Will The U.S. See A Carbon Tax Under Trump?

Last week a group of Republicans and businessmen tabled a proposal for a carbon tax, designed to replace the Obama administration’s string of environmental regulations aimed at reducing climate change-aggravating emissions.

The idea is not new. It has been put forward before by energy industry representatives, including Exxon’s then CEO Rex Tillerson, now Secretary of State, as a transparent and direct way to curb the effects of CO2 emissions on climate, even though the company lobbied against carbon tax bills last year.

Basically, the idea amounts to replacing regulations with taxation—the latter which would be much more efficient in achieving the ends for which the regulations were devised. Starting from US$40 per metric ton of carbon dioxide, taxes would be increased every year to motivate more aggressive efforts to curb these emissions.

Annual revenues from the tax are estimated broadly in the US$200 billion to $300 billion range, and—this is the best bit—this will be distributed to households as quarterly dividends via a special scheme managed by the Social Security Administration. The reimbursements will compensate households for the higher prices of all products resulting from the introduction to the tax.

Although President Trump and many Republicans in parliament have vocally opposed the idea of a carbon tax, this approach is “very Conservative,” said one member of the Climate Leadership Council, which proposed the tax, White House veteran James Baker. Baker went on to add that this is “a free market approach”, admitting, however, the Council would have a hard time convincing anti-tax Republicans about the benefits of the new levy.

Some critics see the proposal as a way to woo younger, more environmentally conscious voters. They also see it as a way of creating a whole new type of entitlement with the dividend payouts, questioning the motivating force of higher prices. Related: Energy Storage Set To Boom In 2017

Others note that dismantling regulations, which would be unnecessary with a direct tax, could make the Environmental Protection Agency a rather irrelevant authority, and would inevitably lead to job losses, and those that stand to lose their jobs won’t go gently. Moreover, David Blackmon writes for Forbes, just because the environmental regulations from the Obama era have become unnecessary doesn’t mean that all of them will be repealed: there is a very strong pro-regulation lobby that has invested too much in promoting the idea that regulation keeps the industry accountable.

Two analysts, authors of a report commissioned by the Climate Leadership Council, estimate that the tax would help the U.S. meet its Paris Agreement carbon emission cut quota better than the Obama regulations would. According to them, Obama’s regulations would lead to a 16-percent cut in emissions between 2005 and 2025, versus 28 percent with a carbon tax.

Other experts also believe that a carbon tax, as devised by the Council, could achieve more than what Obama regulations strived for, prompting an emissions reduction of 40 percent by 2030.

There seem to be enough arguments both for and against the carbon tax proposal, which should keep the debate going for quite some time. However, the chances of it becoming a reality are slim: Bloomberg recalls that last year, the House voted against a carbon tax, with the votes locked in to make it harder for legislators to switch sides at a later stage. Some fear that a carbon tax could start looking attractive against the background of Trump’s plans to cut other taxes, but with the stipulation that none of the revenue from the carbon tax would remain in the treasury, these fears seem insubstantial.

By Irina Slav for Oilprice.com

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