Market-Based Solutions to Climate Change: Carbon Tax

By Molly Morabito

Market-Based Solutions to Climate Change: Carbon TaxBy Molly MorabitoEditor’s Note: The Millennial Voices series is written by and for Millennials to foster nonpartisan discussion. Molly Morabito is a senior at American University. The opinions expressed in this commentary are solely those of the author.In the past few years, the concept of putting a price on carbon emissions has gained support from conservatives and progressives alike. Though a carbon tax is primarily aimed at curbing the negative effects of carbon pollution, it does so without increasing government regulation or spending–making it one of few climate policies with a chance of earning bipartisan support.What is a carbon tax?A carbon tax applies a fee to the extraction or removal of any carbon dioxide-emitting fuels, including petroleum, natural gas and coal. It forces companies to pay for every metric ton of carbon emissions they produce–typically in the range of $10-$15–which raises the price of certain goods or services, and discourages consumers from continuing to purchase them.All revenue collected from such a tax could then be returned directly to American households via monthly checks or direct deposits, or be used for government projects. The Congressional Research Service estimates that a carbon tax could be levied on fewer than 2,300 entities and cover over 80% of U.S. carbon emissions.A border adjustment would protect domestic industries by accounting for goods imported from countries that do not have a carbon tax in place (as they would be cheaper than goods made in the U.S.) This policy would allow a refund on U.S. exports and place a comparable tax on foreign imports to keep our industries competitive.Perhaps most important to a carbon tax proposal is what to do with the revenue it would raise. If the tax was “revenue positive,” all of the collected money would go back to the U.S. government for various uses (e.g., deficit reduction, job retraining, research & development in renewable energy, etc.)Alternatively, a “revenue neutral” carbon tax would ensure that all collected money goes directly back to American taxpayers in the form of either a tax credit or a monthly rebate.A third question for any carbon tax proposal is whether the tax should remain fixed at a steady rate (say $10/metric ton), or increase annually by a certain amount. Ideally, gradually increasing the tax would discourage consumers from purchasing goods made from carbon-emitting fuels and encourage an investment in clean energy instead.There are essentially three parts of the carbon collection cycle where a tax could be paid: upstream, midstream and downstream. Upstream refers to the point of entry into the carbon collection cycle, where fossil fuels (coal, oil, or natural gas) are being extracted from the earth. Midstream is generally where one sees the most carbon emissions, as fossil fuels are converted into energy or used to make certain products. Finally, downstream is the part of the cycle where the carbon product meets consumers.Would Congress actually pass a carbon tax?Economically speaking, a carbon tax makes sense–it corrects a market failure by forcing companies to pay for a negative impact they have on society. And it does so without heavy government intervention, which is a plus for some conservatives. Finally, it has the potential to steer consumers away from fossil fuels and towards renewable energy, which would be good for the environment and good for the economy.However, it isn’t the be-all-end-all solution to environmental issues like climate change. Some experts believe that the actual impact of a carbon tax on air pollution would be negligible, given the fact that even if we institute one in the United State, other countries will continue to pollute. And there is significant political opposition from policymakers who worry that a carbon tax would place an unfair burden on consumers and reduce America’s competitiveness abroad.While there were six carbon tax proposals introduced in the 113th Congress, none of them were brought to a vote. However, some U.S. states and even cities have instituted a carbon tax, and it has been very successful for our neighbors up north. The battle for a federal carbon tax is just getting started–but it may not be an uphill one.Molly Morabito is a former MAP P intern and student at American University, majoring in communications and government with a minor in international relations. Her major focus is environmental policy, and she has researched environmental legislation during internships with Citizen’s Climate Lobby and the Office of U.S. Senator Bob Casey.As a tax-exempt nonprofit organization governed by Section 501©(3) of the Internal Revenue Code, Millennial Action Project (MAP) is generally prohibited from attempting to influence legislative bodies in regards to policy and legislation. It is important to note guest authors frequently take firm stances on issues and policy matters that are currently being debated by policymakers; when they do, however, they speak for themselves and not for MAP, its board, council or employees.Originally published on July 23, 2015 at futurecaucus.org.

By Millennial Action Project on January 27, 2017.