Carbon tax: an answer for global warming ... and US fiscal concerns?

• Author: Lapsevic, Karen
• Position: WASHINGTON BEAT

Barbara Boxer (D-Calif.), chair of the Senate Environment and Public Works Committee, has cosponsored a bill with Sen. Bernie Sanders (I-Vt.) that would impose a fee on carbon emissions at their source. The senators introduced S. 332, the Climate Protection Act of 2013, on Feb. 14, two days after President Barack Obama urged Congress in his State of the Union Address to pass a "market-based solution to climate change" or else he would take executive action to regulate emissions on his own.

The Boxer-Sanders bill would impose a $20 per ton tax on the carbon or methane equivalent content of fossil fuels. According to the senators, 2,869 of the nation's largest upstream fossil fuel producers--such as coal mines and oil refineries--would pay the fee, which would increase by 5.6 percent each year for 10 years. The bill would raise an estimated $1.2 trillion over a decade and claims to reduce greenhouse gas emissions by 20 percent from 2005 levels by 2025.

The idea is that consumers will use less fuel and electricity and buy fewer of those things that use energy, thus reducing pollution. Seeing that energy is an input for nearly every good or service, the impact of the carbon tax would likely ripple through the entire economy as the fees are passed along to consumers directly in the form of higher prices for energy and energy-intensive goods and services.

Modeled on Alaska's resident oil dividend program, the Boxer-Sanders bill would refund three-fifths of the money to every legal U.S. resident on a monthly basis to offset the cost increases on fuel and electricity. The rest would go to incentives for energy efficiency, clean energy technologies and research and development, as well as to offset impacts on "energy-intensive and trade-exposed industries" and to job training programs to transition and re-skill workers for the "clean energy economy."

The bill would also impose a "carbon equivalency fee" on fuel and carbon-intensive products imported from countries that do not charge a similar fee on carbon. Any remaining funds collected from the carbon tax--about $300 billion--would be used to reduce the federal deficit.

Can the Bill Pass Congress?

Some economists have commented favorably on a carbon tax as a way to tackle climate change and address other challenges at the same time, such as debt reduction or tax reform. Revenue from carbon taxes, these economists say, could go toward paying off the debt or offseting reductions in tax rates to...