CARBON TAX DEBATE RESURFACES IN WASHINGTON FOLLOWING CLOSED-DOOR MEETING

Tamar Hallerman
GHG Monitor
07/20/12

Political debate surrounding the possibility of a federal tax on carbon has resurfaced here in Washington in recent weeks following a closed-door meeting hosted by the conservative think tank the American Enterprise Institute. However, as conservative groups quickly moved to characterize the issue as dead on arrival in this current Congress, it appeared clear that a serious debate on the topic may be years away given the current political climate. A conservative blog leaked a copy of the agenda for the low key meeting, entitled “Price Carbon Campaign/Lame Duck Initiative: A Carbon Pollution Tax in Fiscal and Tax Reform,” last week ahead of the July 11 gathering, which included attendees and speakers from an unlikely group of both left- and right-leaning groups—including both the conservative Taxpayers for Common Sense and the progressive Climate Action Network. The meeting included sessions on selling the idea of pricing carbon to traditionally skeptical Congressional Republicans, progressive and social groups and deficit hawks. A session hosted by former Rep. Thomas Downey (D-N.Y.) also focused on how to build bipartisan support on the House Ways and Means Committee, where all tax legislation in Congress must originate. Reports indicated that participants discussed potentially attaching carbon tax legislation to a broader tax reform effort expected later this year.

While participants contacted by GHG Monitor would not comment on the meeting, several emphasized that it was “informal” and more of a “brainstorming session” than the launch of some sort of formal campaign to push for a carbon tax. However, the gathering seems to have sparked the return of a debate on pricing carbon that was considered all but dead politically since the U.S. Senate buried cap-and-trade legislation in late 2010. Most notably, some Republicans appeared to be willing to work on the issue of regulating carbon emissions, but many also stayed quiet on the issue. 

Some Republicans Step Out in Favor of Plan

Ahead of the meeting, some Republicans voiced their support for mitigating carbon emissions via a carbon price. Bob Inglis (R-Ga.), a former member of Congress who was ousted in 2010 by a Tea Party challenger due in part to his stance on climate change, announced the launch of the Energy and Enterprise Initiative, a campaign based at George Mason University meant to promote conservative solutions to carbon emissions, including a carbon tax. Meanwhile, Reagan Administration Secretary of State George Shultz also spoke out in favor of a carbon price in an interview with Stanford University published last week. “We have to have a system where all forms of energy bear their full costs. For some, their costs are the costs of producing the energy, but many other forms of energy produce side effects, like pollution, that are a cost of society. The producers don’t bear that cost, society does,” Shultz said. “There has to be a way to level the playing field and cause those forms of energy to bear their true costs. That means putting a price on carbon.” Shutlz is leading a task force at the conservative Hoover Institute that plans to propose a price on carbon emissions. Both Inglis and Shultz spoke out in favor of a revenue-neutral tax swap that would shrink income taxes in place of creating the carbon tax.

Conservative Groups Pounce to Quash Debate

Conservative groups were also quick to define a Republican line in opposition to the issue. The Heartland Institute, a think tank that prominently denies the existence of climate change, said it has “strong objections” to the idea of a carbon price. The Institute alluded to how the issue was defeated in the previous Congress, when Democrats ran both chambers, and criticized Republicans who were considering supporting the plan. “It’s puzzling that allegedly pro-market thinkers would propose to snatch defeat from the jaws of victory in this way. Cap and trade has already been quashed, rightly, and the public wisely expresses great skepticism that any manmade climate change catastrophe is on the way,” S.T. Karnick, director of research at Heartland, said in a statement. “The economy, meanwhile, is in the dumps and in need of a tax cut, not more taxes – even ones that are supposed to be revenue-neutral for a day or two. To ignore all of that and try to impose a new tax during a lame-duck session is frankly astounding.”

Nicholas Loris of the Heritage Foundation equated a carbon tax to “nothing more than an enormously high, regressive energy tax” that would “needlessly destroy jobs and economic growth.” He said in a blog post that it goes against Republican ideals. “A carbon tax is not a conservative, free-market policy, and the thought that it could make it through the halls of Congress and through lobbytown to be revenue neutral is laughable,” he said. “Conservatives should be working to fight the egregious regulations that drive up energy costs—not piling on policies that will drive them up further.”

Policy Opportunity Could Occur Later This Year

The idea of a tax on carbon emissions—with the government taxing utilities and independent power producers directly based on emissions levels—has been considered as an alternative to cap-and-trade schemes for years. Norway has had a price on emissions from its offshore oil and gas industries for more than 20 years, and announced a plan this spring to up the price. Australia and the Canadian province of British Columbia also have carbon fees in place. Advocates say that a tax is easier to administer than an emissions trading scheme, and that money earned could be used for purposes like deficit reduction, the elimination of other tax measures or for funds for policy initiatives. For example, income from the carbon tax scheme recently started in Australia earlier this month is earmarked to go to a clean energy technology development fund and to help poorer people pay for any increases to electricity bills that could occur as a result of the plan. Some economists have also favored a carbon tax over a cap-and-trade scheme because it provides less room for corruption via permit brokers.

Supporters of the tax, including architects of last Congress’ cap-and-trade legislation, Reps. Henry Waxman (D-Calif.) and Ed Markey (D-Mass.), have said that a particularly good opportunity to address the issue will come at the end of the year, when the Bush Administration’s tax cuts are set to expire. At that time Congress will also need to extend the federal debt limit and discretionary programs within federal budget will face a $100 billion across-the-board sequester. In an op-ed published in the Washington Post in February, the pair, along with former-Reps. Sherwood Boehlert (R-N.Y.) and Wayne Gilchrest (R-Md.), argued, that the lame duck session of Congress after the November elections could be the ideal time to once again bring up the issue. “We believe the time is right to begin considering new options,” the group said in the op-ed. “If budgeting is ultimately about choices, enacting a policy that reduces dangerous air pollution while providing hundreds of billions of dollars in debt relief should be a no-brainer. No other policy would do as much for our economy, our security and our future as putting a price on carbon.”

Other supporters have proposed the idea of attempting to woo Republicans by using revenue from carbon tax to reduce income tax rates. However, the idea still appears to be against the main Republican line at this point and will likely have an uphill climb politically. Media outlets this week quoted political aides to Speaker of the House John Boehner (R-Ohio) and Senate Minority Leader Mitch McConnell (R-Ky.) who said that neither leader was supportive of the idea and that neither would consider the issue for their respective chambers in the future.

Despite what is clearly an uphill effort in the coming years, groups continued to advocate for a carbon price. The International Monetary Fund this month released a guide for policymakers on fiscal policy to help mitigate climate change. That argues that pricing carbon via a well-designed tax, along with cap-and-trade, can help reduce emissions at least possible cost. “Comprehensive carbon pricing measures exploit the entire range of emissions reduction opportunities across the economy. As the emissions price is reflected in the prices of fossil fuels, electricity, and so on, this promotes fuel switching in the power sector and reductions in the demand for electricity, transportation fuels, and direct fuel usage in homes and industry,” the report says. “Carbon pricing also strikes the cost-effective balance between different emission reduction opportunities because all behavioral responses are encouraged up to where the cost of the last tonne reduced equals the emissions price. Moreover, the carbon price provides a strong signal for innovations to improve energy efficiency and reduce the costs of zero- or low-carbon technologies.”