Carbon tax would allow market, not politics, to regulate energy use

COURTESY TO THE BELLINGHAM HERALDJanuary 9, 2014 

This country needs a carbon tax. Storms, floods, droughts and wildfires are going to occur with increasing frequency if the use of fossil fuels continues at the current rate. Destruction resulting from extreme weather is quite costly, in part because extreme weather is extremely difficult to predict. Solid evidence linking extreme weather to the use of fossil fuels compels us to consider other sources of energy. Needed are incentives that would make these alternatives competitive in the marketplace.

Fossil fuels have some costs not obviously associated with their use: damage to human health and to the natural environment. Such costs are eventually paid by consumers. For example, asthma is exacerbated by fossil fuel emissions, but treatment costs are paid by the patient. Oil spill cleanups are paid for with local and state tax money.

If indirect and long-term costs are more accurately reflected in the price paid immediately by consumers for fossil fuels at the point of purchase, then the market for fossil fuels and cleaner energy will be a more level playing field than exists at present. Consumers would feel more free to choose cleaner energy sources because they are available at comparable cost. A carbon tax would provide choices that are more realistic.

Politically and economically, a carbon tax could work. Many companies are preparing for a carbon tax by planning for it in their budgets. This includes General Electric, ConAgra, DuPont, the major oil companies, Walmart, Microsoft and others. They may not like the prospect, but accept that a carbon tax is highly probable.

The link between fossil fuels and extreme weather has changed how people invest. At one time, fossil fuel companies were the preferred choice of investors looking for near absolute certainty, but no longer can these companies automatically be assumed safe in the absence of careful scrutiny. Bloomberg L.P. offers online discussion of fossil fuel companies as investments, using their carbon risk valuation tool. Some organizations are calling for institutional divestment from fossil fuel companies altogether, and as more investors become aware of the dwindling certainty of the investment in fossil fuel companies, there is likely to be less resistance to divestment on the part of conservative organizations. A revenue-neutral carbon tax would be reasonably fair to most consumers. Revenue-neutral means that none of the revenue from the tax is available to the government. The IRS would collect the money from the fossil fuel producers and send it as a rebate to consumers. The tax would be collected only once, at the fuel source: the mines and wells. To encourage other nations to join the shift to cleaner energy, as well as to avoid double taxation, imported fossil fuels would not be taxed further at ports of entry, if the other country has already imposed a carbon tax.

It is possible to promote clean energy without placing a heavy burden upon citizens. An estimated 70 percent of families would benefit financially from the rebate from a revenue-neutral carbon tax. The tax would start small and escalate each year, encouraging consumers to move away from fossil fuels and towards clean energy. Starting small and growing slowly would protect families from sudden increases in the price of energy. Planning for energy costs would be improved, because price increases could be predicted. A national revenue-neutral carbon tax would be reconciled with existing state programs, such as California's cap-and-trade system.

British Columbia enacted a revenue-neutral carbon tax in 2008, and since then, use of fossil fuels there has dropped 15.1 percent. Personal and corporate income tax rates, which the 2008 law reduced so as to provide an indirect rebate, are now the lowest in Canada.

A revenue-neutral carbon tax would be efficient, transparent and enforceable. It would stimulate economic growth. Market forces, rather than government regulation, would dictate the economic balance among the competing energy interests. A revenue-neutral carbon tax has significant bipartisan support. Economists with diverse positions support a revenue-neutral carbon tax, as do legislators of the major political parties. George Shultz, President Reagan's secretary of state, supports it, as does Greg Mankiw, chair of the Council of Economic Advisors to George W. Bush.

Our legislative representatives should consider a revenue-neutral carbon tax, such as proposed by non-partisan Citizens Climate Lobby, and available on their website. It is a timely idea.

ABOUT THE AUTHOR

David Hopkinson is a member of the Bellingham chapter of Citizens Climate Lobby. With more than 100 chapters in the United States and Canada, the group hopes to create the political will to take action to combat climate change, in particular to establish a federal revenue-neutral tax on carbon emissions similar to one in British Columbia. For more information online, go to citizensclimatelobby.org.

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