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A New Look at Carbon Taxes?

So it’s a new year and though a host of fiscal issues are front and center, perhaps the national debate in 2013 will finally focus seriously on climate change. Although the prospect of a carbon tax is not something any sane person would bet on, imagine for a minute or two the prospect of real and substantial reductions in carbon emissions at the same time that there is a substantial growth in new jobs and a vital jolt in other economic activity. And, amazingly enough, consider meaningful debt reduction coming from the new revenues from the carbon tax as well.

“It can’t happen in the United States” most would respond. Maybe in a place like Denmark or another heavily regulated economy where being green is part of the overall zeitgeist, but not in America and certainly no time soon.

But actually there is an experience across the Atlantic that is worth considering — that of Ireland. I was struck by a recent New York Times article about Ireland’s carbon tax.

According to the Times:

… [W]hen the Irish were faced with new environmental taxes, they quickly shifted to greener fuels and cars and began recycling with fervor. Automakers like Mercedes found ways to make powerful cars with an emissions rating as low as tinier Nissans. With less trash, landfills closed. And as fossil fuels became more costly, renewable energy sources became more competitive, allowing Ireland’s wind power industry to thrive.

Even more significantly, revenue from environmental taxes has played a crucial role in helping Ireland reduce a daunting deficit by several billion euros each year.

While the nine Northeastern states consider implementing greater restrictions on carbon offsets through their interstate Regional Greenhouse Gas Initiative (“RGGI”), in the long-run it may be that the level of reductions necessary to meaningfully reduce carbon emissions in the United States can only come from the level playing field of a national tax. Such a tax could perhaps include credits to low or fixed income residents to help offset the increased cost of using fossil fuels for heating and basic transportation for some transitional period. With Northeast wholesale electricity prices, for instance, staying at low levels hardly dreamed of just a few years ago (largely because of the amount of inexpensive natural gas to fuel the increasing number of gas-fired power plant), meaningful investments in renewable generation are restrained.

There are plenty of approaches that are on less than a national level to carbon pricing, such as that of the three western Canada provinces of British Columbia, Alberta and Saskatchewan. And there are no shortage of skeptics and opponents who will say that carbon taxes hurt the economy, whether applied nationally, regionally or in one state. The Irish experience, however, puts the lie to that. And without an approach that applies to all sectors – not just electricity generation – it is very hard to meaningfully reduce overall contributions to global climate change.

Posted by Jeffrey M. Bernstein, Esq., 1/2/2013

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