Can a Carbon Tax Help Curb Climate Change?

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U.S. Sen. Chris Coons, Wharton's Eric Orts and Bernard David, senior fellow with Wharton’s Initiative for Global Environmental Leadership, discuss why a carbon tax would help the environment and the economy.

When 13 federal agencies released a shocking report last November on the intensifying consequences of climate change, U.S. Sen. Chris Coons thought the dire warning might galvanize fellow lawmakers into action.

But the National Climate Assessment report, which projects environmental damage to shrink the U.S. economy by 10% by the turn of century, didn’t seem to sound any alarms. Days after the White House made the report public, President Donald Trump told The Washington Post that he is not a “believer” in the scope of climate change or that it is caused by human activity.

Coons, a Democrat from Delaware, believes it will take a bipartisan effort to correct course on the environment. That’s why he’s looking for a Republican senator to help him revive a bill that would tax companies that produce carbon emissions and return the money to citizens.

The Energy Innovation and Carbon Dividend Act, which Coons and former Sen. Jeff Flake, R-Ariz., unveiled in December, followed a version introduced a few weeks earlier by a bipartisan group in the U.S. House. The goal, the lawmakers say, is to move beyond politics and offer innovate solutions to the complex problems of climate change.

“There is now agreement that climate change is real, climate change is a problem, and we have to do something about it,” Coons said. “What there is no agreement between Republicans and Democrats on in the Senate is what sort of mechanism can we use to address climate change? And, in particular, what sort of mechanism can we use that won’t harm our economy and make it less competitive? And therein lies the rub and the difficulty in coming up with a path forward that could actually pass in the United States Senate.”

“I am just beginning conversations with business organizations about it. But to me, the simplest argument is, ‘Pay now or pay later.’” –Chris Coons

Coons spoke about the legislation during an interview with the Knowledge@Wharton radio show on Sirius XM. He was joined by Eric Orts, a Wharton professor of legal studies and business ethics and faculty director for the school’s Initiative for Global Environmental Leadership; and by Bernard David, who is founder and chairman of the Global CO2 Initiative at the University of Michigan and a senior fellow with the Wharton Initiative for Global Environmental Leadership.

Long Past Due

Under the proposed legislation, businesses would pay $15 per metric ton of carbon they emit into the air, and that cost would increase by $10 every year that significant progress isn’t made in reducing emissions. The government would return 100% of the money collected to citizens in the form of a dividend. That payment, Coons said, is meant to offset increases in the prices of energy-intensive products such as gasoline.

Supporters, including the national advocacy group Citizen’s Climate Lobby, say the bill would lower greenhouse gas emissions by 40% while creating 2.1 million jobs in the next 10 to 12 years.

“It is long past time for us to do this,” Coons said. “I was at Paris during the COP21 negotiations that led to the Paris Climate Agreement. I think the United States is missing a critical opportunity to lead innovation globally and to lead on a path away from an otherwise likely disastrous future in terms of the impact of climate change on this generation and upcoming generations.”

Carbon pricing is nothing new; similar legislation was proposed a decade ago with no traction. Orts, who is in favor of the bill, questioned Coons about how he and other lawmakers will sell the policy to businesses that don’t want to be charged. “We know a lot of businesses are going to be against any kind of climate change,” he said. “But what’s your argument to most businesses that they should be in favor of this and get on board?”

Coons acknowledged that it’s a tough sell, which is why the policy needs support from Republicans and buy-in from companies that recognize the devastating effects of climate change and want to lead by example.

“It is a hard argument. I am just beginning conversations with business organizations about it. But to me, the simplest argument is, ‘Pay now or pay later,’” he said. “The simple impact in terms of business disruption of climate change is already presenting, and cumulatively it is going to be massive. It will be less expensive if we invest in resiliency and in changing the current trajectory of climate change than if we keep having, year after year, greater and greater natural disasters.”

“The science is pretty clear. I think the long-term dangers are becoming more and more apparent to more and more people.” –Eric Orts

Orts praised the senator’s leadership on the issue and said he’d like to see more legislation to address climate change, along with greater awareness and education for the public. Perhaps more Americans would then choose to use the dividend to pay for solar panels on their homes or other measures to help the environment.

“The science is pretty clear. I think the long-term dangers are becoming more and more apparent to more and more people,” Orts said.

A Bump for Innovation

Both Orts and David agree that carbon pricing will lead to innovation as companies develop ways to lower emissions. One of the goals of the Global CO2 Initiative that David leads is to make new products out of carbon emissions.

According to David, about 25 products right now can be made with emissions. The list includes concrete, which is one of the most heavily manufactured items in the world. Adding captured carbon to the mixture of concrete could potentially reduce global emissions by 5% to 7%, he said.

“We do not make anything more abundantly on planet Earth than cement and concrete,” David said. “So, we think that’s a big deal.”

In fact, the Global CO2 Initiative commissioned a study by McKinsey that projected the market for reused carbon at $1 trillion a year.

“The reason why putting a price on carbon is important for exactly these kinds of initiatives is that regular making of concrete is terrible for the planet,” Orts added. “So, you put a tax on that, then you’re going to increase the economic incentives for these climate-friendly business ideas and business practices.”

“On climate change … I am hopeful but not yet optimistic. I need real partners in this.” –Chris Coons

With so many hurdles ahead, the fate of the Energy Innovation and Divided Act is unclear. Congress convened in the New Year with a slate of complex issues to tackle, including a bitter fight with the administration over funding for a border wall that has led to a historic government shutdown. But Coons said he’s holding onto hope because climate change must be a top priority.

The senator compared the effort to his work in trying to secure legislation that would protect Robert Mueller’s investigation into Russian meddling in the election. He was told that bill would never see the light of day. But it made it out of committee and onto the Senate floor, where he and Flake asked three times for a vote they didn’t get.

“There is a difference between being hopeful and optimistic. On climate change, which I think is every bit a threat to our way of life as interference with the Mueller investigation is a threat to the rule of law, I am hopeful but not yet optimistic,” he said. “I need real partners in this. And most importantly, I need a Republican willing to step forward and take on the challenge of confronting the future for our country and our children.”

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