We need to cut carbon emissions without killing economic growth

We need to cut carbon emissions without killing economic growth
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The Congressional Budget Office is predicting growth of 3.2 percent for this year after the economy already picked up steam in 2017. One reason is that the Trump administration has undertaken a dramatic shift toward deregulation. The burdensome costs of complying with regulatory fiat from Washington bureaucrats, which had climbed at a steady rate in excess of $100 billion annually for nearly a decade, was essentially flat in 2017. Yet, there is one area where future administrations will be especially keen to regulate, and that is carbon dioxide emissions. In fact, the Environmental Protection Agency is legally required to regulate them.

There are lots of bad ways to reduce carbon emissions. The worst is heavy command and control regulation, according to new research from the American Action Forum. This kind of intrusive micromanaging of even homeowners associations was one reason that the American Clean Energy and Security Act, previous legislation pushed by President Obama, failed to make it through Congress. It reemerged in executive action as the Clean Power Plan, only to have President TrumpDonald John TrumpTrump rallies in Nevada amid Supreme Court flurry: 'We're gonna get Brett' Trump: 'Good news' that Obama is campaigning again Trump boosts Heller, hammers 'Wacky Jacky' opponent in Nevada MORE roll it back. The regulatory approach has too many economic dangers to be palatable in any form.

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A trendy alternative is a carbon tax, which makes some people think that it is automatically better than the regulatory approach. Not so fast because how one collects a carbon tax matters. Trying to collect a carbon tax like a retail sales tax would be an administrative nightmare and economic debacle. But a carbon tax is simple to carry out if applied upstream, such as at coal mine mouths or oil and gas wellheads. Taxed businesses will likely pass on most or all the tax in the cost of their products, but the personal freedom of every citizen will be preserved. Unlike a regulation that dictates what is or is not available, individuals would be able to choose to purchase taxed products or not.

Of course, carbon products will be more expensive and families will likely steer their paychecks elsewhere. That is how a carbon tax controls emissions. But it does more than that. It provides an automatic incentive for businesses to invent products with less carbon. If they spend less than they would paying the tax, they come out ahead and so do consumers. Carbon taxes are a form of policy humility. The answers to emissions challenges bubble up from across the economy and cannot simply be pushed down by Washington bureaucracy.

What one does with the carbon tax revenue matters a lot. One possibility is that carbon tax revenue gets channeled into greater federal spending. Carrying the burden of higher taxes and bloated spending is nearly as economically harmful as the regulatory approach. Instead, the carbon tax revenue should be devoted to reducing taxation elsewhere. It makes much more sense to tax pollution from carbon use than to penalize the risks of capital investments or the efforts of American workers.

All told, an efficient carbon tax would impose less than half the costs of regulation, according to the new research. Not only is there lower economic costs, the right carbon tax translates into much more effective mitigation of emissions than regulations ever could. After examining the potential capacity of regulatory approaches, such as electric utility regulation and auto mileage standards, to reduce emissions enough to stabilize atmospheric concentrations at a safe level, the research concludes that a carbon tax could reduce 57 percent more emissions.

It is an understatement to observe that the politics of reducing carbon emissions are venomous, and there is fearsome political wrangling over whether it is worthwhile to reduce domestic carbon dioxide or other greenhouse gas emissions at all. But legal requirements, such as the 2009 finding on greenhouse gas emissions, and future political pressures may force the issue. In the interim, some states and localities are pushing ahead with policies to control carbon emissions. In either event, it would be useful to reach a consensus on how to implement the most efficient carbon policy, even if there is not current agreement on the target itself.

Conservatives are committed to innovation, economic freedom, and rising prosperity. These goals need not be sacrificed in pursuit of reduced carbon pollution. Imposing an overly burdensome and poorly crafted carbon tax could be nearly as detrimental and inefficient as a bureaucratic expansion of the regulatory state. There is, however, a way to design a carbon tax that maintains individual choice, values efficiency, and employs revenue to reduce taxes elsewhere. That would be a strategy to control emissions that consistent with conservative principles.

Douglas Holtz Eakin is president of the American Action Forum. He served as director of the Congressional Budget Office from 2003 to 2005.