Policies to restrict the emission of carbon dioxide and other greenhouse gases already are a clear and present reality. Many conservatives might not agree with those ideas, but they’ve recently and repeatedly seen the hazards of waiting for political solutions or for the courts to shape public policy.

The response needs to be more than just to express disappointment with the growing number of regulations, subsidies and miscellaneous policies intended to check carbon emissions, including automotive Corporate Average Fuel Economy (CAFE) standards; energy-efficiency standards for appliances; oil-and-gas drilling regulations; fuel-emissions requirements; loan guarantees; tax breaks; and the Obama administration’s highly ambitious Clean Power Plan. Free markets, not Uncle Sam, provide the surest path to prosperity.

The status quo is deeply unsatisfying. There’s a better way forward.

It’s time for carbon policy that ignites, rather than restrains, the power of markets. History shows human creativity is an unparalleled problem solver and the market is the best arbiter of progress toward a healthier, richer future. Market price signals are the key to address our pollution problems, and carbon dioxide is no exception.

A well-designed carbon policy can reduce pollution while building a future of wealth and abundance. Rather than the redundant, intrusive policies coming from the White House, this approach would create more predictability and flexibility for the market, ignite the nation’s collective imagination and marginalize the big-government impetus that dominates environmental policy.

The current command-and-control approach to pollution is past its prime. There are better ways to protect the environment and mobilize creative entrepreneurs to move in a new direction. A tax swap is the best option, but only if designed to keep government small and mobilize the market to find big solutions. That’s possible if policymakers stick to seven conservative principles. Any well-designed carbon tax must:

  • Stop regulation and bad tax policy: A tax swap will only promote economic growth if it’s used to end the ever-expanding Band-Aid policies intended to stem carbon emissions and promote clean energy. A tax swap renders everything from the Clean Power Plan to CAFE standards to production tax credits unnecessary.
  • End handwringing over the bogus social cost of carbon: The social cost of carbon is an ineffective instrument that only poorly reflects the risks Americans actually face in a changing climate. Instead, the carbon price should be set at a level sufficient to eliminate the even more damaging existing regulatory burdens and to reduce tax liabilities.
  • Achieve revenue neutrality: A carbon tax that isn’t revenue neutral would raise the cost to secure desired reductions in carbon emissions, creating incentives to invest in bureaucratic priorities rather than market-driven innovation.
  • Reduces taxes on capital: The revenue should be returned in a way that stimulates the most economic growth, spurs innovation and creates opportunity for all. Reducing the egregiously high federal taxes on capital is the only way to accomplish this goal.
  • Create administrative simplicity: The current U.S. regulatory and tax morass only serves to expand the state and create compliance headaches up, all across the economy. A carbon tax should be imposed on the broadest base, at the point where the fuel or source enters the economy, to minimize government’s footprint and ensure the price is captured.
  • Protect trade interests: Unlike existing taxes and regulations, a carbon tax can be adjusted at the border to make sure American businesses stay competitive on the international stage. Additionally, a well-structured price on carbon that achieves emissions reductions would protect the United States from current and future global climate governance.
  • Harness innovation over mandates: The market drives future solutions in ways no one could anticipate today. A carbon tax should focus on economic certainty over emissions certainty. Bureaucratic rules to ensure reductions are achieved would prove a drag on creating new, groundbreaking solutions.

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