There is no more effective way for President Biden to meet his aggressive climate goals than a carbon tax. The timing seems ripe: his Treasury Secretary, Janet Yellen, has been a prominent advocate. Big business has flipped from opponent to proponent. Republican opposition is no longer monolithic.
But a carbon tax lacks support where it matters most: with Mr. Biden and the Democratic base. Progressive Democrats claim a carbon tax and its close cousin, cap-and-trade, are unfair to the poor and racial minorities. And a carbon tax appears to conflict with Mr. Biden’s promise not to raise taxes on any household earning less than $400,000 a year.
So as Mr. Biden prepares a regulatory and infrastructure package aimed at driving net greenhouse gas emissions to zero in electricity by 2035 and the entire economy by 2050, he is fighting with one hand tied behind his back.
A carbon price incentivizes consumers, producers and investors to substitute low- or no-carbon energy technology for fossil fuels more smoothly and cheaply than subsidies and rules. This has long been self-evident to economists, including Ms. Yellen. She is a founding member of the Climate Leadership Council, a bipartisan group that has put forward a detailed plan for a carbon tax starting at $43 per ton with proceeds rebated to households as a “carbon dividend.”
In response to questions from senators at her confirmation hearing, Ms. Yellen said, “We cannot solve the climate crisis without effective carbon pricing.” While a carbon tax is the most direct way to price carbon, it isn’t the only one. With cap and trade, total greenhouse gas emissions are capped and companies purchase permits to emit one ton of gas. The more expensive the permit, the greater the incentive to reduce emissions. Cap and trade was the centerpiece of the last major effort to price carbon, in 2010. It ultimately failed due to opposition from business, Republicans and some Democrats.
