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Finally, a Federally Mandated Carbon Tax?

In early February, the newly established “Climate Leadership Council”— a consortium of Republican Party stalwarts including officials from the Reagan and both Bush administrations—unveiled their plan for a gradually increasing, revenue-neutral tax that puts a price on carbon dioxide emissions.

 

The plan calls for a tax of $40 to be imposed on each metric ton of carbon dioxide emissions with the tax steadily increasing on an annual basis“Border carbon adjustments” would be made in relation to both imports and exports depending on the nature of any carbon pricing system in the importing or exporting state.

 

All proceeds—an estimated $200 to $300 billion per year—would be distributed back to American citizens in the form of dividend checksA family of four would reportedly receive approximately $2,000 in carbon dividend payments in the first year of implementation. The tax would have a major impact on emissions in the United States, lowering them by about 28% by 2025 from 2005 levels, thus meeting our Paris commitments.

 

As a “price” for implementing the tax, however, the plan calls for cutting many current U.S. regulations on carbon emissions such as the Clean Power Plan.  This is a currently litigated Obama-era EPA rule that aims to slash CO2 from power plants, which generate 37% of the nation’s total carbon emissionsFederal and state tort liability for emitters would be eliminated.

 

If successful, the plan would mark the first time that the federal government would implement the price on carbon that markets and environmental groups around the nation and world have called for in several recent years.  However, a proposed carbon tax failed recently in Washington state, in part because no agreement could be reached on whether revenues should be reinvested in clean energy production and other social causes or returned to the publicCalifornia operates with an enforceable cap-and-trade program, but no outright carbon tax.

 

The proposal still faces “long odds.”  Many congressional Republicans vehemently oppose a tax increase of any kind.  President Trump has repeatedly emphasized that he is far more interested in promoting the extraction of fossil fuels in the United States than curbing the nation’s carbon emissions although he has not (yet) called for the repeal of the United States’ adoption of the recent UNFCCC Paris Agreement. He did once state that he has “an open mind” towards climate change, recognizing that “there is some connectivity" between humans and climate change.

 

Even if the plan were to be adopted, numerous key issues remain to be resolved.  For example, as long as the United States remains a party to the WTO, rules and regulations from that body of authority must be observed.  “Border carbon adjustments” may not be legally enforceable under international law obligations.  They may also not be financially pragmatic given the large volume of imports into the United States.  Further, dismantling the federal regulatory regime surrounding power plants may sound good to some voters, but is behind the curve from an international regulatory point of view.  The strong dislike of “government” and “regulations” is a very American concept that plays into fears and preferences that do not necessarily correlate well with what is best for the nation’s (and world’s) natural environment, not to mention what is legally and financially possible.  There is also evidence that upstream carbon taxes may only have limited effects on consumer behavior (Eric Biber, A Conservative Proposal For a  Carbon Tax, Legal Planet, Feb. 15, 2017).  Efficiency standards should thus be continued.  Other questions abound: Is the carbon tax proposed really high enough to drive the much-needed shift away from a carbon economy to a decarbonized one?  What if consumption continues to rise without sufficient renewable energy infrastructure being in place to accommodate the need?  What roles do states have in the formulation of a new carbon tax?  Would this be legally enforceable, and if so, exactly how would it be implemented?  Is it just going to lead to more legal chaos than what we have already seen in the early stages of the new administration?

 

Such questions and many others remain.  It might very well be questionable whether this particular tax proposal will be adopted.  However, in such partisan times, it is at least good to see some bipartisan and conservative thinking that might spur further desirable action. Painful as it may be for some to realize, fossil fuels need to be left in the ground.  The United States is falling behind the rest of the developed and even parts of the developing world when it comes to climate leadership.  Markets want signals of what to expected in the future.  The current flip-flopping of American law and policy in this respect is neither beneficial to our nation nor the world.  Under the Paris Agreement, the United States agreed to take national action to help avoid a global temperature increase of more than 1.5 to 2° C.  We are, from a global perspective, still not on track to meet that goal.  A carbon tax, if correctly formulated, implemented, and enforced, could be a step in the right direction for the United States to meet our international obligations.  Those are, of course, in the nation’s best interest too.

 

 

 

Professor Dellinger graduated at the top of her class from the University of Oregon School of Law (Order of the Coif).  She is an Associate Professor of Law with the University of South Dakota School of Law where she teaches, among other things, Public International Law and International Human Rights.  She researches and writes extensively on the intersection between international business and environmental law with a particular focus on climate change. Professor Dellinger is also the Chair of the International Environmental Law section of the American Branch of the International Law Association, a Fulbright Scholar, and a peer reviewer for the National Science Foundation’s Law and Social Sciences Program.  She has visited 36 nations for business and pleasure.

 

This post is a follow up to Prof. Dellinger's post on February 15th, 2017: Trump, Climate Change Law, and Global Market Needs

 

 

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