The Conservative Case for a Carbon Tax and 'Climate Dividends'

Insisting that “on-again-off-again regulation is a poor way to protect the environment,” eight veterans of previous Republican administrations met with White House officials on Tuesday to float the idea of a revenue-neutral carbon tax.

In an op-ed in the New York Times, three of the five Republican elder statesmen said a $40-a-ton carbon tax would “send a powerful signal to businesses and consumers to reduce their carbon footprints.”

The authors include James Baker, Secretary of the Treasury under Ronald Reagan and Secretary of State under George H.W. Bush; George Shultz, a senior economist during Dwight Eisenhower's administration, Secretary of the Treasury under Richard Nixon and Secretary of State under Reagan (and a huge proponent of solar power and electric cars); Henry Paulson, a former Goldman Sachs CEO and Secretary of Treasury under George W. Bush; N. Gregory Mankiw, chairman of the Council of Economic Advisors under the younger Bush; and Martin Feldstein, who chaired the same council during the Reagan administration.

Their report, The Conservative Case for Carbon Dividends, also included as co-authors Rob Walton, chairman of Walmart’s board of directors for over 20 years and now chairman of Conservation International’s executive council; Thomas Stephenson, an ambassador during the George W. Bush administration and a partner at Sequoia Capital; and Ted Halstead, CEO of the the Climate Leadership Council, the organization that supported and funded the survey.

The problem, say these GOP leaders, is that the Barack Obama administration was unable to push any significant environmental legislation through Congress, so the president enacted policy via executive orders.

The outcome, they say, is that the previous administration left a “grab bag” of regulations that may have some effectiveness in curbing carbon emissions, but infuriated Republicans – who are now, of course, hell-bent on overturning them.

They insist the result is uncertainty not only for businesses, but also for the environmental community, which will witness Obama-era programs and regulations disappear quickly.

The solution, according to messengers Baker, Schultz, et al., is a revenue-neutral carbon tax that would push businesses to reduce their carbon footprint, put money in Americans’ pockets and account for imports from countries that do not have a carbon tax in order to maintain U.S. companies’ competitiveness.

In exchange for this carbon tax, however, would be the rollback of regulations enacted during the Obama administration, including the Clean Power Plan.

This carbon tax proposal has four pillars:

1. An increasing carbon tax

The authors suggest that the carbon tax start at a “sensible” $40 a ton, which would be imposed at the first point where fossil fuels enter the economy -- as in mines, refineries and ports.

This tax would increase over time -- which would not only send a relentless signal to companies that they need to change their business practices, but would also nudge Americans to change their everyday habits. And the higher the tax becomes, the more American citizens would benefit.

This pillar speaks to the environmental community, who in theory would see their goals achieved as more companies ditch fossil fuels in favor of renewable sources of power such as wind and solar.

2. Redistribution of these funds to all citizens through 'climate dividends'

All of the carbon tax’s proceeds would be paid back to Americans equally on a quarterly basis via checks, direct deposits or into individual retirement accounts.

Under a $40 per ton tax, a family of four would receive about $2,000 annually. That $500 per quarter would become higher as the carbon tax increases -- motivating more Americans to move toward a low-carbon lifestyle, as more climate protection means higher checks.

The authors suggest that the Social Security Administration run the program, as dividend payments would be tied to social security numbers. This redistribution policy would undoubtedly appeal to the Bernie Sanders progressives who feel that too many in the working and middle classes are being left behind.

3. Border carbon adjustments

This pillar appeals to citizens who believe the U.S. has become a patsy on international trade – and helped to fuel Donald Trump’s narrow win in the November election.

Businesses that export to companies lacking a similar carbon tax system would receive rebates for any taxes paid, while imports from those same nations would be subjected to a surcharge based on the carbon content of their goods. The more imports from countries lacking any carbon pricing structures, the more dividends would be paid to Americans.

But the report’s authors claim such a policy could actually inspire more countries to adopt a similar carbon tax policy, which would result in a bigger win for the global environment.

4. A rollback in regulations

This is where the details of the plan become complicated. The report’s theory is that a higher carbon tax would negate any need for Obama-era energy and environmental regulations.

The Clean Power Plan would disappear, and the Environmental Protection Agency’s authority over carbon emissions would eventually be eliminated.

But in order to broaden the appeal of this carbon tax proposal, the authors suggest aiming high and setting emission reductions that are even more ambitious than what current regulations dictate.

Is it feasible?

The policy appears simple, but naturally there is the stubborn fact called reality.

Environmental organizations will fight any rollback of the Obama administration-era rules. In an emailed statement to TriplePundit, Rhea Suh, president of the Natural Resources Defense Council (NRDC), wrote:

“Putting a price on carbon could be an important part of a comprehensive program. It can’t do the job alone, though, and is not a replacement for carbon limits under our current laws.”

Many Republicans have also expressed hostility to any suggestion of a new tax, dating back to the “Contract for America” surge that allowed Republicans to sweep into control of Congress in 1994 after Democrats dominated both chambers for 40 years.

Trump’s Secretary of State, Rex Tillerson, has indicated that he favors a carbon tax. But critics say his statements are more lip service than advocacy for such a policy. Furthermore, Trump has made it clear that he is less interested in climate policy than he is in favor of harvesting America’s fossil fuel reserves.

Nevertheless, the Trump administration has an opportunity to extend a hand to some of his most strident opponents. His presidency’s first few weeks have been largely lampooned for arguments over inauguration crowds and whining over Nordstrom’s. And of course there has been the huge distraction of Trump’s immigration executive order, while opponents continue to speak out against other executive orders and his cabinet picks.

Embracing such a policy would show critics of all political persuasions the the president is serious about policy. Republicans would warm up to the elimination of regulations, struggling families would happily pocket the money, and environmental groups would see a reduction in emissions and pollution.

But this carbon tax plan means everyone would have to give up something sacrosanct and compromise, a word that is no longer in the vocabulary of many of our nation’s leaders.

Image credit: Climate Leadership Council