A small advocacy group in Massachusetts has proposed a novel, market-based approach to limiting the emissions of carbon dioxide — the colorless, odorless gas that is the underlying cause of global climate change. Their plan comes even as the Obama administration has unveiled its own set of rules aimed at accomplishing the same thing.
The president’s approach is the more traditional, the kind we associate with big government regulation — what some political scientists dub “command and control.” The Bay State scheme has a far greater potential for success, however, and is grounded in the power of prices and the way they affect our behavior. If the price of butter climbs, we use less, shifting over to margarine. If it falls, we use more. The local environmentalists, who call themselves the Committee for a Green Economy, want to apply the same principles to energy.
The basic problem with most forms of energy is that the price we pay — whether it’s at the pump or on our utility bill — doesn’t reflect its true cost. To be sure, the expense of extracting, refining, and then distributing the stuff is included in the bills we pay. But there are additional costs (economists call them “externalities”) that are borne by others. In the case of carbon dioxide emissions, those costs can be measured in the billions of dollars, as climate scientists have been documenting for years and as we are increasingly finding out first-hand. They include extreme temperatures and superstorms, the loss of coastline and an ever-rising likelihood of flooding. Someone eventually pays for all of this, of course, be it individuals in lives lost or governments funding efforts to clean-up and rebuild.
The ideal solution would be to somehow “internalize the externalities” — that is, make it so users of energy paid the full cost of that energy. Higher prices on fuels that emit carbon dioxide would mean we’d turn to sources (such as natural gas or wind) that emit less or we otherwise would seek to conserve. In the long run, rather than taxpayers bearing the cost of disaster relief after a flood, the hope is that the flood itself just wouldn’t happen.
How can this be managed? Here’s the tricky part: Put a tax on carbon dioxide. Those who have wearily battled Massachusetts’ infatuation with soaking its citizens for ever-more revenue undoubtedly (and for good reason) will be suspicious. New taxes would hurt the economy. Yes, they would cut carbon dioxide emissions. But they’d also cut jobs and economic growth.
There is a way around this conundrum, however. The Committee for a Green Economy’s thought is to take any new money raised and use it, dollar-for-dollar, to cut other state taxes — making it revenue-neutral, in other words. The organization hired a well-respected economics modeling firm, Regional Economics Models, Inc., to run some numbers and figure out the best approach. The answer: Use half of the revenue from a new carbon tax to reduce the corporate income tax, and the remainder to equally chop sales and income taxes.
Do so, and two interesting things happen. One, as expected, is that carbon dioxide emissions decline. Right now, Massachusetts emits about 64 million metric tons annually. With a tax of $45 per metric ton (which works out to about 39 cents per gallon of gasoline), that falls to about 56 million in 20 years.
The second, and perhaps surprising effect, is that the Bay State’s economy actually improves. Lower corporate and personal taxes offset the higher cost of living from the carbon tax, with the result being that the state’s gross domestic product increases by $8 billion from 2013 to 2035 (again, if the tax is $45 a metric ton). At the same time, the number of jobs climbs by about 10,000.
The Committee for a Green Economy’s proposal is already embodied in legislation introduced earlier this year by state Representative Thomas P. Conroy of Wayland and Senator Michael Barrett of Lexington, and the organization plans to launch a ballot campaign to try to make it law. A carbon tax — despite the word “tax” — is an exciting and worthy idea. Its reliance on markets rather than regulation makes it, as the Committee’s cofounder Jessica Langerman puts it, “an effective alternative both Democrats and Republicans can agree on.”