On Taxes, Cash Rebates and Climate Change

Photo by  Ian Froome

Photo by Ian Froome

  • Last week, comments from the Wall Street Journal op-ed “Economists’ Statement on Carbon Dividends” included: 

  • Global climate change is a serious problem calling for immediate national action.

  • "A carbon tax offers the most cost-effective lever to reduce carbon emissions at the scale and speed that is necessary ... a carbon tax will send a powerful price signal that harnesses the invisible hand of the marketplace to steer economic actors towards a low-carbon future …

  • "A consistently rising carbon price will encourage technological innovation and large-scale infrastructure development. It will also accelerate the diffusion of carbon-efficient goods and services …  

  • "all the revenue should be returned directly to U.S. citizens through equal lump-sum rebates. The majority of American families, including the most vulnerable, will benefit financially by receiving more in “carbon dividends” than they pay in increased energy prices.

  • Signers included 4 former U.S. Federal Reserve chairs (Paul Volcker, Ben Bernanke, Alan Greenspan and Janet Yellen); 3 former U.S. Treasury secretaries and 27 winners of the Nobel Prize in Economic Sciences.

  • Janet Yellen noted that: "It’s estimated that if we were to start with something like a $40 a ton carbon tax that would amount to $2,000 per family, so it is a very substantial rebate.”

  • Separately, as global leaders (and global elites) travel to the World Economic Forum’s (WEF) annual gathering in Davos, the organization's founder and Executive Chairman Klaus Schwab said:

  • Climate change – arguably humanity’s most existential challenge – requires urgent global action.

  • "environmental crises – notably a failure to tackle climate change – are among the likeliest and highest-impact risks that the world faces over the next decade. Indeed, 2018 saw record levels of costs due to extreme weather events.”
     

    OUR TAKE

  • Assigning economic value (a tax) to the impact of carbon emissions has the potential to address climate change and drive additional innovation. A mild tax may only be mildly effective.  However, a strong tax could drive positive behavioral change but may meet resistance from voters.

  • Other challenges include1) the risks that high carbon projects would move to regions that do not have  a carbon tax, 2) efforts by lobbyists and varied interest groups to alter effective  tax implementations and 3) the development of carbon tax avoidance strategies.

  • The statements in the WSJ and from the WEF suggest that the climate change debate is moving from “are you a believer” to "what actionable strategies should be pursued."

  • A carbon tax is one among many approaches needed to address the problem.

FPM Team