The search for climate change solutions that keep science front and center and political preferences secondary has led to one frustration after another. But that soon may change. A revenue-neutral carbon tax holds the promise of reducing carbon emissions without increasing the size of government – the principle objection of conservatives who long have been skeptical of more prescriptive climate regulations.
If properly designed, a revenue-neutral carbon tax can employ market-based incentives, rather than government regulations and subsidies, to ensure that pollution is appropriately priced. While no U.S. state has adopted a carbon tax to date, much less a revenue-neutral version, Massachusetts is poised to become the first state to successfully pass a hybrid version.
Two carbon-pricing bills of note have been filed this legislative session. S.1821, filed by state Sen. Michael J. Barrett, D-Lexington, and H.1726, filed by state Rep. Jennifer Benson, D-Lunenburg, both seek to assess fees on carbon emissions. Yet the Senate bill is, as a matter of both politics and policy, by far the better of the two.
Barrett’s bill would simply assess a fee on emissions without adding to government bureaucracy. That way, Massachusetts taxpayers would pay only for the price of their pollution, and no more. Conversely, the House proposal would divert 20 percent of the revenue generated by the tax into a so-called “Green Infrastructure Fund” to support investments in “transportation, resiliency and clean energy projects that reduce greenhouse gas emissions, prepare for climate change impacts, assist low-income households and renters in reducing their energy costs, and create local economic development and employment.”
While that laundry list of well-intentioned spending certainly aspires to assist the commonwealth, there’s no indication that it will better dispose of the funds it collects than private actors would under a system in which carbon emissions are appropriately priced. In other words, a revenue-neutral carbon tax could achieve all of the benefits sought by establishing a green infrastructure fund, without creating new government programs or adding to government waste.
A revenue-neutral carbon tax need not harm Massachusetts’ economy, as evidenced by the well-balanced policy approach taken by the western Canadian province of British Columbia, which adopted a similar fee-and-dividend approach to carbon pricing in 2008. In fact, the United Nations Framework Convention on Climate Change estimates B.C.’s tax has reduced province’s emissions by up to 15 percent with no observable drag on overall economic performance. In fact, between 2007 and 2014, British Columbia’s real gross domestic product grew by 12.4 percent, stronger than the Canadian average.
The only downside to the Senate bill is that it, unfortunately, does nothing to reduce the tax burden on Massachusetts residents. Rather than use the fee to lower, say, the income tax; the revenue would finance a Carbon Dioxide Emissions Charges Rebate Fund. All proceeds would be returned to residents and employers in the in the form of rebates. Analysis from the Center on Budget and Policy Priorities concludes that if large rebates were distributed through an efficient delivery system, they would be able to protect low-income households from the brunt of the tax, but would not be able to fully cover households and businesses with large carbon footprints.
A better approach would allow be to apply the revenues to reduce or eliminate more destructive taxes like the corporate excise tax or the personal income tax. Taxing bad things, like carbon emissions, rather than good things, like labor and investment, would build ongoing support for the carbon tax among citizens and businesses and allow any negative effects to be more than offset by a growing state economy.
While critics in both parties and on both sides of the climate change debate may find fault with the Senate bill, it is step in the right direction for the country and the commonwealth. If enforced properly, this legislation will reduce harmful carbon emissions and benefit Massachusetts residents and businesses, without contributing to the stream of wasteful government spending and unnecessary bureaucratic growth.
If legislators and environmental groups are serious about addressing climate chance, they should do so in a way that truly benefits everyone. If, in fact, the goal is to reduce carbon emissions and bring economic benefits to residents and businesses, a revenue-neutral carbon tax is the best way forward.
Image by funnybear63