Use revenue-neutral carbon tax

The pending decision by the Environmental Protection Agency to designate greenhouse gases, particularly carbon dioxide, as a threat to human health and welfare probably marks a point of no return.

One way or another, the United States is going to regulate greenhouse gases.

To the extent human-caused global warming is a real problem, this can be a step forward. It will, however, expose the lie that a transition to a less carbon-intensive economy will be painless or even enriching.

Despite proclamations about the limited nature of its finding, EPA can hardly designate greenhouse gases as a threat under the Clean Air Act without regulating them under the act.

Nor can the agency, as a practical and legal matter, limit its regulation to automobile emissions.

The regulatory structure of the Clean Air Act is technology focused. EPA sets air quality standards. Areas that don’t meet them have to come up with plans that include all reasonable measures that could be taken to come into compliance.

Businesses that emit regulated pollutants have to obtain operating permits and get agency approval of the control technologies they will use.

There are several problems with using this approach to regulate greenhouse gases. In the first place, the problem they cause is global, not local. So, how does the agency set a local standard?

Second, they vastly exceed in volume any other pollutant the agency regulates. The U.S. Chamber of Commerce estimates that more than a million businesses would be subject to technology-focused regulation if greenhouse gases are regulated under the Clean Air Act.

The act’s regulatory structure would be simply overwhelmed.

Clearly the Obama administration wants to use the EPA’s finding to prod Congress into enacting a cap-and-trade program as an alternative to regulating greenhouse gases under the Clean Air Act.

Under cap-and-trade, the government would set a limit on the total quantity of greenhouse gases that could be emitted. Pollution rights could then be traded.

President Obama has proposed that all pollution rights be sold at auction and the proceeds used to pay for making his payroll tax credit permanent and subsidizing alternative energy sources.

Now that it’s for real, however, Congress has discovered an inconvenient reality. If a price is put on carbon, someone has to pay it.

Coal-fired electricity is one of the country’s primary contributors to greenhouse gases. But more than half the country’s electricity is produced from coal.

The prospects of significantly higher electricity bills for average consumers and significantly higher operating costs for energy-intensive manufacturers have spooked even some Democratic members of Congress.

So, they are proposing that some of the pollution rights be given away for free, and proceeds from selling them be used to subsidize utility rates.

This, however, defeats the purpose of the exercise. If carbon doesn’t have a price that hurts, less of it won’t be emitted.

Simply put, if greenhouse gases are to be reduced, those who produce them have to be disadvantaged and those who don’t advantaged. This, however, will mean wrenching changes, within and between industrial sectors, and within and between geographic regions.

Green jobs won’t make the pain go away or be all better.

I am not a global warming denier. I favor a revenue-neutral carbon tax.

A carbon tax eliminates the uncertainty and avoids the bureaucratic and equity problems inherent in the issue of distributing pollution rights under a cap-and-trade regimen. I would use the tax proceeds to reduce payroll and income taxes, so there is no net drain on the private sector economy.

The benefits, however, wouldn’t be distributed commensurate with the costs. They can’t be, if greenhouse gases are truly to be reduced.

If carbon is to be reduced by putting a price on it, someone has to pay the price and not be reimbursed for it.

Robert Robb, an Arizona Republic columnist, writes about public policy and politics in Arizona. E-mail: robert.robb@arizonarepublic.com