National climate legislation doesn’t seem to have a snowball’s chance on the Senate floor. But a handful of philanthropists and market-savvy environmentalists hope a smart carbon tax might just be the kind of solution that can get some Republicans on board.
Carbon pricing, especially a carbon tax that charges for the true societal cost of burning fossil fuels, has long been a favorite idea among economists, including on both the left and the right, as well as certain circles of policy wonks. It will work, it’s economically efficient, and its reliance on market forces is more palatable to many than regulatory crackdowns, proponents say.
But since the carbon tax’s cousin, cap-and-trade, fizzled in Congress in 2009 at the height of Obama’s Democratic majority, broad federal climate legislation has been more or less off the table.
Meanwhile, the regulatory path to curb greenhouse gases that Obama has charted through executive action has set the stage for endless trench warfare in the states and courts. Other climate measures also rely on securing and defending a lot of small victories in multiple policy arenas—battles that are draining for climate funders and nonprofits. Truly reducing U.S. greenhouse gas emissions is going to require a bigger policy breakthrough.
Larry Linden, the retired Goldman Sachs exec who has become a champion for market-based environmental solutions, thinks the carbon tax could be the next big step for national climate policy in the United States. His Linden Trust for Conservation is backing a $3 million project by the nonpartisan think tank Resources for the Future to make a neutral analysis of how a carbon tax would work. Other funders backing this project so far include the Rockefeller Family Fund and Roger and Vicki Sant. Roger Sant is a billionaire who made his fortune in the power industry and has served in the past as the chairman of the World Wildlife Fund-U.S.
While Resources for the Future is ecumenical about legislative decisions, supporters clearly hope the three-year project will lend some political heft to the idea as a sound option for national climate legislation.
The basic idea is imposing a federal tax on carbon so that those who use carbon-based fuels pay for some of the external impacts. If carbon pricing is appropriately more expensive, people won’t use as much, creating new demand for clean energy and products with a small carbon footprint.
You can see why Larry Linden (who used to be chair of Resources for the Future) likes the idea. A former engineer and then finance guy, he’s all about tinkering with these complex systems to find solutions. His small foundation has emerged as a force in using markets and incentives to combat climate change and conserve threatened land.
You could call the push for a carbon tax a comeback, but the concept has never really gone away among a set of somewhat geeky advocates for climate policy. They love the mathematical elegance of this approach: “It is the logic of the market: That which is not paid for is overused,” says former Treasury Secretary Lawrence Summers in an op-ed endorsing a carbon tax. It's never easy to get economists on the same page, especially those who work in the public policy world. But a carbon tax has a lot fans, including at the American Enterprise Institute, which hosted a panel on the subject earlier this year.
There are some factors in the current landscape that make its supporters think it’s a good time to push harder on a carbon tax:
- There’s a perception that some Republicans are starting to crack on acknowledging climate change as a problem. A carbon tax could be branded as a capitalist solution they can embrace, an escape from the corner they’ve backed themselves into. The Linden Trust for Conservation is building support across the political spectrum for such a tax.
- Oil prices are low. A carbon tax that raises prices wouldn’t be felt as much by consumers.
- There’s language in Obama’s EPA emissions regulations that could open the door for states to use carbon taxes.
- Congress has lately moved toward tax reform, which could open a window for enacting a carbon tax—possibly as way to offset cuts in the corporate tax rate.
- Global support is increasing, even in the energy industry. Six of Europe’s largest oil and gas firms sent a letter to the U.N. in support of carbon pricing.
Should a carbon tax go forward, the Resources for the Future project hopes to thoroughly address the question of what, exactly, happens to the money.
Some support a revenue-neutral carbon tax, meaning revenue does not go to government programs that would cause Republicans to recoil. But there’s also a fear that a carbon tax would worsen wealth inequality, by passing the extra cost of carbon onto the backs of workers and consumers.
A recent report by RFF modeled the impacts of different scenarios, such as cutting taxes on capital income, cutting taxes on labor income, or—the favorite progressive option—just cutting straight checks to regular old Americans.
As you can see, there’s potential for a carbon tax to be a political crowd pleaser or an ideological meltdown. But the donors and thought leaders driving the idea hope that it's a clever enough solution that it might escape the jaws of American partisan politics.
It will be interesting to see if more funders get behind the push for a carbon tax. Climate funders have a lot of irons in the fire right now, particularly with all the regulatory battles going on and the "war on coal." Which among them has the bandwidth for expanding the national climate agenda?