Prominent US economists call for taxing carbon emissions
18 January 2019 | Markets
A bipartisan group of prominent American economists has penned a letter and op-ed appearing in the Wall Street Journal calling for a tax on carbon emissions. eliminating duplicative emissions-related regulations and sharing the tax revenue with US households through recurring dividend checks.
The statement was organized by the Climate Leadership Council, a group supporting a federal carbon tax led by two former Republican secretaries of state, James Baker III and George Shultz.
There are more than 40 signatories to the statement including the top economic advisers to Presidents Gerald Ford, Ronald Reagan, George H.W. Bush, Bill Clinton, George W. Bush, and Barack Obama.
Four former chairs of the Federal Reserve also signed on, including Alan Greenspan and Ben Bernanke, first appointed by Republicans, and Paul Volcker and Janet Yellen, who were first appointed by Democrats.
The signers contend a carbon tax offers the most cost-effective lever to reduce carbon emissions "at the scale and speed that is necessary."
"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,” they said.
The carbon tax endorsed by the group of economists and former government officials would increase every year until emissions reductions goals are met.
The carbon-tax-and-dividend model sought by Climate Leadership Council and endorsed by the signatories in the op-ed is premised on distributing all of the revenue from the tax as a rebate to households, protecting them from higher energy costs associated with the tax.
In their statement the economists said "global climate change is a serious problem calling for immediate national action."
They went on to say they 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.
- 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 US 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 US 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.
Despite the renown and connections of the op-ed signatories, the proposal is expected to confront considerable head winds in Washington, D.C.
President Donald Trump and many Republicans continue to either ignore or dismiss climate change and voluminous scientific studies identifying it as a society-changing concern.
At the same time, the newly empowered Democrats in the House of Representatives are more enthused with another proposal, the so-called "Green New Deal" proposed by newly elected Rep. Alexandria Ocasio-Cortez, of New York.
But that plan, while much discussed, is still largely undefined. The gist of it, as distilled in various interviews that Ocasio-Cortez has given over the past several months, is that it will include massive investments in renewable energy jobs and infrastructure. The congresswoman says this will help to both dramatically decrease carbon emissions and provide economic opportunities and economic justice to more Americans.