June 2, 2015

Time to Wake Up: Conservative Support for Carbon Fee

Madam President, today I am here for the 101st time to urge this body to wake up to the threat of climate change. It is real, it is caused by carbon pollution, and it is dangerous.

There is a legislative answer to this problem that my Republican colleagues should consider, and that is a carbon fee.

The unpleasant fact here in Congress presently, anyway, is that Congress is ruled by the lobbyists and the political enforcers for the fossil fuel industry. But outside this Chamber, where the fossil fuel industry’s power is less fierce, there is considerable conservative support for a carbon fee.

Leading right-of-center economists, conservative think tanks, and former Republican officials, both legislative and executive, all say that putting a price on carbon pollution is the right way to deal with climate change. They know that climate denial cannot stand against the facts. As the Washington Post reported last month, prominent thinkers on the right are “increasingly pushing” for a climate policy based on conservative principles and on values such as property rights, market efficiency, and personal liberty. They recommend pricing carbon.

Jerry Taylor, a former vice president at the CATO Institute now leads his own Libertarian think tank, which is making the case for a carbon fee. He recognized that “the scientific evidence became stronger and stronger over time.” He knows climate denial is not an option. He says that “because catastrophic climate change is a non-diversifiable risk, we should logically be willing to pay extra to avoid climate risks.” Taylor points out that hedging against terrible outcomes is what we expect in our financial markets. Why should we not do the same for climate change?

Conservatives have also long agreed that government should prevent one group harming another. Conservative economist Milton Friedman still tops the reading lists of Republicans in Congress. Republican Presidential hopefuls still invoke his name to show their free market bona fides. Asked whether the government had any role to play in reducing pollution, Friedman said, “There’s always a case for the government to do something about it. Because there is always a case for the government to some extent when what two people do affects a third party.”

Friedman is describing what he called “neighborhood effects” or what many economists call “negative externalities.” A negative externality is when two parties engage in a transaction and the result of that transaction causes damage to a third party–a third party that did not consent to the arrangement. That is an externality, and when the consequence is harmful, it is a negative externality. In a free society, wrote Friedman, government exists, in part, to diminish those negative externalities.

When the costs of such negative externalities don’t get factored into the price of a product, even conservative economic doctrine classifies that as a subsidy. For the polluters who traffic and burn fossil fuels, that subsidy is huge.

In a finding it describes as “shocking,” the International Monetary Fund estimated the true costs of fossil fuel energy, taking into account public health problems, climate change, and other negative externalities, and they added it up to a polluter world subsidy of $5.3 trillion a year. The subsidy here in the United States for the fossil fuel industry will hit $699 billion this year.

It is no wonder the fossil fuel enforcers wield their clout in Congress so energetically.

At $700 billion a year just in the United States, why would the big polluters not want to squeeze one more fiscal quarter, one more year of public subsidy out of the rest of us at $700 billion a year?

We usually talk about big numbers here in the Senate over a 10-year period. That is the way our budget works. Over a 10-year budget period, that is $7 trillion. No wonder they are so remorseless.

From their point of view, lunch is good when someone else is picking up the tab, and Senate Republicans have been far too willing to let the polluters dine for free.

Outside of this Chamber, however, conservative economists call such an enormous public subsidy a market failure. The price of fossil fuel energy does not match its true costs. That market imbalance artificially favors polluting fuels and their producers–picking winners and losers, if you will. A carbon fee can make the markets more efficient and level the playing field for different types of energy. Anyone who really believes in a free market should favor a carbon fee. That is what makes it work.

Harvard Professor N. Gregory Mankiw has been an economic adviser to President George W. Bush and to Presidential candidate Mitt Romney. He has pointed out that a carbon fee can help repair such a market failure and that “the idea of using taxes to fix problems, rather than merely raise government revenue, has a long history.”

In a 2013 New York Times op-ed, former Republican EPA Administrators Bill Ruckelshaus, Christine Todd Whitman, Lee Thomas, and William Reilly wrote: “A market-based approach, like a carbon tax, would be the best path to reducing greenhouse-gas emissions.”

A carbon fee can also generate significant revenue, and this could help achieve conservative priorities, such as lowering taxes. Art Laffer, one of the architects of President Reagan’s economic plan, popularizer of the famous “Laffer curve,” has looked at using a carbon tax to fund a payroll tax cut. He said: “I think that would be very good for the economy.” Did you get that? Arthur Laffer, President Reagan’s economic adviser, said that a carbon tax, funding a payroll tax cut, “would be very good for the economy.” And as an adjunct, he continues: “It would also reduce carbon emissions into the environment.”

It is a pretty simple idea. You can lessen the tax burden on things that you do want–employment, jobs, profits–and make up for the lost revenue by ending the subsidy of something you don’t want–pollution. What is not to love unless you are a big polluter? Dr. Irwin Stelzer, an editor at the Weekly Standard and director of economic policy studies at the conservative Hudson Institute, said that for a tax-swapping carbon fee, “conservative support would depend solely on a desire to get the economy growing faster by shifting the tax burden from good stuff like work to bad stuff like pollutants.”

The fundamental conservative faith in the free market points to a carbon fee. A carbon fee priced at the true social cost of carbon would allow the market–not the polluters, not the government–to sort out which energy mix is best for society. On this question, Republicans have a choice to make: Are they real conservatives who will support a free market solution or are they the playthings of the fossil fuel industry, which will not pick up this question at all?

Well, if you do not like picking winners and losers, then quit favoring fossil fuel to the tune of $700 billion a year just in America and level the playing field with a good, conservative, deficit neutral carbon fee. Level the playing field.

That is how George Shultz sees it. George Shultz was President Nixon’s Treasury Secretary and President Reagan’s Secretary of State. He and Nobel laureate economist Gary S. Becker made the case for a carbon fee in the Wall Street Journal: “Americans like to compete on a level playing field. All the players should have an equal opportunity to win based on their competitive merits, not on some artificial imbalance that gives someone or some group a special advantage.” That is why Secretary Shultz supports a price on carbon.

As an addition, there is also a huge economic win that will result, according to knowledgeable conservatives. Last year, George W. Bush’s Treasury Secretary, Hank Paulson, said, “A tax on carbon emissions will unleash a wave of innovation to develop technologies, lower the costs of clean energy and create jobs as we and other nations develop new energy products and infrastructure.” Former Republican Congressman Bob Inglis has become a leading conservative voice in the fight against climate change. He specifically supports using a carbon fee and even introduced legislation when he was in Congress to price carbon and cut payroll taxes, the Laffer combination.

Last year, he told the Dallas Morning News that this would create economic opportunity. He said:

We are discovering in climate science… that there is a risk that we can avoid from the creative innovation that comes from free enterprise. We have a danger and an opportunity. As a conservative, I say what a great opportunity to create wealth, innovate, and sell innovation around the world.

By the way, Representative Inglis’ dedication to this issue recently earned him the John F. Kennedy Profile in Courage Award. I offer him my sincere congratulations. It does, indeed, take courage to come out from behind the veil of skepticism and denial to face the plain truth and to propose real, concrete solutions. That is especially true when the fossil fuel industry wields such relentless, remorseless power over the Republican Party today.

President Obama’s Clean Power Plan is at last putting an end to the free lunch for the fossil fuel industry. This ought to motivate the industry to rethink its inequitable, subsidy-ridden business model. Which is more efficient, anyway–government regulation or proper market pricing?

As American Enterprise Institute scholars Kevin Hassett, Steven Hayward, and Kenneth Greene put it, “Because a carbon tax would cause carbon emissions to be reduced efficiently across the entire market, other measures that are less efficient–and sometimes even perverse in their impacts–could be eliminated… As regulations impose significant costs and distort markets, the potential to displace a fairly broad swath of environmental regulations with a carbon tax offers benefits beyond greenhouse gas reductions” i.e., economic benefits.

Republicans in Congress have a real chance to help remake the U.S. energy market under conservative, free market principles.

As far back as 1992, former Chairman of President Reagan’s Council of Economic Advisers, Martin Feldstein, wrote in the Wall Street Journal:

Although a general carbon fuel tax is moot for the moment, the idea will not go away. If carbon dioxide emissions are to be reduced further in the U.S., such a tax will achieve the goal with less economic waste than new bureaucratic hurdles.

Why don’t today’s Republicans abide by this conservative principle? As Douglas Holtz-Eakin, CBO Director under the prior Republican Congress and economic adviser to our friend Senator McCain’s Presidential bid, wrote in the National Review, “In the bad old days, Democrats bad-mouthed trading systems and price mechanisms; Republicans opposed rifle-shot subsidies and mandates. Weirdly, conservatives have a need to relearn these lessons.” Well, the carbon fee is right in line with Douglas Holtz-Eakin’s lessons to be learned.

On June 10, I will introduce my carbon fee proposal at an event hosted by the American Enterprise Institute. I hope that once my colleagues see the details, they will take seriously the promise of a free market solution to climate change. For any Senator who wants to engage on this issue, I am interested. I will gladly work with any Republican colleague. What we cannot do is stay in denial.

For both our environment and our economy, and indeed our honor, we cannot afford to keep sleepwalking. It is time to wake up.

I yield the floor.