HOUSE DEMOCRAT INTRODUCES CARBON TAX LEGISLATION

Measure Not Expected to Advance Far in Republican-Controlled Lower Chamber

Tamar Hallerman
GHG Monitor
08/03/12

A senior Democrat on the House’s tax-writing committee introduced carbon pricing legislation this week, setting up what he hopes to be a discussion of the issue during next year’s debate on tax reform. Riding the wave of discussions that have reemerged in the last several weeks on the possibility of a carbon tax, Rep. Jim McDermott (Wash.), a senior Democrat on the House Ways and Means Committee, introduced the “Managed Carbon Price Act of 2012,” an updated version of legislation he introduced three years ago that establishes a carbon tax on some of the country’s largest CO2 emitters. If passed, the measure would require coal, oil and natural gas producers and other large emitters to purchase permits for every quarter-ton of CO2 released into the atmosphere from the Secretary of the Treasury. “The Managed Carbon Price Act of 2012 (MCP) is unlike a traditional carbon tax, because the MCP creates a flexible price system that provides certainty by accounting for volatility in the energy markets, requires specific emissions reductions and addresses any increase in energy costs with dividend payments to the public,” a fact sheet provided McDermott’s office said.

Under the legislation, which McDermott described as a “rational and reasonable approach” to emissions reduction, the Treasury Secretary, along with the Secretary of Energy and Administrator of the Environmental Protection Agency, would set a price on carbon that would increase steadily over time. Polluters would purchase permits from the Treasury directly, and no credits would be able to be traded or resold, the fact sheet said. In order to ensure certainty for emitters, the Treasury would publish planned CO2 prices five years in advance so that the market will be able to plan ahead, McDermott said. The secretary would also set a 10-year price collar, ensuring that the price of carbon will never dip below or exceed an established price floor or ceiling. “The MCP creates stability in the price of carbon to ensure certainty in the economy. Since specific reduction targets are set by the MCP, measures have been built into the legislation to provide maximum market certainty with respect to permit prices,” the fact sheet said. Imported carbon-intensive goods would also have to pay a similar fee, according to the legislation. McDermott cited a report released by the Brookings Institution last week that says that a starting price of $15 per ton could raise an estimated $80 billion in revenue in the near term while “significantly” reducing CO2 emissions, rising to $170 billion in 2030 and $310 billion in 2050.

In an accompanying statement, McDermott said that the pricing system, which would aim to reduce emissions by 80 percent of 2005 levels within 42 years of enactment, hits a happy medium between environmental responsibility and economic saliency. “The American people care about the deficit and they’re worried about climate change—and we can fix both without hurting the economy,” he said. “Businesses want this kind of predictability, consumers need to be protected and we need to step up and address our climate and fiscal issues.” Three-quarters of revenues from the tax would be transferred to aa trust fund, McDermott said, which would distribute a monthly dividend to every legal U.S. resident, intended as a way to help offset any increases to household electricity bills. The remaining 25 percent will be funneled into deficit reduction, the fact sheet said.

Republicans Remain Split on the Issue

McDermott said he hopes to have the legislation considered as part of a larger tax reform effort expected early next year, when Congress must vote on extending the federal debt limit and the Bush Administration’s tax cuts—he said that similar proposals are also in draft form in the U.S. Senate. While the legislation—especially compared to the version introduced in 2009—aims to gain bipartisan support as much as possible, the measure is not expected to go far given the current political climate. Last month, aides to Speaker of the House John Boehner (R-Ohio) and Senate Minority Leader Mitch McConnell (R-Ky.) said that neither leader would likely consider the issue for their respective chambers, and many more moderate Republicans appear to be shying away from the issue.

Conservative groups have quickly pounced to characterize the issue as non-Republican. 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. 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.” “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 last month. “Conservatives should be working to fight the egregious regulations that drive up energy costs—not piling on policies that will drive them up further.”

However, other high-profile, although mainly retired, Republicans have spoken out in favor of a carbon tax. 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, last month announced the launch of the Energy and Enterprise Initiative, a campaign based at George Mason University meant to promote a carbon tax to conservatives. Meanwhile, Reagan Administration Secretary of State George Shultz said he was supportive of carbon price in a recent interview with Stanford University. One of Mitt Romney’s economic advisers, Greg Mankiw, an economist from Harvard University, has also spoken out in favor of a carbon price.

Carbon Price Debate Continues to Resurface

McDermott’s legislation is another indication that the debate over pricing carbon is likely to continue in Washington over the next several months. Last month, public discussions surrounding the merits of a carbon pricing regime resurfaced after an announcement for a closed-door meeting between left and right-leaning groups on the topic was leaked. The meeting was hosted by the conservative think tank the American Enterprise Institute and included attendees from both the conservative Taxpayers for Common Sense and the progressive Climate Action Network, suggesting that the issue is not dead in Washington as many thought following the cap-and-trade debate.