On Taxes, Cash Rebates and Climate Change
Photo by Ian Froome
Last week, comments from the Wall Street Journal op-ed “Economists’ Statement on Carbon Dividends” included:
“Global climate change is a serious problem calling for immediate national action.
"A carbon tax offers the most cost-effective lever to reduce carbon emissions at the scale and speed that is necessary ... a carbon tax will send a powerful price signal that harnesses the invisible hand of the marketplace to steer economic actors towards a low-carbon future …
"A consistently rising carbon price will encourage technological innovation and large-scale infrastructure development. It will also accelerate the diffusion of carbon-efficient goods and services …
"all the revenue should be returned directly to U.S. citizens through equal lump-sum rebates. The majority of American families, including the most vulnerable, will benefit financially by receiving more in “carbon dividends” than they pay in increased energy prices.
Signers included 4 former U.S. Federal Reserve chairs (Paul Volcker, Ben Bernanke, Alan Greenspan and Janet Yellen); 3 former U.S. Treasury secretaries and 27 winners of the Nobel Prize in Economic Sciences.
Janet Yellen noted that: "It’s estimated that if we were to start with something like a $40 a ton carbon tax that would amount to $2,000 per family, so it is a very substantial rebate.”
Separately, as global leaders (and global elites) travel to the World Economic Forum’s (WEF) annual gathering in Davos, the organization's founder and Executive Chairman Klaus Schwab said:
“Climate change – arguably humanity’s most existential challenge – requires urgent global action.
"environmental crises – notably a failure to tackle climate change – are among the likeliest and highest-impact risks that the world faces over the next decade. Indeed, 2018 saw record levels of costs due to extreme weather events.”
OUR TAKE
Assigning economic value (a tax) to the impact of carbon emissions has the potential to address climate change and drive additional innovation. A mild tax may only be mildly effective. However, a strong tax could drive positive behavioral change but may meet resistance from voters.
Other challenges include: 1) the risks that high carbon projects would move to regions that do not have a carbon tax, 2) efforts by lobbyists and varied interest groups to alter effective tax implementations and 3) the development of carbon tax avoidance strategies.
The statements in the WSJ and from the WEF suggest that the climate change debate is moving from “are you a believer” to "what actionable strategies should be pursued."
A carbon tax is one among many approaches needed to address the problem.