Tax and dividend: how conservatives can grow to love carbon pricing

Wednesday 22 February 2017

The high visibility of a carbon dividend to the consumer arguably makes this a more politically palatable policy.

In some political circles, hostility to climate policy has become a way of showing off one’s conservative credentials. But a suggestion for pricing carbon, grounded in classic conservative principles, has now emerged in the United States.

It has come not from the populist Trump administration, but from an eminent group of Republicans with impeccable conservative credentials, several of whom served as cabinet secretaries in previous Republican administrations.

Last week they published a manifesto entitled The Conservative Case for Carbon Dividends. In a nutshell, the proposal is for a carbon tax – yes, a tax – with the proceeds to be returned to all citizens as a “carbon dividend”, every quarter. More details in a moment.

The group accepts that climate change is real and that, regardless of whether it is human-induced, a human response is urgently needed. Moreover, they say:

Now that the Republican Party controls the White House and Congress, it has the opportunity and responsibility to promote a climate plan that showcases the full power of enduring conservative convictions.

Tax and dividend

The plan envisages a tax on fossil fuels at the point at which they leave the refinery or coal mine and enter the economy. It would start at US$40 a tonne and increase over time. This would force up the price of many commodities – most obviously petrol – and might be expected to anger consumers, were it not for the dividend strategy.

The dividend would be paid to all Americans, via the social security system. A family of four might expect a dividend of US$2,000 in the first year, rising over time in line with the tax.

The manifesto’s authors include eminent establishment Republicans, including James Baker, Secretary of the Treasury under Ronald Reagan and Secretary of State for George H. W. Bush; and George Shultz, Secretary of State in the Reagan administration and a former member of Richard Nixon’s cabinet. They are certainly sensitive to the political unpopularity of new taxes.

Their response is that this is not a tax that will accrue to the government, because it will be “revenue-neutral”: all of the money will go back to citizens. The carbon-pricing scheme introduced in Australia under former prime minister Julia Gillard was also revenue-neutral but returned money to consumers partly through income tax relief, which is less visible than a direct dividend.

The high visibility of a carbon dividend to the consumer arguably makes this a more politically palatable policy. For this reason the manifesto’s authors call their proposal a carbon dividend rather than a carbon tax. They calculate that the dividend would leave 70% of the population financially better off, particularly among working-class taxpayers. As they put it:

…carbon dividends would increase the disposable income of the majority of Americans while disproportionately helping those struggling to make ends meet.

The group argues that this proposal is consistent with conservative principles in various ways.

First, it is a market-based solution to the problem of climate change which maximises freedom to consumers and producers. Second, it will facilitate the rollback of Obama-era regulations such as the Clean Power Plan, which conservatives regard as the epitome of heavy-handed regulation. As the Congress has discovered with relation to Obamacare, it cannot simply repeal unwanted Obama legislation without replacing it with something widely seen as better.

Finally, they argue that the repeal of heavily bureaucratic regulations would eliminate the need for a bureaucracy to enforce them. This would facilitate smaller government, one of the abiding aspirations of conservatives.

Apart from these matters of principle, the group points to several other political advantages – not least the chance to bring the Republican Party back into the mainstream on climate change:

For too long, many Republicans have looked the other way, forfeiting the policy initiative to those who favor growth-inhibiting command-and-control regulations, and fostering a needless climate divide between the GOP and the scientific, business, military, religious, civic and international mainstream.

The manifesto’s authors point out that climate change concern is greatest among under-35s, as well as Asians and Hispanics - the nation’s fastest-growing ethnic groups. A carbon dividend policy would enhance the appeal of the Republican Party to all of these groups.

They acknowledge that it may be an uphill battle to win over the anti-establishment Trump White House. But, they say:

…this is an opportunity to demonstrate the power of the conservative canon by offering a more effective, equitable and popular climate policy based on free markets, smaller government and dividends for all Americans.

Back in Australia, many conservative politicians such as Senator Cory Bernardi – who this month defected from the government so as to promote more freely his conservative principles – still decry carbon pricing. Bernardi described the idea of returning to carbon trading as “one of the dumbest things I have ever heard”. This is hardly a conservative response given the ramifications for our climate.

Conservatives like Bernardi continue to equate carbon pricing with socialism. Yet for these establishment US Republicans, taxing carbon is entirely consistent with their conservative principles. Bernardi and his like-minded colleagues in Australia would do well to consider the possibility that there is indeed a conservative case for a carbon tax.

This article by Emeritus Professor Andrew Hopkins was originally published by The Conversation

Updated:  22 September 2017/Responsible Officer:  Director, Energy Change Institute/Page Contact:  Webmaster