On Sunday, former Treasury Secretary Lawrence Summers penned a stirring op-ed in The Washington Post on why now is the best time for America to institute a carbon tax.
Professor Summers has served as the president of Harvard University, as Treasury Secretary (1999-2001) and as President Obama’s economic advisor (2009-2010), so it is safe to say he knows whereof he speaks.
A tax on carbon, Summers writes, is especially desirable because, at present, carbon-based fuels and products “do not bear all the costs of their actions.”
These costs include effects at the local level, such as contributing to the poor health of individuals living near fossil fuel mining and processing operations. It also has impacts on the global level, as the latest report from the Intergovernmental Panel on Climate Change (IPCC) confirms. According to the IPCC, there is a 95 percent certainty that fossil fuels are influencing the climate. Thus, despite the fact that the G20 are still heavily subsidizing fossil fuels, the best action for the planet is to phase them out by the end of the century.
Considering that oil just hit $50 a barrel, Professor Summers says the case for a carbon tax has gone from “compelling” to “overwhelming.”
“All of us, when we drive our cars, heat our homes or use fossil fuels in more indirect ways, create these costs without paying for them,” he writes. “It follows that we overuse these fuels. Advocating a carbon tax is not some kind of argument for government planning; it is the logic of the market: That which is not paid for is overused. Even if the government had no need or use for revenue, it could make the economy function better by levying carbon taxes and rebating the money to taxpayers.”
Not only would passing a carbon tax be a huge symbolic move ahead of the Paris 2015 Climate Summit, says Summers, it would also be highly profitable. A $25 tax on one ton of carbon would raise more than $1 trillion over the next decade and raise gasoline prices only 25 cents. This would have seemed far too dear a price when some states were paying nearly four dollars per gallon, but that price is steeply declining.
The $100 billion of revenue per year could be split between investments in infrastructure and pro-work tax credits. “An additional $50 billion a year in infrastructure spending would be a significant contribution to closing America’s investment gap in that area,” Summers writes. “The same sum devoted to pro-work tax credits could finance a huge increase in the earned-income tax credit, a meaningful reduction in the payroll tax or some combination of the two.”
This plan could appeals to both progressives and conservatives – the former based on climate change concerns, the latter based on good market principles. It would also put America among the leading countries regarding progressive energy policy. “Now is the time,” he concludes.
In terms of current policy, America lags behind both Canada and Chile, both of whom enforce taxes on carbon emissions. China, the heaviest polluter in the world, does not have a carbon tax but it will implement a cap-and-trade program in 2016.