Could a Carbon Tax Work in America? Yes.

The climate is changing, due in no small part to our industrial emissions. This much is not really up for debate, despite an overwhelming number of US citizens who think it is. In the more mature countries of Europe, the subject of much intelligent debate does surround potential solutions. Some say we need to tax pollution, some say there’s nothing we can do about it, and others say that private enterprise can figure it out. From the far-right flat-out denying climate change to the far-left hurling apocalyptic prophecy, there is a lot of heated rhetoric on both sides of this question in our country, so we need to change our thinking in order to cut through the nonsense. In Unflattening, Nick Sousanis says that we gain a deeper understanding of an idea when we look at it from multiple perspectives simultaneously (7). Let us take this approach for the following question: How effective would a US carbon tax be at reducing greenhouse gas (GHG) emissions? (Note: while I am using the term ‘carbon tax’, I’m talking about a tax on all GHG emissions, not just CO2, unless noted otherwise). When we look at the idea of a carbon tax from multiple points of view, we can see that while a nationwide tax on GHG would help to curb our own emissions, it would do little to address the global climate problem. However, it could be the spark the world needs to brighten our future, literally and figuratively. While real-world trials in Australia and Denmark show us that these taxes can have positive regional effects, there are inherent problems that must be addressed in order to stop the pollution from simply migrating, and to prevent corruption in our political process.

There is some evidence that carbon taxes can work, but the following case also shows how fragile these policies can be. In 2012, the left-leaning government of Australia implemented a price of $23 per ton of CO2 gas emitted, according to Wikipedia, and all data show that it worked. This was a so-called tax-swap, where the money from the tax was used to lower other taxes. Over this two-year period, electricity demand fell by 3.8%, and total emissions from the electricity sector fell by 8.2%, according to a study by Marianna O’Gorman and Frank Jotzo at the Australian National University. They assert that this is likely due to an average 10% increase in household electricity prices, along with the significant tax placed on industrial polluters. It’s important to note that these reductions came during a six-year period of emission reduction, but they were the largest annual reduction (July, 2013-June, 2014) in over a decade, boasting a 1.4% decrease in total GHG emissions, says The Guardian’s Oliver Milman. The country also saw reduced output from the filthiest fuels, brown and black coal, during this time. This tax system was in place until June 2014, when Tony Abbott’s new right-wing administration repealed it. Once the tax was repealed, Australia’s electricity demand and emissions started to increase immediately. According to Stian Reklev with Scientific American, in the first two months after the tax was repealed, emissions growth was “equivalent to an annual increase of 0.8 percent.” With this demand increase, those dirty coal plants are starting to increase their output, essentially eliminating the desire for green energy innovation.

Australia is not alone in their success, short-lived as it was. Denmark was one of several European countries to implement a tax on CO2 in the 1990’s. In an op-ed in The New York Times, Monica Prasad gives two lessons to be learned from Denmark: avoid turning the tax into a cash machine, fighting over where it ends up; make investments in clean sources of energy. The Danish government earmarked the tax dollars for subsidies in green energy and tax breaks for people who chose renewable options on their homes or businesses. In the United States, there were nearly $700 billion in federal subsidies to the coal, natural gas and petroleum industries, according to International Monetary Fund data from 2015. This is important to consider how we already treat this type of tax. With the current incentives in fossil fuels in America, there is little reason for businesses to go green; however, if those subsidies were to be shifted to renewables firms would be inclined to cut their emissions. This is what Prasad says Denmark got right. The taxes aren’t really revenue for them; instead, the money is being invested into research and development of green technology and subsidies for clean energy producers. Because of this program, put in place in 1992, Denmark’s per capita CO2 emissions were “nearly 15% lower in 2005 than in 1990,” according to Prasad. Unless measures are taken to keep the money away from policymakers, she says, a carbon tax here would only lead to more revenue, not fewer emissions. That revenue would surely be misused.

The idea that our government would inevitably mishandle tax dollars, no matter where they come from, is a main point of opposition to a carbon tax in America. Robert P. Murphy, Ph.D. says that “government is always a blunt instrument” (34). Murphy is a senior economist at the Institute for Energy Research, and he wrote a review and critique of so-called tax-swap proposals. He says that traditional pricing schemes won’t work because they are based on the social cost of carbon, as opposed to the economic cost. Then, there is the problem known as leakage: “the migration of carbon emissions from a more-regulated jurisdiction into an area with weaker regulation” (12). Murphy argues that polluters will certainly leave an area with a tax on emissions for one without. He says that this phenomenon can lead to emissions for the home region dropping, but global GHG levels and their incline won’t be changed, as that pollution just moves to another region. He also thinks that based upon the federal government’s history of tackling climate change, there is no reason to believe they could effectively implement a climate tax. The system would be abused, being tailored to fit “favored constituencies” and “politically powerful groups” instead of fitting the recommendations of the economic and environmental experts (34). This is the classic history always repeats itself viewpoint, which has its merits, but what can we expect to get done with that kind of pessimistic attitude?

When we look at the real-world studies of Australia and Denmark, it’s clear that a well-written carbon tax has observable, significant impacts on GHG emission levels, at least regionally. It would be hard to argue that any one country could affect the global climate on its own, especially when you consider the leakage issue. After all, what’s to stop a coal burning company in North Dakota from moving up to Canada (for example) if we have a carbon tax here and they don’t? With this problem of leakage, and the seemingly inevitable corruption that is rampant through our government, it’s easy to be pessimistic about a carbon tax working here, but consider the success our Environmental Protection Agency (EPA) has had in the last 45 years. They’ve removed lead from our gasoline and goods, cleaned up our air and water, and they have held environmental offenders responsible.

Our future is in green technology. This shift is happening right now, but it won’t be as quick as some of us may like to see. We’d be better off as a species using this recent Paris deal to slingshot into a globally agreed emissions tax. It should be becoming clear that a tax — or change of any kind — in one nation alone won’t have much of any effect on the global climate, but it could persuade other world leaders to follow suit. We made history a couple of months ago, coming to an agreement with over 190 countries to tackle this problem of climate change. It’s time for us, as the wealthiest and most powerful nation, to act on this issue, implement a carbon tax and, dare I say it? Change the world!