Climate Group Floats Carbon Tax Solution

One month into the new administration, a new Climate Leadership Council has formed composed of several former officials and business leaders, most of who are widely recognized as influential in the Republican Party.  Led by former Secretary of State James Baker, the group is pitching the idea of a carbon tax as a replacement for environmental regulations that Trump wants to rescind.  Rather than setting regulatory standards for power plants and other fuel users, a carbon tax would make it financially burdensome to use emit greenhouse gases. 

Baker’s ‘council’ is pitching a carbon tax as a free market approach to grappling with emissions and climate change.  The tax would begin at $40 per ton of carbon-based fuel or pollution sources, essentially putting a price on the real costs of greenhouse gases.  Baker’s group plans to have carbon tax collections distributed to tax payers rather than invested in environmental clean-up or climate change remediation.  Interestingly, the group still does not accept that the current warming of the planet is due to human actions.  However, they have finally conceded that the risks are too great to ignore.

While the group is composed of experienced and politically well-connected members, it has a tough challenge ahead.  Several within the group were senior advisors and officials in previous Republican administrations.  That does not appear to carry much weight with Trump and his inner circle.

Carbon taxes have been bandied about as a climate change solution or some time.  The first carbon tax was levied by Finland beginning in 1990.  There are now carbon taxes of some sort or another in Denmark, Ireland, Netherlands, Norway, and Sweden.  Australia briefly experimented with a carbon tax beginning in July 2012, but scrapped the levy in July 2014 in favor of an emissions trading scheme.  It was in place for such a short period of time, Australia’s carbon tax had limited impact on investment decisions and operations of heavy emitters of greenhouse gases such as coal-fired power plants. 

Canada has put a carbon tax in place beginning in 2018.  The initial price will be a modest CDN$10 per metric ton of carbon dioxide and other greenhouse gases, increasing to CDN$50 per ton by 2022.  The national plan is modeled on a carbon tax imposed by British Columbia in 2008.  By 2011, per capita emission of greenhouse gases declined by 13% compared to a 3.7% decline in the balance of the country.  Fossil fuel use declined by 16%.  Canadians are attributing the difference in British Columbia to its carbon tax.

Some might argue that a carbon tax could stall economic growth.  Baker and his merry band can cite more data from the British Columbia experience.  During the first five years of the carbon tax from 2008 to 2013, growth in British Columbia’s gross domestic product outpaced growth in the rest of Canada.  Scientists have noted that greenhouse gas emissions have increased in British Columbia since 2013, when the last incremental increase in the tax was imposed.  Baker and his group might take a lesson from the BC experience and plan for long periods of annual tax increases. Indeed, there are proposals in British Columbia to increase its carbon tax by $10 per ton each year beginning in 2018 when the national carbon tax goes into effect. 

The carbon tax in BC has detractors.  Last year Food and Water Watch, a private advocacy group, completed a study on the BC carbon tax and concluded it is a “failed experiment in market-based solutions to climate change.”  The group claims that claim any carbon emission reductions between 2008 when the tax was implemented through 2014, were the consequence of the global recession during this time period

It could be quite beneficial for the United States to at least consider a carbon tax.  Such a discussion is particularly imperative, if executive orders from the Oval Office begin to erode the only progress the country has made to reduce greenhouse gas emissions.  Unfortunately, we have in the Oval Office a leader and a group of advisors who have not shown an interest or capacity in studying of developing complex solutions to our country’s problems. 

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.