On December 10, 2015, a day before the close of the UN climate summit in Paris, Senator (and presidential candidate) Bernie Sanders introduced the “Climate Protection and Justice Act.” His bill would impose a charge of $15 per metric ton (“tonne”) of CO2 emitted from fossil fuel combustion, with the fee taking effect in 2017. It would then rise at an average annual rate of $3.22/tonne, reaching $73 by 2035. At that point the tax trajectory would change to a percentage basis, growing by 5% annually until attaining a level of $150/tonne in 2050. Proceeds from Sanders’ proposed carbon tax would be returned to households making less than $100,000/year, a rebate of roughly $900 in 2017, rising to $1,900 in 2030. Revenue would also fund investments in energy efficiency and low-carbon energy.
Sanders’ press release claims his measure would reduce U.S. CO2 emissions to 80% below 1990 levels by 2050. The results of seven major integrated assessment models reported by the Stanford Energy Modeling Forum suggest that a more aggressive carbon price trajectory, rising to roughly $440/ton, would be needed to accomplish this ambitious 80% reduction target by 2050, in the absence of major technological breakthroughs. Nevertheless, model results become increasingly murky as time horizons grow more distant. In any event, Senator Sanders is the first (and, as of January 2016, the sole) candidate in the 2016 presidential race to endorse an explicit and rising tax on carbon pollution.
On April 22, 2015, Earth Day, Rep. John Delaney introduced a discussion draft of his “Tax Pollution, Not Profits Act” that would establish a tax $30 per metric ton of carbon dioxide or carbon dioxide equivalent, increasing each subsequent year at 4% above inflation. Delaney’s proposal would apply revenues to reduce the corporate tax rate to 28%, provide monthly payments to low-income and middle-class households and fund job training, early retirement and health care benefits to coal workers. At an Earth Day AEI event discussing his bill, Rep. Delaney took the bold step of suggesting his proposal for a simple economy-wide carbon tax could replace the EPA Clean Power Plan.
On November 19, 2014, Sen. Sheldon Whitehouse (D-RI), renowned for his weekly “Time To Wake Up” speeches on the Senate floor, introduced the “American Opportunity Carbon Fee Act.” This bill would impose fees on both CO2 and non-CO2 greenhouse gases, including fugitive methane from shale gas wells and coal mines, at their CO2-equivalent rates. AOCFA includes a border tax adjustment to impose equivalent climate pollution fees on imported goods from nations that have not enacted their own.
AOCFA pegs its pollution fee to U.S. EPA’s estimate of the “social cost of carbon” currently, $42/ton CO2, and would rise by only 2% annually in real terms. The Carbon Tax Center’s 7-sector price-elasticity spreadsheet model projects that the proposed starting price of $42 per ton of CO2 would quickly reduce US emissions by about 15%. But the bill’s subsequent 2% annual real price increases would barely stem the rising emission tide due to increased affluence, resulting in essentially flat emissions rather than a declining curve.
Our blog post, New Senate Bill Would Build Polluter Pays Principle into Climate Action, has more on Sen. Whitehouse’s bill. Sen. Whitehouse and co-sponsor Brian Schatz (D-HI) re-introduced an updated version in June 2015.
On May 28, 2014, Rep. McDermott (D-WA) introduced H.R. 4754, a direct and transparent measure to phase out free dumping of climate pollution into our atmosphere. The 21-page bill would steadily raise the cost of climate pollution, enabling investments in renewable energy and efficiency to compete effectively with continued extraction and burning of dirty fossil fuels.
McDermott’s pollution tax would start modestly at $12.50/tonne (metric ton) of CO2 and rise annually by the same amount ($12.50/tonne), reaching $125/tonne CO2 within a decade. The result, according to CTC’s carbon tax spreadsheet model, would be a one-third reduction in U.S. carbon pollution in the tax’s tenth year, vis-a-vis actual U.S. emissions in 2005. By 2030, the target year for the heralded new EPA-White House Clean Power Plan, the McDermott pollution tax would be reducing U.S. CO2 emissions by an estimated 2,051 million metric tons per year, or nearly 6 times the 355 million tonne reduction we have estimated for that year from the Clean Power Plan.
Obviously, a carbon tax like that in the McDermott bill requires an act of Congress — a far more difficult process (though administratively simpler) than the EPA plan. Nevertheless, the nearly 6-fold difference between their respective CO2 reductions is instructive, illustrating both the narrow scope of the EPA plan and the vast reach of carbon taxing.
Other Key Features of McDermott’s Managed Carbon Price Act:
- Dividend: Returns 100% of revenue to individuals as equal (pro rata) “dividends.”
- Other greenhouse gases: The five other major GHG’s, including methane, are taxed at their CO2 climate-damage equivalence.
- Border Tax Adjustments: HR 4754 would tax the climate pollution of imported goods at the same rate as domestic goods, creating strong and growing incentives for other nations to tax climate pollution while protecting U.S. manufacturers from unfair competition by countries that do not tax climate pollution.
Sanders-Boxer “Climate Protection Act”
On February 14, 2013, Senators Bernie Sanders (I-VT) and Barbara Boxer (D-CA) introduced the Climate Protection Act. Sanders-Boxer would impose an economy-wide tax on CO2 pollution, starting at $20/T CO2 and rising over a decade to $33/T CO2. We estimate that this price signal and trajectory would induce a 12% reduction in CO2 emissions over the course of a decade. The measure includes border tax adjustments to protect domestic industry and encourage other nations to enact their own carbon taxes. Sen. Sanders posted a rousing op-ed in the Huffington Post in July 2014 in support of his and Sen. Boxer’s bill.
The Progressive “Back to Work” Budget
The House Progressive Caucus has also included a carbon tax in its 2014 Better Off Budget proposal. The tax would start at $25/T CO2 and rise 5.6% annually, raising $1.1 trillion in revenue between 2014-2023.
CARBON PRICING PROPOSALS FROM PAST LEGISLATIVE SESSIONS:
Carbon Tax Proposals:
Rep. Stark (D-CA) introduced H.R. 594 “Save Our Climate Act of 2009″ (1/15/09):
- A carbon-content tax on fossil fuels starting at $10/ton CO2
- Increasing by $10 every year.
- Upstream: Fossil fuels taxed they enter the U.S. economy (i.e., at the production or importation level).
- Revenue use: not specified.
- Exports credited for carbon tax.
Rep. Larson (D-CT) introduced H.R. 1337 “America’s Energy Security Trust Fund Act of 2009″ (3/5/09):
- A carbon-content tax on fossil fuels starting at $15/T CO2.
- Increasing by $10 each year, but in any year that EPA-identified emission targets (based on reaching 80% below 2005 emissions by 2050) are not met, the tax would increase by $15.
- We have estimated the carbon-reducing impact of the Larson bill, using CTC’s 4-Sector Carbon Tax Impact Model. Projected emissions reduction trajectory would meet 80% by 2050.
- Upstream (at production or importation).
- Revenue use:
- 1/6 of first year’s revenue for clean energy technology research (funding amount remains fixed at tax rate increases),
- 1/12 (declining to zero over 10 years) for affected industry transition assistance,
- All remaining revenue distributed to individuals. Returns payroll taxes via a federal income tax credit. In the first year, payroll taxes on the first $3,800 of earnings returned; amount of returned revenue rising with the tax rate. Social Security recipients receive a 10% supplement.
- Border Adjustments: carbon equivalency fee on carbon-intensive goods imported from non-carbon taxing nations. Exported goods credited for carbon tax.
Rep. Inglis (R- SC) introduced H.R. 2380, “Raise Wages, Cut Carbon Act of 2009’’ (5/13/09):
- Upstream carbon tax.
- Starting at $15/T CO2 rising to $100 in 30 years.
- All revenue used to reduce payroll tax rate. (Contrast with Larson bill which would exempt first ~ $3,800 earned from payroll tax.)
- Tax reduction split between employer and employee.
- Border Adjustments: equivalent tax on imports, exports credited.
“Managed Market” Proposal
Rep. Doggett (D-TX) introduced H.R. 1666 “Safe Markets Development Act of 2009″ (3/23/09):
- Cap-and-trade program to reduce greenhouse gas emissions from covered sources from 6.153 billion metric tons in 2012 to 253 million in 2050.
- Treasury to auction 100% of allowances quarterly.
- Board (6 members, appointed by President) to set targets for allowance prices, manages quarterly auctions by changing supply of allowances to maintain a smooth price path through 2019, oversees secondary markets (not clear how).
- Covered entities may bank up to 5% of allowances from a calendar year.
- Revenue use: not specified.
Cap and Trade Proposal:
Reps. Waxman (D-CA) and Markey’s (D-MA) “American Clean Energy Security Act” (7/7/09):
ACESA included a cap-and-trade title, including 2 billion tons of offsets (up to 75% international) effectively delaying domestic U.S. emissions reductions by at least a decade. The bill would have given away 85% of allowances, auctioning only 15%. (Grist summary here.)
“Cap and Dividend” Proposals:
Senators Cantwell (D- WA) and Collins (R-ME) introduced the Carbon Limits and Energy for America’s Renewal (CLEAR) Act (12/11/09):
While retaining a “cap” and limited trading, CLEAR would avoid the most profound flaws of the Waxman-Markey bill (passed by the House) and the Kerry-Boxer bill (which stalled in the Senate). CLEAR would set a floor and ceiling (“collar”) on carbon allowance prices, authorize only “covered entities” to hold allowances and would not allow offsets to be used in place of allowances. CLEAR proposed to “recycle” 75% of revenue directly to households, contrasting sharply with the cap-and-trade bills’ give-away of carbon revenue and its equivalent in free allowances to an array of special interests and energy projects. With Sen. Susan Collins’ (R-ME) co-sponsorship, CLEAR began as a bipartisan proposal.
CLEAR purported to preclude a secondary market (or “derivatives”) in carbon allowances. But analysts raised doubts about whether the bill could prevent large energy users from contracting to hedge against seasonal and cyclical price swings. Also, the low price range of bill — $7 to $21 per ton of CO2 in the initial year, 2012, rising each year at approximately 6% above inflation — is not nearly sufficient to achieve the needed emissions reductions. CTC’s Carbon Tax Model suggests that this price trajectory would only lead to a 7.5% drop in U.S. CO2 emissions from 2005 levels in 2020. Instead of a substantial price signal, the bill relied heavily on subsidies for clean-energy investment which would come from the 25% of revenue not returned to households. CLEAR’s goal was emissions reductions of 20% from a 2005 baseline by 2020. CLEAR’s price collar would have made carbon prices more predictable, closer to a carbon tax than other cap-and-trade proposals. But its $7 – 21 range was wide enough to allow significant volatility that could discourage investment in alternatives and efficiency while generating profits for speculators. Potential volatility combined with CLEAR’s low price meant that its price signal would be “noisy” and small — not the clear upwardly trending price signal that would most strongly encourage low-carbon energy.
Rep. Van Hollen (D-MD) introduced H.R. 1862 “Cap and Dividend Act of 2009″ (1/1/09):
- CO2 Cap. Fossil fuel producers, importers surrender permits for CO2 emissions each year. Permits decline annually, leading to an 85% reduction below 2005 CO2 emissions from covered entities by 2050.
- 100% auction of permits
- Permits tradeable.
- Volatility-limiting measures: Unlimited banking. Borrowing if permit prices increase more than 100%.
- Revenue use: Funds distributed monthly in equal amounts to those with a social security number.
- Border Adjustments: Exporters credited, importers pay “carbon equivalency fee.”
Related CTC Blog Posts and News Items:
- Bipartisan Plaudits for Rep. Delaney’s “Tax Pollution, Not Profits Act” (8/12/15).
- Don’t Anchor a Carbon Tax to the Social Cost of Carbon (Analysis of effectiveness of price trajectory in Sen. Whitehouse‘s bill, 6/8/15).
- New Senate Bill Would Build “Polluter Pays” Principle into Climate Action
- One Cheer for a New “Cap-and-Dividend” Bill (Discussing Van Hollen bill, 7/30/
- The Audacity of Common Sense: Progressive Caucus’ ‘Better Off Budget’ (Balanced budget proposal to restore social safety net, tax financial transactions and tax carbon pollution, San Diego Free Press, 4/14/14).
- Rep. McDermott (D-Wa) Introduces Bold “Managed Price” Carbon Tax Bill
- Should Carbon Pricing Advocates Support the Cap-and-Dividend Bill?
- Progressive Democrats Endorse Rep. Larson’s Carbon Tax Bill
- Bipartisan Senate Bill Could Breathe Fresh Air into Climate Debate (Analysis of Cantwell-Collins bill, (12/11/09).
- Rep. Doggett on Waxman-Markey: “I Cannot Support It.
- “Simplicity Matters” — Tom Friedman on Rep. Larson‘s Carbon Tax Bill
- New Larson Bill Raises the Bar for Congressional Climate Action
- An Emissions Plan Conservatives Could Warm To (Bob Inglis & Arthur Laffer, NY Times (12/27/08).