One of the biggest losers this past election day was the carbon tax. Environmentalists hoped that Washington might become the first state in the country to pass such a tax through a ballot measure, but the proposal failed by nearly 13 points.
The big picture: The carbon tax, which would effectively increase the cost of producing, distributing or using fossil fuels, has emerged as a theoretically promising compromise to people on both sides of the aisle, as it would create a market-based incentive for companies to pursue aggressive action on climate change. But in practice — and even in a solidly Democratic state — the public appears unwilling to pay for it, at least in the iteration that was on the ballot in Washington.
Yes, but: There are many ways to enact a carbon tax, and it's possible a different version could pass.
- One is a simple tax on carbon emissions that funds other projects — in Washington’s case, other environment-related programs and projects.
- Another is a revenue-neutral tax, whereby the cost is offset by reductions in some other tax.
- The third and perhaps most promising option is the carbon fee and dividend, whereby the government places a tax on carbon emissions and then returns most, if not all, of the revenue to citizens as a dividend to offset the tax.
Between the lines: The carbon fee and dividend would likely have sticking power, given that it already has something of a precedent: In the current fiscal system, the U.S. government taxes our income and then, if it takes too much, cuts us a check every April. Because people love the idea of getting a check in the mail, the program would likely gain popularity as soon as people got their first carbon dividend, as it did in Canada. But enacting such a scheme would still be an uphill battle.
The bottom line: The U.S. has managed to deploy low-carbon technology with sub-optimal market incentives, such as Renewable Portfolio Standards, federal R&D support and tax credits. Putting a price on carbon, however, remains, at least for now, out of reach.
Joshua Rhodes is a research associate in the Webber Energy Group and the Energy Institute at the University of Texas at Austin.
