Could a Clean Tax Cut Succeed Where Carbon Taxes Have Failed?

 

(3BL Media/Justmeans) — To say that the Trump’s administration’s disconnect from reality when it comes to climate change has created tensions both at home and abroad would be a vast understatement. Even fellow Republicans are uncomfortable with the extreme position taken by the president, one that totally defies well-established science. A number have openly broken from Trump in response to his decision to withdraw from the historic Paris agreement, including the governors of Massachusetts and Vermont,  who have joined the US Climate Alliance. Twelve states plus Puerto Rico, representing over 100 million Americans and one-third of the US GDP, have now formally joined the alliance, with ten other states expressing support. Altogether, those states represent 40% of the total US greenhouse gas emissions and one-third of US GDP.

Supporters of the withdrawal, are not questioning the science—in fact, they are not even talking about it. They are focused entirely on what they say the costs of compliance will be, with no mention of the cost of non-compliance. So how do we move forward on the policy front, with a bottom line-first, nothing-else-matters approach that only looks at one side of the balance sheet? Most attention has been focused on efforts to circumvent the president’s position which, as noted above, is substantial. But can anything be done at the Federal policy level?

It’s well known that after Trump is finished attempting to dismantle the health care system, his next target will be tax reform. Could there be an opening there?

A new proposal, born of conservative roots, called “clean tax cuts,” (CTC) just might have a chance. The proposal is the brain child of the Grace Richardson Fund, which seeks, “to spearhead new free market policy solutions to critical issues stuck in partisan gridlock.”

The key points to the proposal, which are spelled out here, are essentially a return of Reagan-style, supply-side tax cuts, only applied selectively to “all clean solutions.” The rationale behind it being, “if you want something more, tax it less.” The plan, which is described as “all carrot, no stick,” could be seen as a carbon tax turned on its head. Instead of punishing carbon usage, it rewards movement away from carbon. They claim it unites the interests of left and right: “ecology + tax cuts = clean capitalism.”

Of course, the big question lies in how it will be implemented. They have convened a number of design charrettes this past spring to obtain input from a variety of experts. They claim the plan will be technology agnostic, and focused on results as determined by metrics drawn by agencies such as Energy Star, LEED, SASB and CDP.

One example of a proposal that has already been put forth would be to replace corporate average fuel economy (CAFÉ) standards in the transportation sector. Rather than focusing on fuel economy, they would offer tax breaks for the manufacturers producing cars with lower emissions.

Of course, anything that could actually pass muster in this partisan environment is worthy of consideration, provided it has merit. To the extent that it would encourage desired behavior, this clearly does. However, this approach has a very different emphasis than a carbon tax would. Any given manufacturer, or investor, would have the opportunity to decide whether or not it was in their best interest to pursue this type of tax break. For a company that is not currently profitable, a tax break is of little value. Then there is the question of off-shoring. Would the tax breaks only apply to things made domestically? What about a car that got 40% of its parts from Mexico? Who will determine, which of those parts contributed to carbon reduction? It could quickly get complicated.

Like other trickle-down based solutions, it could take a while for the benefits to reach their intended targets. We’re still waiting for Reagan’s. The approach would seem to be more focused on the technology pipeline, which, in the case of cars, might not hit the marketplace for another five years or more.

Some areas, where it would seem likely to have a positive impacts include energy efficiency, and agriculture, as well as other clean energy initiatives currently in the shadow of wind and solar.

A carbon tax, which has been gathering momentum, as a fee and dividend type of program, while seen as punitive by some, could potentially begin influencing behavior the day it takes effect, or perhaps even sooner as consumers and businesses look ahead to what kind of equipment they will invest in.

Of course, it needn’t be and either-or proposition. As the results of one charrette, held at Columbia University last fall, showed, “a CTC, paired with a carbon tax plus subsidy elimination can deliver, not 2X, but 3X to 4X as a much impact as CTC or carbon tax alone, with a net positive benefit to GDP.”

It remains to be seen where this could go. The importance of the fact that this approach might be embraced by conservatives, and quite possibly even the administration cannot be overstated. After all, if the administration’s primary objection to climate action is its cost, this goes a long way towards eliminating that. It’s certainly a development worth keeping an eye on.