Riots Haven’t Killed Carbon Fees

By William S. Becker

As riots continued across France this week, President Trump and several news outlets jumped to the conclusion that the uprising was “part of a global backlash against climate change taxes.” Trump gloated that the riots prove the Paris climate agreement is “fatally flawed”, and they vindicate his decision to withdraw from the pact. Political advisers predicted that sponsors of a carbon fee in the United States and other nations now will run for cover.

They all are wrong.

Deeper analysis showed that France’s taxes on gasoline and diesel fuel were merely the spark that ignited a much broader array of explosive grievances, including the perception that the government’s policies favor the rich. Rather than killing carbon pricing, the protests are teaching valuable lessons about the correct way to design and implement a price on carbon.

France’s unrest is not a death knell for carbon taxes, but it should be a death knell for poor design. “If you want to make energy taxes unpopular, step one is to be an unpopular leader,” notes Yale economist William Nordhaus, who won this year’s Nobel Prize for economics. “Step two is to use gasoline taxes and call them carbon taxes. This is hard enough without adding poor design.”

While there have been protests in other places around the world, 42 nations and 25 sub-national governments have implemented either carbon trading or carbon taxes. As this year began, carbon pricing covered 22% of worldwide emissions, according to the Citizens Climate Lobby. Two of those subnational pricing regimes are in the United States, both successfully using cap-and-trade.

The good news is that most Americans support carbon pricing. Last March, Gallup found that 62% of Americans say the government is doing too little on environmental protection. Two out of three Americans thought that mandatory controls should be put on greenhouse gas emissions; and 53% favored using a national carbon tax to encourage reductions in carbon dioxide emissions.

There already are several proposals for a carbon tax in the U.S., developed by Republican and Democrat members of Congress, thought leaders and non-government groups. They take different approaches to determining what the tax should be and how its revenues should be used. When the new Congress is seated a few weeks from now, the House should develop a plan for a two-year exercise to blend the best parts of the current proposals, to build public support and to be “shovel ready” with legislation by the 2020 election campaign.

That legislation should be developed with some of the Paris lessons in mind. For example:

The American people should be consulted, and even involved in, shaping the carbon pricing bill. They should feel they had a hand in designing a way to reduce the nation’s carbon footprint. If and when a bill is finally passed, the public should be given regular progress reports on how greenhouse gas emission reductions are proceeding.

A carbon fee must deliver clear and significant benefits for American families in all income classes. Some of the current proposals would distribute all of the tax revenues in regular rebate checks for every household. Others would use the money for green infrastructure. Some proposals would do both. The key is to build long-term political support for the tax with easily identified concrete benefits.

In Nature Climate Change, the prominent British economist Lord Nicholas Stern points out that if carbon revenues are earmarked for specific purposes – notably as targeted green investments or transfers to particularly affected groups – citizens report greater acceptability of carbon pricing.”  Other economists will argue that delivering benefits through the tax code would be the most economically efficient process, but for sustained pubic support, people need to hold checks in their hands.

Public support will also require persuasive evidence of the short- and long-term benefits of the fee to family health, a healthy environment, and personal safety as the impacts of global warming worsen. By increasing the appeal of clean energy, the carbon fee will result in more innovation, business startups and jobs in the clean energy sector.

Next, proponents of the fee should show that there are affordable and practical alternatives to fossil fuels, from energy efficiency to rooftop solar systems and hybrid and flex-fuel vehicles. Renewable energy is ready for prime time and already has created hundreds of thousands of American jobs.

In addition, the tax must be revenue-neutral, meaning that it will not be used to expand the size of the federal government. It will allow less government regulation to reduce the greenhouse gas pollution.

Revenues from the fee should not be used to reduce the federal deficit. That would put middle and lower-class families in the position of paying higher prices for fuel in order to reduce the public debt created by corporate and upper-income tax cuts in last December’s tax reform bill. That’s the kind of thing that inspired Paris’s riots.

A carbon tax should not be an add-on to gasoline taxes. Gas taxes build roads. An intelligently invested carbon fee will build healthier, safer and more stable lives for the American people and their children.

Finally, advocates for taxing carbon must be ready for a fight.  The multiple defeats of carbon tax proposals in Washington State are being cited as more proof that carbon pricing is a non-starter in the U.S. But it was overwhelming pushback from the oil industry that defeated Washington’s proposals. The industry spent $31.2 million on sustained TV and digital ads, flyers and mailers to persuade voters that a carbon tax would hurt the economy. Proponents of the tax had only half that much money to fight back.

Oil companies have created confusion about where they stand. Several of the world’s largest oil companies have said they support a carbon tax, including Statoil and Shell Oil.  Exxon Mobil, British Petroleum, Total SA and Shell are supporting one prominent carbon tax proposal. In October, Exxon Mobil promised to provide $1 million to back a proposal. At the same time, however, several of these companies are members of a trade association that firmly opposes carbon taxation in any form.

Pro-pricing people, organizations and elected officials should anticipate a torrent of paid media attacking the fee. The best way to inoculate carbon pricing is to beat opponents in framing the fee and the debate in public hearings, interviews, articles and social media.

In future articles, PCAP will offer more specific suggestions for a “blended” carbon pricing plan. In the meantime, House Democrats should get ready for a two-year campaign to build insurmountable public support for a smart carbon fee.

 

 

 

December 12th, 2018|home|