There are essentially three ways to reduce emissions — regulations, subsidies and pricing. The first is the worst of all options for a party committed to free markets and limited government. Many Republican legislators are, therefore, gravitating toward the second option: tax credits and research-and-development spending to promote innovation. Those now introducing legislation along these lines deserve praise.
Republicans are correct to focus on clean-energy innovation as a crucial driver of climate progress. But while subsidies are an important steppingstone in fostering nascent technologies, they are hardly the best way to stimulate innovation across the whole economy. As numerous studies show, subsidies are a costly means to drive clean tech deployment at scale, requiring ever-higher taxes and deficits to get the job done.
The winning Republican climate answer is the third option: carbon pricing. Just as a market-based solution is the Republican policy of choice on most issues, so should it be on climate change. A well-designed carbon fee checks every box of conservative policy orthodoxy. Not surprisingly, this is the favored option of corporate America and economists — including all former Republican chairs of the president’s Council of Economic Advisers.
In fact, carbon pricing could actually shrink the size of government by rendering less efficient regulations unnecessary. This would provide businesses the regulatory certainty they need to make long-term investments in clean energy, further turbocharging the innovation engine.
In the absence of national climate policy, we are already witnessing a proliferation of state and local energy mandates and regulations, sure to be compounded at the federal level under a future Democratic White House. The Green New Deal offers a preview of the heavy-handed and growth-inhibiting alternative that may lie ahead. The best antidote is a meaningful carbon fee, which justifies replacing and preempting less cost-effective carbon regulations of this type.
Finally, border carbon adjustments that extend the reach of domestic carbon pricing to imports and exports would protect the competitiveness of U.S.-based companies. Because businesses in the United States are more carbon-efficient than companies in high-emitting countries such as China and India, U.S. manufacturers would actually gain a competitive advantage. No other climate solution offers this benefit.
Without an ambitious national climate plan, Republicans risk hemorrhaging younger voters who care disproportionately about climate change. The party has everything to gain from embracing the inherently conservative idea of carbon pricing as its own, immediately taking the high ground on a matter of increasing public concern.