The campaign season has featured a complex debate between those who oppose new taxes that dampen growth versus those who support new sources of revenue in order to fund critical priorities.
Those of us in the energy sector knew it was only a matter of time before taxing energy was again put on the table. If you tax the carbon content of fuel, so goes the reasoning, you will discourage emissions and collect revenues – advancing both environmental and fiscal goals. Unfortunately, as H.L. Mencken famously quipped, “For every complex problem there is an answer that is clear, simple and wrong.” In the current state of the economy, the carbon tax is today’s wrong answer.
First, the economy is still reeling with only the most minimal signs of improvement in job creation. Our ability to produce affordable and reliable electricity and fuels is a source of comparative advantage for the 20 million workers in our manufacturing sectors. Nine million Americans work in the oil and natural gas sector with another half-million in coal mining. In short, whatever the long-range considerations may be, now is precisely the wrong time to implement a proposal designed to increase energy prices, reduce international competitiveness, and undermine job-creating powerhouses in the energy business.
Second, the frequent claims of environmental benefits are dubious. It is not likely that other nations will follow our lead in setting up a carbon tax, meaning the price of doing business here will increase, and powerful incentives therefore will be created to move operations overseas -– a phenomenon some economists call “leakage.” Then, additional carbon will be emitted shipping goods back to the United States to be sold. A unilateral carbon tax might make it tougher to reduce greenhouse gas emissions.
Third, carbon taxes aren’t fair; in fact, they are regressive. Those living at or near the poverty level, or on fixed incomes, tend to pay the largest share of their monthly incomes for energy. Therefore, an energy tax -– which a carbon tax most certainly is -– makes those in society least able to afford it pay the most. While some argue that a portion of the carbon tax could be rebated to offset this impact, don’t bet on it. Conservatives who allegedly support carbon taxes insist on revenue neutrality, meaning cutting corporate rates to offset the revenue raised by the carbon tax. That means no money for rebates. Or for deficit reduction, for that matter.
Last, no carbon tax should even be contemplated before serious regulatory reform is undertaken. Officials at the Environmental Protection Agency itself have admitted that old-fashioned command-and-control regulation is not the preferred way to address carbon. And yet, EPA has pressed forward with a suite of energy-sector regulations under multiple statutes designed to do just that despite the great cost, likely ineffectiveness, and lack of Congressional mandate. Supporters of carbon taxes would have to first clear away the underbrush of the these regulations before layering a new tax on top of it.