The tax incentives in the Inflation Reduction Act are going to deploy a tremendous amount of clean energy in America. Permitting reform is needed to get that clean energy to population centers, and a carbon border adjustment mechanism in needed to achieve worldwide action on climate.
Our clean energy friends on the EcoRight (a balance to the Environmental Left) are to be congratulated on a great success. Much of their agenda has been accomplished in the substantial tax credits contained in the Inflation Reduction Act. Had those tax credits been contained in a free-standing bill, there might have been Republican votes for those provisions. After all, what’s there not to like about reducing overall taxation?
Those of us on the EcoRight who support a carbon tax have set our sights on worldwide action on climate change. We celebrate the deployment of clean energy in America, and we hope that early adoption here might lead to cost reductions that make clean energy technologies affordable around the globe. But we’re aware that American tax incentives only alter the economics of American firms. Foreign firms can’t avail themselves of those credits. Because of that, the clean energy technology that’s going to be deployed here might not be deployed around the world. We’ll have cleaner air, fewer asthma cases, fewer hospitalizations, and longer life expectancies here in prosperous America, but we won’t yet be solving climate change. Alas, the devilish thing about climate change is that carbon pollution anywhere is climate change everywhere.
Admittedly, our ambition is politically difficult. But what if it’s really an “untax.” Untax income; tax carbon pollution instead. This could be done by reducing F.I.C.A. (payroll) taxes and by applying the carbon tax at the coal mine and at the pipeline—a very small job for the IRS given the very small number of firms that mine coal or put fuels in pipelines. Low wage earners would be made better off by having fuller paychecks. By turning down their thermostats, putting plastic on their windows in the winter, and driving less, they could reduce their exposure to the carbon tax. A dividend of all of the carbon tax revenue back to the citizenry is another way to address the regressivity that’s otherwise the inherent problem of a carbon tax.
It’s important to us as conservatives that this carbon tax (the “untax”) be revenue-neutral. If there were a corresponding FICA tax cut, there would be no growth of government. We’d simply be changing what we tax—off income; on carbon pollution.
The huge benefit of having a domestic carbon tax in place is that we’d then be within our rights to impose a carbon tax on imports. World Trade Organization precedents allow the application of “content” taxes, and this would be a carbon content tax. China might object in the WTO, arguing that it’s an impermissible tariff, but they’d likely lose that case. Twenty-four hours after losing the case (they do have an amazing way of reaching consensus!), China would enact their own carbon tax. Otherwise, they’d be paying to America a carbon tax that they could have collected themselves. If they did collect that tax internal to China (and, yes, we’d have to “trust but verify” that collection), their goods would come into the U.S. without a “border adjustment.” Shortly thereafter, many trading partners of the U.S. and China would follow suit.
This application of a carbon tax to imports is about to be tested by the European Union. Their plan lacks a rebate of their domestic pricing of carbon dioxide for their exporters, so it’s technically not a border adjustment. But it’s a close enough cousin for us to see the power of the mechanism. American firms selling certain products (steel, aluminum and concrete, for example) are going to have to pay a European carbon tax on goods shipped to the EU. That’s a tax that we could collect ourselves, allowing us to skip their application of their carbon tariff.
Lightbulbs are going to come on in dark hallways of Congress. What government, what political party, wouldn’t want to collect a tax itself that otherwise is going to be collected by another country?
Prosperous America is set for a clean energy revolution. The carrots in the Inflation Reduction Act are going to work here in the U.S. A simple tax on carbon pollution that’s applied to imports would spread that clean energy worldwide.
Former Rep. Bob Inglis (R-S.C.) served in Congress from 1993-1999 and 2005-2011. He is the executive director of republicEn.org, a growing group of conservatives who care about climate change.