Some Frank Talk About Carbon Taxes. No matter which way the political winds are blowing, this problem is too important to ignore.
The only way to make progress politically is to recognize the issue and link action against climate change to other measures that can make the transition bearable. Make economic commitments to workers and regions at risk. Propose infusions of public investment sufficient to absorb those displaced by high fossil fuel prices. Discuss these issues openly and forge alliances with unions and other organizations that represent those at risk.
Pricing carbon is only a means, not an end. The logical way to begin is to call for a system of carbon permits, just like we have hunting and fishing permits so that elk and trout aren’t harvested to extinction. Auction off the permits and you put a price on carbon, but the means-end distinction remains transparent.
A price on carbon functions like a consumption tax and is regressive. Using it to offset even mildly progressive income taxes is just one more way to bring about upward redistribution. We’ve got enough of that already. If you return the money as an equal rebate to all citizens, you’ve got downward redistribution.
Yes, making fossil fuels more expensive will spur new investment in energy-saving technology. But arguing that a radical change in relative prices is economically stimulative makes as much sense as saying that a natural disaster like Hurricane Katrina is an economic blessing. In the case of carbon, if large parts of the capital stock become uneconomic, the livelihoods of millions of people will be at stake. When Bill McKibben points out that 80% of the fossil fuels now known to be recoverable under the ground has to stay there, it is clear that enormous, wrenching price adjustments are required.
Getting to adequate carbon targets will mean not only much more efficient cars, but a lot less driving as well. It will also mean less replacement of older cars, since as much of the carbon impact comes from production as operation. This will be bad news for auto workers, auto-dependent communities and economies propped up by the employment and profits of the auto industry. (Germany take note.) Everyone knows this. That is why there is great political resistance to taking the sort of forceful action we would need to limit global temperature increases to 2º C or so.
The McDermott bill also obviates the need for emissions trading by requiring polluters to purchase permits as needed. It returns 75% of revenue directly to households through a monthly “dividend” for each adult (with a half share for each dependent). This provision eliminates regressive income effects on low- and middle-income households while preserving a clear price signal across the entire economy so that everyone is rewarded for efficiency, innovation and investment in renewable energy.