While coal and gas (including natural gas) are key carbon emissions, a carbon tax would need to be imposed on each of these types of emissions to truly be a carbon tax. Sometimes, a proposal only calls for imposing it on gasoline by increasing the existing tax on this fuel. This would be easier as the gasoline excise tax already exists, but it then ignores the negative externalities of other sources of GHG emissions.
There has been increased attention on a carbon tax recently due to presidential candidate Senator Bernie Sanders talking about it. These discussions tend to be very narrow and he seems to focus on a carbon tax being the only way to address climate change. I recall in a debate with Secretary Clinton that he asked her - do you support a carbon tax or not.
There are other ways to address the negative externalities of GHG emissions. This includes fees, penalties for excess emissions, education, and support for use of alternative energy sources that do not produce GHG emissions.
There has been some recent activities in Congress and the White House:
- H.Res. 767 passed in the House on 6/8/16 to express the “sense of Congress that a carbon tax would be detrimental to the United States economy” and “opposing the President’s proposed $10 tax on every barrel of oil.”
- President Obama proposed the $10 per barrel fee on oil to be imposed on oil companies in a 2/4/16 Fact Sheet on his 21st Century Clean Transportation System. The plan is designed to encourage investment in clean transportation options that can also help reduce what President Obama refers to as a hidden tax due to congestion that annually “costs families $160 billion and businesses almost $30 billion.” One likely reason why he proposed this is that Congress will not increase the gasoline excise tax which has been 18.4 cents per gallon since 1993 (see my blog post of 8/17/15). One reason is that too many members of Congress have signed the pledge to not increase taxes, which hurts our tax system. (For example, this pledge supports keeping an ineffective credit, deduction or exclusion because to get rid of it would be a tax increase.)
- S. 1548 (114th Cong), American Opportunity Carbon Fee Act, would “impose fees on: (1) fossil fuel products producing carbon dioxide emissions, including coal, petroleum products, and natural gas; (2) fluorinated greenhouse gases; (3) emissions of any greenhouse gas from any greenhouse gas emissions source; and (4) methane emissions.” In addition, this proposal: “Reduces the maximum income tax rate on corporations to 29% of taxable income over $75,000. Allows a new carbon fee offset tax credit for the lesser of: (1) 6.2% of earned income, or (2) $500.” Also see 6/10/16 statement of sponsors Senators Whitehouse and Schatz, and their 1-page summary of the legislation.
- Equity - the tax is regressive in that it represents a bigger percentage of the income of a low-income taxpayer relative to a high-income taxpayer. The credit in S. 1548 addresses some of this concern.
- Simplicity - how can such a tax be designed to be simple rather than add a new layer of complexity onto what is already a complicated tax system.
- Fit - does the tax best fit the problem. For example, only taxing gasoline doesn't address the problem that other fuels also produce GHG emissions.
- Alternatives - what alternatives exist. In addition to the ones I mentioned above, the current tax provisions incentivizing production of carbon fuels should be cut back.