For years, economists, politicians and pundits have been debating the pros and cons of using a “carbon tax” to combat climate change. In its simplest form, the tax would be a per-ton levy on carbon dioxide emissions from electric power stations and industrial boilers that are fueled by coal, oil or natural gas.
Those in favor argue that by adopting such a tax we could rid ourselves of dozens of burdensome regulations and mandates that inhibit investment and economic growth. Unlike the distorting effects of regulation, a tax on emissions would give companies flexibility to come up with their own cost-effective strategies for reducing CO2. Indeed, virtually all of the Environmental Protection Agency’s regulatory oversight over carbon emissions could eventually be eliminated as well as President Obama’s Clean Power Plan.
Opponents of a carbon tax make two basic arguments. The first is that a “tax is a tax,” and consumers and businesses who will ultimately bear the burden are already over-taxed. The second, and more salient argument against a carbon tax, is the difficulty in estimating the “social cost of carbon (SCC),” a necessary first step in determining the level of the tax. In theory, this term represents the economic cost caused by an additional ton of carbon dioxide emissions or its equivalent. Currently set at $36 per ton by the EPA, the social cost of carbon underpins justifications for policies dealing with everything from power plants to car mileage to refrigerator efficiency. In reality, the SCC is a malleable concept driven largely by analysts’ initial assumptions and the choice of model utilized to generate dollar estimates.
Several weeks ago, a group of Republican elder statesmen calling themselves the Climate Leadership Council, including former Secretary of State George P. Shultz and former Treasury Secretary James A. Baker, endorsed the idea of a carbon tax that would start at $40 a ton and rise gradually over time. The Council claims that such a tax would send a powerful market signal to businesses that want certainty when planning for the future. The proceeds from the tax would be returned to households through carbon dividends, thus making the tax revenue neutral.
Another potential benefit of a carbon tax is that it would help secure the future of nuclear power as part of the nation’s energy mix. America today gets about 20 percent of its electricity from clean-burning, non carbon-emitting nuclear power plants. Ninety-nine generators are currently operating and four new reactors are under construction in Georgia and South Carolina. But since 2013, six plants have been shut down across the U.S. and another nine are scheduled to close in the near future, most notably the two Indian Point reactors north of New York that provide 25 percent of that city’s electricity.
Nuclear energy is also being challenged by cheap and abundant natural gas, which has become the preferred fuel for power generation and now accounts for nearly 35 percent of installed capacity nationwide. Indeed last year U.S. power plants burned more natural gas than coal for the first time. In short, nuclear energy can’t compete with natural gas (or coal, for that matter) at current prices. But to the extent a carbon tax increased the cost of generating electricity from natural gas and coal plants, the playing field for nuclear energy would be more even.
If we believe combating climate change is a serious matter, nuclear energy—the most environmentally benign technology for generating electricity—must be part of the arsenal. A carbon tax can help ensure nuclear’s long-term future.
Bernard L. Weinstein is associate director of the Maguire Energy Institute and an adjunct professor of business economics in the Cox School of Business at Southern Methodist University in Dallas.
The views expressed by this author are their own and are not the views of The Hill.