The Conservative Case for a Carbon Tax

Climate scientists warn that if we let the world heat up by two degrees Celsius, we may be in for some catastrophic impacts. And while renewable energy is on the rise and we’re making strides in energy efficiency, limiting global warming to only two degrees will require some drastic changes.

One potential solution is to put a price on carbon, to help curb our consumption. In a talk hosted by Columbia University’s Center on Global Energy Policy, economist Glenn Hubbard discussed a few routes through which that might work—and explained which one he likes better. Hubbard is dean of the Columbia Business School. He is also a visiting scholar at the conservative American Enterprise Institute, and has advised many conservative politicians, including George W. Bush, Mitt Romney, and Jeb Bush.

During the event, which took place at the end of April, Hubbard said that the science is clear: the climate is changing, and humans are at least partially responsible. And while there are some uncertainties as to exactly how those effects will play out, the evidence suggests the impacts will be harmful and that we need to take action.

“Just as a household … makes plans to reduce the potential damage from uncertain events, like when we buy an insurance policy, the United States and other countries need to address the damaging, if uncertain, consequences of global warming,” said Hubbard. “To me, this notion of uncertainty can’t be an excuse for doing nothing, but nor can it be an excuse for slamming on the brakes.”

He advocates addressing climate change through moderate policies driven by market mechanisms. One such option would be a system of tradable permits, similar to the system that George H.W. Bush enacted in 1990 to deal with sulfur dioxide pollution. In this solution, power plants that burn fossil fuels would buy permits to emit carbon dioxide and other greenhouse gases. This would encourage businesses to reduce their emissions as cheaply as possible.

However, Hubbard says that permit markets can be volatile, which makes it difficult to gauge their economic impacts. He thinks a carbon tax is a better solution, because it would offer certainty about how much a business would need to pay per ton of emissions. Like the permitting system, it would encourage companies and utilities to find innovative ways to curb their carbon emissions.

A carbon tax would most likely be levied at the companies that bring fossil fuels into the U.S., and/or the power plants that burn them. For example, it would apply to the 2300 sources that account for some 80 percent of U.S. emissions. And although the cost of the carbon tax would ripple through the economy, the effects on individuals and households could be mediated or refunded through the revenue that the tax would generate. Or those profits could help to reduce the national deficit. By Hubbard’s calculations, a carbon tax of about $20 per ton of carbon could generate almost $100 billion dollars a year. And the price on carbon could rise over time.

What’s clear, according to Hubbard, is that we can’t rely on technology alone to save us.

“I’m absolutely a believer that technology is our friend here,” he say. “I’m absolutely a believer in innovation. I just think it’s naive to think that without this gentle nudge, that we will see it… Business people are not in the business of innovating for social purpose; they’re in the business of innovation for profit.”

Reframing the Future

These days, Democrats and Republicans in Congress hardly agree on anything, let alone anything to do with climate change. Hubbard thinks that getting a carbon tax to pass requires reframing the debate somewhat.

To him, it’s inevitable that America will transition to a clean energy economy, because that’s what business people feel is right. As to how we get to that new economy, Hubbard proposed two pathways. The first is through a web of regulations that he says are “costly, complex, and inefficient.” The second is through a market-based approach such as a carbon tax.

“If want to break through this political stasis,” he suggests, “we’ve got to talk about this as: we’re going to go this way—do you want regulation, or do you want markets?”

Hubbard is optimistic that a carbon tax will get passed eventually, and not because politicians will suddenly wake up to the challenges of climate change. “I just think the forces of the budget, of the fear of regulation, of business people saying do it—I think there’s enough of that coming together that they will do it.”