Yes, we should be excited that leaders from 193 nations put their heads and hearts together in Paris. They made important progress in staving off the worsening damage threatened by climate change. As a former ambassador, I relish such cooperation.
But as a businessman, I was even more encouraged by the role played by business leaders. While efforts to combat climate change may be criticized by the coal industry, I was struck by the number of business executives in Paris who were pushing for bold action.
The business community’s message at Paris was: We can help, but the way to drive technology and innovation is to set a global carbon price, and the most promising option for doing so is charging a fee.
Fees are predictable, thus promoting long-term investment. A revenue-neutral fee also would generate revenue that can be put to work in any number of productive ways.
Now, not only is the world doing too little to discourage burning of carbon, it is doing quite a bit to encourage it. The International Energy Agency has found that at least 40 nations subsidize fossil-fuel consumption, a total of $500 million – four times the subsidies for renewable energy.
Because the Paris agreement does not call for pricing carbon, India will continue to build coal plants, which would not be economical if carbon’s external costs were included in the price of electricity. And when a gallon of gasoline sells for two cents in Venezuela, there’s a clear inducement to buy a lot of it and not to invest in clean alternatives.
We will stop harming our planet only when we stop making pollution free. And if the United States is to lead, Congress must create a carbon fee.
Some would call that a pipe dream, given the harsh rhetoric emitted by a number of powerful legislators. But creative compromise is still possible in Washington.
Our nonprofit, the Partnership for Responsible Growth, has met with 175 senators and House members to urge them to consider creating a revenue-neutral carbon fee, with half the proceeds going toward reducing our corporate tax rate from 35 to 25 percent. This rate, the highest in the industrialized world, is encouraging major corporations such as Pfizer to move their headquarters and taxable profits outside the United States.
Our conversations indicated that there is strong bipartisan receptiveness to this centrist approach, provided businesses and local opinion leaders speak out in support. A survey by three GOP pollsters in September showed that 54 percent of conservative Republicans would support a carbon fee if the proceeds were rebated.
The fee could start at $35 or so per ton, perhaps doubling over 10 years. It should be levied at the mine mouth or oil and gas collection point – 2,500 locations where carbon fuels are already measured for other purposes. A $35 levy equates to about 32 cents per gallon of gasoline. To offset these higher energy costs, half the proceeds could be refunded to low- and middle-income consumers. A border adjustment can protect domestic manufacturers.
This free-market approach would create jobs, increase economic growth and could also create momentum for more comprehensive tax reform.
Carbon fees work. British Columbia has had one since 2008. It has reduced fossil fuel consumption by 9 percent, while use in the rest of that country has risen. Meantime, British Columbia’s GDP growth has outperformed Canada’s.
The U.S. must lead in setting a global price on carbon. Every day, more of our businesses are seeing the benefits, and there is enormous potential for private-public teamwork.
William C. Eacho, a former U.S. ambassador to Austria, is co-founder of the Partnership for Responsible Growth, a bipartisan advocacy group based in Washington, D.C. He can be contacted at email@example.com.