The voices of Tax Policy Center's researchers and staff
While President Biden has called climate change an existential threat, his proposals for addressing it remain modest relative to the enormity of the problem. In part, that’s because he’s taken off the table a carbon tax, the solution favored by many economists and climate experts. And one reason may be opposition from some in the environmental justice movement, which appears deeply divided over a carbon levy.
It isn’t surprising that many Republicans and some in the business community oppose aggressive efforts to combat climate change, either for partisan reasons or because they feel it would be a drag on the economy. But opposition from influential advocates on the political left creates different challenges for carbon tax supporters.
What is environmental justice?
According to the Environmental Protection Agency, environmental justice means “the fair treatment and meaningful involvement of all people regardless of race, color, national origin, or income, with respect to…environmental…policies.” And the movement has a built-in audience at EPA, which earlier this year created an office of environmental justice.
Biden’s reluctance to back a carbon tax stems mostly from his promise to not raise taxes on people with incomes under $400K. While a well-structured carbon tax would protect most people from a tax hike by rebating revenue to households, it inevitably would catch some who make less than the threshold.
In addition, some Biden advisers believe that regulation, rather than carbon pricing, should be government’s primary tool to reduce harmful emissions.
Opposition from some environmental justice voices incorporates both of those objections, and also goes beyond them. Many doubt a carbon tax can address hyper-local environmental issues. Others seem primarily concerned about its regressivity. And still others object to what they see as excessive corporate benefits from carbon pricing.
The biggest issue may be that many low-income communities face what they believe are more immediate environmental concerns. These include lead in paint and water pipes, pollution from local industry, and lack of parks and other public green spaces. And, they say, while a carbon tax might help reduce greenhouse gasses globally, it would do little to reduce pollution in their “frontline” communities.
Biden has attempted to address some of those grassroots issues through new spending and tax credits in his proposed infrastructure bill. But that still has not won him backing for a carbon tax from many environmental justice advocates.
Even those who favor broad-based climate solutions disagree over how. While some in the movement support a tax, others favor its close cousin, a cap-and-trade system. While the two options are economically similar, they operate quite differently.
How to spend the revenue
Some of these critics believe a carbon tax is regressive. Their argument: Low-income people spend relatively more than those with higher incomes on goods and services that have fossil fuel costs built into their prices. Thus, those low-income households would pay a larger share of their income in carbon taxes. More about that in a minute.
Then, there is the question of what to do with the large amounts of revenue carbon pricing could generate. Cap-and-trade allows government to auction rights to emit greenhouse gasses. And a national carbon tax could produce $100 billion or more annually, depending on the tax rate. Some in the environmental justice movement want those revenues dedicated to low-income communities. Others want it spent on green initiatives.
But many economists and policymakers prefer distributing at least some carbon tax revenue to all households as a rebate or dividend. My Tax Policy Center colleagues Donald Marron and Elaine Maag described how to design such payments. My TPC colleague Adele Morris would use some revenue to assist coal miners and others whose livelihoods would be disrupted by a big increase in fossil fuel costs.
“As progressive as you want.”
Some critics of carbon pricing say the idea is racially inequitable. The political left’s internal disputes have twice sunk climate change initiatives in Washington State. Here is a nice account of the most recent squabble and its political consequences.
What about that regressivity argument?
On close examination, it seems weak.
The Tax Policy Center estimates that while a carbon tax alone would be somewhat regressive, adding a rebate or dividend could make it highly progressive. Low-income households, for example, would receive an average tax cut of about 4.4 percent in one rebate design modeled by TPC. As Tufts University economist Gilbert Metcalf has written, “a carbon tax can be made as progressive as you want,” depending on what you choose to do with the revenues.
A rebate or dividend wouldn’t fully fulfill Biden’s no-tax pledge for those making $400,000 but could come close.
Resistance from factions of the environmental justice movement is no doubt limiting support for a carbon tax from some national Democrats. Those objections can be addressed, but only if Biden and other Democrats try.
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