CLIMATE:

Carbon tax would halve deficit in 10 years -- report

A report by the nonpartisan Congressional Research Service circulated yesterday evening backed up supporters' claim that pricing carbon could be a powerful tool for reining in the federal deficit.

The CRS report found that Congress could cut the federal deficit in half in 10 years by enacting a $20 per metric ton carbon tax that rises 5.6 percent annually. This prediction relies upon the Congressional Budget Office’s August estimate that the U.S. government would run a deficit of $2.3 trillion between 2012 and 2022. CBO has estimated that the carbon tax would raise $1.2 trillion over the next decade.

The non-partisan budget agency’s estimate did leave open the possibility that the federal deficit could reach as high as $10 trillion over the same period if expiring tax credits are extended, Medicare payments to physicians do no decrease, and if the spending cuts made under last summer’s deficit reduction law are repealed.

The Obama administration has estimated that each ton of CO2 carries a social cost of $21 per metric ton. CRS spokeswoman Janine D'Addario said the Library of Congress-based research office could not disclose what member of Congress requested the report.

The idea of a carbon tax has enjoyed a modest resurgence this year, as lawmakers and policy analysts hunt for ways to rein in debt in the long term and stave off automatic cuts to domestic and military spending that are set to take effect in January.

A carbon tax has also been raised as a possible way to finance cuts to capital and labor taxes, an idea that has attracted some interest from center-right groups as well as environmentalists and liberals. The American Enterprise Institute and R Street Institute joined representatives from Public Citizen, Taxpayers for Common Sense and others for preliminary talks about a carbon tax this summer (Greenwire, July 11).

And the idea enjoys some support among former GOP lawmakers and policymakers. Former Rep. Bob Inglis (R-S.C.) has launched a public relations campaign to drum up support for a tax swap that includes a carbon tax (Greenwire, July 10), and several advisers to GOP presidential nominee Mitt Romney have supported the idea in the past (ClimateWire, Sept. 18).

But most current members of Congress on both sides of the aisle are reluctant to discuss carbon taxes in advance of this year's election. Even some strong proponents of action on climate change have shied away from discussing it publicly.

The Washington Post's PostPartisan blog reported Sept. 4 that Sen. Sheldon Whitehouse (D-R.I.) told the audience at a side event at the Democratic National Convention earlier this month that Democratic senators might use chamber rules to block any deal on the budget that did not include a carbon tax.

But Whitehouse, who has spoken of the need to address climate change repeatedly on the Senate floor, told Greenwire last week that he had "no recollection" of saying Democrats should band together to insist on a carbon tax.

A former Senate Finance Committee aide noted that the scenario Whitehouse appears to propose in the Post blog -- a 40-vote Democratic filibuster of any budget deal that did not include a price on carbon emissions -- would be unlikely to work, because budget legislation is routinely brought to the Senate floor under rules that do not allow filibusters.

Such bills are usually brought to the floor under budget reconciliation rules, he noted, which require a simple majority of 51 votes. Mustering a simple majority to pass a budget bill with a carbon tax would present more of a challenge in a closely divided Senate that includes some Democrats who would be likely to vote "no," he noted.

If Republicans took control of the Senate after this autumn's election, Democrats would have no power to block a bill brought to the floor under reconciliation.

"This is one reason that control of the Senate really matters," said the former aide.

Senate Environment and Public Works Chairwoman Barbara Boxer (D-Calif.) said last week that she wasn't aware any of her colleagues had floated the idea of adding a carbon tax to the budget mix. Such a policy would surely need Republican support, she said.

"When we get some Republican support, we can do it," she said. "You have to have Republican support."

In 2009, Boxer moved a carbon cap-and-trade bill through her committee with no Republican support. The measure never received a vote on the Senate floor.

Sen. Ben Cardin (D-Md.) said a carbon tax is not currently part of the discussion on budget legislation but should be.

"It has two advantages," Cardin said. "First, it does produce revenue that we could use. Secondly, it does have a worthy purpose in order to reduce carbon emissions; it gives an economic incentive for the right type of energy policies for our country."

Revenue issue not going away

The next Congress will continue to grapple with balancing the budget, Cardin said, which will require a compromise between the two parties no matter what happens in November.

"Revenue is going to be in the equation," he said. "So we are looking for ways that we can get some kind of consensus on revenue. And carbon tax might be one."

Rep. Jim McDermott (D-Wash.) is one of only two members of Congress to introduce a carbon tax bill (H.R. 6338) in this Congress. Unlike most supporters of the policy who hope it will play a role in future budget negotiations, McDermott said last week that he believes it could figure in post-election efforts to avoid the so-called fiscal cliff next year.

"After the election, all things are possible," he said, as Republicans will feel the urgency of staving off mandatory cuts to Defense Department spending that are set to take effect at the start of the year.

"They're going to start looking for taxes," he said. "And maybe we'll tax online gambling, and maybe we'll tax [carbon]."

McDermott said he introduced his bill in order to get people on and off Capitol Hill thinking about a carbon tax in the context of a budget deal.

"You need to have people out there thinking about it and talking about it, so that it doesn't come at them cold," he said.