MIT academics propose carbon tax as the solution to America's deficit problems

Compared to the fiscal cliff, a carbon tax would boost growth while cutting emissions.

The Washington Post's Brad Plumer reports on a paper from the MIT Global Change Institute which argues that a carbon tax could, and should, replace the Bush tax cuts in the US.

Plumer:

The authors model what would happen if, this December, Congress enacted a small fee on carbon emissions to fend off a portion of the tax hikes and spending cuts that are scheduled to occur. The carbon tax would be levied directly on fossil fuels—on coal that comes out of the mine, say, or oil that’s shipped in from overseas—and would start at $20 per ton of carbon in 2013, rising 4 percent each year thereafter.

The authors, Sebastian Rausch and John M. Reilly, estimate that this tax would raise $1.5 trillion over the next 10 years.

To advocates of a carbon tax, this paper ought to be a mixed blessing.

On the one hand, the framing of the tax in terms of sensible deficit reduction is one of the better ways to get it in the debate. In both Britain and America, there is – for good or ill – an agreement that high deficits are a major problem which needs to be dealt with, and so hitching any policy to that cause is a far better recipe for success than pointing out its efficacy at fighting climate change.

On the other, the purpose of the tax could get muddled if this is how the debate is to proceed. Look, for example, at debates over the Robin Hood tax. No-one can agree whether it is being implemented to raise revenues, cut down on practices like high-frequency trading, or some undefined mixture of the two.

With a Robin Hood tax, that may be an acceptable confusion, but with a carbon tax, it is undoubtedly introduced to reduce carbon emissions. To think otherwise would be dangerous indeed. And so yoking a deficit reduction program to the tax creates some perverse incentives on the part of lawmakers. For if the tax does succeed in reducing carbon emissions – which the authors of the MIT paper suggest it will, though not by nearly enough to single-handedly solve the problem for the US – then the revenues gathered by it will drop accordingly.

Even so, having a carbon tax is still better than not having one, and the choke point the authors identify – the US fiscal cliff, and all the uncertainty it brings with it – could well be a time for introducing novel legislation of all stripes to the house.

A protest placard from Australia, where the carbon tax is rather unpopular. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

Photo: Getty
Show Hide image

Donald Trump's inauguration signals the start of a new and more unstable era

A century in which the world's hegemonic power was a rational actor is about to give way to a more terrifying reality. 

For close to a century, the United States of America has been the world’s paramount superpower, one motivated by, for good and for bad, a rational and predictable series of motivations around its interests and a commitment to a rules-based global order, albeit one caveated by an awareness of the limits of enforcing that against other world powers.

We are now entering a period in which the world’s paramount superpower is neither led by a rational or predictable actor, has no commitment to a rules-based order, and to an extent it has any guiding principle, they are those set forward in Donald Trump’s inaugural: “we will follow two simple rules: hire American and buy American”, “from this day forth, it’s going to be America first, only America first”.

That means that the jousting between Trump and China will only intensify now that he is in office.  The possibility not only of a trade war, but of a hot war, between the two should not be ruled out.

We also have another signal – if it were needed – that he intends to turn a blind eye to the actions of autocrats around the world.

What does that mean for Brexit? It confirms that those who greeted the news that an US-UK trade deal is a “priority” for the incoming administration, including Theresa May, who described Britain as “front of the queue” for a deal with Trump’s America, should prepare themselves for disappointment.

For Europe in general, it confirms what should already been apparent: the nations of Europe are going to have be much, much more self-reliant in terms of their own security. That increases Britain’s leverage as far as the Brexit talks are concerned, in that Britain’s outsized defence spending will allow it acquire goodwill and trade favours in exchange for its role protecting the European Union’s Eastern border.

That might allow May a better deal out of Brexit than she might have got under Hillary Clinton. But there’s a reason why Trump has increased Britain’s heft as far as security and defence are concerned: it’s because his presidency ushers in an era in which we are all much, much less secure. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.