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Bridging the Gap between a Green New Deal and Carbon Taxes

When it comes to climate policy in the United States, proposals are grouped in one of two poles. The first falls under the progressive umbrella of the Green New Deal (GND), initially proposed in Congress by Representative Alexandria Ocasio-Cortez (D-NY) and Senator Ed Markey (D-MA). Other policies fall under the category of “market-based” approaches. Most of these policies feature some type of carbon pricing, often a carbon tax. Advocates on either side often portray their approach as mutually exclusive with the other, but this isn’t necessarily the case. Of the two categories of proposals, the GND accurately captures the scope and urgency of the climate crisis, and the grassroots energy behind it has played a large role in boosting environmental issues to the top of Democrats’ political agenda. Carbon taxes are often presented as a more moderate, politically palatable alternative. Nevertheless, neither the GND nor carbon taxes are perfect solutions. If climate legislation anywhere close to the scale of the GND is to become reality in the near future, “alternatives” built around carbon taxes should be a part of it.

Compared to carbon tax proponents, supporters of the GND have proven to be more receptive to a wide range of policy proposals; Ocasio-Cortez herself tweeted that the GND was a “Request for Proposals.” A spokesman for the Sunrise Movement, the GND’s most significant grassroots backer, said that the “door was not closed” to various forms of carbon pricing. However, looking at the detailed climate plans put forward by two (in one case, former) presidential candidates, Washington Governor Jay Inslee and Senator Bernie Sanders (D-VT), carbon pricing is barely mentioned, despite both politicians expressing support for carbon pricing as recently as 2018. Grassroots backers of the GND were silent on the multiple climate-related bills introduced in this Congress, many of which featured carbon pricing.

The idea of a carbon tax has conservative roots. Currently, one of the most prominent carbon tax proposals has been put forward by a group led by, among others, Republican statesmen and former Secretaries of State James Baker and George Schultz. Even fossil fuel companies themselves have given tepid vocal and financial support to various carbon tax proposals, as plans like Baker-Schultz include measures to reduce existing regulation once a tax is implemented, along with absolving fossil fuel companies of legal accountability. [Correction: at the time this article was published, the Climate Leadership Council, led by Baker and Schultz, had amended its plan after public backlash to remove the provisions involving lawsuit immunity.] For these types of carbon tax plans, the tax is seen as a market correction, with few other policy measures required.

Implementing carbon pricing, however, may be an uphill battle. Outside of a select group of moderate Republican elites, few Republican politicians would support it, and the idea of taxes in general has never been popular among the GOP base. Efforts to implement a carbon tax via ballot initiative even in liberal Washington state failed twice, in 2016 and 2018. Carbon pricing efforts at the national level, including Bill Clinton’s BTU (British Thermal Unit) energy tax and the Waxman-Markey cap-and-trade bill in 2009, have been unsuccessful.

" An ideal carbon tax would deliver some level of emissions reductions while also raising funds to invest in green infrastructure and other projects, thus making the carbon tax and the Green New Deal not mutually exclusive, but rather symbiotic. "

Regardless of its feasibility, there is debate over whether a carbon tax alone can achieve the emissions reductions required to keep warming below the 2 degrees Celsius threshold. To achieve an 80 or 100 percent reduction in emissions by mid-century, Dave Roberts of Vox estimates that a carbon tax would have to be at least $100 per ton, if not more. This level of reduction may not even be sufficient for limiting warming at 2 degrees. To give a sense of what $100/ton looks like, California’s current cap-and-trade system results in a carbon price of around $15/ton, which translates to about 13 cents/gallon more in gasoline prices for consumers, and a 19 percent increase in natural gas prices.

A carbon tax could have a significant positive impact on emissions the Intergovernmental Panel on Climate Change (IPCC) says that it is an essential tool in reducing emissions, and the International Monetary Fund (IMF) argues that it is the most powerful method. However, the actual impact on emissions depends on a variety of factors in addition to price levels. The main role that a carbon tax can play in a broader climate strategy is that of revenue generation. For sweeping climate plans like the GND, one of the most frequent refrains from opponents is, “how will you pay for it?” Regardless of how disingenuous these criticisms are, there is no doubt that serious climate policies will require significant levels of investment. An ideal carbon tax would deliver some level of emissions reductions while also raising funds to invest in green infrastructure and other projects, thus making the carbon tax and the Green New Deal not mutually exclusive, but rather symbiotic.

There is a wide range of answers among carbon tax plans in regards to where revenue would be diverted. The Baker-Shultz Carbon Tax Plan, as an example, would distribute all of the revenue to American households as a rebate. In contrast, the 2018 Washington 1631 ballot initiative would divert the vast majority of the projected $1 billion in annual revenue to specific projects and areas outlined in the plan. Just over 10 percent would go to worker support and low-income families.

While a carbon tax adopted at the federal level could take many different forms, even a modest tax would contribute significant amounts of revenue. According to a 2017 MIT study, a plan similar to Baker-Shultz with a modest tax starting at $40 per ton rising at 4 percent per year would generate almost $200 billion dollars in revenue by 2020, growing to $450 billion by 2050. A more ambitious “20/80” plan, which would start taxing at $64 in 2020 and quickly rising to $126 per ton by 2025, would generate $300 billion initially, capping out at over $700 billion in revenue in 2035, while cutting emissions by 20 percent by 2025 and 80 percent by 2050, relative to 2005 levels. The same study found that revenue under various models would be consistent even as emissions decreased. To put numbers in context, the UN estimates that global investment in renewable energy totaled $288.9 billion in 2018. In terms of climate plans currently on the table, Senator Elizabeth Warren’s plan, which is very similar to Inslee’s, calls for  $16.3 trillion of investment over 15 years. If even a fraction of carbon tax revenue were to be invested in clean energy or sustainability projects, it could pay for a significant portion of even the most ambitious plans, such as Warren’s.

Perhaps political energy should not be wasted on fighting for a carbon tax, considering the prior defeats it has suffered the few times it has come up on a ballot or policy agenda. Some analyses have shown that enthusiasm for the carbon tax proposals in Washington state dropped significantly after voters were exposed to the campaign (i.e. polls overestimated support at the ballot box). Notably, fossil fuel companies spent $31 million fighting the 2018 ballot initiative. However, there is no reason to believe that fossil fuel interests would spend fewer resources to fight GND-type policies on their own; no matter which route is taken, any climate policy proposal will find serious resistance.

Unlike ballot initiatives, referendums, or state-level policies in partisan states, it is much harder to pass any type of controversial policy at the federal level by just mobilizing squarely along partisan lines, unless one party has a filibuster-proof majority in the Senate along with control of the House and presidency. It would be a mistake to believe that Republican politicians would support substantial climate policy in any significant numbers in the near future. Yet, as recent bills have shown, there actually are a select few Republicans who are willing to sponsor climate legislation, such as Representative Francis Rooney (R-FL) and Representative Brian Fitzpatrick (R-PA). Additionally, some right-leaning think tanks such as the Niskanen Center, Climate Leadership Council, and R Street Institute have been vocal in support for serious climate policy, often centered around carbon taxes. It would be a mistake to ignore this potential source of political support for the sake of ideological purity; federal legislators must be willing to compromise if anything is to get done.

Embracing some form of carbon taxes as part of a future comprehensive climate policy proposal would make it more palatable to moderate Democrats and some Republicans. But far from being some sort of capitulation to fossil fuel interests or “incrementalist” climate skeptics, a carbon tax would in fact play a very practical role in a progressive climate plan, by being a potentially massive source of revenue generation and vehicle for targeting investment towards vulnerable areas or populations. This aspect alone makes them useful regardless of how much direct impact on emissions via price signal they have. For what carbon taxes lack in vision, the GND makes up for in its portrait of a green future. If GND-type policies prove to be popular among voters, it is perfectly fine if carbon taxes are not a major part of the marketing campaign. Yet, they should play an integral, if behind-the-scenes, role in any serious climate policy in the near future.

Photo: Image via Chris Yakimov (Flickr)

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