A think tank and a pro-manufacturing group released dueling papers today taking very different views of the carbon tax.
The Brookings Institution paper suggests an escalating carbon tax could help address federal budget shortfalls, reduce heat-trapping greenhouse gas emissions, and make costly energy subsidies and regulations unnecessary.
Meanwhile, the National Association of Manufacturers released a study that found a carbon tax would inhibit economic growth.
The Brookings paper by economist Adele Morris proposes an initial $16-a-ton price on carbon emissions from fossil fuels production beginning in 2014, rising 4 percent each year over the rate of inflation.
For comparison, British Columbia levies a tax of more than $29 a ton of carbon dioxide, and Australia's is more than $24 a ton.
The paper presents the carbon tax as a policy that can do something for nearly every interest group.
"The revenues from the new levy could fund permanent reductions in more distortionary taxes on capital income while also contributing to deficit reduction," Morris writes. "And by providing simple, transparent, but powerful market-based incentives to reduce damaging greenhouse gas emissions, this levy could supersede the array of costly regulatory command-and-control approaches and expensive subsidies aimed at reducing dependence on fossil fuels and promoting clean energy."
If a carbon tax remained in effect for two decades, she writes, the United States could use the revenue to lower the corporate income tax by 7 percent while decreasing the deficit by more than $800 billion. The policy would also result in a 12 percent reduction in carbon emissions.
Morris suggests imposing a border tariff on energy-intensive goods from countries that lack a similar carbon price to protect U.S. manufacturers. A similar provision was part of a Democratic carbon cap-and-trade bill that passed the House in 2009, and some experts questioned whether it would be in compliance with international trade rules.
Unlike the House-passed bill and a carbon tax measure offered recently by Sen. Bernie Sanders (I-Vt.), the Brookings proposal wouldn't direct much carbon tax revenue toward new federal spending. Morris proposes a small carve-out to protect low-income households from a possible spike in energy prices, but suggests rolling back spending elsewhere. For example, her proposal would continue federal support for research and development of new low-carbon technologies but eliminate subsidies and tax credits for mature technologies, like renewable energy and electric cars.
The tax could also replace some energy efficiency, renewable energy and carbon mandates, the paper says.
But despite a lack of new government spending, Morris' proposal is not the revenue-neutral carbon tax favored by Republicans like former Rep. Bob Inglis (R-S.C.). They say revenue must not be diverted to pay down the federal deficit but should go exclusively toward offsetting tax cuts.
On the other hand, the NAM study considers the effects of a $20-a-ton carbon tax whose revenue would go toward deficit reduction and to keep personal income taxes from rising as quickly as a base line assumed by the researchers.
Far from acting as a stimulus, NAM researchers say, the tax would "have a net negative effect on consumption, investment and labor market decisions, resulting in lower federal revenue from taxes on capital and labor."
And rather than raising revenue that could help lift the United States out of debt, NAM says, the carbon tax would "be significantly less than the projected carbon tax proceeds themselves."
The policy model would also greatly inflate the cost of electricity, especially if the tax was set with a specific emissions-reduction goal in mind (the study considers an 80 percent reduction target by 2053) rather than a specific dollar amount.
The carbon tax has gained little traction on Capitol Hill or within the Obama administration, despite its being discussed at several Washington think tanks. Resources for the Future, for example, will host a forum on the carbon tax tomorrow.
Jack Lew, the White House nominee for Treasury secretary, reiterated last week at his Senate confirmation hearing that President Obama would not propose a carbon tax in his second term. And House and Senate carbon tax proposals are not expected to gain steam in the current political environment.
This was illustrated again today when Sen. David Vitter (R-La.), top Republican on the Senate Environment and Public Works Committee and a carbon tax opponent, asked the White House to promise to oppose Hill efforts to enact such a policy.
"This request is pretty simple: Are they going to stand by their statements and oppose any new carbon tax?" said Vitter in a statement, adding that the proposal offered by Sanders and Environment and Public Works Committee Chairwoman Barbara Boxer (D-Calif.) would cause energy prices to "skyrocket," driving up the cost of living.
Also not expected to take off is regulated industry pushing for a carbon price, despite facing the prospect of U.S. EPA regulations and other constraints on their carbon output.
Mike Duncan, CEO of the American Coalition for Clean Coal Electricity, said in an interview with Platts over the weekend that he did not believe a carbon tax would be enacted in the near future.
The tax, he said, would hurt low-income people and lead to greater government spending -- two issues that Brookings' Morris sought to address in her proposal.
Reporter Manuel Quinones contributed.
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