Why the U.S. Lags Behind Other Western Nations on Carbon Tax Issue

Summary

The COP26 cli­mate con­fer­ence in Glasgow resulted in an inter­na­tional con­sen­sus on imple­ment­ing a car­bon tax to reduce green­house gas emis­sions and encour­age a shift to renew­able energy sources. The United States has not imple­mented a car­bon tax due to con­cerns about its impact on the econ­omy and lower-income house­holds, instead focus­ing on a fee on methane emis­sions to reduce green­house gas emis­sions by 30 per­cent by 2030.

The COP26 cli­mate con­fer­ence in Glasgow led to an inter­na­tional con­sen­sus on intro­duc­ing a car­bon tax.

The goal of the tax on fos­sil fuels would be to dis­in­cen­tivize using car­bon-based fuels to reduce green­house gas emis­sions. It would also encour­age a shift toward renew­able sources of energy.

“We need coun­tries to come together to agree on inter­na­tional stan­dards to make that big shift to the low car­bon econ­omy,” said Lord Greg Barker, exec­u­tive chair­man at EN+, a green energy firm. ​“It would be much bet­ter for the world if there was a com­mon car­bon price.”

Twenty-seven coun­tries cur­rently have a car­bon tax. The World Bank also reports that 65 car­bon tax ini­tia­tives are under­way across the globe at local, national and regional lev­els.

However, the United States is not one of them. Carbon tax­a­tion has been a debated issue in the U.S. since the 1970s, but no leg­is­la­tion to imple­ment one has passed. There are plenty of rea­sons for that.

First, oppo­nents argue that levy­ing a car­bon tax on U.S. com­pa­nies that pro­duce or rely on car­bon-based fuel would harm them, in turn hurt­ing the econ­omy. They also believe it would reduce the United States’s com­pet­i­tive edge against China, which does not have a car­bon tax and is the largest green­house gas emit­ter in the world.

Another major prob­lem of intro­duc­ing a car­bon tax in the U.S. is the nature of the tax. A car­bon tax is a regres­sive tax, which means every­body pays the same price for using car­bon-based fuels. The U.S. gov­ern­ment fears that it will dis­pro­por­tion­ately affect lower-income American house­holds.

A way around that prob­lem is to imple­ment a rev­enue-neu­tral car­bon tax. Revenues col­lected from this tax will return to American house­holds in the form of tax cuts. The exact mech­a­nism of how this will hap­pen, how­ever, is not yet clearly laid out.

“Nothing would do more to accel­er­ate inno­va­tion and invest all cit­i­zens in a clean energy future than an econ­omy-wide car­bon fee, with cor­re­spond­ing div­i­dends for the American peo­ple,” said Carlton Carroll, a Climate Leadership Council spokesper­son.

Some states already have car­bon pric­ing. For exam­ple, California’s cap-and-trade sys­tem sets a max­i­mum amount of emis­sions for green­house gas emit­ters. Companies can buy or sell their per­mits at a price so that every­one has an incen­tive to reduce green­house gas emis­sions. Similarly, Washington state also intro­duced a car­bon pric­ing sys­tem in April 2021.

At the fed­eral level, how­ever, car­bon pric­ing is still being debated. The admin­is­tra­tion of President Joe Biden has allo­cated $555 bil­lion (€495 bil­lion) to address the issue of cli­mate change.

It aims to reduce green­house gas emis­sions by 30 per­cent by 2030. Instead of intro­duc­ing a car­bon tax, the gov­ern­ment said it would imple­ment a fee on methane emis­sions, which it hopes will com­pel oil and gas com­pa­nies to curb emis­sions.

• CNBC
• World Bank