In my last blog, “Capitalism and Optimism,” I mentioned that we need capitalism to solve the problem of global climate change. If you want to skip the rest of this blog and go straight to how to put capitalism to work solving the climate change problem, go to the Climate Leadership Council website here: https://clcouncil.org/
The problem is that we modern humans are very dependent on fossil fuels such as oil and coal to drive our tractors and run our factories and power our vehicles and homes. We simply don’t have the technology to generate enough “clean” energy to run our world. In 2018, fossil fuels provided 63.6% of US energy, while “clean” renewables such as hydropower, solar and wind provided only 16.9% (nuclear produced 19.4%). But burning those fossil fuels produces the “negative externality” of carbon dioxide, one of the greenhouse gases which, we have learned in recent decades, are changing our climate in harmful ways. In short, if we don’t burn fossil fuels, we cannot feed and house people; but if we do burn fossil fuels, we inflict serious harm on the planet.
We need to get greener fast. But how? Democrats in the US House of Representatives have proposed a “Green New Deal” that sets out a “10 year mobilization” plan with the ambitious goal of 100% renewable, zero carbon emissions energy in the US. But declaring a goal means nothing without a way to achieve it. The Green New Deal supporters are like King Canute’s courtiers, whose fawning praise drove him to shout to the ocean waves “Tide, I order you not to come in!” When the tide rose anyway, King Canute admonished his men about exaggerating his powers. The Green New Deal supporters, like King Canute’s courtiers, think that if the government shouts “Zero Emissions!” it will be so.
There a better and more powerful tool at hand, a way to create incentives to use less fossil fuels, and simultaneously create incentives to develop “green” energy sources: A Carbon Tax.
The idea of a carbon tax has been around for years. The government would levy a tax on carbon-based products such as coal, oil and natural gas, which would of course increase the cost of using those fossil fuels. This creates a powerful incentive for businesses and individuals to use less carbon-based energy. But people still need energy, and will look for alternatives, creating incentives for businesses to invest in developing “tax free” wind, solar and hydropower energy sources – or something else we haven’t thought of yet. A carbon tax, in short, directs the energy and creativity of capitalism toward the goal of reducing carbon emissions. And a carbon tax works better than government edicts, such as requiring businesses use X percent less carbon or make cars that get X miles to the gallon, because once businesses reach those targets, there is no further incentive to keep getting greener. A carbon tax creates a continuous, never ending incentive to keep trying to produce less carbon. That is the beauty of the carbon tax.
The drawback to a carbon tax is that it is, well, a tax. It would increase the cost to drive a car and to heat a house. And it which would hit lower-income people hardest, since they spend a higher portion of their incomes on those basics. All of which make it a political tough sell – politicians don’t often make a new tax the centerpiece of their political campaigns.
The Climate Leadership Council, which calls itself, justifiably, the broadest climate coalition in US history, has come up with something that addresses that problem: A CARBON DIVIDEND. Every US family of four would receive a quarterly deposit of $500 – a total of $2,000 per year – as a “carbon dividend.” The carbon tax money money that is collected would go straight to US families. Selling a tax is hard. Selling a refund is easy. Why do millions of Americans actually look forward to income tax time? The tax refund! In 2019 the average refund check was $2,781. Most people don’t really notice the taxes being taken from their paychecks – their employers take care of that – but they sure notice that refund check.
The CLC estimates that for 70% of families, who tend to use less energy, this regular Carbon Dividend would exceed the increased energy costs due to the tax. In other words, combining a carbon dividend with the carbon tax makes it a progressive tax, one that is paid primarily by the well off instead of the poor. With the Carbon Dividend, lower-income people come out ahead.
And if we are serious about fighting climate change, a carbon tax would work better than any other proposal out there. The CLC Plan starts with an economy-wide fee of $40 per ton of CO2 emissions, with the fee increasing annually. Studies estimate that these incentives “would achieve more than three times the emissions reductions of all Obama-era climate regulations from 2016 onwards.” If implemented in 2021, it should cut US carbon emissions in half by 2035, which far exceeds the US Paris commitment. To deal with international trade, and encourage foreign nations to follow the lead of the US, the CLC Plan also provides for “border carbon adjustments” so that imports from other countries “will face fees on the carbon content of their products.”
The Climate Leadership Council has to be the most bipartisan group in the world. Its carbon tax proposal is supported by business and industry heavyweights like ExxonMobil, BHP (the world’s largest mining company), Goldman Sachs, Ford Motor Company and General Motors, and by thousands of economists, including former US Federal Reserve Chairmen Ben Bernanke, Janet Yellen and Alan Greenspan. Even Stephen Hawking was a founding member. It should be something liberals and conservatives can agree on. Any proposal that gets the approval of the editorial boards of the conservative Chicago Tribune and the liberal Washington Post must have something going for it.