I recently replied to a question on the National Journal blog, “Is Washington ready for a carbon tax?”
You can read other responses at the National Journal.
Here is my response: If we’re going to get serious about reducing the greenhouse gas emissions that are causing climate change, the most efficient and effective policy is to put a price on carbon.
With this year’s extreme heat, drought and wildfires — and the devastating impacts of Hurricane Sandy still unfolding – there is a growing sense among experts and the American public that we are beginning to pay a price for climate change. Our health and our homes are at stake.
Putting a price on carbon is the best way to avoid much bigger costs in the future. By giving the private sector a clear incentive to invest and innovate, carbon pricing harnesses market forces to reduce emissions at the lowest possible cost.
As a policy instrument, a carbon tax offers many of the same advantages as a cap-and-trade program. But while cap and trade is off the table for now in Washington, a carbon tax may – and I emphasize may – be politically feasible.
Many of the nation’s pressing fiscal challenges – deficit reduction, tax reform, entitlement reform, avoiding deep defense and domestic cuts – could be eased by additional federal revenue. A carbon tax is one potential source. And if used, for instance, to offset payroll or other taxes, it could be revenue-neutral. That might make it acceptable to some of those who signed the “no climate tax” pledge, which specifically opposes a carbon tax resulting in “a net increase in government revenue.”
How any revenue is used would be a matter, ultimately, for the political process. Beyond that, the architects of any carbon tax face a host of design issues: setting a price that is effective and predictable; deciding at what point in the value chain to collect the tax and how to address the regressive impact on low-income families; and addressing how to treat carbon-intensive imports and how to mesh a tax with other federal regulatory authorities.
With even the broad contours of a fiscal deal so unclear, it’s impossible to predict whether a carbon tax might find a place in it. But it’s an idea well worth exploring. After all, taxing things we don’t want, like carbon emissions, and cutting taxes on things we want to encourage, like productivity and employment, may be one place where we can find common ground.