Carbon Tax Option Now Back In The Limelight As Fiscal Cliff Nears

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The creation of a national carbon tax has been a matter of public debate for quite some time now, but has become somewhat of a taboo subject in recent years. With the election now over, though, it has begun to come back into the spotlight, with some people recognizing the economic ‘windfall’ that such a tax would provide, potentially helping to address the budget deficit.


Superstorm Sandy, ongoing droughts, rising seas, and the unprecedented arctic sea ice melt may have had some effect also, with the subject of climate change much more firmly in the minds of many Americans as a result of these events. And many are now wanting to know what we will do to address the changing climate. By creating a carbon tax and minimizing greenhouse gas emissions, climate change may be mitigated to some degree, and the carbon tax could also be quite useful as a new revenue stream.

A carbon tax would essentially function just to charge the largest emitters of greenhouse gases for their effects on the environment. Power plants, oil refineries, and many other large industrial operations have quite a negative effect on many of the services that ‘nature’ provides for humans, such as clean water, clean air, forestry products, wild fish, a livable climate, healthy ecosystems, etc. But since the things that nature provides are essentially free, the damage done to it isn’t economically accounted for, as some leading economists think that it should be. A carbon tax would do some to address this.

Of course, there is still a deeply divided Congress with one side of the aisle very friendly to polluters, so the passing of such a measure may still be quite a ways off, but having a public debate on it is moving in the right direction. Some analysts have argued that the significant economic benefits of such a tax should be the primary selling point, not the environmental goals.

A recent report by the Congressional Research Service suggests that a $20 per ton tax on carbon emissions could at least halve the U.S. budget deficit over time. Generating around $88 billion a year in 2012, and up to $144 billion a year by 2020. That could cut U.S. debt by around 12–50% in just a decade.

Because of the potential benefits of such a tax, there have even been some influential former Republican policymakers trumpeting its potential to raise needed revenue for the federal budget.

Analysts at the significant global banking companies HSBC and Citigroup have mentioned a carbon tax as a policy that may potentially emerge during Obama’s second term.

“One major fiscal possibility is a new carbon tax, which is likely to garner far more support this time around than at any time in the past and could become an appealing part of an emerging consensus on how to avoid the fiscal cliff,” said a note from Citigroup’s investment research group.

And as Paul Bledsoe, an independent policy consultant said, a carbon tax on major greenhouse gas polluters would be “better for the economy than our current taxes on work.”

“The measure would garner more support if its economic benefits are touted rather than its ability to help the administration achieve its green goals,” said Bledsoe, who served as staff on the Senate finance committee during the 1993 budget negotiations.

Some of the Republicans that have recently come out in support of the tax actually include some of the economists that advised Mitt Romney during his presidential campaign, which has led some to think that there is some chance for bipartisan support in Congress.

Harvard professor Gregory Mankiw, economic adviser to Romney, has previously stated that “if we want to reduce global emissions of carbon, we need a global carbon tax.”

And even George Shultz (as we’ve reported before), who was Ronald Reagan’s former Secretary of State and a fellow at the Hoover Institution, has “entered the fray, saying that a carbon tax that returns revenue to taxpayers could garner the support of his party.”

“The fact that you are seeing more voices come into the conversation and talk about it is a welcome one,” said Nat Keohane, vice president at the Environmental Defense Fund and former special assistant to Obama on energy and environmental issues.

Hurricane Sandy has helped reboot this conversation,” he said, by becoming just the latest in a year of extreme weather events in the United States, including major droughts and historic wildfires.

But whether or not such a measure could actually pass remains to be seen. We will see.

Source: Reuters
Image Credits: Coal Power Plant via Wikimedia Commons

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James Ayre

James Ayre's background is predominantly in geopolitics and history, but he has an obsessive interest in pretty much everything. After an early life spent in the Imperial Free City of Dortmund, James followed the river Ruhr to Cofbuokheim, where he attended the University of Astnide. And where he also briefly considered entering the coal mining business. He currently writes for a living, on a broad variety of subjects, ranging from science, to politics, to military history, to renewable energy.

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