There is no more effective way for President Biden to achieve his aggressive climate goals than a carbon tax. The timing seems right: his Treasury Secretary, Janet Yellen, has been a prominent advocate. The large companies have turned from opponent to supporter. Republican opposition is no longer monolithic.
But a carbon tax lacks support where it matters most: from Mr. Biden and the Democratic base. Progressive Democrats claim a carbon tax and its close cousin, cap-and-trade, is unfair to the poor and racial minorities. And a carbon tax appears to run counter to Mr. Biden’s promise not to levy taxes on households earning less than $ 400,000 per year.
So as Mr. Biden prepares a regulatory and infrastructure package to bring net greenhouse gas emissions in electricity to zero by 2035 and the entire economy by 2050, he fights with one hand tied behind his back.
A carbon price encourages consumers, producers and investors to replace fossil fuels more flexibly and more cheaply with low-carbon or carbon-free energy technology than subsidies and regulations. This has long been a matter of course for economists, including Ms. Yellen. She is a founding member of the Climate Leadership Council, a two-tier group that has developed a detailed plan for a carbon tax starting at $ 43 per ton, the proceeds of which will be paid back to households as a “carbon dividend.”
Responding to questions from senators at her hearing, Ms. Yellen said, “We cannot solve the climate crisis without effective carbon prices.” While a carbon tax is the most direct way to price carbon, it is not the only one. With cap and trade, the total emission of greenhouse gases is maximized and companies buy permits to emit one ton of gas. The more expensive the permit, the greater the incentive to reduce emissions. Cap and trade was at the center of the last major effort to price carbon, in 2010. It ultimately failed due to opposition from industry, Republicans and some Democrats.