A Practical Path Toward a Carbon Tax

Rep. John Delaney’s carbon tax plan would fund rebates for low-income families, help displaced coal workers and lower corporate tax rates. But its best virtue might be bipartisan appeal.

In advance of global climate talks set to continue in Paris this November, the United States announced an ambitious goal last fall: to reduce the nation’s greenhouse gas emissions by 26-28 percent below 2005 levels over the next decade.

According to the White House, achieving this target would require the United States to roughly double the current pace of reductions in carbon pollution. In 2013, U.S. carbon emissions totaled nearly 6.7 million metric tons – making America the world’s second-largest producer of carbon emissions after China.

Across the political spectrum, experts increasingly agree that the most direct and efficient way to reduce carbon is to put a tax on it. In British Columbia, for example, per capita fuel consumption has dropped by 16 percent since a carbon tax was introduced in 2008 – compared to rising consumption in the rest of Canada. The province has also continued to enjoy a healthy rate of economic growth at 2 percent per year. As an op-ed in the Globe and Mail put it: “It works.”

Where there’s less agreement is how to structure a carbon tax – and most importantly, how to spend the money it would raise. According to Yoram Bauman and Shi-Ling Hsu, imposing a British Columbia-style tax of $30 per metric ton in the United States would raise as much as $145 billion a year. It’s a tempting sum of money, particularly for progressives with a growing wish list of domestic spending priorities.

But some argue that the only politically feasible way to pass a carbon tax in the United States is to keep it “revenue neutral” – meaning that every dollar raised in revenue goes toward rebates or other tax cuts.

That’s also the approach in British Columbia, where carbon tax revenues were expected to total $1.2 billion this year. Officials have used the funds to pay for rebates to low-income families (equal to $115.50 per adult and $34.50 per child) and to lower taxes on individuals, companies and small businesses. A report by the nonprofit Clean Energy Canada concluded that revenue neutrality “has two very important up-sides: it helps bring the business community onside (or at least, it keeps that community from going too far offside), and it makes the tax difficult to remove once it’s in effect.”

Among U.S. champions of a carbon tax, proponents of a similar “tax swap” include Democratic Rep. John Delaney (MD-6), who introduced carbon tax legislation this spring. “If you want a carbon tax put in place as soon as possible, you have to embrace a carbon tax that has an opportunity for bipartisan appeal,” Delaney says. “We’ve seen a lot of proposals where the revenues are used by government any way they want. People don’t really trust that, and certainly not my Republican colleagues.”

Continued at the Washington Monthly…