GOP group claims its carbon tax is better for the economy than climate mandates
by Josh Siegel, Energy and Environment Reporter | WASHINGTON EXAMINER
| December 18, 2020 

A Republican-backed group pushing for Congress to pass a carbon tax is out with a new study Friday showing it would achieve the same level of emissions reductions as a regulatory approach while producing better economic outcomes.

The group, the Climate Leadership Council, is seeking to shore up support for its carbon tax and dividend proposal as policymakers have gravitated toward other ideas.

Democrats, including President-elect Joe Biden, are instead embracing regulations and mandates for combating climate change, while Republicans oppose new taxes or regulations and are offering more limited policies. The council, led by former Republican Secretaries of State James Baker III and George Shultz, is seeking to counter that.

“The intent of this study was not to criticize any particular regulation, however, if our objective is to find a global solution to climate change and rapidly decarbonize in a way that promotes the economy and where U.S. families come out ahead, it’s clear our solution is the best approach,” Greg Bertelsen, CEO of the Climate Leadership Council, told the Washington Examiner.

The council commissioned the firm NERA Economic Consulting to model its proposal for a carbon tax beginning at $40 per ton, increasing 5% every year. The proposal, dubbed a “carbon dividend,” would return the revenue to taxpayers through equal quarterly payments to offset higher energy prices.

The study found the plan would cut carbon emissions in half by 2036, about the same as an approach featuring a mixture of regulations and mandates.

But the carbon dividends policy results in an additional $190 billion per year in gross domestic product, on average, and by 2036, annual GDP is $420 billion higher under that method.

The subsidy to taxpayers also would translate into greater purchasing power for households, as most lower- and middle-income people would collect more in dividends than they pay in increased energy costs.

By 2036, annual consumption per household is $1,260 higher with the carbon dividends approach than projected under the regulatory scenario.

The study attributes those benefits to the idea that the “price signal” from the tax would encourage energy producers and other businesses across the economy to switch to cleaner, non-fossil fuel alternatives.

By contrast, a regulatory approach that tackles each economic sector on its own is more siloed and could force some sectors to make higher-cost reductions.

The regulatory scenario projected in the study would consist of a mixture of policies.

These include a clean energy standard for electricity and efficiency targets for homes and buildings, a subsidy program to accelerate the adoption of electric vehicles, requirements for coal plants to adopt carbon capture technologies, stricter vehicle fuel efficiency standards, and a ban on fossil fuel leasing on federal lands.

Biden has broadly endorsed most of those policies, while his climate plan, as he proposed in the campaign, does not mention a carbon tax. But Bertelsen said the council is “delighted” that Biden is nominating Janet Yellen to be his Treasury Department secretary. Yellen, an economist and former Fed chair, is a longtime carbon tax supporter who has specifically endorsed the dividend approach as a founding member of the council.

“We know in working with Dr. Yellen that she cares deeply about finding a pragmatic solution to climate that promotes economic growth,” Bertelsen said.

Critics of carbon taxes say it’s attractive in theory but does not stand up to political reality.

Carbon taxes have routinely been rejected by voters in states, while more than half of states have been able to enact some form of clean electricity standard or mandate.

“I really worry that the ONLY carbon tax/dividend scenario that is examined is an idealized system and there is no evidence that such a system could exist in the real world,” David Victor, a professor at University of California San Diego’s School of Global Policy and Strategy, told the Washington Examiner in an email.

Joseph Majkut, director of climate policy at the Niskanen Center, said that "regulations might have more immediate traction" but "a carbon tax offers efficiency and well-understood designs to help households."

Noah Kaufman, an economist at Columbia University Center on Global Energy Policy, said the council’s study adds to a “mountain of evidence showing that some form of carbon pricing is going to be part of a cost-effective decarbonization strategy.”

But Kaufman told the Washington Examiner that a carbon tax would be more effective if it were implemented alongside a portfolio of other climate policies, including regulations and standards.


“So, to some extent, this study sets up a false choice, because I'd expect some combination of the two scenarios to be more cost-effective than either one,” said Kaufman, who used to work at NERA Economic Consulting but was not involved with its study for the council.