How a carbon tax could pay Trump and Republicans dividends

by Benjamin Collinger

President Trump’s March 28 executive order to promote “Energy Independence and Economic Growth” and troubling statements seem to doom climate change action. The executive order operationalizes his administration’s climate denial by rolling back the Clean Power Plan, reconsidering standards for coal plants, and dismantling other environmental protections.

Ironically, the opposite set of policies – emission reductions and environmental protection – could provide the Trump administration the political win and economic gains it desperately seeks.

After his healthcare debacle, ongoing investigations into Russia’s involvement with his campaign, and numerous other scandals, the president needs a win for himself and his base. The Climate Leadership Council (CLC), a group backed by two former Secretaries of State and Treasury, among other prominent officials, may have a policy that fits the bill: a “Carbon Dividends Plan.”

The plan calls for a gradually increasing carbon tax that begins at $40 per ton. Proceeds from the Pigovian tax – a tax on market activity that impacts society negatively – would be distributed as dividends to all citizens. Additionally, the CLC calls for significant regulatory rollback, including the elimination of the Clean Power Plan (an action that the President recently signed into law). As a result, the plan does not entirely contradict the administration’s stated policy. In fact, it provides a smart starting point for reducing greenhouse gas emissions and three key advantages for the Trump administration.

First, the plan’s method and solution may appeal to a wide array of Republicans. According to its authors, the carbon tax presents the “opportunity to demonstrate the power of the conservative canon by offering a more effective, equitable and popular climate policy based on free markets, smaller government and dividends for all Americans.” In other words, the “Carbon Dividends Plan” may appeal to hardline congressional conservatives and average Trump voters alike.

Second, a carbon tax could redirect Trump’s populist insurgency through economic incentives. The dividend plan’s premise – those who pollute should compensate society for environmental damage – initiates an idea that economists know well: the “double dividend.” With estimated revenues of $200 to $300 billion, the tax could generate would be environmentally beneficial and could offset the need for, say, individual income tax increases.

The plan would also be popular. A Dec. 2016 Yale Program on Climate Change Communication survey discovered that 66 percent of registered voters would support a carbon tax if revenues offset their personal taxes. Thus, the dividends mitigate the impact of discount rates – the economic principle that people value the future less than the present. If citizens benefit financially from climate protection, the amount that they discount the value of future environmental sustainability becomes less relevant.

Third, the CLC’s $40 per ton carbon tax represents a starting point for sound environmental policy. The Carbon Tax Center estimated that the proposal would reduce emissions by 2.3 metric tons, a 40 percent reduction based upon 2005 levels. Similarly, Noah Kauffman, an economist at the World Resources Institute, noted that the plan would be more effective than the Obama administration’s Clean Power Plan at reducing emissions.

However, the plan’s imperfections and political technicalities may overwhelm conventional economic wisdom. Energy interests, especially the coal lobby, will oppose the plan; environmentalists may argue that it does not go far enough, that a direct cap would solve better, or that the dividend distribution is not equitable. Nevertheless, the CLC’s proposal has strong political incentives for the Trump administration, as well as economic and environmental incentives to the rest of the country.

Framing climate solutions in the context of economic growth while reducing emissions has a chance to create sustained change. The CLC may have the formula to give both Trump, Republicans, and advocates of environmental protection a win.

Benjamin Collinger is a sophomore at Trinity University majoring in International Studies and History, and is the Executive Director of The Contemporary

This interview has been edited and condensed. The views expressed in this article are those of the writer. The Contemporary takes no position on matters of policy or opinion.

The photo above was created by POD, is under a CC BY-NC-ND 2.0 license, and can be found here.

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