The idea of a carbon dioxide tax fits in seamlessly with the romantic, often quixotic, worldview of the modern environmental movement. It’s a well-intentioned notion that’s untethered to reality, and which would produce few appreciable gains, while causing major damage.
Unfortunately, the idea is also gradually picking up momentum. While no state currently has a carbon dioxide tax on the books, voters in Washington State will decide whether they want to be the first to implement one when they go the polls in November. The Bay Area Air Quality Management District currently oversees a business carbon tax over a nine-county area in Northern California, and a county-wide tax is now in effect in Montgomery County, Maryland. In Canada, carbon dioxide tax legislation recently passed the Legislature of Alberta, making it the third province to enact one since 2007.
In response to this gradual mainstreaming, 237 members of Congress voted to pass a non-binding resolution on June 10, putting them on record in opposition to a federal carbon dioxide tax. The House members supporting the bill argue that such a tax would be “detrimental to American families and businesses” as well as to the economy as a whole. (The Heartland Institute, where I work as a policy analyst, was one of many organizations that co-signed a letter of support for the resolution.)
The purpose of the carbon tax is to decrease carbon dioxide emissions by levying a tax based on the amount of emissions produced. But the tax is a prime example of the recoil being more dangerous than the projectile.
The carbon dioxide tax is inherently regressive and disproportionally harms low-income families. The Congressional Budget Office (CBO) found that a $28 per ton carbon dioxide tax would result in energy costs being 250 percent higher for the poorest one-fifth of households than the richest one-fifth of households.
The reason? According to the CBO:
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.
This is why most proposed carbon dioxide tax legislation comes with offsetting cuts to other taxes — known as “tax swaps” — or direct tax rebates to individuals and families. This is the case with the Washington ballot initiative — where even proponents of the carbon tax admit that it would increase gas prices by 25 cents per gallon statewide — as well as another proposed carbon dioxide tax introduced in the Rhode Island House of Representatives earlier this year.
Another problem with the federal carbon dioxide bill is that any environmental benefits that it might produce would be effectively meaningless without concomitant legislation enacted throughout the rest of the globe. As Manhattan Institute senior fellow Oren Cass puts it:
The effectiveness of a carbon tax…therefore depend[s] not only on how it would directly alter the trajectory of American emissions, but also on its ability to affect global emissions by driving globally applicable technological innovation or by influencing the behavior of foreign governments. On each of these dimensions, the carbon tax fails.
William F. Buckley was fond of saying that as idealism approaches reality, the costs become prohibitive. This is certainly the case with a carbon dioxide tax, which would make everything more expensive for working Americans, leaving them less to spend and save — and all for no guaranteed environmental benefit. There might be some room to absorb the damage of such rose-colored schemes in a healthy economy, but certainly not at a time when the economy is still limping along.
These congressmen should be applauded for taking a stand, however symbolic, against such an ill-conceived proposal. Let’s hope that, if and when the time comes, they remain resolute.