A carbon tax is a great idea—providing we do the right thing with the money it will generate.
Why does the revenue matter so much? It matters because there could be a lot of it and because the price itself will not by itself prompt enough energy system clean-up to slow climate change sufficiently.
Numerous scholars have demonstrated that, while the scale of the needed pollution reductions is extremely large, the likely pollution cuts that would be achieved by politically achievable prices likely to be enacted would be modest as well. Low-to-middling pricing will only work modestly well, given how entrenched is the "lock-in" of cheap, readily available dirty technologies. And so pricing strategies need to be paired with other strategies.
Which is where we arrive at the revenue. By employing a sliver of the revenue that would be generated by any carbon fee to investments in cleantech technology development and deployment the nation could overcome carbon lock-in and induce the cleantech innovation needed to dramatically lower carbon emissions.
Hence my proposal: Let's institute a modest, slowly rising carbon price of $15 a ton; set aside the first $20 to $30 billion of revenue annually for clean energy development and deployment; and apply the rest (maybe $120 billion a year) to tax cuts and deficit reduction as well as rebates to low-income households.
Just think of it: With this approach the United States could secure a major "win-win-win" solution by which the nation would surge forward to fashion a serious climate change response, stabilize the budget, and spur growth. At last we would have located a dedicated revenue source for needed clean energy R&D and deployment programs, now likely to be cut. Likewise, Congress would gain needed new revenue that it could apply to serious debt reduction or tax reductions. And as models of such schemes at Brookings and MIT show, such a package would actually improve overall economic performance beyond what it would be without a carbon tax.
So what's not to like? Let's place a modest tax on carbon dioxide pollution and just be sure to use the money the right way.
About Mark Muro Director of Policy for the Metropolitan Policy Program at Brookings
Chad Stone Chief Economist at the Center on Budget and Policy Priorities
Charles Komanoff Director of the Carbon Tax Center
Paul C. Knappenberger Assistant Director of the Center for the Study of Science at the Cato Institute.
Thomas Pyle President of the Institute for Energy Research
Christopher Prandoni Federal Affairs Manager of Americans for Tax Reform