Confronting the climate crisis shouldn’t be rocket science—to push society to decarbonize, just treat greenhouse gases the way governments treat liquor and cigarettes: Raise the price. With the climate-change movement at an impasse as the Paris climate treaty clashes with Trump’s anti-science agenda, the bottleneck around carbon policy today is more political than technological. And despite Trump’s rejection of the Paris Treaty, the global backlash shows that even the economics are coming around.
A new state-by-state analysis by the Carbon Tax Center (CTC) shows that carbon taxation, while often dismissed as a political nonstarter, could actually be a common-sense policy measure for local communities. A carbon tax could build on global momentum toward decarbonization while at the same time boosting public coffers, reducing inequality, and providing a democratic mechanism for a public reckoning with the true cost of pollution.
The idea of a carbon tax is financially elegant: Make each ton of carbon cost more to burn. The idea of a pollution levy is simultaneously progressive—it targets polluting industries and redistributes their wealth downward—but it can also work within the structures of a “free market” economy, by regulating social costs to encourage energy transition across the supply chain, starting with electricity plants and down to the gas pump.
Coupled with support for the growing renewable-energy sectors, a comprehensive carbon tax would ideally provide complementary sticks and carrots to mainstream renewable energy and phase out coal. But so far no state has implemented a carbon tax, and emissions-reductions targets on the state level have led to plans for more business-friendly “cap and trade” market schemes rather than straight taxes.
Congress has seen some proposals for carbon taxation in recent years, but given the chaos in Washington, the CTC turns to the states to spur localized efforts both to limit fossil-fuel use and expand green-energy production instead.
Massachusetts, Rhode Island, Connecticut, Vermont, and Washington have recently considered carbon-tax legislation, and residents in other states have campaigned for carbon-pricing ballot measures. The CTC report estimates that Connecticut, Hawaii, Illinois, Maryland, Massachusetts, New York, Washington, and the District of Columbia are the most promising localities for instituting carbon taxes. The political prospects are driven by technological advancement as well as market forces and consumer pressure, along with the regional emissions-target framework set by California and a coalition of Northeastern states.
According to a Brookings Institution analysis, a carbon tax of $20 per ton of emissions could bring in billions in revenue, and, depending on the state’s population, might even support a significant portion of state budgets. For example, California alone could yield more than $7 billion, though this would only be about 0.3 percent of the state’s annual budget.
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Ironically, some big fossil fuel–producing states could see some of the biggest yields. Wyoming would generate only about $1.4 billion in carbon-tax revenue, but in proportion to the state’s smaller economy, the emissions price translates into over 3 percent of the budget.
According to analysts, “Alaska, Wyoming, and West Virginia, are experiencing sharp downturns in revenues associated with oil, gas, and coal production as the prices and/or production volumes decline,” but the loss could be recovered through the pollution tax. The promise of that steady funding stream might bring states with large fossil-fuel industries toward a green-economic tipping point, as residents can then capitalize on the market’s global shift from dirty to clean power sources.
On a national scale, the CTC calculates that a $20-per-ton carbon-tax rate (in line with other comparable legislation, and set to ratchet up over time) yields a potential emissions reduction of 105 billion tons—a considerable dent in the Obama administration’s target under the Paris Accord.
Under the most comprehensive major recent national-level proposal, the Managed Carbon Price Act of 2015, the tax rate, scaled to increase incrementally over time, would within a decade lead to “CO2 emissions falling 31 to 32 percent below today’s baseline projections for 2026, and 41 percent below actual CO2 emissions in 2005,” CTC estimates. The tax would help reshape ongoing evolution in consumption patterns, driving nationwide petroleum consumption to nearly 20 percent lower than the business-as-usual scenario.
The social benefits have been demonstrated more concretely in other rich countries that have already started taxing carbon. Australia, long one of the world’s biggest carbon polluters, implemented a pioneering carbon tax in 2012, and before it was repealed in 2014 under political pressure, power-generation emissions fell nearly 8 percent and solar use spiked by 28 percent.
British Columbia has made major progress toward the Paris Climate Treaty goals with a carbon pricing system introduced in 2008. In the first half decade, average per capita emissions fell about 13 percent in local per capita emissions—amounting to a decline of three-and-a-half times the rate throughout the rest of Canada during the pre-tax period.
With many states facing steep budget cuts for public services, and funds for environmental regulation on the state and federal levels in short supply, an advantage of the carbon tax is that it harnesses profits from a market shift driven by popular demand and global regulatory policy. Renewables are getting cheaper and more widely available, and people are willing to pay a few pennies more to trade the smog-belching factory next door for a rooftop solar garden.
Nonetheless, though carbon taxes may bring fresh revenue, the internal politics over how the revenue will be spent are complex; such conflicts bedeviled Washington State’s failed carbon-tax proposal last year. Going forward, passing the tax may actually be the easy part, since communities must ultimately negotiate over whether to use the funds for “revenue neutral” offsets in the general budget or rebates for poorer consumers, or to invest more in “just transition,” such as clean-energy jobs programs or public-transit expansion.
Charles Komanoff, co-author of the CTC report, says selling a carbon tax in a high fossil-fuel consumption state hinges on a shift in the cultural climate, not just fiscal and partisan calculations: “states that have high CO2 per capita are going to be states where fossil fuels…are just embedded in people’s lives in their psyches, in how they live, in what they live for, in their dreams…their way of life is built on this stuff.” The public will recognize the true value of carbon pricing, he says, only if they “begin to have a visceral…concrete sense of the alternative [system] that a carbon tax is trying to pull us toward.”
A carbon tax isn’t a radical economic policy, it would just align our politics with the radical changes already happening to people and the planet.
