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Policy Matters

The best climate policy is also the most business-friendly

Long a boogeyman of the right, carbon taxes are getting a closer look as the urgency of climate change becomes clearer.

Imagine for a moment that the political debate on climate change suddenly shifts.

We’re no longer talking about whether climate change is real, or caused by human activity; we’re talking about something very real, very dangerous and very expensive.

We’re finally ready to act. The question now is what policies we should adopt to tackle the issue.

What if I said that one of the best options for cutting emissions significantly deeply and quickly enough to make a difference was also something policymakers on both sides of the aisle in Washington agree is the most business-friendly option available?

Now, what if I told you they were talking about a tax? Surprised?

Actually, this isn’t entirely hypothetical: Support is growing around the country for carbon taxes.

Boulder, Colorado, was the first jurisdiction to pass one in 2006. Some states, such as Massachusetts and Washington, are vying to be the first to enact plans.

Action at the federal level, meanwhile, has been very slow. While business groups also have been slow to support this, the American Sustainable Business Council (ASBC) is taking the lead on calling for a carbon tax.

To that end, ASBC invited two leaders on this issue — Sen. Sheldon Whitehouse (D-RI) and former Rep. Bob Inglis (R-SC) — to speak at its Fourth Annual Business Summit, which wrapped up earlier this fall in Washington, D.C.

Their point was clear: While there is a long way to go to see a carbon tax get passed, it’s not impossible. But the business community will need to get involved.

Just the tax, ma’am

In June, Whitehouse and Sen. Brian Schatz (D-HI) introduced a bill supporting the objective of a national carbon tax, the American Opportunity Carbon Fee Act, which would set a price of $45 per ton on carbon emissions beginning in 2016.

The rate would rise 2 percent each subsequent year. The measure also would include border price adjustments, so that products imported from countries without a carbon tax still would have the U.S. tax applied.

The tax would be revenue-neutral, with the money generated being used for three things: Reducing the top marginal corporate tax rate to 29 percent, down from 35 percent; giving Americans inflation-adjusted $500 tax credits; and providing financial support for low-income and rural households, as well as workers transitioning to new industries — the latter of which seems to be targeted to workers in coal-dependent communities.

This isn’t an olive branch. It’s an olive limb.

It is the first revenue proposal, however — the 6 percent corporate tax cut — that is designed to attract primarily Republican support. Whitehouse defended this as the best method to win passage, arguing that the corporate tax rate is too high, and that cutting other taxes lets us incentivize behavior we want while disincentivizing behavior we don’t (in this case, increasing carbon emissions).

“This isn’t an olive branch," Inglis said. "It’s an olive limb."

The T-word

To be sure, one tax concession won't eliminate the hurdles to a carbon tax. Perhaps the largest issue is that many in Congress don’t want to raise taxes — period.

As Whitehouse noted, though, his bill would be revenue-neutral, using the revenues raised to cut the corporate tax rate and give rebates to American households. Problem solved, right?

Well, not so much. As Inglis pointed out, many conservatives believe that a carbon tax ultimately would grow the size of government, something that would be politically unpalatable. While he pointed out that conservatives have what he called a "trust deficit" with government, and would have to be convinced that carbon tax legislation wouldn’t grow the government, he held out hope that that outcome would be possible.

For his part, Whitehouse acknowledged that some Republicans might want to trade off the EPA’s Clean Power Plan in exchange for carbon tax legislation, something he said he would consider if the cost-benefit analysis made sense.

He also noted that a carbon tax disproportionately would affect poorer Americans — including rebates, as well as support for coal-dependent communities that would be heavily affected by the transition.

But even those communities, he argued, would benefit over the long run. For all the claims of a "war on coal," market forces, not government action, actually are wreaking havoc on the industry.

Fossil fuels, especially coal, are "a plane headed for the ground," Whitehouse said. "It’s either a soft landing or a crash."

Ultimately, government must soften the landing.

Money makes the world go ‘round

The nuances of carbon taxes also belay a bigger question: Why isn’t Congress moving to tackle climate change?

For Whitehouse and Inglis, the answer is depressingly simple: money.

In the 2012 election cycle alone, individuals and PACs associated with the oil and gas industry pumped more than $75 million into the race, nearly 90 percent of which went to Republicans, according to the nonpartisan Center for Responsive Politics.

That’s a staggering number — and one that the industry easily could top by the end of this cycle. To change this, businesses will have to get involved and tell Congress that they want to see action on a carbon tax.

As Whitehouse remarked, more business involvement can offer members of Congress "safe passage through the political minefield — the shelling they anticipate from the fossil fuel industry."

More business involvement can offer members of Congress "safe passage through the political minefield — the shelling they anticipate from the fossil fuel industry."

If the argument against climate action is that it will be bad for business, show Congress that businesses are more concerned about the costs of inaction (ASBC has also done some polling that backs this up).

Inglis offered another idea: Point to the growing number of companies, including oil companies, that are planning for carbon tax legislation by instituting an internal price on carbon. That’s the best proof yet that businesses are prepared for legislative action, and that far from ruining the economy, a carbon tax represents something that the economy easily will adapt to.

The panel ended with a standing ovation for Inglis, who ultimately lost his seat fighting for this issue. (He went on to found the Energy and Enterprise Initiative, a group dedicated to finding free enterprise solutions to climate change.)

That kind of courage and conviction is severely lacking in Congress these days, and it’s worth applauding. If more businesses get involved in the fight, though, taking a stand on climate change soon will become less remarkable, or politically dangerous, than it has been painted as.

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