Thankfully, the Republican party’s climate change orthodoxy has shifted from denialism to acknowledgment and commitment to addressing it. This change is remarkable. In fact, some Republicans are proposing more responsible climate change policies than some Democrats, particularly those who have embraced the unrealistic, costly Green New Deal.
So far this year, multiple hearings have been held to advance the discussion, and most Republicans have engaged constructively. The House Ways and Means Committee recently held its first hearing on climate change in 12 years. (This committee is the lynchpin of effective, durable climate change solutions, so we hope it was the first of many hearings on the topic.)
As those hearings progress, we urge our fellow Republicans to broaden their perspective on a revenue-neutral carbon tax.
Common concerns introduced when discussing a carbon tax are understandable, such as raising taxes on working families in America who cannot afford it. We wholeheartedly agree that should be avoided. But climate policy will always have associated costs, so we must consider a policy that is least burdensome to households and the economy.
We must also consider a policy that empowers American innovators to create clean energy solutions. (The Alliance for Market Solution commissioned research that concluded that a properly implemented carbon tax will induce innovation in both efficiency and cleaner sources of energy, ultimately lowering the costs of reducing carbon emissions.)
We often refer to three approaches U.S. lawmakers can consider when they want to shift behavior among consumers and producers: regulations, subsidies, or taxes. While each approach can target carbon emissions, regulations and subsidies cost significantly more than a tax—a burden families and our trillion-dollar deficits cannot bear.
In a nutshell:
- Regulations not only limit market choices and create hidden costs, they progress slowly and, therefore, hamper innovation. They often impose burdens inefficiently across the economy, imposing overly burdensome limits on some sectors, and under-regulate areas where reductions could be achieved more efficiently.
- Subsidies, which have become a popular approach to inducing innovation, are the most expensive approach. They are paid by taxpayers either through taxes or the obligation to repay federal debt, and they ignore the potential to reduce carbon emissions across the economy and instead focus on politically popular technologies.
- A carbon tax is most efficient, as it puts a transparent price on all carbon emissions, which incentivizes consumers and producers to avoid the cost. This not only reduces emissions but raises revenue that can be used to grow the economy by cutting more distortionary taxes. (For example, a recent report by EY estimates that a revenue-neutral carbon tax, paired with a rollback of existing climate regulations, could increase annual household GDP by as much as $5,090 (per household, on average). As for innovation, a revenue-neutral carbon tax also creates an unhampered incentive for innovation, which could dramatically lower the cost of reducing carbon emissions in the future.
As Republicans seek solutions to climate change, we should invoke our strength: economics. Sound economic policies are undoubtedly the greatest contribution we can make to protecting the environment and the future of Americans.