How a reconciliation bill carbon tax could fight climate change and put money in your pocket.

Jonathan Marshall
Sep. 30, 2021

“Everybody complains about the weather, but nobody does anything about it.” Whoever said that could have been talking about climate policy.

Republicans in Congress have long abandoned bipartisan cooperation on climate and have wielded the Senate filibuster to block any legislation that would meaningfully slow the emission of greenhouse gas pollution.

Today, however, a rare confluence of events now gives us a chance to “do something about it” before climate disruption tips the Earth into uncharted territory. First, climate deniers have lost any remaining credibility as Americans witness daily evidence of unprecedented climate-related disasters. Second, a Democratic president once again enjoys support, albeit by the thinnest of majorities, in Congress. And third, an arcane rule called the reconciliation process allows the Senate to pass a narrowly defined budget bill by a simple majority.

A frantic debate is now under way to determine what goes in that omnibus bill.

Most Democrats hope to use it as a vehicle to slash greenhouse gas emissions. They’re currently battling with centrist holdouts Sens. Joe Manchin and Kyrsten Sinema over the details.
But what policies will actually get us to climate sustainability?

An overwhelming majority of economists — more than 3,600 — argue that taxes on fossil fuel polluters, or “carbon taxes,” offer “the most cost-effective lever to reduce carbon emissions at the scale and speed that is necessary.” Faced with a rising fee on their sales of climate pollutants, oil, gas, and coal companies will try to raise prices to compensate. That will motivate every business and consumer to look for innovative ways to shift away from dirty fuels toward cleaner and more efficient alternatives.

Using taxes to discourage harmful things can be spectacularly effective. Just look at the success of tobacco taxes in slashing rates of smoking by youth.

Prosperous Sweden, which first introduced carbon taxes in 1990, today emits only a third as much carbon dioxide per dollar of gross domestic product as the United States.

Virtually every serious analyst acknowledges the benefits of carbon taxes. However, some question their political viability in a country where millions of Americans swear by “no new taxes.” An article by the Atlantic’s Robinson Meyer in July was headlined, “Carbon Tax, Beloved Policy to Fix Climate Change, Is Dead at 47.”

With apologies to Mark Twain, that obituary was premature.

Senate Finance Committee Chair Ron Wyden, D-Ore., recently confirmed that legislators are seriously considering a “per-ton tax on the carbon dioxide content of fossil fuels,” starting at $15 per ton and rising over time. (Such a tax would initially raise gasoline prices about 14 cents per gallon.)
For some Democrats, a major selling point is the hundreds of billions of dollars such a tax would raise to help pay for ambitious new social programs in the reconciliation bill. But others, like Sen. Sheldon Whitehouse of Rhode Island, are wisely resisting that temptation in favor of returning most of the revenue to households with low and moderate income as a form of universal basic income.
A notorious 2018 voter revolt in France against higher fuel taxes could be repeated here if Americans are asked to bear higher energy bills with only the future promise of reduced climate change. Manchin has already indicated he won’t back a plan with new taxes “passed on to the people.”

When taxes are sweetened with a “dividend” back to individuals or households, however, polls show that 60% to 70% of U.S. voters would support such a package. In Canada, a national carbon fee and dividend policy enacted in 2019 has proven popular in the face of all-out attacks by the Conservative Party.

The dividend would keep most Americans financially whole as they transition to a zero-carbon economy.

A Treasury Department analysis found that an equal dividend to all individuals would protect the bottom two-thirds of households, by income, against the impact of higher energy costs. The bottom 10th would actually see their net incomes rise about 9%!

Economic justice advocates should appreciate that a carbon dividend — more than any other climate policy — would ensure that the costs do not fall on those least able to pay.
Environmental justice advocates should also applaud, since carbon fees would slash harmful air pollution from fossil fuels and limit the cost of future natural disasters, both of which fall disproportionately on communities of color.

Climate activists should embrace carbon polluter fees since they would cover the entire economy. Another leading proposal would address only the electric power sector, which accounts for only a quarter of greenhouse emissions.

Resources for the Future, a respected environmental think tank, projects that three pending carbon fee and dividend bills would achieve President Biden’s ambitious goal of slashing carbon emissions 50% by 2030.

Persuaded by such evidence, 42 members of the Congressional Progressive Caucus have co-sponsored carbon fee and dividend legislation, as have most Bay Area representatives. California Senators Diane Feinstein and Alex Padilla also back the policy. It even has inklings of Republican support.

Coupled with a dividend, a carbon tax would win broad public favor. It’s time for carbon polluter fees to rise from the dead and help vanquish the threat to human survival.

Jonathan Marshall is the former economics editor of The San Francisco Chronicle and a co-founder of the Economics Policy Network of Citizens’ Climate Lobby.