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Research & Commentary: No Such Thing as a Conservative Carbon-Dioxide Tax Plan

March 21, 2017

Carbon-Dioxide Tax Would Make Everything More Expensive For Working Americans Without Guaranteed Environmental Benefits

A group calling itself the Climate Leadership Council (CLC) has issued a report that makes the case for a “sensible” carbon-dioxide tax, which it says would start at $40 per ton. Also included is a scheme to distribute revenues from this tax to American families via a dividend, border carbon adjustments on imports and exports, and a significant rollback of existing regulations of greenhouse-gas emissions.

CLC says the “evidence climate change is growing too strong to ignore,” and the “risks associated with future warming are too big and should be hedged.” According to CLC, a carbon tax would provide an ideal “insurance policy.” CLC says the tax would efficiently reduce carbon dioxide, encourage technological innovation, and shrink the size of government. Additionally, the “bottom 70% of Americans would come out ahead under such a program.”

Despite these grand claims, carbon-dioxide taxes are inherently regressive and disproportionally harm low-income families. The Congressional Budget Office (CBO) found a $28-per-ton carbon tax, much smaller than CLC’s $40-per-ton tax, would result in energy costs being 250 percent higher for the poorest one-fifth of households than the richest one-fifth of households. CBO reports the reason for cost discrepancy is “a carbon tax would increase the prices of fossil fuels in direct proportion to their carbon content. Higher fuel prices, in turn, would raise production costs and ultimately drive up prices for goods and services throughout the economy … Low-income households spend a larger share of their income on goods and services whose prices would increase the most, such as electricity and transportation.”

As my colleague H. Sterling Burnett has noted, CLC’s $40-per-ton tax would be even more burdensome than the Obama administration’s calculation for the estimated social cost of carbon dioxide, which it determined to be $36 per ton. “In other words, these old guard Republicans want to impose a tax on carbon that cost more than the costs carbon dioxide are supposed to impose on society,” Burnett said. 

“Virtually all of the CLC assertions in support of its proposal are incorrect or implausible,” wrote the American Enterprise Institute’s Benjamin Zycher, who also said the study is “poor conceptually and deeply unserious.”

“The CLC provides no evidence that climate risks are ‘too big’ and assumes that the proposed tax would provide ‘insurance’ without examining the future climate effects of its proposal,” Zycher wrote. “The argument that an emissions tax is a more efficient method of reducing emissions relative to regulations is not correct. The dividend proposal is naive in that it ignores the coalition problem in Congress and the relative influence of concentrated and unconcentrated pressure groups. The border tax adjustment would be hugely complex given the international supply-chain system, leading to an increase in the attendant bureaucracy even if the regulatory bureaucracy is reduced in size. … Contrary to its assertions, the CLC proposal would increase the government allocation of resources and thus the size of government.” 

Another problem with a carbon-dioxide tax is any environmental benefits that it might produce would be effectively meaningless without concomitant legislation enacted throughout the rest of the globe.

Oren Cass, senior fellow at the Manhattan Institute, says the environmental benefits that might come from passage of a carbon-dioxide tax would be minimal. “The effectiveness of a carbon tax as a matter of environmental policy [depends] not only on how it would directly alter the trajectory of [local] emissions but also on its ability to affect global emissions by driving globally applicable technological innovation or by influencing the behavior of foreign governments,” wrote Cass. “On each of these dimensions, the carbon tax fails.”

It is likely for these reasons the U.S. public finds the idea of a carbon tax so unpopular. A September 2016 poll conducted by the Energy Policy Institute at the University of Chicago and by the Associated Press-NORC Center for Public Affairs Research revealed 71 percent of respondents said they were unwilling to pay an extra $20 month on their electric bills to combat climate change, although this amount is “roughly equivalent to what the federal government estimates the damages from climate change would be on each household.” Further, almost half the respondents, 42 percent, said they would be unwilling to pay even one extra dollar.

A carbon-dioxide tax would make everything more expensive for working Americans, leaving them less to spend and save without any guaranteed environmental benefits. Lawmakers would be doing their constituents a favor by not pursuing such destructive proposals.

The following documents provide more information about carbon-dioxide taxes and climate change.

The Deeply Flawed Conservative Case for a Carbon Tax
https://www.heartland.org/publications-resources/publications/the-deeply-flawed-conservative-case-for-a-carbon-tax?source=policybot
In this paper from the American Enterprise Institute, Benjamin Zycher says the “conservative” Climate Leadership Council’s (CLC) much-hyped carbon-tax proposal is “naïve” and “virtually all of the … assertions in support of its proposal are incorrect or implausible.” The CLC’s plan is “poor conceptually and deeply unserious,” wrote Zycher.

The Case Against a U.S. Carbon Tax
https://www.heartland.org/publications-resources/publications/the-case-against-a-us-carbon-tax
In this paper from the Cato Institute, Robert P. Murphy, Patrick J. Michaels, and Paul C. Kanppenberger examine carbon-dioxide tax programs in place in Australia and British Columbia and whether similar programs would be successful in the United States. They conclude, “In theory and in practice, economic analysis shows that the case for a U.S. carbon tax is weaker than its most vocal supporters have led the public to believe.” 

Dissecting the Carbon Tax
http://www.american.com/archive/2012/july/dissecting-the-carbon-tax
American Enterprise Institute Resident Scholar Kenneth Greene tells how he was first deceived by the supposed economic benefits of carbon taxes and how his views have evolved in light of the dubious track record of other eco-taxes being raided for general spending. 

The Carbon Tax Shell Game
https://www.heartland.org/policy-documents/carbon-tax-shell-game
Oren Cass of the Manhattan Institute says the carbon tax is a shell game. The range of designs, prices, rationales, and claimed benefits varies so widely that assessing the actual validity of most proposals is nearly impossible to accomplish. In this article for National Affairs, Cass says the effect of carbon-dioxide taxes on emissions has proven to be insubstantial, a fact he says is ignored by the tax’s proponents when promoting its purported benefits. Cass also says carbon-dioxide taxes’ negative fiscal effects are claimed to be offset by efficiency improvements and by promising the revenues will be spent to offset the costs, but he says the same revenues are often promised to different constituencies to accomplish completely different and largely incompatible goals.

Assessing the Social Costs and Benefits of Regulating Carbon Emissions
https://www.heartland.org/policy-documents/assessing-social-costs-and-benefits-regulating-carbon-emissions
The government is required to quantify the costs and benefits of regulations they propose. In the context of regulations pertaining to carbon-dioxide emissions, various agencies have been using differing estimates of the net social cost related to carbon dioxide. In response, an interagency working group (IWG) was created in order to establish a consistent and objective “social cost of carbon.” The range of estimates of the social cost of carbon produced by the IWG is too narrow and almost certainly biased upwards. Using better models and the most recently available evidence on climate sensitivity, this study from the Reason Foundation finds the range of the social cost of carbon should be revised downwards. The study states carbon-dioxide emissions may actually have a net beneficial effect on the environment.

Less Carbon, Higher Prices: How California’s Climate Policies Affect Lower-Income Residents
https://www.heartland.org/policy-documents/less-carbon-higher-prices-how-californias-climate-policies-affect-lower-income-resi
This study from Jonathan Lesser of the Manhattan Institute argues California’s clean power regulations, including the state’s renewable power mandate, is a regressive tax that harms impoverished Californians more than any other group.

Why Scientists Disagree About Global Warming
https://www.heartland.org/policy-documents/why-scientists-disagree-about-global-warming
In this book published by The Heartland Institute, authors Craig Idso, Robert M. Carter, and S. Fred Singer say the most important fact about climate science, which they say is often overlooked, is scientists disagree about the environmental impacts of the combustion of fossil fuels on the global climate. There is no survey or study showing “consensus” on the most important scientific issues, despite frequent claims by advocates to the contrary. Scientists disagree about the causes and consequences of climate for several reasons. The authors say the only “consensus” among climate scientists is human activities can have an effect on local climate and the sum of such local effects could hypothetically rise to the level of an observable global signal. The key questions to be answered, they say, are whether the human global signal is large enough to be measured, and if it is, does it represent or is likely to become a dangerous change outside the range of natural variability? On these questions, an energetic scientific debate is taking place on the pages of peer-reviewed science journals, say the authors.

Climate Change Reconsidered II: Physical Science
https://www.heartland.org/publications-resources/publications/climate-change-reconsidered-ii-physical-science
Climate Change Reconsidered II: Physical Science is an independent, comprehensive, and authoritative report on the current state of climate science, published in October 2013. It is the fourth in a series of scholarly reports produced by the Nongovernmental International Panel on Climate Change, an international network of climate scientists sponsored by three nonprofit organizations: the Center for the Study of Carbon Dioxide and Global Change, the Science and Environmental Policy Project, and The Heartland Institute. (Also see the executive summary of Climate Change Reconsidered II: Physical Science: https://www.heartland.org/_template-assets/documents/CCR/CCR-II/Executive-Summary.pdf)

Climate Change Reconsidered II: Biological Impacts
https://www.heartland.org/publications-resources/publications/climate-change-reconsidered-ii-biological-impacts
Released on April 9, 2014, Climate Change Reconsidered II: Biological Impacts is an independent, comprehensive, and authoritative report on the impacts of climate change on plants, terrestrial animals, aquatic life, and human well-being. (Also see the Climate Change Reconsidered II: Biological Impacts “Summary for Policymakers”: https://www.heartland.org/_template-assets/documents/CCR/CCR-IIb/Summary-for-Policymakers.pdf)

 

Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this subject, visit Environment & Climate News, The Heartland Institute’s website, and PolicyBot, Heartland’s free online research database.

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