CAP Proposes $25 / Ton Carbon Tax

On Tuesday, the Center for American Progress rolled out a plan for $1.8 trillion in tax hikes that struck some people as noteworthy for not included a proposal for a carbon tax. Now today we get the CAP carbon tax plan, but solo bylined by Richard Caperton. The proposal is basically similar to the Mark Muro / Jonathan Rothwell carbon tax plan from Brookings but with slightly different timing. Caperton proposes a carbon tax of around $25 per ton (with the exact figure specified by the Energy Department) phased in over three years. Brookings proposed starting with a $20 / ton tax and then scaling up 4 percent per year. Both proposals say the revenue should be split between clean energy investments, offsets for low-income households, and general deficit purposes.

This revenue bit is important. In environmental terms, Caperton notes that basically all the short-term pollution control benefits of this plan are coming from the electricity sector. The president already has the power to basically force these reductions from the electricity sector under the Clean Air Act.

The big difference is that a carbon tax gets you revenue. Revenue lets you insulate the most vulnerable from the impact of higher electricity prices. Revenue lets you invest in research and deployment of clean energy technologies that would help get us over the next hurdle. And revenue reduce the extent to which you need to cut programs or raise other taxes to address medium-term deficits. The regulatory approach can get you to a similar destination, ecologically speaking, but with a lot more deadweight loss and a lot less new research.

So congress should pass a carbon tax plan. Which of course they won’t. But it continues to be the case that any sensible resolution of DC’s never-ending budget stalemate ought to include a carbon tax. Far and away the best way for Republicans to put a proposal on the table that doesn’t increase marginal tax rates on the rich but does have some appeal to some Democrats would be to propose a carbon tax instead and force the White House to choose between its commitment to soaking the rich and its commitment to environmental causes.