A National Carbon Tax: Another Option for Carbon Pricing

On December 9, the Environmental and Energy Study Institute (EESI), Carbon Tax Center, Climate Crisis Coalition, Friends Committee on National Legislation and Friends of the Earth held a briefing to discuss a national carbon tax as a policy option for addressing climate change. The briefing focused on the environmental, economic, economic-efficiency, logistical and political benefits of a national carbon tax, particularly one that is phased-in and revenue-neutral. Many economists have called for enactment of a carbon tax as the simplest, easiest to administer and most transparent approach to carbon pricing, despite the conventional wisdom that a “cap and trade” regime is key to a political consensus. Indeed, there have been numerous cap and trade bills introduced in the Congress, including the Boxer-Lieberman-Warner bill that was brought to the Senate floor for a vote late last spring.

• Citing the "fierce urgency of now," Rep. John Larson (D-CT) described the need to put a price on carbon through a tax. Rep. Larson's America's Energy Security Trust Fund Act (H.R.3416, referred to the House Committee on Ways and Means in August 2007) uses "plain, straightforward, simple language" to describe a carbon tax that would impose a per-unit tax on the carbon dioxide in fossil fuels. The revenue generated by the tax would then be applied to a payroll tax rebate and transition assistance for affected industries.
• A carbon tax, in comparison to a cap and trade program, has the benefit of being transparent, efficient, simple, less sensitive to the market and lower in administrative costs. Taxing upstream in production will be easiest to implement, i.e. natural gas processors, petroleum refineries, etc.
• Various lessons can be learned from British Columbia's experience implementing a carbon tax as well as Canada's recent national election which was influenced by a national carbon tax proposal. To convince the public we need a carbon tax, we should send a clear message that carbon emissions cause climate change, build a coalition of vocal allies to build support, ensure that proceeds are handled clearly and simply, contribute some of the revenue to green energy technology directly, inspire political leadership and implement the new tax during a period where gas prices are low.
• If the revenue from a carbon tax is returned to the public, it could be done via a payroll rebate or a household lump sum, so that the public can decide which clean technologies they want to invest in, rather than the government. Although a carbon tax would be a regressive tax, an accompanying system that returns revenue to the public could make it a progressive policy.
• Current cap and trade programs in place for greenhouse gases have not always been successful in reducing emissions and have been subject to market volatility.
• Though calls for energy efficiency are important, standards will be difficult to enforce without a price driver such as a carbon tax.