Barring a nearly-magical unforeseen technological development, the only effective way to slow global warming and get our nation on a path to energy independence is to tax the production of CO2. Most politicians still refuse to accept this fact and would prefer to implement a confusing array of subsidies, renewables standards, and research grants. These half measures normally end up being ineffective, counterproductive, or overly expensive. Instead of letting politicians choose winners and losers, putting a tax on carbon will allow the market to determine the cheapest way to reduce production.
There are two main problems with a carbon tax (or an indirect carbon tax through cap and trade). The first is that any carbon tax would be similar to a sales tax and therefore be a regressive tax. Fixing this problem is fairly easy. The money raised from a carbon tax could be used to offset other regressive taxes such as a payroll taxes or state sales taxes. The money could also be returned in the form of a flat, across-the-board tax credit or refund.
The much larger problem with any carbon tax is that it could end up devastating America's manufacturing sector. The tax needs to be high enough to encourage utility companies, manufacturers, and consumers to change their behavior. But if the tax is set at an appropriate level, it will cause the exodus of energy and carbon-intensive jobs to emerging markets without a carbon tax. The worldwide production of CO2 will not dramatically improve, but millions of American jobs would be moved overseas.
The solution to this problem is carbon tariffs. Any product imported from a non-carbon tax country would need to have the amount of CO2 created in its production calculated. A tariff would be placed on the good equal to what that amount of CO2 would cost an American company. Most of the money earned from the carbon tariffs would go to the normal carbon tax fund and some of it would be used to provide carbon tax deductions to American exports. American companies that export to non-carbon tax countries would get a tax deduction equal to the increased cost from the carbon tax to keep their goods on an equally competitive footing. As other nations adopt similar carbon taxes, we could eliminate carbon tariffs and carbon deductions.
The major problem is that our current free trade treaties prevent us from imposing the necessary carbon tariffs. Ideally, all countries would adopt the same carbon tax at the same time, but that is a fantasy. Without carbon tariffs, any carbon tax or cap and trade plan would hurt the American economy without dramatically helping the planet. If we want to address energy independence while slowing global warming, we must renegotiate or cancel our free trade agreements.
Failure to create a carbon tax will hurt our planet. Failure to impose a carbon tariff as part of any carbon tax will hurt our economy. And our free trade treaties prevent use from creating the needed tariffs. As a country we must choose between our planet and our economy, or our free trade treaties. I think it is clear which one should be abandoned.
