The American Enterprise Institute on 22nd April (the 145th birthday of Lenin and 45th Earth Day) held a seminar on “Implementing a Carbon Tax: Practicalities and Prospects.” A video of part of the event can be viewed here. The rest of the event can be viewed on the web site of a group promoting a carbon tax and headed by former Representative Bob (“Mr. 70-29”) Inglis (R-SC).
Some of the presentations were based on a collection of essays that grew out of a conference AEI held in 2012. That book has now been published by Routledge as “Implementing a Carbon Tax: Challenges and Debates.” For those not lucky enough to have been given a copy at the AEI event, it can be purchased on Amazon for the discounted price of $48.09.
AEI Resident Scholar Aparna Mathur, who was the only AEI scholar to contribute an essay to the book, hosted the event. The first speaker was Vitor Gaspar, director of the fiscal affairs department at the International Monetary Fund. He noted several times that getting the price of carbon was crucial and that most existing carbon taxes and cap-and-trade schemes had put the price too low.
Next on the agenda was a discussion with Representative John Delaney (D-Md.) and former Rep. Inglis, head of the Energy and Enterprise Initiative, which is based at George Mason University. Rep. Delaney used the AEI event to announce that he would soon introduce a carbon tax bill. The “Tax Pollution, Not Profits” Act will begin with a $30 per metric ton of carbon dioxide and then escalate by 4% above the inflation rate every year.
Delaney said that his bill would use 50% of the revenue to reduce the corporate income tax from 35% to 28%. Another chunk of revenue would be used to offset the higher energy costs of poorer people. Finally, some of the revenue would be used to compensate coal miners who lose their jobs by paying for retraining, relocation, early retirement, and health care. Delaney did not say whether the 4% annual escalator would be used for further reductions in corporate tax rates or higher government spending.
Delaney, who was a successful corporate founder and CEO before his election to Congress in 2012, emphasized that carbon was a massive net drag on the economy and that his bill was a free market solution that would spur economic growth and innovation. Asked by Evan Lehmann of Greenwire whether his bill also repealed the EPA’s Clean Air Act rules to reduce carbon dioxide emissions, Delaney replied that his bill does not do that. But he went on to say, “I think it would inevitably lead to that.” If it’s inevitable, then he should put it in his bill.
Bob Inglis was very enthusiastic about the prospects for a carbon tax in Congress now that a pro-business Democrat was proposing to use the revenue to reduce corporate taxes. He said that he learned at the feet of Kevin Hassett, AEI’s State Farm James Q. Wilson Chair in American Politics and Culture and director of economic policy studies (and also the co-author with James K. Glassman of “Dow 36,000,” published in 1999), that the trick was to get Republicans to support a carbon tax by using the revenue to lower corporate taxes.
Inglis, who will receive the John F. Kennedy’s Library’s Profile in Courage Award in May, congratulated Delaney for his courage in broaching that divide between Democrats and Republicans. Similarly, Delaney earlier said that having a Republican like Inglis step forward to support a carbon tax was worth ten thousand Democrats and then added that he was underestimating that.
Inglis said that he didn’t know that many economists, but that he had yet to meet one who didn’t think that externalities should be taxed. In response to a question, Inglis said that he didn’t think Delaney’s bill would be passed as a stand-alone bill, but that something like it would be included in a larger tax reform package.
The final panel included the three editors of the book: Adele Morris of the Brookings Institution, Roberton Williams of Resources for the Future, and Ian Parry of the IMF. Morris started by thanking a lot of people and said that AEI deserved a lot of the credit for holding the conference upon which the book is based in 2012. She said the conference was like Woodstock for carbon taxers. Morris suggested the carbon tax debate had moved in less than three years from the policy that dare not speak its name to being a practical policy on the verge of enactment. She said that this had resulted from several factors, including progress in climate science, world leadership, such as the UN climate summit last fall, and the reality of the EPA regulations compared to the ways in which a carbon tax would unleash innovation.
RFF’s Roberton Williams replied to Inglis’s earlier comment about taxing externalities by announcing, If you don’t believe in internalizing externalities, you’re not an economist. He added that pricing carbon was the best way to do that and that the Delaney bill sounded exciting. Williams’s statement about externalities in the context of the carbon tax debate is quite remarkable given that the negative externalities of carbon dioxide emissions are entirely speculative and far in the future if they occur.
Parry of the IMF said that the problem with existing carbon taxes and cap-and-trade schemes was that they had set the price of carbon far too low. On the other hand, British Columbia had got the design details right. Parry later said that it was important to get started right now and that if the price signal was not high enough to reduce emissions at the desired rate the price could be raised faster than the 4% in the Delaney bill.