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A ‘Revenue Neutral’ Carbon Tax Is a Costly Myth

February 14, 2019

The Wall Street Journal, Washington Post, and other media outlets are reporting that a bipartisan group of top economic advisors has signed a statement supporting a carbon dioxide tax that returns all revenue to the American people.

The Wall Street JournalWashington Post, and other media outlets are reporting that a bipartisan group of top economic advisors has signed a statement supporting a carbon dioxide tax that returns all revenue to the American people. Prominent signatories include Alan Greenspan, Paul Volcker, and Ben Bernanke. Expect this to be a big messaging point in the weeks and months ahead for global warming activists.

More atmospheric carbon dioxide and gradually warming temperatures have brought net benefits to human health and welfare. Yet economists like Greenspan and Bernanke, who received appointments from Republican presidents, often make the argument that they are not scientists and they are merely crafting the best economic solution to a problem that most scientists say we need to address. Even if these economists remain unconvinced that carbon dioxide emissions and modest global warming bring net benefits, there are crucial flaws in their argument for a ‘revenue neutral’ carbon dioxide tax.

Here are the three biggest flaws of a ‘revenue neutral’ carbon dioxide tax designed to appeal to Republicans and conservatives:

1. A carbon dioxide tax may be crafted to be government revenue neutral, but it cannot be crafted to be household revenue neutral. The intent and impact of a carbon dioxide tax is to raise the price of coal, natural gas, and gasoline to the point that they are more expensive than high-priced wind power, solar power, and electric vehicles powered by wind and solar. When this happens, consumers will be purchasing wind and solar power that is much more expensive than what they presently pay for coal, natural gas, and gasoline. Consumers will therefore be forced to spend substantially more money on energy and energy-related bills. Yet the wind and solar industries will pay no carbon dioxide taxes, meaning a ‘successful’ carbon dioxide tax that dramatically reduces carbon dioxide emissions will collect little tax revenue and thereafter return little money to the people. This would be ‘revenue neutral’ for government, but households will see dramatic declines in discretionary income as a result of their uncompensated higher energy bills.

2. Republicans and conservatives are negotiating against themselves, in vain, when they advocate a ‘revenue neutral’ carbon dioxide tax. Democrats, environmental activist groups, and the political Left have made it clear that they will not support or accept a ‘revenue neutral’ carbon dioxide tax. They proved this point in the state of Washington in 2016 when a ‘revenue neutral’ carbon dioxide tax was put on the ballot with support from many establishment Republicans. Democrats, environmental activist groups, and the political Left opposed the ballot initiative, stating they would only support a carbon dioxide tax that authorized government to keep the tax revenues and direct the revenue to causes supported by the environmental Left. As a result – and thankfully – the ballot initiative failed.

3. Even if Democrats, environmental activist groups, and the political Left suddenly began to support a ‘revenue neutral’ carbon dioxide tax, they would only support such a tax in addition to, rather than instead of, expensive, intrusive, command-and-control schemes. As I noted in a recent Heartland Institute Policy Brief, “Prominent global warming activist David Roberts noted in Vox that CO2 taxes ‘are good policy, an important part of the portfolio, but unlikely ever to be sufficient on their own. It’s worth getting a price on carbon anywhere it can be gotten, but climate hawks should not believe, and definitely shouldn’t be saying in public, that a carbon price is enough ...’ [emphasis in the original].” I also noted from Bill McKibben, “We need to do everything. Not just a price on carbon, but dramatic subsidies for renewables to speed their spread. Not just a price on carbon, but an end to producing coal and gas and oil on public land. Not just a price on carbon, but a ban on fracking, which is sending clouds of methane into the atmosphere. Not just a price on carbon, but a dozen other major regulatory changes.”

 

Not only would a carbon dioxide tax be economically destructive, but Republicans and conservatives who are duped into supporting such a scheme will be getting something entirely different than what is being advertised.

[Originally Published at Townhall]

Author
James Taylor is a senior fellow for environment and energy policy at The Heartland Institute.
jtaylor@heartland.org