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A Progressive Carbon Tax Will Fight Climate Change and Stimulate the Economy

A Progressive Carbon Tax Will Fight Climate Change and Stimulate the Economy

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For the benefit of current and future Americans and global citizens, Congress should act now and create a progressive carbon tax.
For the benefit of current and future Americans and global citizens, Congress should act now and create a progressive carbon tax.

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Published by: Center for American Progress on Dec 05, 2012
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1Center or American Progress | A Progressive Carbon Tax Will Fight Climate Change and Stimulate the Economy
A Progressive Carbon Tax Will Fight ClimateChange and Stimulate the Economy
Richard W. Caperton December 6, 2012
Supersorm Sandy. Massive droughs. Devasaing ornadoes. Horric wildres. TeUnied Saes has cerainly seen he dramaic weaher-relaed eecs o climae changein 2012, and every American has in some way been negaively impaced.
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Unorunaely,unless we sar aking acion now o curb he greenhouse gas polluion ha’s causinghis exreme weaher, hings are only going o ge worse. Depending on which acions we choose o ake, his year will eiher be he new normal or i will be a glimpse ino auure where condiions are much, much worse.Progressive leaders across he counry are beginning o ake acion and look or ways o ghclimae change. Presiden Barack Obama is using provisions o he Clean Air Ac o reducepolluion rom new power plans.
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Caliornia and some Norheasern saes—Connecicu,Delaware, Maine, Maryland, Massachusets, New Hampshire, New York, Rhode Island, and Vermon—have regional programs ha pu a price on carbon dioxide and oher greenhousegas polluans in he hope o reducing heir usage.
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Tese are powerul seps in he righdirecion, bu hey alone canno solve he challenge o climae change. Avoiding he moscaasrophic consequences o global warming will require much broader acion.Tere are several ways ha he Unied Saes could make a signican conribuion o heglobal gh agains climae change. We could ake Presiden Obama’s acion on new powerplans o he nex level and use he Clean Air Ac o reduce polluion rom exising powerplans and oher major sources o emissions. Te exising regional programs ha chargea ee or polluion could be srenghened and broadened o cover more o he counry, orCongress could ge involved and pu a naionwide price on carbon by creaing a carbon ax.Beore diving ino specics on a naional carbon ax, i’s imporan o recognize hahere are counless ways o pu a price on carbon. A cap-and-rade sysem is one suchmehod, and i’s cerainly possible o design a progressive cap-and-rade sysem. In sucha sysem, a sric cap is se on naional polluion, and polluers mus have permis or allo heir polluion.
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Tese permis are reely raded so ha companies can reduce heirpolluion pro by selling permis o oher companies ha may need more polluionallowances. Analysis showed ha he cap-and-rade bill passed in he U.S. House o Represenaives in 2009 would have beneed low-income people, reduced he deci,
 
2Center or American Progress | A Progressive Carbon Tax Will Fight Climate Change and Stimulate the Economy
proeced vulnerable indusries, reduced polluion, and simulaed invesmen.
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Ta’s why CAP, along wih privae businesses and a biparisan majoriy o he House o Represenaives, suppored he bill. Unorunaely, i ailed o muser he necessary sup-por in he Senae and was never enaced.Tree years laer cap and rade is o he able largely because o a polluer-unded eoro deny climae science and delay acion on polluion reducions. Bu Hurricane Sandy,he scal cli, and he debae over clean energy incenives have ogeher made i clearha we mus pu a price on carbon—and we mus do i soon.Given he rack record o climae legislaion in Congress—including he ailed eor opass he cap-and-rade bill in 2009
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—enacing a carbon ax poses more o a challenge haneiher expanding he regional carbon-pricing acions or using he Clean Air Ac o regulaeall power plans. While boh o hese alernaives are seps in he righ direcion, a naionalcarbon ax would be able o address more han jus our environmenal concerns. In addi-ion o miigaing he eecs o climae change, a carbon ax could help solve our counry’s budge crisis and provide revenue or new job-creaing invesmens in clean energy inra-srucure. By raising new unds, driving new invesmens, and reducing he likelihood o hemos caasrophic consequences o climae change, a carbon ax is a ool ha can ake onour counry’s hree mos pressing challenges: he deci, joblessness, and he climae crisis.In his issue brie we describe some o he key quesions Congress needs o answer indesigning a carbon ax. We lay ou he principles or making sure ha a carbon pricepus our counry on a progressive pah o uure prosperiy and describe why a carbonax is a desirable way o price carbon. We hen urn o he issues in collecing he neces-sary revenue. Finally, we discuss how o use he revenue o mos eecively solve hechallenges acing our counry.
Key principles for a progressive carbon tax
 As wih mos energy policies, he deails o a carbon ax are criical o accomplishing isgoals. A well-designed pricing sysem can creae jobs, reduce greenhouse gas polluion, andhave air impacs across all regions and income groups. o ensure his posiive oucome, heUnied Saes should adop a carbon pricing sysem ha embodies progressive principles o airness, environmenal saey, and economic growh. Te pricing sysem should:Be sucienly robus ha i leads o meaningul reducions in greenhouse gas polluion,geting us on a pah ha helps us avoid he mos caasrophic eecs o climae change.In addiion o being high enough o aec polluion raes, he ax should also increaseover ime and be applicable o non-carbon-dioxide greenhouse gases such as mehane.Tis would boh ensure a coninuing reducion in he release o carbon dioxide and alsoencourage companies o move oward cleaner energies insead o dieren diry ones.
 
3Center or American Progress | A Progressive Carbon Tax Will Fight Climate Change and Stimulate the Economy
Encourage businesses o make new invesmens in energy eciency and renewableenergy o reduce greenhouse gas emissions. Tis will simulae he economy and pupeople back o work in he burgeoning clean-ech and green-jobs secors.Reduce—no increase—economic vulnerabiliy o low-income households by ensur-ing ha hey are airly compensaed or any increase in energy prices.Have appropriae mechanisms o proec exising American businesses and prevenso-called polluion leakage o counries wihou similar sysems in place. Leakageoccurs i highly polluing indusries simply move o oher counries ha don’ have acomparable limi on polluion; in his way, hey can coninue business as usual wih-ou sricer environmenal regulaions. Leakage can also happen i domesic indusriesshu down, causing us o impor goods rom oher counries.
7
Reduce he budge deci o preven draconian cus in vial domesic programs by raising revenue rom he ax.Te remainder o his issue brie explains how o design a carbon ax ha mees hesecrieria.
Why a carbon tax is the best solution
 Alhough i is unlikely ha Congress will atemp o pass ederal cap-and-rade legisla-ion again in he near uure, here are alernaives o puting a price on carbon—includ-ing he carbon ax, which is geting signican atenion oday rom lawmakers andhough leaders across he poliical specrum. Te basic mechanics o a carbon ax are very simple: A ax is assessed on each on o greenhouse gas polluion, he ax is paid ohe governmen, and he governmen uses he money or eiher argeed spending orgeneral usage. Te ax will discourage polluion, hereore discouraging he use o ossiluels while promoing cleaner energies. I can be increased over ime o coninue incen-ivizing polluers o lower heir emission raes. A carbon ax does have a criical disincion rom cap-and-rade. Wih he carbon ax, heprice is xed, and he marke responds by reducing carbon polluion o a poin where i ischeaper o pay he ax han reduce he polluion. Wih cap-and-rade, hough, he amouno polluion reducion is se by law, while he marke responds by seting a price or pollu-ion a he poin ha reecs he amoun o polluion ha mus be reduced. Te dierenceis cos cerainy versus emissions-reducion cerainy. For some polluans such as sulurdioxide or nirogen oxides, he emissions cerainy is very imporan. Wih greenhousegas polluans such as carbon dioxide, on he oher hand, amospheric concenraion willdeermine he impacs o climae change. Tis means ha he reducions in greenhousegas polluion need no be as precise as hose or convenional polluans, as long as we

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