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The Case for a Carbon Tax

June 27, 2013 5 minute Read by Ike Brannon

In his scintillating new book about the American revolution, “The Men Who Lost America,”  the historian Andrew O’Shaughnessy reports that upon receiving word that the British Army had surrendered at Yorktown, King George III sent a letter to his secretary of state outlining new strategies he had conceived to defeat the American army. His address to Parliament soon after that included his earnest exhortation that they redouble their efforts in the war at the very same time that the troops were returning to Britain, comments that perplexed and confused the members and helped to create the idea that the king might be losing his mind.

The climate-change doubters are replicating the same strategy as King George these days in their efforts to stop legislation aimed at reducing carbon emissions. While there is no doubt that the skeptics have been successful in stopping Congress from acting on this matter, a 2012 ruling by the U.S. Court of Appeals for the District of Columbia effectively gave the EPA the power, under the auspices of the Clean Air Act, to regulate greenhouse gas emissions.

President Obama doubled down on this matter on Tuesday, announcing in a speech given at Georgetown University that his administration would implement sweeping measures in an effort to reduce greenhouse-gas emissions.  No matter how obstinate the Republican Congress is, the Obama administration is essentially free to use regulation to do what it wants on the matter.

And what it wants to do is not necessarily good. An Administration that began its tenure with the edict “never let a crisis go to waste” is not inclined to stick to the problem at hand once it begins regulating carbon emissions.

For a glimpse of how the EPA might eventually proceed in this matter, look no further than the grotesque piece of legislation that the House Energy and Commerce Committee produced in 2010; while the bill did indeed regulate greenhouse gas emissions, it also concomitantly punished political enemies while ladling out favors to various constituencies via a giant slush fund created from the sale of carbon-emission permits.

Simply repealing the EPA’s ability to regulate greenhouse gases alone is impossible and will remain so for the foreseeable future, unless Republicans manage to get at least 60 senators (not including any centrists who might believe in climate change) and control of the White House while maintaining the House of Representatives. It is hard to envision such an occurrence happening in the near term.

What should the climate-change doubters be doing? If they want to do reduce the impact that the EPA’s actions would have on the economy, they need to pass their own climate-change legislation that pre-empts whatever the EPA would try to do.

It is a tall order. To get the EPA’s command-and-control apparatchiks out of the way, a Republican Congress is going to have to work with Democrats and fashion an alternative that’s attractive enough for climate-change believers to consider another route.  

Democrats in Congress could be persuaded go along with this because many do realize that the Clean Air Act is a potentially problematic way of regulating greenhouse gases. While an EPA left to its own devices will come up with rules necessary to reduce emissions, Congress could write a bill imposing a carbon tax that would achieve reductions in a much more economical way than what EPA regulation would entail.

While the goal of any Republican legislation along those lines would be to pre-empt any EPA action, the Democrats in Congress simply won’t do such a thing unless they perceive that the legislation manages to achieve the sort of reductions that EPA could have been expected to have done had they kept that power for themselves. That isn’t a low bar.

Still, it would be worth it because, ultimately, using a carbon tax rather than a welter of command-and-control regulations dictated by the EPA would result in a much more market-friendly outcome. If done correctly it might also have the ancillary benefit of providing a boost for tax reform, which is currently standing on weak legs. A carbon tax could be used to reduce the corporate income tax, taxes on dividends or capital gains, or any other tax more pernicious to economic growth than one on carbon — which includes nearly all of the ones currently in place.

But it is time for Republicans to realize that the war over climate change is over, sue for peace, and get the best terms possible.


Author

Ike Brannon
Ike Brannon

Ike Brannon served as an Economic Growth Fellow of the George W. Bush Institute from 2012 to 2015. He has a Ph.D. in economics from Indiana University and a B.A. in math, Spanish, and economics from Augustana College. View his full bio

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