CEI’s New Anti-Carbon Tax Study

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CEI has a new study out this week titled, “Why Carbon Taxes Are Anti-Growth, Anti-Consumer, and Politically Dangerous for Conservatives.” It develops the following points.     

A tax on carbon dioxide (CO2) emissions, contrary to its advocates’ claims, is a market rigging policy, not a free market one. Its purpose is to drive investment into renewable energy sources not by lowering their cost or improving their performance but by handicapping competing technologies.

Carbon taxes would inflict substantial losses on GDP, job creation, and household income. Even the most aggressive CO2 tax would have negligible climate effects, and costs would far exceed benefits.

A realistic assessment of the potential economic damage must also consider the costs created by adding CO2 taxes to a panoply of other policies targeting the fossil-fuel industry. Any enacted carbon tax would not be an alternative to, but part of the broader agenda of reducing U.S. greenhouse gas emissions 50-52 percent below 2005 levels by 2030, eliminate U.S. power sector emissions by 2035, rapidly phase out sales of gasoline-powered vehicles, and achieve net-zero emissions by 2050.

That agenda is a recipe for epic policy failure. The global mining and processing infrastructures needed to replace an energy system chiefly reliant on combustible fuels with one reliant on wind turbines, solar panels, and electric vehicles—which require much larger mineral inputs than conventional power generation and vehicles—do not yet exist.

Ramped up by aggressive mandates and subsidies, the demand for “energy transition minerals” would likely increase faster than supply, causing sharp increases in commodity prices. The International Monetary Fund forecasts a decade-long “several hundred percent” rise in the real prices of nickel, cobalt, and lithium, and 60 percent rise in the price of copper.

Moreover, the federal permitting system is too slow and litigious to allow completion of all the renewable energy projects required to replace more than 1,800 coal and gas power plants within 15 years and support massive vehicle electrification. The so-called clean energy transition could become a transition from abundant and affordable to scarce and unaffordable fossil fuels.

A related potential downside is a growing dependence on Russia and OPEC for hydrocarbons and on China for energy transition minerals as a carbon tax and other climate policies hammer domestic fossil-fuel production while mandating and subsidizing reliance on wind, solar, and electric vehicles.  

Neither the “social cost” of carbon (SCC) nor the alleged “climate crisis” justifies imposing new taxes on fuels that supply 79 percent of U.S. energy.

The SCC—a guesstimate of the cumulative climate damages from an incremental ton of CO2—is too speculative and easily manipulated for political ends to justify either taxes or regulations that would impose hundreds of billions of dollars in costs across the economy. To mention just one of several methodological biases, the Obama and Biden administrations calculate the SCC using wildly inflated baseline emission scenarios that implausibly assume the global economy “returns to coal” in the 21st century, with coal remaining the low-cost backstop global energy source during the next two centuries.

The climate crisis is a political narrative spun out of unrealistic models and emission scenarios, unreasonable pessimism about human adaptive capabilities, and sheer political hype.

No enacted CO2 tax would be significantly deregulatory. The Clean Air Act (CAA) exemptions in a handful CO2 tax bills are minor, revocable, or ineffectual. For example, no carbon tax bill introduced during the 116th and 117th Congresses would prohibit CO2 regulation of stationary sources such as power plants and factories. Five CO2 tax bills would prohibit the Environmental Protection Agency (EPA) from regulating motor vehicle CO2 emissions but would simultaneously reinstate California’s purloined power to regulate and prohibit such emissions. No CO2 tax bill would preempt state-level regulation of greenhouse gases. States would be free to reimpose any regulations the EPA might rescind.

If anything, a carbon tax would increase red tape and bureaucratic meddling. The carbon tariffs (“border taxes”) that U.S. firms would demand as protection from cheaper non-taxed foreign imports would require a new or expanded IRS to develop, audit, and enforce the rules of such a system. A carbon tax would likely expand, not shrink, the administrative state.

Some CO2 tax proposals purport to be “revenue neutral” because they feature “fee-and-dividend” programs that return the revenues to households. That is misdirection. Fee-and-dividend is a tax-and-spend program. It does not repeal existing taxes or lower existing tax rates. Rather, fee-and-dividend imposes new taxes and redistributes the booty to households regardless of whether they pay taxes or not. A “green” share-the-wealth scheme, it would increase welfare dependence rather than spur economic growth.

Note, too, that “revenue neutral” does not mean economically harmless. The smaller the base on which a tax is levied, the more destructive its effects. The base for a CO2 tax—specific companies and products—is much narrower than the base for personal income taxes, sales taxes, or payroll taxes. Carbon dividends distributed in equal shares to all U.S. households would not begin to offset the economic damages to industries and communities directly affected by a carbon tax.

The title of CEI’s study flags down conservatives because they are the chief target of carbon tax advocacy groups. Progressives know they have almost no chance of enacting a carbon tax unless conservatives give them bipartisan cover. 

Even though progressives are more zealous than ever to rig energy markets via mandates and subsidies, some Republicans still profess to believe carbon taxation could be a politically viable alternative climate policy. That view is misguided. Conservative carbon tax advocacy would be widely perceived—and spun by progressive politicians, activists, and media—as validating the climate crisis narrative. That would strengthen rather than tamp down demands for more radical policies.

More crucially, carbon tax advocacy is politically toxic to conservatives. The struggle for hearts and minds in American politics is to no small extent a contest between a conservative movement that is pro-energy and anti-tax and a progressive movement that is pro-tax and anti-energy. That clear product differentiation is a political asset conservatives squander at their peril. It enables them to offer voters, who generally dislike high taxes and high energy prices, a “choice, not an echo.”

Conservative leaders cannot endorse a carbon tax—a new tax on energy—without destroying their bona fides as champions of the pro-energy, low-tax policies millions of Americans support.