The Republican Carbon Tax Is Republican, Say Republicans

The Atlantic
February 8, 2017
By Robinson Meyer

WASHINGTON, D.C.—From a politics and policy standpoint, it’s brilliant.

The United States has a problem: runaway climate change, which will degrade or damage agriculture, biodiversity, coastal cities, and the social politics of some of the most volatile regions of the world. Climate change is a function of how much heat-trapping carbon dioxide is in the atmosphere. The more CO₂ people emit, the more the planet warms. But in an unregulated market, there’s no mechanism  to keep people from emitting carbon dioxide, because it is cheap.

So, et voilà, you invent just such a mechanism. You create a Pigovian tax—a simple tax on an economic externality—that you impose at the places where potential carbon emissions enter the economy: the ports, the refineries, the coal mines. For every ton of carbon dioxide emitted, you charge the emitter $40 to account for the warming caused by the gas. Then, to keep from depressing the economy, you rebate the money from that tax back to Americans in the form of a quarterly check.

The tax makes emitting carbon dioxide costly, but it also does not expand the size of the government. And because Americans love getting their quarterly rebate check, they approve as the government increases the tax over time. A higher tax means more money in their pocket (at least at first).

Of course it is not so simple. Carbon dioxide is not the only gas that causes global warming. Redistributing the revenue to Americans prevents the government from spending it on renewable-energy research. People may save their government checks instead of spending them. But a carbon tax-and-dividend scheme really could be an elegant, market-friendly way to begin to address climate change in American policymaking.

This week, members of the Republican old guard—including two architects of the Reagan administration—proposed that the United States should adopt a carbon tax. They did so in a blitz of elite publicity: a story in The New York Times, dueling op-eds in the Times and the Wall Street Journal, and a press conference at the National Press Club. On Wednesday, they will meet with senior economic officials at the White House.

Their proposal is called “The Conservative Case for Carbon Dividends.” Mitt Romney has already tweeted it approvingly.

“For too long, we Republicans and conservatives haven’t occupied a real place at the table during a debate on global climate change,” said James Baker III at the conference. Baker served as secretary of the treasury under President Reagan and secretary of state under President Bush.

“Instead, we have continued to dispute the fact of climate change,” he continued. “I was, and remain, somewhat of a skeptic to the extent that man is responsible for climate change. But I do think that the risks associated with it are too great to ignore, and that we need an insurance policy.”

Climate change is definitely happening, and it is definitely human-caused. The vast majority of climate scientists have recognized this for almost two decades. But the pitch of Baker’s appeal is interesting: He is opening a path for Republicans to support the policy without looking like hypocrites.

Indeed, most of the comments on Wednesday were aimed at Republicans. Baker and the rest of the panel seemed to hope that if they said the carbon tax was “conservative” or “a free-market solution” many, many times, then their fellow partisans would come to agree with them.

“This makes such good sense from a conservative, limited-government competitive approach,” said Baker.

“For the sake of our children and grandchildren, I believe it is imperative that we set forth a climate solution that embodies long-standing conservative principles,” said George Shultz, the secretary of state under President Reagan, in a statement read at the event.

“This is a fundamentally conservative plan—one that showcases the principles of free markets and limited government,” said Hank Paulson, the treasury secretary under President George W. Bush, in another statement.

Shultz’s comments even referenced the Montreal Protocol, the landmark treaty passed under Reagan that remedied the hole in the ozone layer. “Given the risks, [Reagan] advocated for an insurance policy. As it turned out, the scientists who were worried were right and Reagan’s Montreal Protocol came along just in time.”

This is all true. A revenue-neutral carbon tax really is a free-market-friendly solution. The elegance of the tax was frequently and favorably compared to the onerous regulations imposed by the Environmental Protection Agency under the Obama administration. If the House G.O.P. adopted a carbon tax, it could “return Republican leadership to a constructive stance on this critical issue” while repealing and replacing those same rules.

But those rules were not advanced out of any particular Democratic fondness for regulation. Rather, they were advanced chiefly because the Republican Congress declined to advance Obama’s original climate policy, a plan to cap and trade carbon emissions. (Cap-and-trade was, in fact, another market-based policy favored the Reagan administration.) In the wake of this failure, Obama explicitly tried to advance the climate policies he could through the EPA’s statutory powers.

And Democrats have long been willing to entertain the idea of a carbon tax. Sheldon Whitehouse, a Democratic senator from Rhode Island, introduced a proposal for one last year.

The problem in fighting climate change has never been a natural Democratic love for onerous regulatory regimes. It has been Republicans who have long refused to even entertain the idea that climate change is dangerous or human-caused.

“What I think is interesting and salient is that it’s a whole bunch of Republicans now speaking to a Republican town. They are saying to Republicans that all the things you may be concerned about—the potential harms of a real and ambitious climate policy—they can be worked around now,” said Joseph Majkut, the director of climate science at the Niskanen Center, a libertarian think tank.

“Niskanen has always been of the mind that revenue neutrality is really important, because a carbon tax will have significant economic impacts that people are going to feel,” he told me. “We’re happy to see someone pushing this angle—whether this is something that will pass Congress, should a carbon tax pass Congress, is a separate question.”

Most environmental advocates would also support a carbon tax, though they would add that it cannot work as the country’s only climate policy. As Brad Plumer writes at Voxmany environmental regulations act as complements to a broader carbon-tax policy: One Obama-era rule tries to limit the amount of methane accidentally emitted during the mining process, for instance. This type of emission would not be covered by a carbon tax.

And, in fact, methane emissions as a whole would be omitted from the Baker-Shultz plan: At least as described, it only covers carbon dioxide, which constitutes 80 percent of American greenhouse gas emissions. Other types of greenhouse gases, like methane—which does not last as long in the atmosphere as carbon but which traps more heat—are left out of the proposal.

But it is a Republican town, and these objections will not be what keeps the carbon-tax plan from advancing. The biggest obstacle to a Republican-led climate policy are Congressional Republicans. Last year, the House G.O.P. unanimously supported a resolution that declared a carbon tax “would be detrimental to American families and businesses, and is not in the best interest of the United States.” It is unlikely they feel more pressure to support the policy now.

Just as Baker was beginning his press conference, the influential organization Heritage Action for America released an angry denunciation of the proposal.

“There is no room in the Republican Party for a carbon tax,” said Michael A. Needham, the organization’s CEO. “Replacing Obama’s destructive regulatory regime with a destructive taxation regime will not make American companies more competitive or bring jobs back to abandoned communities. Beyond the policy implications, the Climate Leadership Council’s carbon tax proposal is just the latest example of policy solutions crafted by and made for cultural elites.”

And then, twisting the dagger: “These so-called Party elders might want to meet with former Secretary Clinton to discuss this idea.”

Baker and Shultz, remember, served in multiple cabinet-level roles under President Reagan. Short of President George H.W. Bush, they are the closest thing the G.O.P. has to elders. It is laudable that they are advancing a Republican-endorsed climate-change policy proposal. But the challenge to addressing climate change in the United States has never been a paucity of policies. It has been the Republican Party.