Checks and Balance

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Is America finally getting serious about tackling climate change? After a string of disconcerting weather-related disasters ranging from bitter winter storms in Texas to prolonged droughts and raging wildfires in the West to freakish flooding in New York, voters in both parties seem ready to support meaningful action. A recent Pew poll showed that 60% of Americans believe climate change will harm their lives directly, and a stunning three quarters say they are willing to make some or a lot of changes in their lives to address it. 

The best way to encourage decarbonisation would be to put a price on emissions of greenhouse gases (GHGs). Introduce policies that impose a cost on carbon, agree most serious economists, and the market will find the most efficient and innovative ways to avoid those undesirable emissions.

Enamoured with the elegance of this theory, I made this case two decades ago in “Power to the People”, my book about the future of energy. I argued that America should impose a carbon tax with two special characteristics. It should be economy wide (as opposed to regulations that whack only power utilities, say), so that emissions cuts are made where they are cheapest. And it should be revenue neutral, so that all income generated is recycled back to taxpayers. If you owned four gas-guzzling Hummers as did Arnold Schwarzenegger, then California’s governor, you’d pay a lot in carbon tax—but if you owned only a Prius and a bicycle then you’d get a hefty refund.

Who could oppose such a clever plan? Well, it turned out, everybody that mattered. After the launch of my book, I was invited by a think tank in Washington, DC, to present this proposal at its off-the-record monthly lunch for senior Congressional aides. Several chiefs of staff for prominent Senators and House committee chairs overseeing energy and environment matters were present. As they munched on sandwiches, I made my case. I was confident I had a winner since, as George W. Bush’s tax-refund cheques had recently proved, voters love getting money from the government. 

My idea was cruelly rejected by both left and right as impossible. I grilled the conservatives about how they could refuse a market-oriented, technology-agnostic proposal that, due to its revenue-neutrality, could not possibly be accused of boosting Big Government. They whispered that their bosses would not even consider a policy that could be branded a “tax”, which had become a four-letter word on the right. I challenged the liberals about why they refused to support such a powerful tool for tackling global warming, a cause célèbre for the left. They guffawed that their leaders could never support revenue neutrality, because then they’d have no money to dole out to reliable supporters like the wind and solar industry.

That was a brutal education in how climate policy is really made in the nation’s capital. You can hear more such war stories, as well as feisty debates among Economist editors and compelling interviews with leading energy experts, on “To a Lesser Degree”, our new podcast on tackling climate change.

Congress is currently considering legislation to tackle global warming, as part of Joe Biden’s sweeping domestic agenda. The list of ideas ranges from boosting clean energy and building electric-vehicle chargers to enhancing climate resilience and addressing environmental justice. One proposal towers above the others, however, as my lead note in the US section this week explains. It is not as elegant or effective as a carbon tax, but I have learned the hard way that in politics the ideal should never be the enemy of the good.

Vijay Vaitheeswaran
Global energy & climate innovation editor

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