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Opportunity in crisis

Why now is the time for a revenue- neutral carbon tax and rebate program

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It’s long been acknowledged that challenges also bring opportunity. And the spiking cost of energy, both as a result of COVID-related supply chain issues and the Russian invasion of Ukraine, is a case in point.
It’s no secret that oil and gas prices have spiked dramatically since Russian oil became a pariah in most of the global marketplace. Much of the current increase in oil prices is based on uncertainty, which means that, eventually, as we learn how the disappearance of Russian energy will impact the market, and how other sources might replace it, prices should stabilize. Eventually, the price of oil will come back down. It’s worth remembering that gas prices topped four bucks a gallon back in 2008, and eventually fell back down to below two bucks.
When gas prices do begin to fall, hopefully by later this year, it would be an opportune time for Congress to finally take action on a revenue-neutral carbon tax. Hence the opportunity. When energy prices fall, the initial impact of a carbon tax would be virtually undetectable to consumers.
Before you get up in arms at the notion of yet another tax, keep in mind that this is a tax that would, at least for the vast majority of us, actually put money back in our wallets.
Here’s how it works: The government would levy a tax on energy producers or refiners, say $30, per every ton of carbon-based fuel they’re generating. The tax, at that rate, would generate a significant amount of revenue, on the order of $1.6 trillion over ten years according to a study done by the Wharton School. Yes, there is no doubt that the cost of that tax would be passed on to those of us who consume that energy. But the government, depending on the bill ultimately enacted, would keep very little or none of the taxes collected. Instead, the money would go back to Americans through a rebate check, or a reduction on their payroll taxes or an addition to their Social Security, that would start at around $50 per person per month and gradually escalate to over $200 per month as the tax rate slowly escalates over time. For low and middle-income Americans, the rebate would be designed to more than offset the higher prices they would pay for gas or heating fuels, leaving most Americans with more money in their pockets, not less. That’s one reason that the Wharton study predicted a revenue-neutral carbon tax would increase economic growth in the U.S. by 2.2 percent by 2050. Those who argue that shifting to a new energy economy will hurt the U.S. economy, or most consumers, should do a little more homework.
Even so, the carbon tax provides a real incentive for everyone to reduce their carbon footprint, which is ultimately the point of the carbon tax. If you can avoid or minimize your use of carbon-based energy, you still get your monthly rebate from Uncle Sam under a revenue-neutral carbon tax, but in that case it’s all gravy, rather than mostly reimbursement of higher energy costs.
By creating the right incentives, such a carbon tax is expected to dramatically cut the carbon emissions that contribute to climate change, without creating a new regulatory regime that tends to scare off advocates of smaller government. Most estimates suggest that such a carbon tax would reduce America’s carbon emissions by a third within just five years and close to net-zero by 2050. A carbon tax establishes a set cost that businesses can plan for, and requires little administration, other than tax collection, which is a government system that is already in place. With a carbon tax, there would be no need for government regulation, since the market would do it on its own.
As it is now, the market can’t address climate change, because most of the costs are being paid for by the planet, or the commons, rather than by the businesses and consumers who continue to contribute to the problem. We’re paying a tax for all that carbon as it is right now, only we’re paying it through higher insurance premiums, and higher tax bills for the rapidly increasing costs of climate disaster relief and reconstruction. Yet none of these costs create the kind of incentives needed to address the actual cause, rather than merely treat the symptoms, of climate change. Mitigation, in the end, can only go so far. Unless and until we begin to get serious about reducing carbon emissions, the risk of unchecked and catastrophic warming of the planet grows by the day.
Which makes the eventual drop in oil prices an opportunity we shouldn’t overlook.