The Business Case for the Carbon Tax

Businesses drown, not just people and homes
By Julie Fox Gorte 

History offers a great many examples of individuals, groups and societies that lived too much in the moment and compromised longer term prosperity -- or in some cases (think Easter Island) even survival. It's the same with climate change today. We're past the point where we can debate whether to act. We can either act prudently and account for long-term risk or face catastrophe.

Want proof? One: almost three million people in the US live less than three feet above the average high tide, according to a recent report from the Union of Concerned Scientists.

Two: s after Hurricane Sandy, the National Flood Insurance Program (NFIP) was fiscally insolvent, and required legislation and a $28 billion taxpayer bailout to fix temporarily. Three: sea levels on the northeast coast of North America rose 128 mm, or over five inches, in 2009-10 alone, and we'll likely need to prepare for more extreme sea level rise in the future.

Broader consequences are worse: the Stern Review estimated a loss of 5 percent of global GDP, "now and forever," by not addressing climate change. Business as usual, in short, is a recipe for economic decline.

That's why an economy wide carbon tax would, far from being a burden, be economically beneficial for the United States in the long run. It's time for Congress to create one, especially now: with fossil fuel prices as low as they are, the short-term pain of imposing a tax is as low as it's likely to be for quite some time. 

It is normal to think that a new tax would depress economic growth, but that's not necessarily the case -- and it's also a short-term view. This is also a moment when the options to replace the most carbon-intensive fossil fuels to make electricity are economically attractive, with solar and wind at or near grid parity. 

Carbon taxes can help move us to a renewable electricity system without imposing a long-term burden on ratepayers. Moreover, not subsidizing fossil fuels, which the world does to the tune of half a trillion dollars, can save taxes.

A carbon tax is the most efficient way to keep fossil fuels, which are a major driver of global warming, in the ground. That conclusion comes from the US Congressional Budget Office, a nonpartisan agency that conducts economic and budget analysis for Congress. Efficiency, in this context, measures emissions reduction per dollar of administrative cost. 

The best part? Done right, theres no reason this can't help grow the economy, as well as tackle the threat of climate change. A good example is that of British Columbia. Its revenue-neutral carbon tax, instituted in 2008, has led to a 16 percent drop in fuel use (compared to three percent growth in the rest of the country) while its GDP growth kept pace with the rest of the country. A 2012 poll found that 64 percent of British Columbians supported the tax.

Business groups often oppose new taxes, but that stereotype isn't accurate this time. The 200,000 businesses represented by the American Sustainable Business Council has called for a price on carbon. They recognize how dangerous climate change could be if we don't act, as evidenced by polling that shows more than half of all small business owners think it will affect their business -- or already has. 

An economy-wide price would send a clear market signal that it is time to address the adverse economic impacts of climate change, such as rising food and transportation costs and expensive infrastructure upgrades. A tax could also substitute for various energy subsidies and reduce business uncertainty. It could also be used to reduce payroll income taxes.

Some will fight hard against putting a price on carbon. It's time recognize that the market has failed to account for the full costs of carbon pollution and that a national tax would bring about greater economic efficiencies. Prolonging our dependence on fossil fuels will only increase the eventual cost for the global economy. Taxing carbon is one effective way to avoid that cost.

Gorte, Ph.D. is the Senior Vice President for Sustainable Investing at Pax World Management LLC.