How the US Will Get a Carbon Tax
David Roberts writes:
The U.K. may have just implemented a carbon tax. "Whuuut?" you're asking. Seriously. And it's kind of a funny story.
The Carbon Reduction Commitment, developed by the U.K.'s Department of Energy and Climate Change, is a scheme whereby the nation's 5,000 or so largest commercial energy consumers will be charged a fee for carbon emissions. Originally it was intended to be revenue-neutral -- the money from the fee was to be returned to participants; businesses that increased energy efficiency the most would get proportionally more money back. In effect the scheme would have operated like a feebate.
However, the department just abruptly announced that the revenue from the program won't be returned to participants after all:
"Revenue raised from the CRC Energy Efficiency Scheme will be used to support the public finances (including spending on the environment), rather than recycled to participants," the statement said.
The spending review document confirmed that the move would raise £1bn by 2014/15 to help tackle the deficit.
What was a feebate has become a carbon tax that pays into the general fund, primarily to pay down the deficit.
Who knows what will happen, whether the businesses in question can generate enough backlash to force the government to reverse itself. But the episode holds a couple of interesting lessons for the U.S. debate.
Some politically savvy folks I know are convinced that carbon pricing will return to American politics, despite the recent defeat of cap-and-trade, for a simple reason: the U.S. has a problem with its long-term deficit. (Michael Levi briefly references the argument here; see also Brookings here.) As efforts to deal with the long-term mismatch between revenue and spending get serious (or perhaps, if they get serious), there's going to be a pressing need for new sources of revenue.
Nobody wants to raise income taxes. Nobody wants to raise payroll taxes. One of the only remaining options is some sort of consumption tax. A carbon tax fits the bill. It could raise almost unlimited revenue and while reducing environmental externalities and enhancing energy security. Perhaps the UK's example might get deficit hawks in the U.S. thinking.
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