Sen. Lindsey Graham certainly likes to be in the middle of things. The South Carolina Republican took time away from Washington D.C., where he had been trying to shepherd passage of a major health care bill, to tell an audience that “a price on carbon – that’s the way to go in my view.”

Graham has been here before. Back in 2010, he was in the thick of negotiations over a national carbon-trading system that broke down when the Senate couldn’t find enough votes. Graham actually called for climate-change legislation during the 2016 election, but had not mentioned a price on carbon explicitly until just last week.

Meanwhile, the Republican Party and its voters have continued to move further away from promoting any climate change solution, even as Graham remains consistent in his belief that CO2 emissions generated by man are warming the earth.

Graham is completely correct that a carbon tax is the best way to control greenhouse gas emissions with as little impact as possible on the national economy. Many economists believe a carbon tax would be a much more efficient and elegant way to encourage cuts in carbon emissions than alternatives like a trading system or command-and-control regulation. Placing a fee on carbon would be more transparent, can be done with fewer transaction costs and would keep Wall Street from gaming a complex, opaque marketplace.

But the details matter. If a carbon tax merely served as a new source of revenue to fund wasteful government spending, it would be of dubious value. Any proposal to institute a carbon tax must not expand the overall size and scope of government, and ideally, should actually shrink it.

To be successful, a carbon tax should be revenue-neutral — that is, the revenue generated by the tax should be paired with cuts to taxes that are even more economically damaging. For example, R Street has proposed eliminating the corporate income tax altogether in combination with a meaningful carbon tax. A number of studies shown that such a trade-off would boost conventional economic growth, in addition to cutting pollution.

Moreover, any carbon-tax plan ought to pre-empt existing regulations of greenhouse gases. Because a carbon tax is layered on top of the retail cost of any fuel, it encompasses the complete externalized cost of a pollutant, meaning there should be no additional costs to companies or consumers.

This means that much, if not all, of the administrative state apparatus created to control hydrocarbon pollution would have to be eliminated as a prelude to carbon pricing. These policies include pre-empting any future regulations of greenhouse gases under the Clean Air Act (CAA). It’s also possible a slew of other regulatory authorities would be on the chopping block, as well.

Sen. Graham doesn’t appear likely to revive that Republican health care bill from dead, but perhaps he could still tempt fate and resurrect a carbon tax.

Image by arindambanerjee


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