Thursday, February 9, 2017

What does a conservative carbon tax look like, anyway?

Greg Mankiw, Martin Feldstein, James Baker and Ted Halstead
of the Climate Leadership Council
“[T]here is mounting evidence of problems with the atmosphere that are growing too compelling to ignore. And, once again, there is uncertainty about what lies ahead. The extent to which climate change is due to man-made causes can be questioned. But the risks associated with future warming are so severe that they should be hedged.

The responsible and conservative response should be to take out an insurance policy.”

If you have not been paying attention to climate politics, you could easily assume these are the words of liberals.

Meanwhile, you could be forgiven for thinking that fierce opposition to a carbon tax in Washington State that would have allowed for a tax rebate of up to $1500 per family for low-income families would come from the GOP.

But if you have been paying attention to climate politics, you would know that my opening paragraph are the words of George Shultz and James Baker, III, both former Secretaries of State and Secretaries of the Treasury, and arch conservatives.   You would also know that the group that torpedoed a Washington State carbon tax designed to protect the poor was none other than the Sierra Club.

There are strange fractures in our polity, some of which are most unsuspected.

In this post, I am going to explore the most recent proposal for a carbon tax.  It is being proposed by the newly formed Climate Leadership Council (CLC), which consists of George Shultz, James Baker, Hank Paulson (George W. Bush’s Secretary of the Treasury), Greg Mankiw (conservative Harvard professor of economics) and other conservative luminaries.

What does a conservative climate policy look like?

1. It is a free market solution.  What does that mean?
It focuses on private action, not government decision.  There is an assumption that government is inefficient.  There is a basic belief that individuals and businesses will find the best ways to cut emissions in their daily lives and operations if they have the incentive to do so.  Governments won’t find the optimum means.

There is merit to this.  In the micromanagement of my day, no one knows better than I what challenges I face and what tools and techniques will best accomplish my goals.

Here is a simple example.  Only I know that I need to travel X amount of miles in a day, with longer trips a certain number of times per year.  Only I will know what particular EV will meet my needs best.  Why should a government entity be picking the cars that should get support?  I should be picking the car.

A price on carbon simply increases the cost of anything that includes carbon.  The decision about how to avoid that increased cost resides in the individual.  They call this a “market signal.”

The CLC proposes a $40-per-ton carbon tax.  (They are unclear about whether it would increase over time; their piece has a reference to the possibility of it rising). That would add about 36 cents to a gallon of gasoline.  Of course, it doesn’t impact only gasoline.  It would find its way into every item that requires the use of fossil fuels in its production or transport.

2. It is revenue neutral.  What does that mean?
It does not grow government.  Government keeps none of the money.  It is returned to individuals to spend as they see fit.  Of course, those spending decisions are now made in an environment in which there is a market signal away from carbon.  The Shultz proposal would provide a family of four with about $2000 per year. (This would increase if the tax increased annually up to $5000).  Seventy percent of Americans would get back more than they spend in the increased fee.

3. It has a border adjustment.  What is that?
A border adjustment is really two separate things at once.  First, any goods sold from here to countries without a comparable tax would get a rebate at the border so they could fairly compete.  Second, and more importantly to climate action, any goods brought in to the US from countries without a comparable price would have it imposed at the border.  This would create an incentive to those countries to implement a comparable price.  We could thereby push other countries to follow our lead.

Up to this point, the CLC proposal is very similar to that of Citizens’ Climate Lobby (CCL—yes, the acronyms are close, but no, these are NOT the same groups).  There is a small difference.  CCL starts at $15/ton per year and increases $10/ton per year.  It would add less cost, and have a commensurately smaller dividend in the first year, but then increase.  CLC, on the other hand, is vague on whether it would increase annually, but starts higher.  Both of these proposals differ a great deal more from Washington State’s proposal which was a carbon tax swap (cut sales taxes in equal measure to the carbon price collected).

But it is here, with the last point, that CLC differs so tremendously and shows its true appeal to the conservative base... and which progressives will likely abhor.  It may also be why these conservatives seem to think they have a chance of actually getting the policy implemented.

4. Eliminate regulations on carbon.  What regulations?
It would be used to justify the end of the Clean Power Plan (CPP) and federal and state liability for emitters.

Ending the Clean Power Plan is not in itself such a big deal.  The CPP is likely to die one way or another under the current administration, anyway.  Moreover, the CPP isn’t very aggressive; the markets are achieving just about everything the CPP was designed to do anyway.  Indeed, it is unlikely that eliminating regulations is much of a carrot to the right.  The CPP is dead to them already.

It is the liability for emitters that is the crux of this.  Currently, corporations like Exxon are facing the prospect of serious liability.  Lawsuits will be popping up.  It appears that the conservatives are hoping to get Exxon and other fossil fuel companies off the hook with the incentive of a carbon tax.

The question will be whether that is incentive enough.

My opinion?  It should be enough.

First, the carbon tax is powerful.  Studies demonstrate that a carbon tax will cut emissions effectively, reaching all points that carbon reaches within our economy and not just those we manage to think of and create regulations for.  It will reach agriculture, consumer goods, transport, electricity, heating…we will be creating shifts everywhere carbon can be found.  Moreover, a quarterly check cut to American families will make this climate policy nearly repeal proof.  Voters are very unlikely to support you if you vote to repeal their quarterly check of $500.  Once implemented, we can continue to build on it, but we are unlikely to lose it.  The border adjustment will push other nations to cut carbon as well.

But what about Exxon?  How can we let Rex Tillerson waltz into office and gain himself immunity for the truly horrific decisions that he and his company has made over the years?  Decisions that have condemned us all to at least 1.5C and likely much much worse?  What about those same greedy and truly evil decisions by those that KNEW all along just how bad it would be?  Rex Tillerson KNEW.  His scientists DID the studies.  They knew how much suffering their profits would cause.  How can we let such evil be?

What I am about to say is a hard pill to swallow.  I say it as a mother.  I say it as a fiancée, as a friend, as a teacher.  I say it because what I love is in harm’s way.

We. Are. Out. Of. Time. We MUST cut emissions. NOW.

We do not have the luxury of worrying about retribution.

The poor of the world, first and foremost, and then we all, will suffer much more by the arm of carbon emissions than that of oil executives gone unpunished.

Besides, once the real devastation comes, the will of the people, the thirst for retribution, will out.  Illegality is not likely to prevent it.

In the meantime, I'll take carbon cuts, now, thank you.

It will be interesting to see if the urgency of climate change has yet truly sunk in.  If it has, even the left, even Sierra Club, will agree.


  1. Interesting that liability protection for emitters happens to appear just as Rex Tillerson becomes Secretary of State, isn't it?

    1. Certainly, it has always been suspected that Tillerson's support of a carbon tax was tied to the strings of avoiding liability. He is just in a more powerful position now so that those proposing the policy through that into a one liner... They want this thing to be appealing to those in power. And rightly so.

    2. Sorry for the typo. Threw, not through.

  2. Excellent analysis! As for the complaints about letting oil companies off the hook for past crimes—the U.S. is plagued by the punishment model of dealing with problems at all levels and it doesn't work very well. Let's focus more on solving problems, there is a lot of guilt to go around.

    1. Well said! Thanks for your feedback and thoughts.