Former Federal Reserve Chair Janet Yellen says a tax on carbon dioxide emissions would do more to combat climate change than a slew of federal environmental regulations being undone by the Trump administration.
Yellen joins former Walmart Inc. Chairman Rob Walton, former Treasury Secretary Lawrence Summers and former Secretary of State George Shultz in delivering a pitch for the carbon tax-and-dividend plan, released Monday along with an analysis of its potential emissions reductions.
“From the standpoint of an economist, the most efficient way to tackle climate change is to tax emissions — to create a disincentive to emit carbon dioxide,” Yellen said in an interview before the report’s release. “It’s the right solution to a problem, and it’s collected in a way that is practical and feasible.”
The proposal has the backing of a broad coalition of prominent conservatives, economists and corporations that have united as the Climate Leadership Council and developed a multiyear strategy for advancing the initiative on Capitol Hill. Corporate supporters, which have a roughly $2.4 trillion market cap, include Exxon Mobil Corp. and three other oil giants as well as the largest U.S. automaker, General Motors Co.; utility, Exelon Corp., and telecommunications firm, AT&T Inc.
The campaign is the broadest, most serious effort in years to put a price on the carbon dioxide emissions that drive climate change. The proposed tax aims to increase the cost of energy derived from oil, natural gas and coal, thereby discouraging the use of those fossil fuels and encouraging the free market to develop low-carbon power alternatives.
The tax would result in slashing more heat-trapping carbon dioxide emissions than could be pared under Obama-era environmental regulations, and the resulting cuts would exceed reductions the U.S. promised as part of the Paris climate accord according to an assessment by the non-partisan think tank Resources for the Future.
Still, Yellen and other proponents face significant political opposition. President Donald Trump said he opposed taxing greenhouse gas emissions while campaigning for the White House. And the House voted in July to condemn the very idea of a carbon tax as “detrimental” to the U.S. economy, with only six Republicans breaking ranks to vote against the measure.
But that House vote on a carbon tax concept is not a reliable indicator of support for the more nuanced tax-and-dividend plan, said Ted Halstead, founder of the Climate Leadership Council. The group also released a poll it commissioned that shows 56 percent of respondents supported the idea, compared to just 26 percent who opposed it.
Under the Climate Leadership Council’s blueprint, every ton of carbon dioxide would be hit with a tax, potentially starting at $40 per ton and rising over time, with revenue redistributed to households in the form of quarterly dividend checks. In exchange, regulations aimed at cutting carbon dioxide emissions — and much of the Environmental Protection Agency’s authority to regulate them — would be eliminated.
In the essay released Monday, Shultz, Summers, Yellen and other supporters call the effort a grand bargain that’s “not only the most environmentally ambitious plan but also the most politically viable.”
U.S. energy-related emissions would be cut about 32 percent below 2005 levels by 2025 under the proposed tax-and-dividend plan, according to an analysis, released Monday, by the Climate Leadership Council.
That’s far beyond the commitment the U.S. made in signing the Paris climate deal Trump has said he will abandon: to reduce net greenhouse gas emissions by at least 26 percent of 2005 levels by 2025. And it dwarfs the 18 percent reduction the council says could be accomplished through Obama-era climate regulations, many of which are already being whittled down or repealed by the Trump administration.
The tax would achieve those emission cuts without costly “command-and-control regulations” some businesses loathe, Yellen said. “The tax is set in a way to achieve a very ambitious goal,” and is “probably least costly from businesses’ point of view.”
The effort is aimed at amassing broad support for throttling carbon dioxide emissions among Republicans wary of big government, businesses eager for a cheaper and predictable, environmental activists concerned about climate change and American consumers who would relish the promised dividend checks.
“It’s been so difficult to make any progress on this issue,” said Yellen, now a distinguished fellow at the Brookings Institution. “I don’t know that this will succeed, but it seems to me that this is a plan that can command a lot of support, and I’m encouraged by the degree of support it has.”
Critics say a U.S. tax would do little to arrest climate change or curb global greenhouse gas emissions. And they question the long-term durability of any “grand bargain,” since a future congress still could impose new environmental regulations on top of a carbon tax — or decide to spend some of the revenue, instead of rebating it to consumers.
“The whole notion that there’s going to be some grand bargain with respect to regulations is a pipe dream,” said Tom Pyle, president of the American Energy Alliance, a free-market advocacy group. “The EPA is not going to remain in the hands of Donald Trump forever. You can’t bind future congresses to some kind of no-regulation deal.”
“You can dress it up and put fancy clothes on it, but it’s still a massive tax on American motorists and families, which will hit the poorest among us the hardest no matter what they claim they can do to make them whole,” Pyle said.
Advocates say a carbon tax would ensure the negative costs of climate change are embedded in the price of goods — externalities that generally aren’t factored in to the cost of coal-fired electricity and gasoline today. Alternative approaches to clamping down on carbon dioxide, such as federal climate regulations or cap-and-trade regimes, have been criticized for failing to cover the full landscape of emissions or being potential administrative nightmares.
“It is compensating in a completely appropriate and targeted way for the externality that is associated with any emissions of carbon dioxide,” Yellen said. “And that’s why almost all economists love it. You’d be hard pressed to find an economist who would not be supportive of a carbon tax because it is exactly the textbook solution to the problem of climate change.”