The Carbon Tax Proposal

A group of eminent establishment Republicans, including the former Secretary of State James Baker, former Treasury Secretary Hank Paulsen, and former Secretary of State George Schultz, is advocating for a carbon tax. The tax would start at $40 per ton, in exchange for the repeal of other regulations on the industry. This proposal was outlined in a white paper titled “The Conservative Case for Carbon Dividends.” The paper was released in February 2017 by the Climate Leadership Council, which was formed by the group discussed above in collaboration with other business and environmental leaders.

A carbon tax at $40 per ton would raise gas prices by 36 cents per gallon and in total raise an estimated $200 billion to $300 billion per year. While these estimates can be calculated with reasonable accuracy, it is harder to estimate the ripple effects of enacting a carbon tax.

Many Democrats, including Al Gore, support a carbon tax in general. Big Oil companies, such as Exxon Mobil, Shell, BP, and Total have also announced support for a carbon tax after the Trump Administration exited the Paris Agreement. The oil industry, however, has a history of publicly supporting legislation that proposes to curb planet-warming emissions only when it seems highly unlikely that such legislation will be enacted.

Critics object to a carbon tax because it disproportionately “rewards people in highly urban areas who have very non-energy-intensive lives and jobs.” As a result, it is still an uphill battle for a carbon tax to gain support from the fossil fuel industry allies in Congress. According to Myron Ebell, a former Trump advisor who oversaw Trump’s EPA transition team, the proposal is, for now, “dead on arrival.”

Main points about the proposal:

  • A Carbon Tax: A carbon tax, starting at $40 per ton, will be subject to gradual increases after a five-year period. Such a tax will be imposed at the refinery or at the first point where the fossil fuel enters the economy (e.g., a mine, well, port, etc.) Non-emissive fossil fuel products would be exempted, with a refund for any tax previously paid.
  • Border Carbon Adjustments: Exports to countries without comparable carbon pricing systems would receive rebates for carbon taxes paid, while imports from such countries would be charged a fee. Exports by companies in sectors with greater than 5% energy costs in final value should have any carbon taxes rebated upon leaving the United States.
  • Carbon Dividends to All Americans: All the proceeds from this carbon tax (including fees charged on imports) would be returned to eligible Americans (based on a valid SSN) on an equal and monthly basis via tax-free dividend checks. The Social Security Administration would administer this program. A family of four would receive an estimated $2,000 in carbon dividends in the first year alone.
  • Significant Regulatory Rollback: Repeal existing regulation on the industry, including an outright repeal of the Clean Power Plan written by the Obama Administration to govern power plants. Much of the EPA’s regulatory authority over carbon dioxide emissions would be phased out.

Advocates’ reasons to support the carbon tax proposal:

  • The proposal is a feasible solution to a widely-shared concern and would be popular with voters.
  • The proposal would curb U.S. pollution based on free-market principles, as well as promote climate stability.
  • The proposal would eliminate heavy-handed climate regulations and streamline the regulatory state.
  • The proposal would benefit working-class Americans by receiving a tax-free dividend each month.
  • The proposal would incentivize economic growth and innovation.
  • The proposal would accelerate the transition to a low-carbon global economy and domestic energy independence, thereby strengthening national security.
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