Sunday, June 26, 2016

The Political Hurdles Facing a Carbon Tax – And How to Overcome Them

The Political Hurdles Facing a Carbon Tax – And How to Overcome Them
Vox, 26 April 2016, by David Roberts

While Roberts has written elsewhere about his reservations regarding carbon taxation, in this long and complex article he rhetorically accepts the premise of its importance, and discusses the politics of establishing a carbon tax.  He begins by noting that virtually all existing carbon taxes and cap-and-trade schemes set a price that is well below the likely “social cost of carbon” (SCC; very roughly estimated to be about $75/ton CO2).  This is, he argues, because of political constraints on carbon pricing: (1) concerns about regressive distributional impacts on the poor, (2) unwillingness on the part of citizens to pay the full SCC, and (3) opposition from fossil fuel interests.  The key to overcoming these political constraints, he thinks, is to look at what would be done with the carbon tax revenue.  Using the revenue to decrease other taxes, such as payroll and income taxes, substitutes a (regressive) carbon tax for existing (progressive) taxes, making constraint #1 even worse.  Fee-and-dividend might be more politically viable, since it directly addresses constraint #2, but Roberts states that polling indicates otherwise: there is much less support for fee-and-dividend than for devoting carbon tax revenues to renewable energy research.  Furthermore, whereas many decry cap-and-trade as “cap-and-giveaway”, and scorn the political compromises it involves, Roberts believes that those political compromises are precisely what makes cap-and-dividend politically possible, while fee-and-dividend is too ideologically pure to be politically viable.  Roberts ends by mentioning that a carbon price should be sold to voters by emphasizing the positive things that will be done with the revenue (which, by the way, will be funded by a tax on dirty fossil fuels), rather than by emphasizing the carbon tax itself (which, by the way, will be used to do a laundry list of positive things).

My take: This article is very well-considered and thought-provoking, and must be taken seriously if we are to avoid ending up with a carbon tax, which we want, but set so low that it makes little difference to climate change.  Roberts refers to polling data that he says indicate that only putting the tax revenue into renewables R&D has adequate public support (77%).  However, while the support for fee-and-dividend is much lower (44%), the opposition to fee-and-dividend (25%) is barely different from the opposition to renewables R&D (21%).  There are a great many people who have no opinion on fee-and-dividend, indicating a huge opportunity for education and outreach to raise positive awareness of this option.  Regarding his final point, about how to sell a carbon tax to voters, I would note that it applies equally well to fee-and-dividend too.  There has been a lot of buzz recently about a “universal basic income”: the idea of replacing existing welfare programs with a monthly check sent by the government to every citizen regardless of income, employment, or other circumstances.  It is a type of welfare program that, like fee-and-dividend, appears to have an unusual amount of bipartisan appeal, and appears to have the support of many economists and other experts.  I think that fee-and-dividend could be sold to voters as being, in effect, a universal basic income that happens to be funded, on the back end, with a tax on dirty fossil fuels.  This would place the emphasis, as Roberts suggests, on the positive things being done with the revenue, rather than on the tax; and as Roberts notes, “who wouldn’t love getting checks?”

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