United States: A Carbon Tax Plan Proposal: What Are Its Prospects?

On Wednesday, Feb. 9, 2017, a group of prominent Republicans and business leaders1 from the Climate Leadership Council released a carbon tax proposal entitled "The Conservative Case for Carbon Dividends." Acknowledging "mounting evidence" of climate change and the need to "hedge against the risks associated with future warming," the four-pronged proposal would impose a tax on carbon for oil, gas and coal use, which together comprise nearly 80 percent of total U.S. greenhouse gas emissions (GHGs). In a nod to industry preferences as well as conservative Republican principles, the proposal also contemplates the elimination of certain existing regulations aimed at reducing carbon dioxide emissions (CO2).

Cognizant that a carbon tax on producers would be felt by the American public, the proposal attempts to offset anticipated increases in consumer prices (e.g., likely increases in gasoline prices) with a quarterly dividend paid directly to U.S. taxpayers. The proposal endeavors to reduce uncertainty surrounding existing and potential future CO2 regulations. Notably, it also proposes the elimination of tort liabilities for coal, oil and natural gas emitters.

The Proposal (the 'Plan')

The plan has four primary components.

First, the plan would establish a tax on carbon emissions, to be paid upstream, at the point where fuels are extracted from the earth, such as a mine, or "at the refinery or the first point where fossil fuels enter the economy." Increased production costs would presumably be passed on to consumers via price increases. The plan suggests a $40 per metric ton tax, to begin, but stresses that the tax would increase steadily over time. Given current U.S. annual emission levels, a $40 per metric ton rate is predicted to generate annual revenues in excess of $200 billion.

Second, the plan proposes that all revenue derived from the carbon tax be returned to the American people, tax free—the express purpose of the dividend checks would be to alleviate anticipated increased energy costs. Various options for redistribution are floated, including dividend checks, direct deposits or contributions to individual retirement accounts.

According to the proposal, dividends would increase over time as carbon tax rates increased.

Third, the plan would protect U.S. exporters and penalize U.S. importers via the imposition of credits or fees, respectively, in order to ensure that all are subject to the same carbonbased pricing constraints. This feature is intended to ensure American competitiveness and "punish free-riding by other nations." The plan sets out simple operational mechanics: Proceeds collected (via fees charged on imports from countries without comparable carbon-pricing regimes) would increase the pool of carbon dividends, while American companies exporting to countries without comparable carbon tax policies would receive rebates on carbon taxes paid.

Fourth, the plan contemplates the elimination of certain CO2 regulations, including the outright repeal of the Clean Power Plan. In an effort to achieve bipartisan support, the plan proposes that the initial carbon tax rate be sufficient to achieve reductions of CO2 emissions in excess of current regulatory requirements. In lieu of top-down regulations, the plan proposes a preference for free market economics, which could lead to more efficient industry and consumer behavior.

Finally, the authors propose the elimination of unspecified federal and state tort liability for emitters. However, the proposal provides little specificity regarding the scope, extent or mechanics of any such changes.

Analysis

Generally speaking, the response to the proposal has been muted. While some have called the plan "stillborn," the plan could appeal to a broad array of stakeholders that could conceivably support the votes for approval. Libertarians would likely welcome the lesser regulation and smaller government themes implicit in this proposal, particularly since the plan proposes to replace a broad suite of existing and potential future regulations with a straight tax. Advocates for growth would welcome diminished uncertainty, which could encourage greater confidence in longer term investments. Economic populists might welcome "the distributive impact" of the dividend structure. And the plan might prove palatable to environmentalists who have long sought a clear federal commitment to carbon pricing, as well as the reductions in CO2 that should occur given the plan's pricing structure. Finally, there is significant support from large integrated oil and gas companies that have for years sought certainty concerning CO2 and GHG emissions requirements.

But the plan would also be expected to draw opposition, including, for example, environmental activists if the plan were framed as the only "regulation" of CO2 emissions. As drafted, the plan would address 80 percent of current U.S. CO2 emissions; however, the plan does nothing to address the remaining 20 percent of annual U.S. GHG emissions. Any effort to impose a carbon tax without additional regulations covering other sources of CO2 and GHG emissions (such as methane from landfills) would likely face opposition. Others might object on the grounds that the plan leaves little room for governmental spending in areas where the private sector has historically underinvested, such as research and development for low carbon technologies. Government programs can also be helpful where economic incentives do not align, such as energy efficiency incentives that might, for example, appeal to a landlord who might otherwise opt out because energy bills are paid by tenants.

Industry Support

Generally speaking, the plan echoes the approach advocated by some large integrated oil companies. For example, Secretary of State Rex Tillerson, Exxon Mobil's former chief executive, has previously remarked that a carbon tax would be the "most efficient means of embedding the cost of carbon in all economic decisions." Royal Dutch Shell Plc Chairman Charles Holliday has called a carbon tax the most effective and practical way of driving that change. BP Plc has said that a well-constructed carbon tax "would reduce emissions at a larger scale and at a lower cost than alternative policy measures." Integrated oil and gas operations are not alone in supporting a carbon tax. Elon Musk of Tesla Motors has lobbied the Trump administration on the issue, presumably because a carbon tax would likely benefit the (lesser) carbon footprint of the electric vehicle business.

Political Opposition?

While a carbon tax could be a component of a larger tax overhaul that candidate Trump advocated and Congressional Republicans have long sought, it is more likely that this, or any other carbon tax proposal, might also be dead on arrival. Statements and actions by President Trump and Congressional Republicans over the past 12 months suggest significant opposition to any such proposal.

In March 2016, Trump, in a response to a survey by the American Energy Alliance, opposed the idea of a carbon tax. Further complicating President Trump's pathway to a carbon tax may be campaign commitments he made to coal workers. Simply, because a carbon tax would likely have the greatest impact on coal (because it generates more CO2 emissions than natural gas and oil), the plan would likely complicate Trump's commitments to bring back coal mining jobs.

Republican Congressional leaders may also be limited by previous commitments. Last June, the Republican-led House of Representatives approved a resolution that deemed the idea of a carbon tax "detrimental to American families and businesses." Because President Trump has pledged to eliminate environmental regulations limiting emissions of CO2 and other GHGs, Republicans may be able to scale back emissions regulations without concessions to Democrats or environmentalists. Eliminating CO2 regulations and the Clean Power Plan without instituting a carbon tax would have the added political benefit of shielding GOP politicians from primary challenges from climate change deniers or anti-tax candidates.

Congressional Democrats, particularly moderates, could conceivably gravitate to the plan, particularly if faced with the prospect of a weakened EPA and executive actions aimed at overturning Obama-era environmental regulations. The dividend aspect of the plan would likely appeal to those in the party looking to make gains with blue collar workers, while the implicit acceptance of the science concerning human activity and climate change from their Republican peers might be enough to satisfy other moderates. Progressives would likely oppose the Plan as not going far enough, and Democrats inclined to support a carbon tax plan would likely run into opposition from trial lawyers that would presumably oppose initiatives to eliminate tort liability for integrated oil and gas companies.

Conclusion

The proposed carbon tax represents an alternative option for managing CO2 emissions that moves away from previous cap and trade proposals and focused rule making by the Environmental Protection Agency. The plan seeks to appeal to a broad array of stakeholders and offers an intriguing option for members of both political parties that are committed to tackling human caused climate change. That the plan appeals to industry, libertarians, certain environmentalists and arguably moderate Democrats and Republicans suggests that there may be a path forward for this proposal. If so, we may be closer than we think to a grand compromise on this most thorny of political issues.

Footnote

1. The members include Henry Paulson, James Baker, George Shultz, Rob Walton, Thomas Stephenson, Martin Feldstein, Ted Halstead, and N. Gregory Mankiw.

Previously published in New York Law Journal, February 21, 2017.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions