Commentary: Carbon tax isn’t the solution

By Scott Segal

After months of relative silence, within 24 hours of the Nov. 6 election President Barack Obama and Senate Majority Leader Harry Reid, D-Nev.,  called for action on climate change.

To fill the dearth of new ideas over what to do, a wide spectrum of observers pointed to a carbon tax — arguing that it would provide an incentive to reduce carbon emissions while adding revenue to address budgetary shortfalls.  Like the weather itself, however, support for carbon taxes blew into town with a headwind but blew back out as political leaders were reminded of just how difficult such a tax might be to develop and implement.

The White House and the new Democratic chairman of the Senate Energy Committee, Oregon’s bright and active Sen. Ron Wyden, said that carbon taxes would be politically challenging and had not had sufficient discussion.

They are right to advise caution.

First, the economy is still in bad shape. Affordable and reliable electricity and fuels mean comparative advantage for the 20 million workers in our manufacturing sectors. Millions more  Americans work in the oil and natural gas sector and in coal mining.  The president says the economy still comes first, so now is the wrong time to implement a proposal that would 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; few have so far.  And an increasing price of doing business here would create powerful incentives to move operations overseas.

Shipping goods back to the U.S. market, moreover, would result in additional carbon emissions.  So a unilateral carbon tax actually might make it tougher to reduce greenhouse gas emissions.

Third, carbon taxes are regressive. Those living at or near the poverty level, or on fixed incomes, pay a larger share of their monthly incomes for energy and other necessities than do those with a larger financial cushion.

If energy prices rose due to a carbon tax, those in society least able to afford it would be hardest hit.

While some argue that a portion of the carbon tax could be rebated to offset this impact, don’t bet on it. Conservatives who say they support carbon taxes still 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, environmentalists already have served notice that no mere carbon tax will dissuade them from insisting on more carbon regulations.  But Congress and the administration must clear away regulations before implementing any tax in order to avoid what essentially would be double taxation of energy.

No study conducted to date has considered the effects of a carbon tax and a raft of regulations imposed together.

The president and congressional leaders are right to express apprehension over carbon taxes.

Segal is founding partner in the Policy Resolution group at Bracewell Giuliani and director of the Electric Reliability Coordinating Council, an industry advocacy group focused on legislation and regulation.