are trying to rally Republican and bipartisan support for a carbon tax in Congress.
For now, such efforts have fallen on deaf ears from politicians who hear no evil on climate. If that changes, liberals and moderates shouldn’t shy away from nixing Obama-era policies to accept a market-based solution to climate change.
Dan Cohan is an associate professor in the Department of Civil and Environmental Engineering at Rice University.
The views of contributors are their own and not the views of The Hill.