Is it time to revisit a carbon tax?

A carbon tax might be the best way to combat climate change while raising revenue for the investments we need.

Image credit: Getty

If it wasn’t clear enough already, evidence of rapidly accelerating climate change is now inescapable.

California is in the midst of a record-setting drought that has so far cost its farming sector at least 17,000 jobs and $2.2 billion. A dire new study warns that the melting of the Antarctic ice sheets could eventually result in a sea level rise of as much as 11 feet. And in a further blow to climate skeptics, 2014 was the hottest year recorded since 1880.

One long-debated way to help limit the emissions that contribute to climate change is a tax on carbon, although serious discussions have waned as of late. But interest in a carbon tax might be reviving, and now could be the time to rekindle a debate about the benefits of a carbon tax to combat climate change – and at the same time raise revenue. In particular, the potential windfall from a carbon tax could help the United States catch up on its investments in clean energy research and development and in infrastructure more broadly, both of which are lagging.

A potentially useful starting point is a 2013 proposal by Adele Morris of the Brookings Institution, who proposes an initial tax of $16 per ton, followed by annual increases of 4 percent over inflation until 2050. Morris estimates this structure would raise $88 billion in its first year and as much as $1.1 trillion over ten years. It would also reduce U.S. carbon emissions by one-third by 2050. Moreover, according to Morris, this tax rate is also relatively modest – Sweden, for example, currently taxes carbon at $156 per ton.

But while Morris proposes directing the bulk of new revenues from a carbon tax toward deficit reduction, other priorities of equal, if not greater, importance also demand investment.

For example, one critical area for investment is infrastructure. According to the American Society of Civil Engineers, nearly a third of U.S. roads are in poor or mediocre condition, causing – among other things – congestion that wastes $101 billion worth of fuel each year.

Current highway funding comes from gasoline and diesel fuel taxes, which raise about $35 billion each year for the Highway Trust Fund. But these taxes have not been increased since 1993, and the trust fund is facing a shortfall totaling $168 billion by 2025. While raising gas and diesel taxes might help in the short term, the fact that Americans are driving increasingly fuel-efficient cars (greater efficiency accounts for 22 percent of the trust fund’s shortfall) means these measures are not a long-term solution. If one thinks of the gas tax as essentially a limited tax on carbon, a broader carbon tax is not too far a stretch.

Another important priority is to invest more in clean energy research and development., such as by growing the Office of Energy Efficiency and Renewable Energy, the Office of Nuclear Energy, and ARPA-E, which sponsor many of the government’s efforts to research, develop, and deploy cost-competitive, carbon-free technologies. With the budgets of these three offices currently totaling just over $3 billion, even tripling the investment in these agencies would be a cost-effective move.

Greater investment in clean energy research could help the United States catch up in the development and deployment of less carbon-intensive sources of energy as well as renewables.

As the Breakthrough Institute points out, clean tech investments included in the 2009 Recovery Act helped double U.S. renewable electricity generation and helped begin construction of new U.S. nuclear plants for the first time in decades. Unfortunately, that spurt of activity ended along with its funding. Today, American deployment of new nuclear reactors is lagging behind other major economies, and while solar and wind power are now competitive with coal and gas in some markets, they still account for less than 5 percent of U.S. electricity generation.

One potential benefit of a hiatus in the debate over a carbon tax is that it might also have become more politically feasible. Bipartisan proponents of a carbon tax now include the conservative American Enterprise Institute as well as the liberal Center for American Progress and a variety of companies including Shell Oil and FedEx.

The conclusion is clear: A debate over a carbon tax is well worth having.

Michael Purzycki is a public policy researcher and writer based in Somerset, New Jersey.