Implementing a carbon tax is one economic solution to reduce greenhouse gas emissions. A carbon tax is exactly what it sounds like- a tax levied onto carbon emitting fuels, including coal, oil, and natural gas. By putting a price on carbon emissions, carbon tax accounts for the social cost of carbon– a dollar value on CO2 that considers changes in agricultural productivity, human health, energy system costs, and other high costs from climate change. It uses market forces in order to reduce the level of greenhouse gas emissions.

A carbon tax is slightly different from a cap and trade system, which limits the permitted amount of carbon emissions from major industrial and commercial emitters, then allows those that emitted under their limit to sell their unused emissions. President Obama pushed for a cap and trade program in the American Clean Energy and Security Act, but unfortunately the bill was defeated in 2010.

Climate change is a highly politicized issue, and no doubt, carbon pricing is as well. Economists favor a carbon tax for its simplicity and effectiveness. While carbon taxes and cap and trade are similar in essence, the term “tax” has a negative connotation, leading policymakers to favor cap and trade more.

How can Republicans and Democrats work together on climate change policies? According to the Yale Program on Climate Change Communication, there is strong support among voters across the political spectrum for climate action. 78% of registered American voters support taxing and/or regulating carbon pollution, including 67% of Republicans and 60% of conservative Republicans.

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With a carbon tax, there obviously comes revenue. Some Republican policymakers are in favor of a revenue neutral carbon tax, where revenue does not go to the government. Under this program, the tax revenue from households, wealthy and poor, would be returned equally to households through rebate checks. Since low-income households spent a larger proportion of their income on energy bills, a revenue neutral carbon tax would actually be progressive, with rebate checks acting as a form of redistribution. Net energy costs would be offset, and the economy would grow since households have more disposable income.

Carbon taxing has been successful in Europe, especially Germany, Denmark, Finland, and several states in the USA are starting to implement policies. Could a carbon tax work in New Jersey? According to an April 2017 report released by the Carbon Tax Center, the opportunity for a carbon tax in New Jersey is challenging for legal reasons: The State Constitution requires gas tax revenue (based on gas volume) to go to the Transportation Trust Fund. However, this could be changed to have the tax be based on carbon content instead.

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Opportunities for Carbon Taxes at the State Level (Yoram Bauman and Charles Komanoff)

Whether it’s a carbon tax, investments in wind and solar energy, or something else, I’m optimistic that New Jersey will take strong action towards climate change in the near future. With a Democratic governor who has committed to rejoining the Regional Greenhouse Gas Initiative, and a Democratic majority in both Houses of the State Legislature, we have the political capability. And in the aftermath of Hurricane Sandy, people seem to be aware of the fragility of our coastline, and may be more compelled to support climate action. Hopefully, these two factors combined can push the state to lead on climate change.

 

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