What If the Government Wrote You a Check Each Month to Fight Global Warming?

What If the Government Wrote You a Check Each Month to Fight Global Warming?


It’s not every day that one sees major US corporations raising their hands and asking to have a new tax levied on their activities, but that’s effectively what happened on Tuesday morning, with the official launch of the Climate Leadership Council, a coalition of business groups, economists, activists and investors advocating for new regulations to fight global warming by limiting the amount of carbon dioxide that is released into the atmosphere.

The plan the group is pushing is a departure from carbon reduction proposals that have failed to gain political traction in the past. For example, while both liberal and conservative economic thinkers generally supported the idea of cap-and-trade plans -- selling the right to pollute, up to a limit, and gradually raising the cost over time -- those schemes offered little if any tangible value to voters, making it simpler for opponents to attack and defeat them.

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The Climate Leadership Council’s new proposal would bait the hook with something called “carbon dividends.” The idea is to tax corporations on their carbon emissions but to take the revenue from those taxes and immediately funnel the money directly to individual taxpayers through “dividend” payments. The payments could, theoretically, arrive as frequently as once a month.

The idea is shrewd, politically, in that voters are more likely to support a plan that benefits them personally, and much less likely to allow politicians to abandon one that provides them with a regular, positive benefit.

The tax on businesses would have two important offsets to make the arrangement more appealing to businesses.

First, the proposal calls for a major rollback of clean-air regulations on US companies. While this may sound counterintuitive, the logic is economically elegant. In an era where there was no incentive for companies to limit their carbon emissions, tight emissions regulations were the only way to reduce business’s carbon output. But if companies are being taxed (at an appropriate level) on the pollution they create, economic incentives will make regulation of emissions redundant.

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Second, the proposal calls for a border-adjusted carbon tax on imported goods, to ensure that American manufacturers can compete on an even playing field with foreign producers who aren’t subject to similar restrictions. Companies would receive rebates of the tax for goods exported for sale in countries that do not have similar carbon reduction policies for their own domestic manufacturers.

With major corporations attaching their names to the cause -- including energy giants British Petroleum, Exxon-Mobil, and Shell -- the Climate Leadership Council will be able to push back against claims that its effort to fight climate change is not sensitive to the energy needs of the US economy. And with conservative Republican economists Martin Feldstein and Greg Mankiw on board, former chairs of the White House Council of Economic Advisers for Presidents Reagan and George W. Bush, respectively, the group can’t easily be dismissed as a liberal front group.

Writing in The Washington Post on Tuesday, Climate Leadership Council founding members Lawrence Summers, the former treasury secretary under President Clinton and George Schultz, former secretary of state under Reagan both attached their endorsement to the plan.

“A carbon tax set at $40 per ton would achieve a substantially greater reduction in greenhouse-gas emissions than all of the regulation now on the table,” they write. “The application of a border carbon adjustment that levied a tax on the carbon content of imported products would incent other countries to adopt carbon pricing, increasing its impact and preventing free-riders. So the carbon dividend approach is best for the environment.”

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Writing in The Financial Times, CLC chairman and CEO Ted Halstead added, “The plan is pro-business because it relies on a market signal to drive investment choices, offering companies greater flexibility and regulatory certainty. It is also pro-worker because it would incentivise job creation and protect workers from unfair trade competition.”

Whether a new tax, even one supported by the companies that would pay it, can get off the ground in Washington is never a sure thing. But as the problems of a warming climate manifest themselves in more worrisome ways almost every day, Summers and Schultz write, change might come more quickly than many anticipate.

“[O]ur long experience in Washington has taught us that the transition from the inconceivable to the inevitable can sometimes be very rapid.”