The massive WikiLeaks trove of Clinton campaign emails (which the campaign still refuses to verify) has revealed that way back in early 2015, Clinton advisers investigated the potential impacts of a serious carbon tax. Emily Holden and Hannah Hess at E&E have the story.
There were three key documents, written by advisers Pete Ogden, a Center for American Progress senior fellow who previously worked as a climate change aide under Obama in the White House and at the State Department; Trevor Houser, a policy analyst with the Rhodium Group consultancy; and Ben Kobren, who was communications director for climate envoy Todd Stern at the State Department.
In memos from January 2015 and March 2015, they lay out research and ideas on green policy. Among them was a "GHG pollution fee," a.k.a. a carbon tax.
Clinton campaign political staff believe a carbon tax is political poison
At the time of the first memo, in January 2015, campaign director John Podesta sent an email to key aides saying, "We have done extensive polling on a carbon tax. It all sucks." At the time of the second memo, in March 2015, those same aides were looking at polling results that showed support for a carbon tax plunging in the face of conservative attacks.
In June 2015, campaign manager Robby Mook, while discussing how to elide the issue in the Democratic primary, said bluntly that supporting a carbon tax is "lethal in the general."
(Don’t miss Brad Plumer’s story on all this.)
A rebated carbon tax is massively progressive
The frustrating part of all this is that the kind of carbon tax system Clinton aides proposed would be a financial win for almost all Americans except the rich. It would be enormously redistributive, in a progressive direction.
They proposed a $42-a-ton carbon fee, set roughly at the US government’s average estimate of the "social cost of carbon" (scientists’ best guess at the economic damages imposed by a single ton of carbon emissions). The revenue from the fee would be divided among all citizens as a per capita rebate, with a small portion set aside as transition assistance to coal communities.
A $42/ton fee would, they estimate, raise average annual energy expenditures by about $478 per household.
As you can see, the level of energy expenditures depends heavily on the future price of oil, but in every scenario, it’s lower than in the recent past.
The problem is that a carbon tax, in and of itself, is regressive. While wealthier households will see their costs rise more on an absolute basis (since they spend more on energy), low-income households will see theirs rise more on a relative basis (since they spend a larger percentage of their income on energy).
However, when the revenue is returned as per capita rebates, it more than reverses that regressive effect. For houses in the bottom four income quintiles, the rebate would be larger than the rise in their energy costs. It is only the top quintile that would see a rise in their net costs.
In other words, a rebated carbon tax is a massive progressive redistribution of wealth, from the rich to everyone else. (Note, however, that there’s no calculation of how much carbon it would reduce.)
This is something fee-and-dividend (or cap-and-dividend) proponents have been banging on about for years. However, they always take it to mean that the policy will be politically popular. No matter how high you raise the tax, they reason, you maintain public support, because most people benefit.
But polling has never supported this. Indeed, the poll I referenced above was about exactly this policy, a carbon tax that provides a rebate check of $1,500 a year to every household. Support simply didn’t hold up in the face of all the reliable right-wing attacks: that it would be the biggest tax ever, the rebate would never cover the rise in costs, and the economy would die screaming.
I wrote about similar polling in this post. At least at this stage of things, despite its clear benefit to most voters, a refunded carbon tax just isn’t that attractive to voters. The bias against taxes is too strong.
What about using the revenue on clean energy?
Having assessed a carbon tax, Clinton’s advisers then moved on to smaller, less ambitious policies.
For instance, there’s this one:
[Clinton] could call for a clean energy competition that rewards states that exceed their Clean Power Plan emissions targets. For instance, a reverse auction could be launched where states compete for federal block grants that cover the cost of CO2 emission reductions beyond what is required in the CPP. States could bid in a quantity of excess abatement (measured in tons of CO2e) and a price for that abatement (measured in dollars per ton). The federal government would use whatever resources were available in the program to buy the greatest amount of abatement at the lowest cost.
They speculate that these grants could even replace the existing tax credits for clean energy, the ITC and the ETC. They could even be "extended to the transport sector to reward states and cities that take a leadership position on climate and put in place low-carbon transportation policies, like zero emission vehicle (ZEV) mandates and express lanes, EV charging infrastructure, mass transit support, and others."
Interesting: a program that offers states money for exceeding federal clean energy standards, on both electricity and transportation. It wouldn’t be prescriptive, "picking winners" — instead, it would offer equal money to any state (or city) that could reduce carbon emissions. It’s a conservative-friendly policy that would unleash the "laboratories of democracy." Who could argue against incentivizing local entrepreneurship and innovation?
This policy was attractive enough that it ended up in Clinton’s publicly released climate policy plan. The campaign calls the model "flexible federalism" — the feds provide the goal; states decide on their own how to meet or exceed it.
There’s just one problem: how to pay for it. "We are exploring a range of potential revenue sources to fund such a program," the campaign says.
Funny they should mention that. Just a section ago, the very same advisers were discussing a huge source of revenue. The carbon tax!
Why not use carbon tax revenue to fund clean energy competition/innovation?
Carbon tax polling varies depending on how the revenue is used
Clinton’s climate advisers and her political aides are missing something here. A carbon tax — any tax — will, ceteris paribus, poll poorly, especially in the face of well-tested, oft-deployed conservative arguments.
Even if the government promises to return all the revenue as rebates, people don’t trust that it will happen. They don’t trust that they will come out ahead. What’s more, it doesn’t make much sense to them. What is the point of the government taking a bunch of money and giving it right back? It turns out to be one of the least popular policy alternatives:
But other uses of the revenue poll differently. On the 2014 National Surveys on Energy and Environment, a carbon tax with no specified revenue use polled poorly. But things changed when different uses of the revenue were offered alongside the tax. USA Today describes the results (emphasis mine):
If used to fund programs for renewable power like solar and wind, 60% back the tax overall, including 51% of Republicans, 54% of Independents and 70% of Democrats.
A smaller majority supports a tax if the revenue is returned to them via a rebate check. While 56% overall favor this idea, support ranges from 43% for Republicans to 52% for Independents and 65% for Democrats.
The third option -- using the tax revenue to reduce the massive U.S. fiscal deficit -- is not popular with any political group. It is opposed by the majority in each.
In other words, unlike tax reductions or per capita rebates, directing the revenue to renewable energy improves the political salability of a carbon tax.
Why? Because everyone loves clean energy. It is popular across demographics, ideologies, and regions.
This is from Pew, from this year:
This is from Yale, in 2014:
This is from Gallup, in 2013:
This is from Gallup, in 2011:
Renewable energy, unlike climate change, nuclear power, and fossil fuels, has not been sucked into the American partisan vortex. It is broadly, enduringly popular.
So why not investigate a carbon tax where the revenue goes to the clean energy competition described above? Or to put it in a more politically potent way: Why not investigate an ambitious clean energy investment program funded by carbon revenue?
A model for the next big attempt at a climate bill
Big climate legislation is impossible as long as the GOP holds the House. But the Donald Trump catastrophe has introduced at least the slim possibility that the House could flip.
If Clinton finds herself with a Democratic House and Senate, there is, in turn, a slim possibility that she will choose to pursue climate legislation. (I suspect this is unlikely, for reasons I’ll address in another post, but let’s play.)
If national Dems had another bite at the climate policy apple, what would it look like? Cap and trade didn’t work out well for anyone, and anyway, social justice groups are now aligned foursquare against it. All the wonks want some kind of carbon pricing. The public seems to want big, ambitious clean energy programs.
So why not combine them into something that makes everyone happy? Invest in a big, bold, forward-looking program to accelerate the clean energy transition, in the name of innovation and leadership. Pay for it with a steadily rising fee on carbon, in the name of fiscal responsibility. Set aside some of the revenue to keep low-income families whole, in the name of equity.
I’d like to see how something like that polled. It may be a long time before the chance for comprehensive national climate legislation rolls around again, but it’s not too early to start talking about options.