Carbon Tax a Better Idea?

When the new U.S. Congress convenes next year, it will get a chance to consider levying a carbon tax that its backers say will prompt polluters to cut greenhouse gas emissions.

Rep. John Larson, D-Conn. plans to introduce a carbon tax legislation next year in the hopes that it will gain more support with a Democratically controlled Congress and White House. Larson introduced a carbon tax bill in 2007 that failed to generate enough support.

Compared with carbon cap-and-trade, a more popular concept to curb emissions, a carbon tax would be simpler to implement and generate revenues sooner, argued Larson, who was recently elected the chair of the House Democratic Caucus. He is advocating using the carbon tax revenues to offset payroll taxes.

"We can have middle-income tax relief while serving the purpose of cleaning up the environment," Larson said at the briefing.

Larson hosted a policy briefing in Washington, D.C. Tuesday that was sponsored by the Environmental and Energy Study Institute, Carbon Tax Center, the Climate Crisis Coalition, Friends Committee on National Legislation and Friends of the Earth.

Larson joins a scientist from NASA, an economics professor from Tufts University, a former U.S. undersecretary of commerce and the chair of the David Suzuki Foundation in Canada to discuss the merits of carbon tax. Canada's British Columbia province enacted the first carbon tax in North America earlier this year (see Carbon Tax Debuts in Canada).

The British Columbian government is taxing fossil fuels, including transportation and heating fuels. Understandably, that policy didn't go well with consumers who already were facing high oil prices when the regulation went into effect in June.

Larson isn't advocating hiking gasoline prices for consumers. He wants to tax industrial polluters such as coal processors and oil refiners. In his previous bill, he proposed levying a tax of $15 per metric tons of carbon dioxide emissions and increasing the rate by 10 percent per year. The tax would be phased in over 10 years.

Gilbert Metcalf, the economist from Tufts University and a briefing participant, is suggesting a $17 per metric tons of emissions. He said this tax would nearly double the average price of coal and nudge power plant operators to find alternative, more environmentally-friendly fuels to generate electricity.

Although Larson wouldn't have to contend with tax-fearing Americans, he will sure find stiff opposition from industries that will have to pay to pollute. Carbon tax opponents also have argued that any taxes will find their way to consumers as businesses pass along the added costs to goods and services.

Carbon tax has some big name supporters. Al Gore likes it. And recently Gore has offered some advice to president-elect Barack Obama. The two men met in Chicago Tuesday to discuss energy and climate change policies.

Ralph Nader supports carbon tax, too, and co-wrote an opinion piece in the Wall Street Journal last week to promote the idea.

But will Obama go for it? The incoming president has repeatedly said he wants a carbon cap-and-trade system to help reach his goal of cutting greenhouse gas emissions to 80 percent below the 1990 levels by 2050. Making our planet healthier is nice, of course, but the real incentives to put in a carbon trading system is the revenues the government would generate to fund a variety of initiatives (Obama is focusing on job creation for now).

Under Obama's cap-and-trade proposal, polluters will have to pay for permits that would allow them to emit emissions below a government-set limit. If they emit more, then they will have to buy permits from those that pollute less.

Europe has had a similar program in place since 2005, though it gives the permits away for free to be traded among businesses and member nations. The European Union is mulling a change to sell those permits instead (see U.N. Climate Talks Poses Big Impact on Greentech).