A climate solution that’s also good for the economy

A new study shows that a carbon tax, with revenue returned to households, will ADD millions of jobs. If Republicans want an alternative to new EPA regulations, look no further.

As recent reports underscore the dramatic impact of climate change around the world and in the U.S., it becomes abundantly clear that steps must be taken to reduce greenhouse gas emissions in order to minimize future catastrophe. Continuing with business as usual will lead to food shortages from increased heat and drought, coastal cities being inundated by rising seas, more lives and property lost to intensified storms, and conflicts and the destabilization of nations arising from dwindling resources.

In the United States, the urgency for action runs up against the notion that the cure for climate change, whether it be carbon pricing or government regulation, will have painful side effects – higher energy costs for consumers, loss of jobs.

A new study from Regional Economic Models, Inc. (REMI), however, shatters that notion.

The REMI study looked at the economic impact of a steadily-rising national tax on carbon that returns revenue in equal shares to all households. The tax, assessed on the amount of carbon dioxide a fuel will emit when burned, would start at $10 per ton of CO₂ and increase by $10 per ton each year. Border tariffs, to keep the global playing field level for U.S. corporations, were factored in. Revenue from the tax was divided in equal shares, with one share going to each adult and one half share going to each child, up to two children per household.

As expected, the impact on carbon dioxide emissions (chart below) was substantial – 33 percent reductions by 2025, 52 percent reductions by 2035.

What about the economic impact and the oft-repeated charge that a carbon tax is a “job killer”? The REMI study found that with revenue recycled back to households, this particular carbon tax would ADD jobs – 2.2 million in the first 10 years (below).

The REMI study is a game-changer in the debate about climate change, where skepticism of the science is perhaps driven by an aversion to the solutions put forward to address the problem. Don’t like the solutions? Simply deny there’s a problem to solve. Such denial, however, does not serve the interests of our nation or the Republican Party.

Rightly or wrongly, many Republicans are also quick to say that cutting carbon emissions will lead to job loss, categorizing climate solutions as options the U.S. cannot afford. This excerpt for a New York Times article illustrates that talking point:

“The issue most people are most concerned about is jobs, and the policies they are proposing limit job growth and potentially destroy existing jobs,” said Daniel Scarpinato, a spokesman for the National Republican Congressional Committee, the House Republicans’ campaign arm. “It’s out of touch with where the American people are.”

That talking point is now neutralized.

Having shown that a market-based approach to cutting carbon can actually benefit the economy – if done the right way – the REMI study blows away the chief assumption preventing lawmakers from accepting the science of climate change and embracing a carbon tax.

The approach of a revenue-neutral carbon tax is supported by a number of conservatives, such as former Secretary of State George Shultz and Greg Mankiw, economic advisor to President George W. Bush and presidential candidate Mitt Romney. They argue that the free market normally gravitates to things that are good for our society. There are times, however, when the price of something does not reflect its damage, the cost of which is borne by society. Such is the case with fossil fuels, whose price does not reflect the health, security and environmental costs that arise from their use. If we fix this price distortion – through a steadily-increasing tax – the market will gravitate toward cleaner energy and energy efficiency without the need for regulations or subsidies.

In the absence of a market-based solution, the Obama administration is moving ahead with Environmental Protection Agency regulations to limit carbon pollution from power plants. As expected, Republicans in Congress are assailing the new rules as an expansion of big government, but any efforts to block those rules are destined to fail. The EPA is batting 1.000 with challenges that have gone before the Supreme Court, which has ruled that EPA has both the authority and the responsibility to regulate carbon as a pollutant.

Given the urgent need to curb carbon emissions and reduce the risk of climate change, Republicans who oppose EPA regulations can rebrand their image – from obstructionists to problem-solvers – by offering an alternative solution in the form of a carbon tax that returns revenue to households.

Why inaction is not an option

Failure to dramatically reduce the greenhouse gas emissions we pump into the atmosphere will have consequences that could well exceed our capacity to manage and adapt. That is the overarching message in reports released this spring from the Intergovernmental Panel on Climate Change and from the National Climate Assessment.

On the release of the second of three reports from the IPCC, which looked at the impact of climate change, the front-page headline in The New York Times declared “Panel’s Warning on Climate Risk: Worst Is Yet to Come.” From the Times’ story:

While the impact of global warming may actually be moderated by factors like economic or technological change, the report found, the disruptions are nonetheless likely to be profound. That will be especially so if emissions are allowed to continue at a runaway pace, the report said.

It cited the risk of death or injury on a wide scale, probable damage to public health, displacement of people and potential mass migrations.

“Throughout the 21st century, climate-change impacts are projected to slow down economic growth, make poverty reduction more difficult, further erode food security, and prolong existing and create new poverty traps, the latter particularly in urban areas and emerging hot spots of hunger,” the report declared.

The report also cited the possibility of violent conflict over land, water or other resources, to which climate change might contribute indirectly “by exacerbating well-established drivers of these conflicts such as poverty and economic shocks.”

Weeks after the release of the final IPCC report, the U.S. government released the third National Climate Assessment, which examines the impact of climate change in the United States. Climate Science Watch provides an excellent overview of the NCA. Some of the highlights they list:

Some extreme weather and climate events have increased in recent decades, and new and stronger evidence confirms that some of these increases are related to human activities.
Human-induced climate change is projected to continue, and it will accelerate significantly if global emissions of heat-trapping gases continue to increase.
Impacts related to climate change are already evident in many sectors and are expected to become increasingly disruptive across the nation throughout this century and beyond.
Climate change threatens human health and well-being in many ways, including through more extreme weather events and wildfire, decreased air quality, and diseases transmitted by insects, food, and water.
Infrastructure is being damaged by sea level rise, heavy downpours, and extreme heat; damages are projected to increase with continued climate change.
Water quality and water supply reliability are jeopardized by climate change in a variety of ways that affect ecosystems and livelihoods.
Climate disruptions to agriculture have been increasing and are projected to become more severe over this century.

About REMI

Since 1980, Regional Economic Models, Inc. (REMI) has provided economic impact studies for governmental and private-sector clients including the Atlanta Regional Commission (ARC), consulting firms Booz Allen Hamilton and Ernst & Young, the Korea Energy Economics Institute (KEEI), Sandia National Laboratory (SNL), the California Department of Finance, the University of Michigan and the Massachusetts Institute of Technology (MIT), and the Tennessee Valley Authority (TVA).

The REMI model incorporates four major modeling methodologies including input-output modeling, computable general equilibrium modeling, New Economic Geography, and econometrics. Its structure accounts for both the costs and benefits of any policy options, and it provides detailed, multi-regional, and multi-year results on the economic and demographic impact of decisions including the implications for job creation, gross domestic product (GDP), personal income, and population.

This study used data from the Energy Information Administration (EIA) and the ReEDS model, developed by the National Renewable Energy Laboratory (NREL) and ran here by Synapse Energy Economics, to show the net effect of a national-level fee-and-dividend carbon tax when accounting for the downside of higher energy costs and reduced energy production versus the benefits of additional household income and spending, improved air quality, and investment in alternative power generation types.

Other major REMI studies in the energy arena include state-level carbon tax analyses for Massachusetts, Washington, and California. Other studies include the impact of Medicaid expansion in 25 states and the state-by-state impact of federal immigration reform options; those results were a feature of the Wall Street Journal late last year. General studies using REMI include economic development, energy, transportation, education, tourism, taxation, and other topics.