Here's the real problem with trying to tax our way out of the climate crisis

  • A recent proposal to tax carbon emissions may be a fresh way to tackle climate change but it's potentially dangerous.
  • Taxes can be eliminated with the stroke of a pen.
  • We have run out of time for experiments to begin lowering carbon pollution.
  • The Paris climate agreement, if fully implemented, would only accomplish half of what is necessary.
  • It's time for a real price on carbon emissions.
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Fool's gold glitters as brightly as the real thing, but a lot of valuable time and money can be wasted figuring out the difference. The proposal to price carbon pollution in America put forward recently by noted conservatives and fossil fuel companies may be a fresh, constructive way to tackle climate change, but make no mistake — it is little more than a shiny object that could do more harm than good.

In a recent opinion piece in the Washington Post, George P. Shultz and Lawrence H. Summers offer a carbon pricing concept that they are promoting, with growing support from thoughtful leaders in government and business (led by Exxon Mobil and other large oil companies) under the banner Climate Leadership Council (CLC). Their plan would tax carbon emissions, but return the funds raised to every American in an annual "dividend." This "tax and dividend" plan would depend on Congress rolling back existing and future regulation of carbon pollution, meaning actual reduction of greenhouse gases would depend entirely on consumer behavior.

Let me preface my criticism of this proposal by saying how much I respect Mr. Shultz. I have worked with him on numerous sustainability issues when I served as California's EPA Secretary in the administration of Governor Arnold Schwarzenegger (I respect Mr. Summers as well, but do not know him personally). I agree with the members of the CLC that we desperately need a price on carbon to adequately address climate change and that some kind of market mechanism is an appropriate way for the polluter to compensate the rest of us (and the planet!) for their carbon footprints.

"[T]he real problem with trying to tax our way out of the climate crisis is that taxes can be eliminated with the stroke of a pen."

But this proposal falls short, and is potentially dangerous fool's gold if adopted, in several critical ways. First, we have run out of time for experiments. In the mid-2000s, California and other states sued the Bush administration to prove that greenhouse gases were pollutants as defined by the federal Clean Air Act. We prevailed in a Supreme Court decision in 2007, but the Bush EPA stalled on its statutory duties and simply ran out the clock until President Obama took office in 2009 and acted on that landmark legal decision.

Back then, scientists said we had 20 to 30 years to peak global carbon emissions and begin to lower them, if we hoped to avoid the worst consequences of climate change. Now, almost a decade later, the science suggests we have no more than 10 years to accomplish this monumental task. It's worth noting that the 2015 Paris climate agreement, if fully implemented, would only accomplish about half the task, so there is a lot of work to do in a very short time frame.

The CLC proposal offers no way to cap emissions or otherwise ensure the tax would reduce carbon pollution on a predictable timeline. By contrast, the vehicle tailpipe emissions limits, that California regulations require, provide certainty as cars get cleaner and more fuel-efficient, reducing asthma and other lung disease, while saving consumers money along the way, without a complicated adjustment of the tax code and rebate program to consumers (side note: conservatives always advocate for smaller government, so regulating cleaner, more efficient cars are a way to cut out the bureaucratic middle man that would be needed by the cap-dividend approach).

The second problem with the CLC approach is politics. Let's not fool ourselves that many politicians of both parties will oppose any new taxes, even if there's a rebate program attached. Conservatives want lower taxes of all kinds; liberals will criticize a regressive tax that hurts the poor while they wait for their rebate check once a year (and the basic unfairness of rebates going to the wealthy and poor alike).

But the real problem with trying to tax our way out of the climate crisis is that taxes can be eliminated with the stroke of a pen. Congresses and presidents are very good at changing single-issue taxes in annual budget legislation, whereas making or breaking regulations take time to draft and set goals, gather public comment, and implement across affected parties. If the CLC plan were to go ahead, the hard work of agencies, the public, and companies would be lost and very difficult to re-create, if Congress changes its mind in a year or two and scraps the program.

Because the Paris agreement doesn't do the whole job, I agree that to truly tame climate change before it's too late we need a price on carbon, but there are better ways to do it. Ten states in the U.S., along with Canadian provinces, states in China, and the whole European Union, have cap-and-trade systems that are already working. Yes, there have been growing pains, but the big difference between a tax and a carbon trading program is certainty. The "cap" in cap-and-trade is the crucial missing ingredient in the CLC proposal and, as noted, we don't have time to fiddle while the planet burns.

Mr. Shultz and Mr. Summers contend that a $40/ton carbon tax would "achieve substantially greater reduction in greenhouse-gas emissions than all of the regulation now on the table," but offer no evidence. Would $40/ton equate to $1/gallon tax on gasoline? If it did, would drivers use so much less that emissions would fall, or would they simply grumble about the price and cut back on other spending (as has happened in the past when gasoline prices rose and fell wildly). Would people use less electricity if they saw a few dollars a month added to their electric bills? And if they don't change these behaviors, would Congress be willing to double or triple the tax until emissions declined?

Sure, the CLC plan rebates the tax to people each year, but might that just encourage someone to buy an SUV instead of an electric car? The point is that we don't know and we don't have time — or the probable political backbone — to tinker with the tax code to find out.

The contention was also made that regulating carbon puts us at a disadvantage in global markets, but evidence suggests otherwise. It is clean, fuel-efficient cars from Asia and Europe that outsell gas-guzzling U.S. brands in overseas markets. Making our cars cleaner and more efficient will increase their competitiveness worldwide, not reduce it. And manufacturers that pay for electricity may have to increase the price of goods slightly, but 195 other nations that signed the Paris agreement (and have not withdrawn, as the U.S. has done) will be imposing the same limits on their energy systems.

When I was EPA Secretary, business leaders always asked me for one thing — certainty and time to prepare. Our regulations and the cap-and-trade system of pricing carbon pollution do both. The CLC plan does neither.

For those who disagree, suggesting politics are more predictable than painstakingly crafted regulation and competitive carbon markets, I point to the recent presidential election as Exhibit A that you are blinded by fool's gold.

In many ways, fossil fuels and carbon emissions are not the enemy — time is the reason we can't afford to fool around with glittery proposals over hard-won, proven solutions that are already beginning to work.

Commentary by Terry Tamminen, Secretary of the California Environmental Protection Agency in the Schwarzenegger administration. He is president of Seventh Generation Advisors, an operating partner at Pegasus Capital Advisors and the CEO of the Leonardo DiCaprio Foundation. He is also the author of "Cracking the Carbon Code: The Key to Sustainable Profits in the New Economy." Follow him on Twitter @terrytamminen.

For more insight from CNBC contributors, follow @CNBCopinion on Twitter.


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