Obama Shows How Not to Sell a Carbon Tax
President Barack Obama's proposal this week for a $10-a-barrel tax on oil, which has been overwhelmingly rejected by Republicans, could make it easier for the next president to pass a carbon tax -- by demonstrating how not to go about it.
Obama made three mistakes. First, he targeted a single industry, and one that many Americans believe he doesn't like. That plays into the understandable fear that governments will use climate policy to reward friends and hurt adversaries.
The better approach, politically and economically, is to treat all sources of emissions equally -- to tax carbon dioxide, not a specific industry. That would not only neuter any sense that the government is picking favorites, but also spur fair competition between energy sources.
Second, Obama said he would use the money gained from the tax to fund things that disproportionately benefit urban areas -- mass transit, high-speed rail and (arguably) self-driving cars. That amounts to a wealth transfer from rural areas to cities, and from red states to blue ones. Republicans have every right to oppose that; otherwise, they'd be ignoring the legitimate concern that their constituents would pay more to drive and get little in return.
Of course, any kind of carbon tax will disproportionately affect those who consume the most fossil fuel; that's how you change behavior. But some sense of fairness can be created by, at a minimum, ensuring rural areas see the same per-capita benefit as cities do.
Third, Obama's proposal ignores research that shows Republicans are more likely to support a carbon tax if the government returns the money gained. In a 2014 survey, researchers found that just 15 percent of Republicans supported, and 81 percent opposed, a carbon tax in the abstract. But if the revenue went back to the public via rebate checks, support tripled, to 43 percent in favor (and 53 percent opposed).
The share of Republican respondents who would support a carbon tax rose a little more, to 51 percent, when they were told the revenue would be used for renewable-energy research. But that gets in the way of the political benefits of giving the money back to taxpayers. It lets proponents buy support, by creating the fiscal room to lower or eliminate other taxes. It gets around conservatives' general aversion to bigger government. And it appeals to the instincts of free-market economists, who recognize the importance of putting a price on private activity that hurts the public.
There's evidence that this approach could work. A group called the Partnership for Responsible Growth, which is pushing for a carbon tax coupled with lowering the corporate income tax, told me that members of Congress from both parties were open to the idea. A similar proposal could become law in Washington state, helped by conservative support.
Obviously, any carbon tax -- even a revenue-neutral one, which didn’t target a specific industry or transfer wealth from one group of Americans to another -- would be enormously difficult to sell. But if candidates and their advisers treat this latest episode as reason not to try, they're drawing the wrong lesson.
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