To Stop Climate Change, Don’t Just Cut Carbon. Redistribute Wealth.

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(Photo: Friends of the Earth International / Flickr)

This year’s Democratic platform has the fingerprints of progressive movements all over it. A $15 minimum wage, a pathway to cannabis legalization, improvements to Social Security, police accountability, and financial reforms — including a tax on speculation — all make an appearance.

The platform also highlights the critical link between climate and the economy. In particular, it argues that “carbon dioxide, methane, and other greenhouse gases should be priced to reflect their negative externalities.”

That’s a complicated way of saying that the cost of the harm done to people and the planet should be calculated into the price of energy generated by burning coal, oil, and gas. If these costs were factored into the price consumers pay at the pump or in their utility bills, it could make dirty energy expensive enough to change both consumer and industry behavior. And that, in turn, would make renewable energy much more cost-competitive.

It could also — potentially — raise a lot of money.

Boulder, Colorado, is a case in point. The city made history in 2006 by enacting the country’s first municipal-level carbon tax. Voters reauthorized it by a landslide in 2012 — in part, no doubt, due to an annual revenue haul of nearly $2 million. Jurisdictions in Maryland and California have since followed suit and set up their own municipal carbon pricing mechanisms.

But a clean energy economy catalyzed by a carbon tax is only a progressive victory if it’s also a just economy. That means the policies to fight climate change also have to help end inequality. Why? Because the two are inextricably linked.

Sure, wealthy people may be in a better position to buy an electric car, cover their roofs in solar panels, and pay a premium for energy-saving appliances. But studies, including one by economists Thomas Piketty and Lucas Chancel, show that the rich are actually super-polluters. In the United States, the top 1 percent of income earners have an average carbon footprint two orders of magnitude bigger than someone in the bottom 10 percent of income earners.

A carbon tax could help transfer wealth from people at the carbon-intensive top to less polluting middle and lower-income households, and ensure the costs of addressing climate change are distributed equitably. But it this won’t happen automatically. It will take thoughtful and inclusive policy design and implementation.

Lifting Up the Bottom

Like sales taxes and all other standalone consumption taxes, a carbon tax is, by nature, regressive. This means that people further down the economic ladder will have more difficulty paying them than their wealthier counterparts.

Low-income households spend, on average, 7.2 percent of their income on electricity and fuel — far more than higher income families, which pay about 2.3 percent. Simply put, any tax that increases the price of fossil fuels would hit lower-income families harder than their affluent counterparts, because a bigger portion of their income would be subject to it.

Luckily, there are tools to help structure a tax to redistribute revenue from wealthier households to everyone else.

A measure slated for Washington State’s ballot this fall shows one way. The policy directs revenue which would be generated from a carbon tax to fund a state Earned Income Tax Credit worth up to $1,500 per year. It would deliver tax relief to nearly 400,000 low-income households while also cutting the state’s regressive sales tax.

Similarly, a national carbon pricing scheme in the form of a cap-and-trade bill that was proposed in the United States in 2009 but never enacted called for an “energy refund program.” The program would have provided a refundable tax credit to workers and payments to retirees, people with disabilities, and veterans. It would have also redistributed some revenue to low-income households by way of the electronic benefit transfer (EBT) system used to distribute food stamp benefits.

What revenue isn’t directly returned via these mechanisms could be used to fund clean power infrastructure projects for marginalized communities, or programs to mitigate the health impacts of fossil fuel pollution and the effects of climate change. Some ideas being floated include financial incentives for community solar, subsidized rooftop solar systems, and energy efficiency upgrades for low-income homeowners.

As useful as a carbon tax could be, it’s by no means a silver bullet. A truly effective climate plan must incorporate other strategies for lifting up people at the bottom of the income ladder.

Chile’s carbon tax, for example, was adopted in conjunction with an increase in the nation’s corporate income tax. Unlike the carbon tax in Washington State (which plans to phase out taxes on manufacturing) or a carbon trading scheme in British Columbia (which cuts corporate taxes), Chile’s tax was specifically designed not to be revenue neutral.

Instead, the money raised there will be reinvested in education and modernizing the nation’s electric grid to bring renewable energy online. As part of the policy package, taxes and regulations have been put in place to curb air pollutants from power plants like nitrogen oxides and sulfur as well.

A Broader Transformation

Finally, a carbon tax should be part of broader transformative shift. It isn’t enough to merely put a price on emissions and charge it to consumers. The broader goal is to change the way we live, work, play, and think about burning fossil fuels.

In short, the tax would need to help us see how our patterns of consumption are connected to the drivers of climate change. And it would have to help us understand that the impacts of climate change, as well as the impacts of the policies we propose to help fight it, fall disproportionately on low-income communities and marginalized people in all communities.

Research suggests that Ireland’s carbon tax, for instance, has encouraged more individuals to recycle regularly and to shift to greener transportation methods even as fuel and electricity prices rise. Norway, which has one of the highest carbon taxes in the world, has turned to seemingly unconventional methods to rethink their approach to climate action. This includes ambitious plans to phase out gasoline-powered automobiles and eventually phase out all automobiles in urban centers — basically altering the construct of the city itself.

A successful approach to climate change would be one in which taxpayers eventually accept the true costs of dirty energy, and actively demand and work towards a cleaner future. Though by no means a silver bullet, a truly climate justice-driven carbon pricing scheme should be part of the equation.

Jorge Villarreal is a Next Leader at the Institute for Policy Studies.

  • mememine

    What does science know you say?
    Not enough to say a CO2 END OF THE WORLD CRISIS is as real as they say smoking causes cancer. But they are sure the planet isn’t flat. (not to mention only 99% sure CO2 “could” flatten it.)

    Science gave us germ warfare and fracking and 35 years of “could be” a CO2 hell.

    *Occupy no longer even mentions CO2 in it’s list of demands so move forward progressives.,

  • James Handley

    It makes a lot more sense to tax polluters than workers or savers. As climate science finally losing sway in Congress, next year may be an opportunity for climate activists to push for a substantial, rising carbon tax. The revenue could help with broader tax and budgetary reform or help pay for badly-needed sustainable infrastructure. The key to effectiveness is a carbon tax rate that rises briskly enough to drive long term investment in renewable energy and efficiency.

    Thanks for pointing out how carbon taxes can (and should) benefit low- and moderate-income households. As your link to the Congressional Budget Office shows, it’s crucial for revenue to be fairly spent or progressively distributed. The I-732 ballot initiative in Washington State stands out as a shining example of both effective and fair policy. I sure hope voters enact it.

    James Handley
    CarbonTaxNetwork.org

  • afrin

    This article aims to connect the climate crisis with the economic crisis, which is absolutely on point. However, it is missing the angle of how both of these are also tied in with the racial justice issues. Any message about climate justice is incomplete without that grounding. Regarding Washington State’s carbon tax, the one going to ballot this fall is widely rejected by communities of color and low income communities. The group that wrote the initiative, rejected and refused the input and suggestions from people of color communities. POC groups are in the process of writing a new initiative. http://frontandcentered.org/environmental-groups-dont-support-i-732/

  • John G

    This article makes very good points about the need to price carbon to fix the broken energy market, and that the current broken market puts an unfair burden on the poor. Simply increasing the cost of fossil fuels will hurt the poor the most, so something does have to be done with the money that is collected to address that.

    But an alternative to various government controlled methods of redistributing the money from a carbon tax is possible and preferable for a number of reasons. All the money collected from the tax should be returned on an equal basis to all American households.

    That is the proposal from the Citizens’ Climate Lobby, an non-profit, non-partisan, 30,000+ strong organization of mostly volunteers who are working with Congress to promote a proposal called Carbon Fee and Dividend with Border Adjustments (CFD). This proposal it is non-partisan, fair to more people, more efficient to administer, and because it is simple it would be far less subject to fraud, and is supported by a wide cross section of Americans.

    Under this plan two thirds of all Americans would either break even or receive more in their monthly dividend check than they would pay in higher prices due to the fee. A REMI study of this found it would create two million new jobs due to the additional spending from the poor that would be enabled because most of them would come out ahead financially each month. More money in their own budget to spend as they need to.

    For more information check out the Carbon Fee and Dividend proposal here:
    http://citizensclimatelobby.org/basics-carbon-fee-dividend/