A Grand Carbon Bargain?

The policy du jour within the center-right and neoliberal ivory towers is the carbon tax. Economics brand names like Janet Yellen, Richard Thaler, and Larry Summers took to the pages of the Wall Street Journal recently to inform us that a carbon tax of their design can be a bipartisan winner in these factious times.

The so-called “Economists’ Statement” is a five-pillar proposal that they think will transcend the partisan divide by taxing carbon-based fuels while simultaneously mitigating the well-known regressive effect of energy taxes with a “dividend” and removing burdensome, top-down regulations. The economic flaws with a tax-and-dividend arrangement are documented extensively in the October 2018 study, “The Carbon Tax: Analysis of Six Potential Scenarios.”

But promises of regulatory relief do not stand up to scrutiny either. The problem is that no one to Yellen, Thaler, and Summers’ political left agrees that regulatory red tape should be cut.

The third pillar of the plan expressed in the Wall Street Journal reads, “A sufficiently robust and gradually rising carbon tax will replace the need for various carbon regulations that are less efficient. Substituting a price signal for cumbersome regulations will promote economic growth and provide the regulatory certainty companies need for long- term investment in clean-energy alternatives.”  But simply by reading the last five years’ worth of commentary from the environmentalist left, we should recognize that the promised compromise prioritizing economic efficiency has a snowball’s chance on the Senate floor of surviving intact.

To state what the left’s body of work makes obvious: A carbon tax only appeals to that faction in conjunction with a wide range of other carbon-mitigation strategies. A carbon tax that will draw left wing support isn’t a tax-for-regulation swap, but a complement to existing and accelerated regulation. As the ascendent “Green New Deal” shows, a standalone carbon tax has no currency with the party that now holds a majority in the House of Representatives.

Below you’ll find a sampling of the environmental left’s perspective on the carbon tax and I think you’ll realize, as I have, that the ‘Economists’ Plan’ is a nonstarter.

• “Carbon pricing is a tiny part of the Green New Deal. The climate debate should be about how many windmills, solar farms, and electric vehicles we can build.” — Saikat Chakrabarti, Ocasio-Cortez Chief of Staff

• “A Green New Deal is more than a smart carbon tax or some environmental regulation. It is one part of a progressive vision that strives to actually create the much-talked-about but still-painfully-absent 21st- century economy—with millions of living-wage jobs and justice for all.” — Greg Carlock and Sean McElwee, Data for Progress

• “Putting a price on carbon could be an important part of a comprehensive program. It can’t do the job alone, though, and is not a replacement for carbon limits under our current laws.” — Rhea Suh, President, Natural Resources Defense Council

• “We’re going to win this by building the arguments that will then lead to big demands, like no new fossil fuel frontiers, country-wide bans on fracking, closing off the Arctic to drilling permanently, and those types of policies. One of the reasons that it’s been difficult to win and sustain victories to put a price on carbon, a carbon tax (and I don’t think a carbon tax is a silver bullet, but I think a progressively designed carbon tax is part of a slate of policies that we need to make this transition happen), is that when consumers are hurting  — and we’ve been in the midst of an economic downturn, recession, or crisis depending on where you live — it’s hard for politicians to increase the price of energy. When suddenly oil is way cheaper and your energy bill is dropping, that’s a good time to introduce a progressive carbon tax.” — Naomi Klein, Author, “This Changes Everything: Capitalism vs. the Climate”

• “There’s one other truly grave danger with carbon pricing that zealous advocates occasionally do fall into: the idea that it’s the only thing that needs to be done. Exxon, for instance, has made it clear that the price for a carbon tax should be an end to other kinds of regulations (and probably a corporate tax cut); to bring Republicans along you’d need some kind of grand bargain that, perhaps, limited the EPA’s authority to regulate carbon, or scrapped Obama’s Clean Power Plan. One of the temptations I try to avoid is saying, ‘If only you’d paid attention back then.’ In 1989, back when I wrote that first book, it’s plausible that a low price on carbon, set to rise slowly over the years, would have been enough to bend the curve of emissions enough to save us from climate change. But in 2016, that’s no longer true. At best it’s one arrow in a quiver full of other arrows we’re also going to need to let loose in a volley.”— Bill McKibben, Founder, 350(dot)org

• “There’s been a predominant conversation in Washington, D.C., that’s been led by economists and politicos that have tried to frame a carbon tax as the only way. It’s proved time and time again to be not politically popular, and we haven’t even priced the policy at where economists say it needs to be. The idea that [a carbon tax is] the way out of this mess is something we need to be pushing back on.” — Evan Weber, National Political Director, Sunrise Movement

• “The thing about carbon pricing is, it’s helpful, but it’s not dispositive. There are a number of sectors that are impervious to a carbon price, or close to impervious. A carbon price works when it’s part of a package that includes R&D and performance standards. It does not work in isolation. It helps, but it doesn’t do nearly as much as is required.”— Hal Harvey, CEO, Energy Innovation

Alluring though it may be to former Federal Reserve chairs and academic economists, a carbon tax that replaces regulatory fiat fails to satisfy the appetite for control that motivates the environmental activist class. The promised compromise is out-of-touch and unrealistic; those of us being asked to agree to it ought regard it as such.