Environmental and Energy Study Institute

Speakers (l-r): Rep. John Larson, Robert Repetto, Robert Shapiro, Terry Dinan, and Kenneth Green

Climate Change Legislation and Revenue Recycling

On September 16, Clean Air-Cool Planet and the Environmental and Energy Study Institute (EESI) hosted a policy discussion to explore how revenues generated through potential climate change legislation can be recycled through the tax code to lower the overall societal cost of reducing greenhouse gas emissions. Speakers included:

• Rep. John Larson (D-CT), Member, House Ways and Means Committee
• Robert Repetto, PhD, Senior Fellow, UN Foundation
  Presentation (pdf format)
• Robert J. Shapiro, PhD, Chairman of Sonecon, LLC; former Under Secretary of Commerce for Economic Affairs
• Terry Dinan, PhD, Senior Advisor for Climate Policy, Congressional Budget Office
  Presentation (pdf format)
• Kenneth P. Green, PhD, Resident Scholar, American Enterprise Institute

Briefing Highlights

• A cap-and-trade system provides more certainty of emission cuts but also inefficiencies and price volatility. A carbon tax would be a known cost and could be adjusted to meet environmental needs.
• A carbon tax is administratively simple, efficient, straightforward and is viewed by the public as more transparent than a cap-and-trade system.
• If a cap-and-trade system is implemented, auctioning the permits (as opposed to free distribution) would provide economic, fiscal, and equity advantages.
• Recycling the tax or auction revenues could add $1 trillion to the GDP by 2030. The revenues could be reinvested as research and development in clean energy technologies, used to pay down the federal deficit, and/or returned to the public.
• A cut in payroll taxes would be a more economically efficient way to allocate revenue to the public, but a lump-sum rebate would be more beneficial to lower income households (many of which are elderly and/or do not work). Although raising energy prices is regressive, the ultimate impact could be either regressive or progressive depending on how revenue is recycled.
• Politically it is difficult to implement a carbon tax since people have a difficult time seeing a short term reward and do not always understand the environmental benefits.