Carbon Taxes: A Controversial Solution to Climate Change – 7/12/16

Carbon taxes are taking up the role of awkward solution to CO2 emissions.

Most economics professors will tell you that a revenue-neutral tax is the most efficient way to discourage CO2 emissions without imposing cumbersome restrictions. Yet economics doesn’t decide politics, people do. And people often act in irrational ways. Something that is leaving energy companies in the awkward position of asking Republicans to stop fighting against a carbon tax in Congress.

Exxon Mobil Corp. in particular is upping its lobbying efforts in favor of a carbon tax. Exxon’s official position has supported a carbon tax as the best way to address the climate change risks but done little to actually advocate for it when opposed by other energy companies. That is starting to change.

Lately, Exxon argued that the industry must not oppose all climate policies or risk having less palatable alternatives to a tax take hold. A proper carbon tax would be at least be revenue-neutral with other taxes lowered to offset the impact, goes Exxon’s argument to other energy companies.

Unfortunately for Exxon, many in Congress would oppose any restrictions on carbon emissions and they still outnumber those who might listen. Hence, a recent House vote on a resolution condemning a carbon tax and the global climate deal in Paris agreed to last December.

Exxon, the world’s largest publicly owned oil company, arguably faces more pressure than other firms to show concern about climate change, as well as less to lose from emissions cuts.

At least two state attorneys general are investigating whether the oil giant has conspired to cover up what it knows about the impact of global warming and Exxon shareholders narrowly voted down a resolution calling for climate change stress tests in May.

The House vote in early June to condemn a carbon tax could be a precursor to a long and bitter struggle that pits smaller companies against multinational and European firms. Exxon, as the U.S.’s largest natural-gas producer, is much better diversified than domestic firms specializing in refining or coal. A carbon tax would also make coal more expensive relative to natural gas leading some to think Exxon is trying to push out its competition.

Now that Congressional Republicans have are on record opposing a carbon tax, it will be harder to convince them to vote differently. The strategy pushed by Majority Whip Steve Scalise and backed by Koch Industries Inc. will likely trip up attempts by a president and Congress to levy a carbon tax in the future.

Yet, the idea is gaining traction. Republican former South Carolina congressman Bob Inglis has praised the tax as a free-market solution to climate change. And because a carbon tax would mean substantial revenue for the treasury, lawmakers could be tempted to use the tax to balance the budget or offset other cuts.

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