Curbelo Carbon Tax Misses the Mark

For the first time this decade, a Republican Member of Congress has introduced carbon-pricing legislation on Capitol Hill. On Monday, July 23, Rep. Carlos Curbelo of Florida’s 26th Congressional District filed the inaptly named MARKET CHOICE Act, with Rep. Brian Fitzpatrick (R-PA-8) and Francis Rooney (R-FL-19) as co-sponsors. Some details of the bill:

• Beginning in 2020, the bill would place a fee of $24 on the production of fossil fuels for each ton of carbon dioxide equivalent that would be released upon the combustion of said fuels, with the point of taxation being oil refineries, gas processing plants, and the mouths of coal mines. Also targeted would be industrial facilities in more than a dozen sectors.
• The tax would rise by 2 percent a year, adjusted for inflation, until 2030. It would also be subject to further adjustment upward if it fails to reach its emissions reductions goals.
• 70 percent of the proceeds would go to the Highway Trust Fund.
• 10 percent of the proceeds would go to states in the form of grants for low-income households.
• 5 percent would be directed to chronic coastal flooding mitigation and adaptation projects.
• The remaining revenue would go toward various R&D efforts and assistance to displaced energy workers. See endnote.
• Not insignificantly, on this plan the carbon tax would replace the federal gasoline tax.

According to Congressman Curbelo, the plan “marr(ies) two very popular and important concepts: infrastructure investment and reducing carbon two emissions (sic) to mitigate against climate change, bring those two together and you get a good bill that can provide certainty for the future and relief for so many Americans who are stuck in traffic congestion in my community and all over the country.”

But this approach goes awry in several ways.

Inescapable Economic Harm

The most obvious way is that by driving up the price of reliable and erstwhile affordable energy the MARKET CHOICE Act would increase prices across the economy, and strain people’s budgets. With cost increases would come downsizing and layoffs in energy-intensive industries. Virtually no significant sector of our economy would go unscathed since this tax would impact the electricity and transportation sectors that are so central to commerce.

According to Columbia University’s Center on Global Energy Policy—which views carbon pricing favorably and partnered with Congressman Curbelo for the bill’s roll out event at the National Press Club prior to its filing—the MARKET CHOICE Act would result in measurable economic harm to the United States over the course of the next ten years. Columbia’s analysis shows that by 2030 if the tax is implemented:

• Natural gas production will be 5–8 percent lower.
• Gasoline prices, despite the removal of the federal gasoline tax, will increase by nearly a dime a gallon.
• Average electricity prices will be as much as 10 percent higher.
• Per capita energy expenditures will increase by $186–$278.
• And economic growth will slow, bringing down GDP by about two-tenths of a percent.

To reiterate, these damning figures are the result of the analysis of the pro-carbon tax Columbia Center on Global Energy Policy. Given that it would come at such a clear cost to the economic wellbeing of Americans, we would hope that the bill would convey benefits that are just as clear. But this is not the case.

Emissions Reductions Only Go So Far

One simple reason that the bill, even on its own terms, would not deliver is that the United States already contributes an ever-smaller percentage on the world’s carbon dioxide emissions. The United States currently produces 15 percent of global emissions and has now decreased its volume of emissions each of the past three years—while China and India have continued to increase theirs. The United States’ emissions totals are less significant globally as each year passes—so a carbon tax would make little direct difference.

According to Columbia’s analysis:

“The Curbelo proposal drives US economy-wide net greenhouse gas (GHG) emissions down to 27–32 percent below 2005 levels by 2025 and 30–40 percent below 2005 levels by 2030 (figure 1). The range reflects technological uncertainty. The bill represents a departure from current policy, in which emissions are between 18 and 22 percent below 2005 levels in 2025 and 19–26 percent below 2005 levels by 2030.”

In other words, while costing each American hundreds of dollars each year the proposed carbon tax would reduce our emissions by only an additional 10 percent from the current trajectory. When looked at in the global context mentioned above, we see how trivial this would indeed be. Again, because the United States contributes a portion of emissions that could soon be just 10 percent of the world’s total, a tax-induced reduction of U.S. emissions would reduce global temperatures by an utterly negligible amount.

Of course, the more sophisticated argument for the carbon tax, rather than direct warming mitigation as suggested by Rep. Curbelo, is that a tax would incentivize the development of low- and zero-emission technology. But as Manhattan Institute fellow Oren Cass has argued, the cause-and-effect relationship between taxation and technological innovation is rather turbid.

What About the Roads?

To put a final nail in the bill’s coffin, the 70 percent of apportioned revenue put toward the Highway Trust Fund represents a gross detour from market highway theory. Instead of upholding gasoline purchases as a proxy for road usage—as the current gasoline tax does—this bill would uphold carbon intensity. But the error remains: the best way to fund infrastructure improvements is to charge those who stand to benefit directly, through tolls set by supply and demand, not by taxing energy use. Despite the repeal of the federal gasoline tax, this plan would still drive up prices at the pump and not adequately account for road usage.

Conclusion

Rep. Carlos Curbelo’s Market Choice Act would harm Americans with only the most nebulous justification while also introducing potentially wasteful federal spending. This bill, with its high economic costs and minuscule benefits, does not represent evidence-based policy and Congress should summarily reject it.

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1  There is some uncertainty among AEA staff regarding the meaning of the bill’s text on this point. Though communications from Congressman Curbelo’s office have indicated the above spending break down, a direct reading of the bill suggests that only 75 percent of the revenue would be spend as indicated, with the remaining quarter unaccounted for. Title II of the MARKET CHOICE Act reads: “There is hereby created in the Treasury of the United States a trust fund to be known as the ‘Rebuilding Infrastructure and Solutions for the Environment Trust Fund’ (hereafter in this Act referred to as the ‘RISE Trust Fund’), consisting of amounts paid into the Treasury pursuant to subtitle L of the Internal Revenue Code of 1986 (as added by title I of this Act), and 75 percent of such amounts are hereby appropriated and transferred to the RISE Trust Fund.” This would suggest that the apportionment figures listed are to be drawn from only three-quarters of the revenue, with the spending of the remaining quarter of revenue left to the discretion of Congress.