Here’s a riddle. How many economists does it take to sound the alarm on the need for immediate action to address global climate change? If you guessed 3,558, you’d be on the money. That’s the total number of American economists, plus four former chairs of the Federal Reserve, plus twenty-seven Nobel Laureates, plus fifteen former chairs of the Council of Economic Advisers, plus two former treasury secretaries—all of whom signed onto a statement explaining the rock-solid case for passing legislation to establish a carbon tax and dividends. Some of the most recognizable among the group include Alan Greenspan, George Schultz, Ben Bernanke, Lawrence Summers, Paul Volcker, and, my personal favorite, Janet Yellen. [Read the complete roster here.] Their declaration was published just over a year ago in The Wall Street Journal. Of course, America still isn’t listening. Acknowledging the importance of this overwhelming consensus on the part of the most accomplished American minds in the field of economics, the Climate Leadership Council called this urgent message “the largest public statement of economists in history.”
What Is a Carbon Tax?
Basically, a carbon tax is a fee on the burning of carbon-based fuels—or greenhouse gases—like oil, gas, and coal. A carbon tax represents a method by which the users of carbon fuels pay for the damage caused to the climate by the release of carbon dioxide into the atmosphere. A carbon tax, according to economists and scientists, is probably the single most effective tool in the toolbox to eliminate the use of carbon-based fuels. How the tax works is simple. The tax creates a strong monetary disincentive to the continued use of carbon-based fuels as a result of higher costs. These higher costs motivate a switch to clean energy by making non-carbon fuels and energy efficiency more cost competitive.
Has Any Community in the U.S. Passed a Carbon Tax?
Boulder, Colorado, became the first city to pass a voter-approved carbon tax in 2007. Boulder’s carbon tax is based on the number of kilowatt-hours used in the generation of electricity. According to Boulder officials, the carbon tax has reduced emissions by more than 100,000 tons a year and generated up to $1.8 million in revenue per year at a modest cost to residential and commercial users. The funds are funneled through the city’s Office of Environmental Affairs and pay for implementation of the Boulder Climate Action, which includes rebates on energy-efficient equipment, expansion of bike lanes, and funding for community-based solutions to reduce energy consumption.
Is There Any Action on a Carbon Tax from the Federal Government?
The answer, unfortunately, is not much, even though public calls for federal climate action—including a price on carbon—from private citizens and environmental groups, as well as businesses in the energy, food, and transport sectors, have grown louder. Over the past few years, discussions in Congress about a federal carbon-tax proposal have repeatedly been floated only to fade away. The political will simply isn’t there.
With a Republican president in the White House and a Republican majority in the Senate, discussion of any new tax isn’t going to see the light of day. However, even though the most vociferous climate-change deniers occupy the Republican side of the two chambers of Congress, in 2019 carbon-tax bills have been introduced by both Republicans and Democrats in the House and Senate. Carbon-tax bills introduced by Senator Christopher Coons (D-DE), Representative Dan Lipinski (D-IL), and Representative Francis Rooney (R-FL) have proposed using the tax-generated revenue for measures as varied as payroll tax cuts, investments in innovation and infrastructure, and carbon dividends (or equal lump-sum rebates to all U.S. citizens, as proposed by the economists’ statement).
No riddle here. From a climate as well as a social-justice and economic perspective, those benefits sound like a win-win if ever there was one.
Economists’ Statement on Carbon Dividends
Global climate change is a serious problem calling for immediate national action. Guided by sound economic principles, we are united in the following policy recommendations.
- A carbon tax offers the most cost-effective lever to reduce carbon emissions at the scale and speed that is necessary. By correcting a well-known market failure, a carbon tax will send a powerful price signal that harnesses the invisible hand of the marketplace to steer economic actors towards a low-carbon future.
- A carbon tax should increase every year until emissions reductions goals are met and be revenue neutral to avoid debates over the size of government. A consistently rising carbon price will encourage technological innovation and large-scale infrastructure development. It will also accelerate the diffusion of carbon-efficient goods and services.
III. A sufficiently robust and gradually rising carbon tax will replace the need for various carbon regulations that are less efficient. Substituting a price signal for cumbersome regulations will promote economic growth and provide the regulatory certainty companies need for long- term investment in clean-energy alternatives.
- To prevent carbon leakage and to protect U.S. competitiveness, a border carbon adjustment system should be established. This system would enhance the competitiveness of American firms that are more energy-efficient than their global competitors. It would also create an incentive for other nations to adopt similar carbon pricing.
- To maximize the fairness and political viability of a rising carbon tax, all the revenue should be returned directly to U.S. citizens through equal lump-sum rebates. The majority of American families, including the most vulnerable, will benefit financially by receiving more in “carbon dividends” than they pay in increased energy prices.