On-again-off-again regulation is a poor way to protect the environment. And by creating needless uncertainty for businesses that are planning long-term capital investments, it is also a poor way to promote robust economic growth.
By contrast, an ideal climate policy would reduce carbon emissions, limit regulatory intrusion, promote economic growth, help working-class Americans and prove durable when the political winds change. We have laid out such a plan in a paper to be released Wednesday by the Climate Leadership Council.
Our plan is built on four pillars.
First, the federal government would impose a gradually increasing tax on carbon dioxide emissions. It might begin at $40 per ton and increase steadily. This tax would send a powerful signal to businesses and consumers to reduce their carbon footprints.
Second, the proceeds would be returned to the American people on an equal basis via quarterly dividend checks. With a carbon tax of $40 per ton, a family of four would receive about $2,000 in the first year. As the tax rate rose over time to further reduce emissions, so would the dividend payments.
Third, American companies exporting to countries without comparable carbon pricing would receive rebates on the carbon taxes they’ve paid on those products, while imports from such countries would face fees on the carbon content of their products. This would protect American competitiveness and punish free-riding by other nations, encouraging them to adopt their own carbon pricing.
Finally, regulations made unnecessary by the carbon tax would be eliminated, including an outright repeal of the Clean Power Plan.
Our own analysis finds that a carbon dividends program starting at $40 per ton would achieve nearly twice the emissions reductions of all Obama-era climate regulations combined. Provided all four elements are put in force in unison, this plan could meet America’s commitment under the Paris climate agreement, all by itself. Democrats and environmentalists may bemoan the accompanying regulatory rollback. But they should pause to consider the environmental value proposition.
These four pillars, combined, invite novel coalitions. Environmentalists should like the long-overdue commitment to carbon pricing. Growth advocates should embrace the reduced regulation and increased policy certainty, which would encourage long-term investments, especially in clean technologies. Libertarians should applaud a plan premised on getting the incentives right and government out of the way. Populists should welcome the distributive impact.
A repeal-only climate strategy would prove quite unpopular. Recent polls show that 64 percent of Americans are concerned about climate change, 71 percent want America to remain in the Paris agreement, and an even larger share favor clean energy. If the Republican Party fails to exercise leadership on our climate challenge, they risk a return to heavy-handed regulation when Democrats return to power.
Much better would be a strategy of “repeal and replace.” This would be pro-growth, pro-competitiveness and pro-working class, which aligns perfectly with President Trump’s stated agenda.