Republican Carbon Tax Proposal Could Solidify Climate Change Action as a Bipartisan Issue

A new coalition has stepped up to make the case for climate action to the White House—and it’s not whom you might expect. The Climate Leadership Council (CLC) is a research and advocacy organization spearheaded by veteran Republican officials, including former Secretary of State James A. Baker, former Treasury Secretary Henry Paulson, and former Secretary of State George Shultz, among other well-known Republican establishment members.

The introduction of the CLC’s most recent publication, The Conservative Case for Carbon Dividends, states explicitly that, “Mounting evidence of climate change is growing too strong to ignore.” Although some CLC leaders continue to question the extent to which climate change is caused by humans, the report still asserts the need for an “insurance policy.”

The coalition's proposed carbon fee and dividend system is based on traditional Republican free market values. The system has previously been lauded by economists, environmentalists, and members of both major political parties. The proposal outlined by the CLC has four major pillars, which lay the foundation for a plan designed to garner support from conservatives, while simultaneously appealing to groups that seek to mitigate climate change.

Pillar One: "A Gradually Increasing Carbon Tax"

The first step of the plan is to implement a carbon tax. The tax would be collected at the point where the fossil fuel enters the economy, typically a mine, well, or port. The CLC has proposed beginning with a tax of $40 a ton, which would increase steadily over time. The hope is that this disincentivizes businesses and consumers alike from purchasing and using fossil fuels. The tax is the proposal's key mechanism for driving down emissions: if it is successful, it could mark a dramatic decoupling of the American economy and fossil fuels.

Pillar Two: "Carbon Dividends for All Americans"

Following the carbon fee is the carbon dividend. The tax of $40 per ton would raise an estimated $200-300 billion a year, all of which would be returned to the American people in the form of dividend checks, direct deposits, or contributions to retirement accounts. The dividends would be paid equally to all citizens on a quarterly basis to reimburse the extra cost imposed by the tax. Though everyone would receive the same amount, poorer individuals would likely benefit more since they tend to use less fossil fuels. Indeed, the Treasury Department has estimated that the 70 percent of Americans with lower incomes would benefit the most from this type of program. According to the CLC report, receiving these carbon dividends would “increase the disposable income of the majority of Americans while disproportionately helping those struggling to make ends meet."

Those who minimize their carbon footprints will benefit more—the less you spend on fossil fuels, the more money you stand to make with the dividend. The fee and dividend therefore work as a push–pull system, simultaneously providing negative reinforcement for fossil fuel purchases through a tax, and positive reinforcement for reducing the use of fossil fuels in the form of an increased payoff.

Pillar Three: "Border Carbon Adjustments"

The border carbon adjustment is a safeguard to ensure that American industries remain competitive while also encouraging other nations that trade with America to adopt their own form of carbon pricing. The adjustments would place a fee on imports from countries that do not include carbon externality costs in the price of their products; the proceeds from these fees would be included in the dividends paid back to the American people. This could encourage countries that do not want their imports taxed to implement carbon pricing measures. Additionally, exports to countries that do not have equivalent carbon pricing systems would receive rebates for the carbon taxes paid. This reduces the price of exports to such countries and ensures American exporters are not penalized versus foreign competitors.

Pillar Four: "Significant Regulatory Rollback"

The plan outlined by the CLC involves eliminating existing environmental regulations that can be deemed “no longer necessary upon the enactment of a rising carbon tax.” This includes repealing the Clean Power Plan entirely, and phasing out other energy-related regulations. This part of the plan is particularly appealing to many conservatives, since it means shrinking the overall size of government and allowing the free market to be the major regulatory body. In hopes of building bipartisan support for this part of the plan, the CLC has proposed that the initial carbon tax rate be designed to exceed the emissions reductions goals that are in place with current regulations.

The report specifically states that the one-to-one relationship established between the amount paid in carbon tax and the amount received in dividends is a crucial part of ensuring that the plan remain popular, transparent and enduring.

Developing Bipartisan Acceptance: Sources of Contention, and How They May Be Addressed

The idea of rolling back major energy regulations has received resistance from liberal policy groups. Rhea Suh, the president of the National Resources Defense Council, voiced her apprehension concerning the plan: “Putting a price on carbon could be an important part of a comprehensive program. It can’t do the job alone, though, and is not a replacement for carbon limits under our current laws.” The World Resources Institute (WRI) recommends that the CLC proposal should avoid doing away with regulations that are not duplicative with a carbon tax. This might include investing some of the revenue from the tax into research for new low-carbon technologies. WRI research has previously shown how these types of investments will ultimately lead to more cost-effective decarbonization.

Disagreements over how to spend the carbon tax revenue may doom the plan, however. A similar carbon tax initiative recently failed in Washington State, in part because Democrats were divided on the dividend, with many seeking to put the money towards investment in clean energy. The CLC’s proposal tries to defuse this issue with its straightforward declaration that the dividend be paid in its entirety to taxpayers.

Not all environmental groups are inherently opposed to the proposal. In a statement released by The Nature Conservancy, Chief Executive Mark Tercek said, “We’re encouraged to see a distinguished group of conservatives offering a market-based solution aimed at achieving significant reductions in carbon emissions. We have to be talking solutions now on both sides of the aisle, and this proposal is an opportunity to do that.”

But before the CLC's proposal has the potential to become legislation, it must first gain support from policymakers who are currently in office. The proposal is likely to face opposition from the White House— during his campaign, Trump tweeted, “I will not support or endorse a carbon tax!” Influential Republicans have come out against the proposed plan, including Thomas Pyle of the American Energy Alliance, who said, “This is not a climate proposal; it’s a tax proposal… There’s no need to trade Obama’s climate regulations for a carbon tax. Donald Trump has already promised to undo them." However, some major Republican figures, such as Mitt Romney, have expressed their support, saying a carbon tax and dividend plan is something the new administration should consider. Romney tweeted about the CLC plan, saying it could “…both strengthen the economy [and] confront climate risks.” The public has also expressed support for a carbon tax. According to a Yale study, 66 percent of registered voters support the revenue-neutral carbon tax system, including 81 percent of Democrats and 49 percent of Republicans.

It is clear that there is still work to be done, both in convincing the current administration that this plan is worthwhile, and also in achieving a compromise with Democrats. Whether it is embraced or not, the very release of this plan remains a notable moment, as the backing of influential Republican establishment members provides the necessary momentum towards achieving bipartisan support for climate action. According to Ted Halstead, the social entrepreneur who founded the CLC, “This represents the first time Republicans put forth a concrete, market-based climate solution.”

Author: Emma Dietz