As brutal drought and punishing heat waves remind voters how deeply climate affects our lives, Washington State Democrat Jim McDermott today stepped up to the climate plate. Rep. McDermott, a 12-term House member who sits on the powerful tax-writing Ways & Means Committee, introduced the “Managed Carbon Price Act of 2012.” His carbon tax bill would substantially reduce emissions of carbon dioxide and other greenhouse gases by predictably raising their costs relative to energy efficiency, renewables and innovation.
The Carbon Tax Center estimates that by imposing a steadily rising “upstream” tax on polluters emitting the six principal greenhouse gases driving global warming, McDermott’s bill would reduce U.S. greenhouse gas emissions by a whopping 30% within a decade. His elegant bill, just 21 pages of legislative text, would start modestly with a price of $12.50 per ton of CO2, but would then ramp up the cost of carbon pollution to $125 per ton of CO2 over a decade. (The actual price would fall within a tight, predictable price range. Non-CO2 greenhouse gases would be taxed at their CO2-equivalent rates.) CTC estimates that within a decade, McDermott’s price path would reduce greenhouse gas emissions almost twice as much as the most optimistic projections for prospective EPA regulations or the targets in the Waxman-Markey bill passed by the House in 2009 but dropped in the Senate the following year.
Consistent with World Trade Organization rules, McDermott’s bill would exempt U.S. exports of energy-intensive goods while imposing an equivalent pollution tax on imports. The bill would thus protect U.S. domestic energy-intensive trade-exposed industries from unfair competition while offering an irresistible (and growing) “carrot” for our trading partners to enact their own carbon taxes in order to capture a rising stream of carbon tax revenue that would otherwise flow to the U.S. Treasury.
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. The remaining 25% of the bill’s revenue would be dedicated to deficit reduction, a feature that is sure to be salient as Congress confronts the looming “fiscal cliff” next January.
CTC estimates that the revenue stream available for deficit reduction in the tenth year after enactment would be roughly $100 billion, even accounting for the 30% reduction in emissions.
Photo: Flickr — WSDOT
Diane L. Dick says
How would Rep. McDermott’s bill affect the following current situations in Washington State, etc.? B.C., Canada is proposing to pipe Canadian natural gas through Washington to be converted to LNG in Oregon and exported abroad. Canadian natural gas is sent to U.S. for conversion to electricity. U.S. coal is currently being exported through Canadian ports. Major increases in coal exports are planned from U.S. ports. Canadian petroleum via Keystone pipeline headed for export from U.S.
David F Collins says
A wonderful feature of Rep. McDermott’s bill is the provision for reversing the tax on imports and imposing it on imports which were untaxed in their country of origin. As the essay states, this enriches, albeit only temporarily, the US treasury at the expense of exporting countries that fail to impose their own carbon tax. Thus, the US can not only demonstrate climate-leadership to the world, but this not-so-subtle invitation to follow-the-leader will be hard to turn down. Prepare for an avalanche of RSVP responses from abroad!
Separately, I co-sign the questions by Ms. Diane L. Dick. And I wonder if such matters call for separate responses and legislation, so as to avoid complicating an essentially simple tax.
James Handley says
Hi Diane and David,
McDermott’s bill is one of several domestic carbon consumption tax proposals that all would tax imported oil and other carbon-intensive imports consumed domestically, but by the same token would not tax exports of fossil fuels.
World Trade Organization rules authorize harmonizing border tax adjustments to tax imports in the same way as domestic products. The WTO rules were built around (and support) value added taxes which are adjusted at the borders, as travelers who’ve gotten a VAT refund from purchases made in the EU may recall. Similarly, WTO rules support a domestic carbon consumption tax with border tax adjustments.
As you point out, a WTO-based consumption tax would not apply to domestically-produced fuels that are exported. (One could also imagine production-based carbon taxes but the U.S. could not tax imported oil under a production tax system.) As applied to a carbon tax, border adjustments are tariffs on imports from countries that do not levy their own carbon taxes — a way for one country to collect the taxes exporters to it don’t collect. This avoids disadvantaging domestic energy-intensive industry. BTA’s are also the carrot for our trading partners to enact their own carbon pollution taxes.
Note that once the U.S. enacts a carbon tax, countries (like China) that import fossil fuels will have a large and growing incentive to enact their own domestic carbon consumption taxes, which would apply to fossil fuels (from whatever sources) that they burned in their country. We expect that WTO-sanctioned BTA’s and a rising carbon price in the U.S. would soon induce other nations to enact carbon taxes to capture the revenue that would otherwise go to the U.S. Treasury.
But in the meantime, you are correct that domestically-produced fossil fuels that were exported, would not be subject to a carbon tax. (Lack of coverage of exported fossil fuels was also true of cap & trade proposals and is also a problem with subsidies and regulations.) We simply must press for a domestic carbon consumption tax and insist that it include border tax adjustments to induce other nations to follow.
Renato Rodrigues says
Well, this is great news but… Does this bill have any chance to be approved?
Jeff Melhus says
Can you address this? I am tired of the taxes that say they will solve matters. Taxes should never reduce any sector of our economy such as oil, gas, coal or wind for that point.
Jan Galkowski says
If you are “tired of taxes”, then I guess you are also “tired of capitalism”. For the only way of imposing a true cost of using fossil fuels within a capitalist economic framework is to tax it. If you are not happy with that, perhaps you prefer the alternative, outright government confiscation of energy company assets?