President Biden has no more effective way to achieve his aggressive climate goals than a carbon tax. The moment seems ripe: her Treasury Secretary Janet Yellen has been a prominent advocate. Big companies have changed from opponent to defender. The Republican opposition is no longer monolithic.
But a carbon tax has no support where it matters most: with Mr Biden and the democratic base. Progressive Democrats claim a carbon tax and their close cousin, the limit and trade, are unfair to the poor and racial minorities. And it looks like a carbon tax conflicts with Mr Biden’s promise not to raise taxes on any household that earns less than $ 400,000 a year.
So while Mr Biden is preparing a regulatory and infrastructure package aimed at leading to zero net greenhouse gas emissions by 2035 and the entire economy by 2050, he is struggling with one hand tied behind his back.
A carbon price encourages consumers, producers and investors to replace low- or carbon-free energy technology with fossil fuels more smoothly and economically than subsidies and regulations. This has been evident to economists, including Mrs. Yellen. She is a founding member of the Climate Leadership Council, a bipartisan group that has presented a detailed plan for a carbon tax starting at $ 43 per tonne, with reduced household income as a “carbon dividend”.
In response to questions from senators at her confirmation hearing, Ms. Yellen said, “We cannot solve the climate crisis without an effective carbon price.” While the carbon tax is the most direct way to set the price of carbon, it is not the only one. With the limit and trade, total greenhouse gas emissions are limited and companies acquire permits to emit a ton of gas. The more expensive the permit, the greater the incentive to reduce emissions. Limit and trade were the centerpiece of the last major effort to set the price of carbon, in 2010. It eventually failed due to opposition from companies, Republicans and some Democrats.