June 10, 2015

Time to Wake Up: The American Opportunity Carbon Fee Act of 2015

Mr. President, I rise this evening to introduce, along with my lead cosponsor, Senator Schatz of Hawaii, the American Opportunity Carbon Fee Act of 2015.

We announced this legislation this afternoon at an event hosted by the American Enterprise Institute, and I want to thank the American Enterprise Institute for their hospitality. I think their interest in this idea clearly reflects the difference between core conservative economic principles and simply being pushed around by the hectoring of the fossil fuel industry. There is a difference between the two, and this bill meets legitimate conservative economic principles.

I will start by saying the obvious, which is that climate change is real. It is virtually universal in peer-reviewed science that climate change is real, that carbon pollution from burning fossil fuels is causing unprecedented climate and oceanic changes. Every major scientific society in our country has said so. Our brightest scientists at NOAA and at NASA are unequivocal. The fundamental science of climate change is, indeed, settled. In the details of local application and the extent to which a particular storm is caused by or exacerbated by climate change, in the vagaries of prediction about how things are going to be 10 or 15 years out at those margins, yes–there is always room for conversation and debate at the margins, but the core science of climate change is beyond legitimate debate. It is known science, like debating gravity.

Americans get it. In poll after poll, Americans understand that climate change is real, know that humans are the cause, and want their government to do something about it.

Climate change is not our only national challenge. The Federal Tax Code, for example, is a mess, with one of the highest corporate tax rates in the developed world, while some take advantage of loopholes to pay far less than others and, indeed, some pay nothing at all.

We have an economic recovery that has left far too many Americans behind, and we have a job market that has still not fully rebounded.

What if our answer to climate change helped address those other concerns as well? What if that approach was firmly grounded in core conservative economic principles, values such as property rights, market efficiency, and personal liberty?

Aparna Mathur of the free-market think tank the American Enterprise Institute conducted an analysis with a colleague from the Brookings Institution showing that a carbon fee could reduce emissions, shore up the country’s fiscal outlook, and play an important part in broader tax reform. AEI’s Kevin Hassett, Steven Hayward, and Kenneth Greene have pointed out that a carbon fee could obviate some environmental regulations.

The idea behind it is extremely simple. You levy a price on the thing you don’t want–carbon pollution–and you use the revenue to help with things you do want.

Whether they are called neighborhood effects or negative externalities, the effects of carbon pollution harm us all. Conservative economist Milton Friedman wrote that the government exists in part to reduce such harms.

When the costs of such externalities don’t get factored into the price of a product, conservative economic doctrine–indeed, all economic doctrine–classifies that as a subsidy–a market failure. Right now for fossil fuel producers, that subsidy is immense, giving them artificial advantage over cleaner energy sources. The International Monetary Fund just postulated that the annual subsidy just in America to the fossil fuel industry is $700 billion. We tend to talk around here in budget cycles of 10 years. That means it is $7 trillion in a budget cycle. That is a subsidy, all right.

A carbon fee can repair that market failure by incorporating unpriced damage into the costs of fossil fuels. Then the free market–not industry, not government–can drive the best energy mix for the country, with everyone competing on level ground.

That is how Nixon’s Treasury Secretary and Reagan’s Secretary of State George Shultz sees it. He and the late Nobel laureate Gary S. Becker made the case for a carbon fee in the Wall Street Journal. They wrote: “Americans like to compete on a level playing field. All 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.”

Such as a $700 billion-a-year special advantage.

Just last week, even the CEOs of Europe’s major oil companies called on governments to institute national prices on carbon.

This could be a big economic win. 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.”

It is in that spirit that I am introducing the American Opportunity Carbon Fee Act–a framework I hope both Republicans and Democrats can embrace.

The bill would establish an economy-wide carbon fee on carbon dioxide and other greenhouse gas emissions. The fee would be assessed way upstream where it is easiest to administer, minimizing the universe of taxpayers and the compliance burden–at the coal mine, at the natural gas processing station, and at the petroleum refinery.

Other sources of greenhouse gas emissions would be charged at existing reporting requirements that are rate tied to the carbon dioxide equivalency of each gas. Fluorocarbons are assessed at a special rate that accounts for their high greenhouse potency. Sequestering, utilizing, or encapsulating carbon dioxide earns you a credit.

My bill sets the fee per ton of carbon emitted at $45 for 2016. That is the central range of the social cost of carbon as estimated by the Office of Management and Budget. That fee would increase each year at a real 2 percent. When emissions fall 80 percent below 2005 levels, the annual adjustment falls to inflation.

Border adjustments for the trade of energy-intensive goods include tariffs on such goods imported from countries with weaker or no carbon pricing–to make sure we protect our industries at home–and rebates for U.S. exporters of energy-intensive goods. We took care to design the border adjustments to achieve harmony with World Trade Organization rules.

According to the nonpartisan group Resources for the Future, this carbon fee proposal would reduce U.S. CO2 emissions by more than 40 percent by 2025.

In addition to the environmental benefits, of course, a carbon fee also generates revenue. In this case, it would generate over $2 trillion in revenue over 10 years. We intend to return every dime of that to the American people. Here is how.

First, the bill lowers the top marginal corporate income tax rate from 35 percent to 29 percent. This would cut American corporate taxes by almost $600 billion over the first decade.

Second, it provides workers with a $500 refundable tax credit–$1,000 for a couple–to offset the first $500 paid each year in Social Security payroll taxes. The credit would grow with inflation. The tax credits would return over $750 billion to American households over the first 10 years.

Third, it would give benefits to Social Security recipients, veteran’s program beneficiaries, and certain other groups of retirees at the same level as the tax credit. These benefits would total more than $400 billion over 10 years.

Finally, the bill would establish a block grant for States, totaling $20 billion in 2016 and growing with inflation, to help with low-income needs, rural households, and transitioning workers. Governors in these States will know best what to do with the funds. In West Virginia, for example, they could use the money to transition coal workers into the technology jobs of the future or to shore up the beleaguered pension plans of coal miners. Rhode Island, on the other hand, might choose to make homes more energy efficient. And we have a reporting mechanism for the public to transparently track where the money is going to assure that it is all going back to the American people.

The entire bill is 37 pages long–short, simple, straightforward.

It would cut back on the pollution that threatens dramatic changes to our home planet. It would cut taxes. It would end a grievous market distortion. It would start a wave of investment and innovation.

With this bill, Senator Schatz and I extend an open hand, or as one Republican former Congressman who cares about the climate change problem said: It extends an olive limb to conservatives everywhere.

Whether you want to pursue tax reform or support the free market for energy, or as Senator Graham suggested this week, honestly address the real effects of climate change, this can be a vehicle. I hope my colleagues will agree with me that this is a discussion that we can continue. I look forward to trying to find a way forward that is better than simply ignoring this problem, pretending that it does not exist, and sleepwalking through our moment in history.

It is time to wake up. I have an attachment here that summarizes some of the support from conservatives and business leaders for a carbon fee. I ask unanimous consent that this document be printed in the Record.