June 7, 2013

June 7, 2013 | Commentary on

Conservatives for a Carbon Tax?

President Obama chalked up impressive “wins” in his first term: stimulus bills, financial-services regulation (Dodd-Frank), and, of course, Obamacare. But he didn’t get everything he wanted. His cap-and-trade proposal was handily defeated once it was exposed as an enormous energy tax.

That setback hasn’t ended the president’s war on conventional energy sources, however. Recognizing that cap-and-trade is now a damaged brand, he is moving full speed ahead with EPA regulations to address global warming. Meanwhile, his allies in Congress have turned to pushing a carbon tax. Unfortunately, some members of the center-right coalition that defeated cap-and-trade are expressing interest in the concept.

Senators Barbara Boxer (D., Calif.) and Bernard Sanders (I., Vt.) have introduced the first major carbon-tax bill — not as a substitute for the EPA regulations, but as an addition to the agency’s command-and-control approach.

The carbon tax is based on the notion that carbon dioxide emissions, created by fossil-fuel combustion, contribute significantly to global warming. That theory has led the EPA to classify carbon dioxide as a harmful pollutant, even though it presents no direct harm to human health. A carbon tax appeals to many economists and tax theorists as a way of pricing emissions — the idea is that producers pay a tax that offsets the damage supposedly done by their emissions.

But theories do not always produce practical, effective policy. And the problems attached to a carbon tax are legion. For starters, the science is far from settled on just how carbon-sensitive the climate is. That makes it impossible to accurately assess the social costs of carbon.

Beyond that, there is no reason to believe that adopting a carbon tax would produce any appreciable improvement in the environment. Even Mr. Obama’s former EPA administrator, Lisa Jackson, admitted that a carbon-reduction program in the U.S. would not affect global carbon levels, much less temperature.

The only real certainty about a carbon tax is that it would wreak major economic damage. It would cripple the fossil-fuels industry, for starters, and that’s a very big deal for America. We boast the world’s largest reserves of traditional fuels. By the end of the next decade, we will likely be a net exporter of petroleum. The conventional-fuels industry creates good-paying jobs, including many blue-collar positions. Indeed, fracking and other advanced methods of extracting fossil fuels enabled the energy sector to lead the way in job creation throughout the recession.

The Heritage Foundation’s Center for Data Analysis found that the Boxer-Sanders bill would lead to 400,000 fewer jobs in 2016. In a supreme irony, the bill includes expensive and ineffective federal job-training programs to help “individuals employed by the fossil fuel industry seeking to transition to clean energy jobs.” There is Washington’s best thinking for you: Inflict damage on an expanding and functioning sector, and retrain workers for one that cannot compete economically without government help.

A carbon tax necessarily inflicts higher costs on families — directly and indirectly. Energy producers pass their tax costs on to consumers. Families see their heating and cooling bills jump and pay higher prices at the pump. But they also pay more for nearly everything they buy — from food to smartphones — because virtually every producer is paying more for energy and transportation. A tax on energy is truly a tax on everyone and everything.

Some carbon-tax apologists argue that these problems can be fixed or offset by tax cuts elsewhere. (“We’ll make it revenue-neutral!”) But that just turns bad policy into bad, complicated policy. The tax will, in all likelihood, be applied “upstream” on energy companies, rather than on consumers directly. “Hidden” taxes such as this — consumers will probably never see a carbon-tax line on their bills — are especially prone to increases, because politicians can raise rates without leaving fingerprints. Instead, they can blame higher prices on the “corporate greed” of energy companies.

Some economists argue that carbon taxes could be less harmful than corporate or capital-gains taxes, so maybe there could be a “tax swap.” But those taxes are progressive, while carbon taxes are regressive. Washington is going to tax Granny’s gas and electric bill to cut taxes for Warren Buffett? Such a concept would be dead on arrival.

To help ease the pain it would create, the Boxer-Sanders proposal would offer every lawfully present family in the country a “rebate.” But, like most one-size-fits-all “solutions,” this creates a nation of winners and losers. EPA data breaking down carbon emissions by state show that two of the three states with the lowest emissions intensity in the country just happen to be the sponsors’ home states, California and Vermont. Families there could receive more from the rebate than they would pay in extra taxes.

But families living in states with higher emissions will pay more. For example, even after the Boxer-Sanders rebates, a family of four in Indiana (ranked eighth highest in carbon intensity) would be roughly $1,700 worse off.

Overall, it would be fair to call the carbon tax a “red-state tax.” Of the 20 states that would be hardest hit by a carbon tax, only two voted for President Obama. Of the 20 states that would pay the least, 17 voted for the carbon-controller-in-chief.

Yes, Washington stands to gain hundreds of billions of tax dollars. But our struggling economy could lose much, much more. The simple fact is that Americans cannot afford a giant carbon tax: It would provide no environmental benefits, harm the general economy, and be extremely regressive, falling hardest on rural Americans and those living in red states.

About the Author

Derrick Morgan Vice President for the Institute for Economic Freedom and Opportunity

First appeared at National Review Online.