A Deal over Climate Change

Irwin M Stelzer

T he science of climate change may or may not be the certain thing that the president claims it is, but surely certain is the fact that he can push the Constitution only so far before the Supreme Court pushes back. Which is what it has done by granting the request of 29 states and several business groups that it stay the hand of the EPA until the legality of its new rules governing carbon emissions from power plants, the so-called Clean Power Plan, can be fully tested in the courts. The administration is shocked, as it should be: The Court has never before granted a stay of a regulatory rule before it went into effect. The environmental movement is horrified; climate-change skeptics and those who favor limited government are overjoyed; conservatives who would rely on market- oriented solutions to environmental problems sense a new opportunity; and the climate-change debate is now entering a new round.

The state of play until recently was this: Democrats were counting on draconian regulations to lower the rate of increase in carbon emissions; Republicans were counting on their hold on the Senate and their prospects of taking the White House to reverse those regulations. Democrats were counting on the regulations the EPA crafted to underpin the commitments the president made at the Paris climate change conferences, and on those commitments to induce other nations to make similar reductions in the growth of their emissions. Republicans were counting on a new president to walk away from those commitments because they were not in the form of a binding treaty. Both sides believed they were riding a winner. No need to compromise on the one solution that almost every economist agrees would be a prudential, efficient way to reduce emissions-a carbon tax. Regulations, the Democrats were certain, would get them the climate-change program they favored, while a new president, reckoned the Republicans, would end all this climate-change nonsense.

Enter reality, exit certainty. Climate-change advocates face five new developments that make it less than certain they will get the emissions reductions they believe are needed. First, closer examination of the Paris deal reveals that even in the unlikely event that all parties honor their commitments, the reduction in the growth of emissions would be insufficient to satisfy scientists that a calamity is not soon to make an appearance. Besides, those commitments are non- binding and nonenforceable. Second, as the prices of oil and natural gas continue their downward plunge in search of a bottom, renewables on which climate-change advocates are relying to replace fossil fuels become increasingly uncompetitive and in need of subsidies. That not only creates budget pressure but tempts developing nations that signed nonbinding statements of intent in Paris not to sacrifice economic growth in pursuit of lower emissions. Third, the Democrats’ likely nominee has demonstrated what one columnist calls a lack of aptitude for her chosen profession and cannot with complete certainty be relied upon to be in a position to carry the Obama climate-change plan forward. Fourth, the EPA has demonstrated a combination of arrogance and ineptitude that makes relying on it to get the job of emissions reduction done a chancy business. Arrogance, by refusing to provide Congress or anyone else with the data underly- ing its policy determinations; ineptitude by polluting the Animas River in Colorado and San Juan River in New Mexico and fiddling while the drinking water in Flint poisoned its users. Finally, and most important, the Supreme Court has granted several states the stay requested to bar the EPA from enforcing its new Clean Power Plan until the courts have ruled on its legality, a ruling that its supporters cannot be sure will come down in their favor.

See? There’s some superfluous carbon right there.

But neither can the rule’s opponents. Those who feel that climate change is a plot to enlarge government, or a mis- reading of the scientific evidence, have four new worries of their own. First, they have to face the possibility that in the absence of some alternative method of reining in carbon emissions, the EPA will, in the end, be allowed by the courts to proceed with its draconian and expensive regulations, a possibility made more likely by the death of Justice Scalia, who voted with the majority in the Court’s 5-4 decision to stay the application of EPA rules. Second, they have to face the prospect that the circular firing squad that is their nominating process will so wound all their potential presidential candidates, and/or produce one that is unelectable, that four-to-eight more years of a regulation-writing administration is in their near future. Third, it is not inconceivable that a Republican president, his top priority being to restore the credibility of the United States as an ally, will not want to renege on the deal made in Paris by his predecessor and would prefer to offer an alternative method of meeting the goals to which President Obama committed us at the Paris conclave. Finally, there is the political fact that a large majority of voters, rightly or wrongly, believe the earth is warming, that carbon emissions are the cause, and that something should be done. Younger voters have been indoctrinated with this view by their teachers, their elders, and by academics and media gatekeepers who deny dissenters access to learned journals and the press.

The rising uncertainty of most of the parties as to the impregnability of their positions comes at a time when an opportunity for a win- win solution presents itself. Both parties more-or-less agree on two things: The U.S. tax code is in need of reform, and middle-class workers could use a boost in take-home pay. When the pressure to prevent further flight of our corporations to the greener pastures of Ireland and other lower-tax jurisdictions becomes irresistible, when Speaker Paul Ryan and President Obama or his successor sit down to find common ground, a carbon tax will be on the table, if for no other reason than liberals like taxes, conservatives prefer market solutions to regulation, and both are eager to show the middle class that relief is at hand. Whether the parties consult conservative or liberal economists, they will be pointed towards a carbon tax. Whether they believe the planet is getting hotter, as the modelers contend, or is not, as the thermometers suggest, they will begin to see the virtues of such a tax.

Climate-change advocates will see it as a way to curb the consumption of fossil fuels, in part by narrowing the competitive gap with renewables; their opponents will see such a tax as meeting a long-held conservative view that it is more growth-friendly to tax consumption rather than the proceeds of work and risk-taking, to be paired with environmentalists’ agreement to substitute the tax for the EPA’s regulations. Both sides will recognize that a carbon tax, by leveling the competitive playing field, eliminates any need or support for subsidies for renewables. If necessary to protect America’s competitiveness, reformers could also impose a tax on the carbon content of imports from countries that do not tax their own emissions.

Better still, the proceeds can be devoted to a simultaneous reduction in the payroll tax paid by workers below some reasonable income level. A $20 per ton carbon tax would increase pump prices by about 18-cents per gallon, estimate Roberton Williams and Casey Wichman of the University of Maryland, not a large burden in this day of $1.75 gasoline. And the impact on the low est fifth of earners can be eliminated by devoting about 12 percent of the proceeds to such a purpose, according to Terry Dinan, senior adviser at the Congressional Budget Office.

So carbon taxes give those who want to see emissions reduced just what they need-surely a more encompassing attack on the problem than the president’s proposed tax on oil, which concentrates on one source of emissions and anyhow cannot pass. It gives conservatives a market-based tool to replace regulations and relieves them of a need to sign on to the climate-change thesis by providing a true, conservative rationale-consumption taxes that ease the burden of taxation on work are pro-growth. And all sides get a tool with which to relieve at least part of the squeeze on middle-class incomes.

Is all of this possible? I am certain that it probably is.