Tom Pyle
With climate change dominating the political agenda of the Democratic party, both in western states like Colorado and New Mexico, and at the national level, the specter of a tax on energy has re-emerged.
While some believe taxing carbon dioxide can address the issue of global warming without an expansion of government, the tax would really just be a stepping stone to the $93 trillion Green New Deal. Carbon tax proposals are almost always falsely labeled as commonsense, middle ground solutions, but the claim that a tax on energy would satisfy all parties does not stand up to scrutiny.
Across the West, whenever an energy tax has been put in front of the voters, it has failed miserably — most recently in the State of Washington last fall. But now, energy tax proponents like the Climate Leadership Council (CLC) and others, claim to have a new framework of politically-viable energy taxes. This framework seeks to draw widespread support for a tax on energy by promising the proceeds will be divvied out to American households in the form of quarterly federal checks.
While this sounds great (who doesn’t like free money!), it really means diminished economic opportunity, higher gasoline prices, rising home heating and air conditioning costs, and more expensive goods and services across the board.
Poorer households will be most harmed by a carbon tax because a larger portion of their budgets are spent to pay their utility bills and fill their gas tanks. In the tax-and-rebate model, the harm caused by increased costs and reduced choices to individuals would be significant and the widespread economic impact of this policy would be severe. Moreover, the entire approach falsely assumes that the government will not take a portion of the proceeds before passing some of the back to the citizens.
Research from Capital Alpha Partners shows just how damaging an energy tax would be. Let’s take Colorado as an example. A carbon tax in the Centennial state would result in an economic lag, lost jobs, and a smaller state budget to help with essential government services like improving infrastructure. To make matters worse, a tax on energy imposes static costs and revenue burdens on state and local governments. The Capital Alpha Partners analysis finds the average annual burden on Colorado during the first ten years of a carbon tax would range from $335 million to $546 million depending on the ultimate rate of taxation. Similar projections can be seen in other western states, too.
By siphoning wealth from our economy and redistributing it, the tax-and-rebate plan would introduce unavoidable economic drag. To account for this loss and to balance its budget, states can be expected to raise taxes, reduce services, or most likely of all, demand revenue sharing from the federal government, thereby eroding the plan’s capacity to rebate all carbon tax proceeds to taxpayers.
Despite these high costs, the tax doesn’t go nearly as far toward reducing carbon dioxide emissions as advocates would have you believe. The Capital Alpha study finds that none of the modeled carbon tax scenarios, including that most similar to the CLC plan, is consistent with meeting long-term U.S. obligations under the Paris Agreement as a standalone policy.
The solution doesn’t sit with a government-led tax and dividend scheme, but rather with innovative engineers and entrepreneurs who continue to use technology to produce the energy we need and protect the environment westerners love. If air quality is a concern, the U.S. already leads the world in clean air and a strong economy. Perhaps the most compelling data can be found in the Environmental Protection Agency’s (EPA) own annual report entitled, Our Nation’s Air. The EPA’s data shows that since 1970 the U.S. has experienced substantial economic growth, increased population, and Americans drive more than ever. At the same time, we have reduced 73% of all harmful air pollution since 1970.
The connection between a vibrant economy and a healthy environment are all too evident. Across the world, when prosperity spreads and people have choices, nations immediately begin to prioritize environmental improvement.
An energy tax won’t help people, especially those who have the least among us, and it won’t help the environment in any measurable way. Westerners should reject energy taxes at any level of government.
Thomas J. Pyle is president at the Institute for Energy Research, a non-profit energy policy think tank.
