US adoption of a carbon tax would encourage others to follow


Ideas should be judged by their quality not their pedigree.  I am not usually a fan of Republican tax policy proposals or environmental initiatives. But I strongly support the proposal put forward yesterday by Republicans George Shultz, James Baker, Martin Feldstein, Hank Paulson, Greg Mankiw and others for a substantial carbon tax in the USA to address global climate change.  Their proposal that the carbon tax be coupled with a mechanism for rebates to consumers, a rollback of command and control regulation, and a border adjustment mechanism is also sound.

The United States has a moral and a prudential obligation to lead on global climate change. There would be no clearer sign of our commitment than the introduction of a substantial carbon tax.  Our adoption of a carbon tax would encourage others to follow.  The border adjustment mechanism would be a further inducement since foreign countries would presumably prefer their carbon emitters pay them than pay us.  And because a carbon tax is easy to change it would enable us to be responsive to new developments in the science of global climate change.

Some of my friends may not completely agree, but I think the replacement of command and control regulation with a carbon tax is a positive step.  It will reduce uncertainty and thereby encourage investment.  Raising carbon prices has the virtue of discouraging all types of carbon use, be it from power production or transportation, from changing fuels or reducing energy use.  It is therefore likely an efficient way to reduce emissions.  Of course the devil is in the details and, as the authors point out, the tax has to be set high enough to reduce emissions at least as much as any repealed regulations.

I also think that the proposal for a lump sum rebate that gives an equal amount to all citizens is a very sound one.  Since a person with a $2 million income gets no more than a person with a $20,000 income, it is highly progressive.  It reminds me of Alaska’s approach of sharing oil revenues equally with all citizens.  I think that the approach of not adjusting the income tax but instead declaring a social dividend also will operate to give people a stake in environmental protection because whenever the carbon tax is raised, people will get a larger and highly visible rebate.

It is hard to know how the Trump administration, which has flirted with climate denialism and has been less than embracing of traditional Republicans, will react to today’s proposal.  I do know that they could change the way they are perceived in many parts of the world and by many well-intentioned Americans if they tried to run with it.  It is also hard to know how Democrats will react.  I hope they will seize on prominent Republican endorsement to take the largest steps on global climate change in our history and at the same time to achieve the most universal social benefit.

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