by Richard W. Caperton
If you had told me on Tuesday morning that I was about to spend my day at a standing room only event that had nothing to do with the election, I would’ve said, “But, I’m not planning to go to a David Petraeus news conference!” Ah, but it turns out that there are other topics that bring out the masses. I did, in fact, spend the day at a standing room only event that had nothing to do with the election.
The topic? Carbon taxes, of course.
Yesterday, the American Enterprise Institute hosted a conference to talk about anything and everything related to the economics of carbon taxes. Normally, a full-day conference with more than a dozen speakers on a tax issue in DC will be lucky to get more than a few dozen attendees, even with a free lunch. Carbon taxes, though, are different. The enthusiasm for this issue is such that there were over 200 attendees, many of whom stood for half the day.
What makes carbon taxes different? Simply put, people across the political spectrum now know that putting a price on carbon is an indispensable tool for dealing with our climate and budget problems, and that a carbon tax is the most politically viable path forward. This dynamic has created an exciting amount of momentum that now needs to be turned into policy.
Not only is the political situation ripe for a carbon tax, but yesterday’s AEI conference demonstrated that the thought leadership is ripe as well. That’s not to say that there’s agreement on the best way to design a carbon tax; the ultimate design will likely be about political decisions as much as policy ones. But, the implications of different policy choices are largely known, which was the focus of the conference.
The benefits of a carbon tax would be tremendous. According to the Brookings Institution’s William Gale, the amount of money a carbon tax could raise is roughly comparable to the size of the Bush tax cuts, indexing the alternative minimum tax for inflation, or the budget sequester that’s part of the upcoming fiscal cliff. Instituting a carbon tax would make it much easier to deal with our country’s budget crisis, because it would give us another tool for solving the problem. And, a carbon tax can get significant reductions in greenhouse gas pollution. Allen Fawcett presented findings from the Energy Modeling Forum that show a multitude of technology development scenarios that get to 50 percent reductions in greenhouse gases with a carbon tax.
Broadly speaking, there are two questions about designing a carbon tax: how to collect the money, and what to do with the money? Neither of these is simple, and virtually every option involves tradeoffs.