In advance of global climate talks set to continue in Paris this November, the United States announced an ambitious goal last fall: to reduce the nation’s greenhouse gas emissions by 26-28 percent below 2005 levels over the next decade.
According to the White House, achieving this target would require the United States to roughly double the current pace of reductions in carbon pollution. In 2013, U.S. carbon emissions totaled nearly 6.7 million metric tons – making America the world’s second-largest producer of carbon emissions after China.
Across the political spectrum, experts increasingly agree that the most direct and efficient way to reduce carbon is to put a tax on it. In British Columbia, for example, per capita fuel consumption has dropped by 16 percent since a carbon tax was introduced in 2008 – compared to rising consumption in the rest of Canada. The province has also continued to enjoy a healthy rate of economic growth at 2 percent per year. As an op-ed in the Globe and Mail put it: “It works.”
Where there’s less agreement is how to structure a carbon tax – and most importantly, how to spend the money it would raise. According to Yoram Bauman and Shi-Ling Hsu, imposing a British Columbia-style tax of $30 per metric ton in the United States would raise as much as $145 billion a year. It’s a tempting sum of money, particularly for progressives with a growing wish list of domestic spending priorities.
But some argue that the only politically feasible way to pass a carbon tax in the United States is to keep it “revenue neutral” – meaning that every dollar raised in revenue goes toward rebates or other tax cuts.
That’s also the approach in British Columbia, where carbon tax revenues were expected to total $1.2 billion this year. Officials have used the funds to pay for rebates to low-income families (equal to $115.50 per adult and $34.50 per child) and to lower taxes on individuals, companies and small businesses. A report by the nonprofit Clean Energy Canada concluded that revenue neutrality “has two very important up-sides: it helps bring the business community onside (or at least, it keeps that community from going too far offside), and it makes the tax difficult to remove once it’s in effect.”
Among U.S. champions of a carbon tax, proponents of a similar “tax swap” include Democratic Rep. John Delaney (MD-6), who introduced carbon tax legislation this spring. “If you want a carbon tax put in place as soon as possible, you have to embrace a carbon tax that has an opportunity for bipartisan appeal,” Delaney says. “We’ve seen a lot of proposals where the revenues are used by government any way they want. People don’t really trust that, and certainly not my Republican colleagues.”
As in British Columbia, Delaney’s bill would levy a carbon tax of $30 per metric ton and is expected to raise at least $1 trillion over ten years. Dubbed the “Tax Pollution, Not Profits Act,” the proposal would allocate carbon tax revenues to the priorities Delaney argues would garner the support needed to pass a carbon tax in America.
What do you propose doing with the revenues from a carbon tax?
Delaney: First, we’re going to do two things to help people who are going to be hurt by [a carbon tax]. Number one, we’re going to provide subsidies to low-income Americans to deal with the regressive nature of the carbon tax. For people up to 150 percent of the poverty line, they get a direct payment on an annual basis. Above that, they’ll start becoming eligible for tax credits on a sliding scale.
Second, we’re going to put up a lot of money to deal with coal workers who will – let’s face it – be very negatively affected by a carbon tax. We take 2 percent of the revenues from this bill and allocate it directly to coal workers. We’re going to help transition them and to provide them with lifetime benefits, education benefits, relocation benefits – really a massive program for displaced workers on a scale no one has ever talked about. We’re looking coal workers in the eye and saying, “We’re doing something that’s good for all of us but will hurt you. As a result, we’re going to take care of you. If you’re younger and can be retrained, we’re going to help you do that. If you’re not at a point in your life where you can get a new job, we’re basically going to pay you for the rest of your life.”
The third thing we’re doing is taking the rest of the revenues to reduce the corporate tax rate from 35 percent to 28 percent. People have wanted to do this for years, and it’s a really important thing to do to make our companies more competitive.
When President Clinton raised corporate tax rates to 35 percent, he raised it to the international average of our competitors. Every one of those countries has since dropped their rates, and we stand as an outlier with the highest corporate rate.
What do you tell progressives who prefer spending carbon tax revenues on other priorities – such as education, infrastructure or even deficit reduction?
Delaney: [Climate change] isn’t the kind of problem that has a linear risk curve associated with it. And what I mean is that the changes we have to make in 2015 are much less than the changes we’d have to make in 2025 if we don’t deal with this for the next 10 years.
If you stick with proposals for a carbon tax that use the money for a long list of progressive priorities – which I support, by the way – you will delay its implementation or it won’t happen, and we’ll put ourselves in a position where we can’t actually fix the problem. It’s a classic example of when the perfect is the enemy of the good.
The good here is getting the carbon tax approved as soon as possible. In my opinion, that’s a national imperative.
Why do you support a carbon tax over other approaches, such as “cap-and-trade,” or simply more regulation?
Delaney: I’ve spent my whole career in the private sector. I started two companies, and I think I’m the only CEO or former CEO of a public company in Congress. I really believe in the power of markets, and what’s great about the United States and its free market economy is that if you get the incentives right, our private sector can largely solve most problems.
What a carbon tax does is unleash the private sector to develop alternative sources by making those alternative sources more competitive. We have a carbon-intensive economy right now. If you start pricing carbon, a free market system will start driving alternatives very quickly and very aggressively to make us a non-carbon intensive economy. Any place along the energy continuum, you will see lots of innovation, which will lead to economic growth.
How do you plan to move your bill forward?
Delaney: There’s an expression from the great hockey player Wayne Gretzky: “Don’t go where the puck is. Go where the puck is going.”
It’s pretty clear to me that the world is very much aware of the risk of climate change. Even my Republican colleagues are starting to wake up to it. So I think that in the next several years, there will be an outcry for something large from a policy perspective to deal with climate change.
There have been two things standing in the way [of passing a carbon tax]. The first is this ideological battle over whether climate change is happening, which I think is very misguided because the evidence is quite clear. And I think we’re starting to see cracks in that. The other thing is that people haven’t come to the table with a really smart, market-oriented proposal. When Republicans start acknowledging that climate change actually exists, there needs to be something out there that appeals to their sensibilities. Ours has the best chance of getting bipartisan support.
I really think climate change represents an existential threat for American prosperity and for citizens all around the globe. I also believe it’s an issue that’s imminently solvable, but our ability to solve it in a productive, pro-growth way increases dramatically the sooner we deal with it.
Rep. John Delaney represents Maryland’s Sixth Congressional District.