Carbon Tax Trade for Climate Rules Touted for Economic Boost

A plan by prominent Republicans and business leaders to enact a carbon tax rather than new climate regulations could have significant advantages in growing the U.S. economy, a study released Friday said.

The Climate Leadership Council’s carbon dividends plan touts the broad economic advantages of carbon taxes over regulating climate change. By 2036, U.S. annual Gross Domestic Product would be $420 billion higher annually under the plan’s carbon tax compared with similar carbon reductions that relied on a patchwork of regulations, according to the study.

“We are behind schedule on addressing climate change, and we are only going to put ourselves on a path” to quickly reduce emissions with a carbon tax, Council CEO Greg Bertelsen said in an interview.

A carbon tax has other advantages over a patchwork of regulations, Bertelsen said. Regulatory agencies can take years, or even a decade, to finalize regulations and resolve litigation. The U.S. Supreme Court stayed the Obama-era Clean Power Plan, the Trump administration weakened rules governing power plant emissions, and any Biden administration effort is likely to be litigated.

The group’s proposal, first unveiled in 2017, called for Congress to set a $40 per ton tax on carbon dioxide emissions that would rise over time and refund all net proceeds annually to U.S. households, awarding a family of four approximately $2,000 in the first year.

The carbon tax would increase annually at a rate of 5% above inflation, high enough to cut U.S. carbon dioxide emissions in half by 2035 compared with 2005 levels, according to the group.

Border Carbon Adjustment

Swapping regulations for a new carbon tax would require preempting “stationary source” carbon regulations—emissions limits for power plants, industrial operations, and other sites—which the EPA has sought to regulate under the Clean Air Act, the group said.

A border carbon adjustment would shield U.S. energy-intensive industries such as steel, cement, and manufacturing from being undercut by other nations without a carbon tax, according to the plan. Essentially a border tax, the adjustment would apply to imported goods based on their carbon intensity, and U.S. manufacturers would get a rebate for U.S.-produced goods exported to nations lacking equivalent carbon policies, the plan said.

The NERA economic consulting firm conducted the study, which arrives amid rising discussion of carbon taxes. While no single proposal has gained traction on Capitol Hill, economists have long seen a carbon tax as the most efficient option to address climate change. Other options put forward include using the revenue to shore up the Social Security trust fund, cut income taxes, or fund clean energy.

The council’s 2017 carbon dividends proposal, updated in 2019, argued there was a deal to be made on a carbon tax if congressional Republicans and business groups could be assured that they would be shielded from the threat of federal climate regulations. A carbon tax could generate significant revenue: A tax of $25 per ton and rising at 2% above annual inflation would raise more than $1 trillion in just the first 10 years, according to the Congressional Budget Office.

The council was launched by several Republicans who served in the Bush and Reagan administrations; large corporations such as ExxonMobil Corp., BP PLC, and Microsoft Corp.; and several environmental groups, including the World Wildlife Fund. The carbon dividend plan initially was unveiled by former Republican Secretaries of State James Baker and George Shultz; former Treasury Secretary Lawrence Summers; and former EPA Administrator Christine Todd Whitman.

Read the full article at Bloomberg Law here.