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Why Biden and Congress Should Support a Progressive Carbon Tax

While there is justifiable excitement in the climate action community about Biden’s climate plan and that of the House Select Committee on the Climate Crisis, it is clear that carbon pricing is not at the top of either of their agendas. Biden’s climate plan makes no mention of putting a price on carbon, and the House Select Committee on the Climate Crisis is vague about what kind of price on carbon it proposes and buries any mention of a price on carbon deep into its plan.

This is the result of pressure from the progressive wing of the Democratic Party which is either ambivalent or downright hostile to putting a price on carbon. There are two primary reasons for this progressive antipathy towards a carbon tax: a belief that carbon pricing schemes amount to a regressive tax, and a suspicion of any policies that rely upon market forces.

Certainly, a poorly designed price on carbon can be regressive (take France’s gasoline tax which spawned the Yellow Vest protests), but it doesn’t have to be that way. There are currently two carbon pricing bills introduced in this congress that are progressive. Both of these bills take the revenues collected from a fee on carbon and in the case of the Energy Innovation and Carbon Dividend Act (H.R. 763) return all of those revenues as a dividend to households in equal shares, whereas the Climate Action Rebate Act applies a means tests so that only low to middle income families receive the dividend and the remainder of the revenue collected goes to research and development of emerging renewable energy technologies and for climate adaptation work in front line communities. In the case of both of these bills, low and middle income families would find that the dividends would offset increases in the prices they pay for products.

Progressives are also suspicious of a price on carbon due to the fact that carbon pricing is frequently touted as a market-based solution as opposed to regulation based. This framing appeals to conservatives, but tends to turn off progressives that are suspicious of reliance on free market mechanisms. While it is true that carbon pricing does utilize market based mechanisms, there is consensus amongst climate mitigation policy experts that carbon pricing, while only a part of the total solution, is the single most effective means to reduce carbon emissions. Let us take a closer look at why a price on carbon is so important.

The use of fossil fuels is pervasive throughout our economy. In order to comprehensively curb carbon emissions, a staggering number of regulations and standards would have to be crafted to cover all downstream emitters. A steadily rising fee on carbon, placed at the source (mines, wells, crude oil terminals) would cover all emissions, with the notable exception of land use changes and livestock. As the fee is increased, all products and services that result in carbon emissions in their supply chains will get incrementally more expensive than equivalent products that don’t result in carbon emissions. This sends a price signal to companies and individuals. All things besides price being equal, they will buy products and services that do not rely on fossil fuels in their production. The steadily rising fee on carbon also incentivizes companies to invest in the research, development and deployment of carbon free technologies.

Another reason that a price on carbon is critical is that as demand for fossil fuels decreases due to regulations and standards, the price of fossil fuels will drop accordingly. This will make using fossil fuels less expensive and therefore more pervasive in areas of the economy not covered by regulations. Eliminating fossil fuel use without a price on carbon would be a game of regulatory wack-a-mole.

Admittedly, there are notable sectors of the economy where placing a fee on carbon will be less effective. Take for example buildings. Renters or lessors of apartments and commercial buildings pay for utilities. A rising price of fossil fuels will mean higher utility bills, but won’t incentivize building owners to invest in energy efficiency upgrades or renewable energy based electricity sources, energy storage or electrification of HVAC and water heating. These deficiencies can be addressed by other policy mechanisms such as building codes. But just because a price on carbon won’t get us 100% of the way there, is no reason to throw the baby out with the bathwater.

So by all means, let’s write well crafted regulations, product and building standards, fund research and development into emerging renewable energy technologies , and invest in front line communities to make them more resilient to the ravages of climate change. But it is critical that we simultaneously and immediately impose a steadily rising price on carbon and return the revenue to low and middle income households.

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