Op/ed: The case for a revenue-neutral carbon tax
By John D. Kelley on October 11, 2013
“Men argue. Nature acts.” — Voltaire
No argument will prevent ice from changing into water when the temperature shifts from 32 degrees Fahrenheit to 33 degrees. The climate of our planet is not controlled by wishes and opinions. It only responds to the natural forces that drive it.
There is no longer any credible scientific debate that carbon dioxide and other greenhouse gases caused by human activities are warming the Earth in dangerous ways. Worldwide, people are experiencing the effects of climate change with sea level rise, bigger storms, larger floods, extreme heat, longer droughts and huge wildfires. Four of the five largest wildfires in California history have occurred since 2003. The Rim Fire that burned near Yosemite National Park is the third largest, at more than 400 square miles.
We have a moral responsibility to future generations to take powerful action now to moderate climate change, by severely curtailing our greenhouse gas emissions. A revenue-neutral carbon tax that would change the economics of energy and reduce our greenhouse gas emissions is getting support across the political spectrum. The essence of this concept is to tax carbon production and return 100 percent of the proceeds equally to all citizens. This is a powerful way to cause a shift away from carbon fuels while protecting American families from higher energy prices.
A growing number of people believe that a national carbon tax is the most efficient, transparent and enforceable mechanism to drive an effective and fair transition to a clean energy economy. To make the economic transition as smooth as possible, the tax would start small and increase annually and predictably. At the same time, fossil fuel subsidies would be phased out. This would mean energy prices would be predictable for people and businesses.
A national carbon tax would be easy to administer. The tax would be charged at first point of sale — the mine, wellhead, or border crossing — and would be collected by the IRS. The funds would be placed in a Carbon Tax Trust Fund and rebated to American households. All adult citizens would receive equal monthly dividends and families would also receive one-half share per child under 18 years old, with a limit of 2 child-shares per family. It is estimated that 70 percent of families would see a net increase in income.
A national carbon tax could be reconciled with existing state programs such as California’s cap and trade system. There are a few ways this could be done: preemption, stacking or integration.
With preemption, the California program would cease to function once the federal law took effect. With stacking, the program would continue to function as-is on top of the federal regulations. With integration, the state and federal programs would work together. To ensure that U.S.-made goods remain competitive in international markets, carbon tax equivalent tariffs would be charged for goods entering the U.S. from countries without equivalent carbon pricing, while carbon tax rebates would reduce the price of exports to those countries. These tariffs and rebates would provide an incentive for international adoption of carbon taxes.
Five years ago, British Columbia implemented a revenue-neutral carbon tax. It gradually added to the cost of fossil fuels while cutting both personal and corporate income taxes. A recent study reports that BC’s use of petroleum fuels has dropped by 15.1 percent. The study also found that BC’s personal and corporate income tax rates are now the lowest in Canada, due to the carbon tax shift.
Perhaps we are finally approaching a political tipping point regarding climate change policies. Currently the U.S. Environmental Protection Agency is under court order to issue climate change rules. The fossil fuel industry is fearful of what the EPA may do, so there is a new congressional debate over climate change policy. As part of this national debate, a revenue-neutral carbon tax must be considered. It would be efficient, transparent, and enforceable, because market decisions would select the best clean energy programs and technologies, and the dividends would stimulate the economy. By acting now to implement a revenue-neutral carbon tax, we can create a stronger economy and ensure a more livable climate for our children and grandchildren.
• John D. Kelley is a former president of the American Institute of Architects in Santa Barbara and a founding member of the Sustainability Project, the Green Building Alliance, and Mesa Architects. Contact him at email@example.com. The Business Times welcomes alternative perspectives on this topic.