Democrats Prep Carbon Tax Option to Pay for Spending Bill

September 27, 2021

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by Laura Davison, Ari Natter, and Jennifer A Dlouhy (Bloomberg) Carbon tax gains momentum as talks on spending bill heat up; Plan would use tax proceeds to send cash payments to Americans -- Senate Democrats are developing a carbon-tax proposal that could potentially be used to offset some of the costs of a sweeping social-spending bill as well as direct cash payments to households, according to a key lawmaker.

“It’s projected that making polluters pay -- when combined with clean energy tax credits -- would lower the cost of clean electricity for Americans,” Senate Finance Committee Chairman Ron Wyden said in a statement to Bloomberg News Friday. “I’ve worked on this for years, and have continued to develop the proposal as part of my menu of options for the caucus.”

A “substantial portion” of the revenue generated from a carbon tax would be disbursed to Americans in the form of cash payments, Wyden said. That could help increase public support for the tax, but would also mean less money to offset the cost of the up-to-$3.5 trillion so-called reconciliation bill.

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Momentum for such a levy is growing as a way to address climate change. And economists have long favored a carbon tax as a straightforward approach to putting a price on the greenhouse-gas emissions.

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Advocates say it would encourage companies and consumers to pollute less. The American Petroleum Institute, the oil-industry trade group that counts Exxon Mobil Corp. among its members, and the Chamber of Commerce have both endorsed a price on carbon, which could take the form of a levy.

But industry supporters generally want the carbon tax imposed as a substitute for existing regulations on greenhouse gases -- a tradeoff that is unlikely to be part of the plan Democrats are assembling.

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The tax is appealing because of its role as a potential revenue-raiser, but lawmakers are also working to ensure that a significant chunk of the proceeds goes back to middle- and low-income families.

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Still, a tax that could increase the costs of driving, flying and consumer goods is likely to face stiff political resistance from some quarters, and Republicans previously have voted against the concept of placing a tax on carbon dioxide. Some moderate Republicans, including Lisa Murkowski of Alaska and Mitt Romney of Utah have signaled they are receptive to the idea.

GOP opposition wouldn’t be able to nix the proposal, because Democrats aim to pass the tax-and-spending bill on a party-line vote. Still, Democrats have tight majorities in both chambers, meaning that they need nearly every member in the House and all 50 caucus members in the Senate to support the legislation.

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Supporters argue that a domestic carbon tax would have to be paired with a levy on imports -- known as a carbon border adjustment tax -- to protect U.S. workers in energy-intensive industries and to ensure that companies don’t shift manufacturing out of the U.S. to nations with lax environmental regimes.

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Even so, U.S. Special Presidential Envoy for Climate John Kerry on Wednesday dangled the prospect of a tariff on carbon-intensive imports if other nations don’t limit their emissions and reliance on coal-fired power to fuel cheap manufacturing. READ MORE

Democrats Consider Adding Carbon Tax to Budget Bill: A tax on carbon dioxide pollution could be the single most effective policy to tackle climate change. It could also be politically explosive. (New York Times)

Senior Democrats’ push for powerful climate tool collides with political realities--White House has been wary of proposals to raise costs for middle-class Americans, while some centrists also object to the plan (Washington Post)

WYDEN’S RECONCILIATION PRIORITIES: (Politico's Morning Energy)

Sen. Sheldon Whitehouse dishes on reconciliation strategy (Plugged In-Ricochet)

Democrats Weigh Carbon Tax After Manchin Rejects Key Climate Provision: Faced with the likely demise of a central pillar of President Biden’s agenda, the White House and outraged lawmakers are scrambling to find alternatives. (New York Times/Seattle Times)

The other climate options (Politico's Morning Energy)

Shopping the climate options (Politico's Morning Energy)

Excerpt from New York Times: Opposition from a single moderate Democrat to corporate and income tax rate increases has revived efforts in the Senate to draft a tax on carbon dioxide pollution as a way to pay for the Democrats’ proposed $3.5 billion budget bill.

Senator Kyrsten Sinema of Arizona has not advocated for a carbon tax, which President Biden and other key Democrats have shied away from as a huge political risk. But her resistance to tax rate increases to pay for the Democrats’ ambitious social policy and climate legislation has set off a scramble for alternatives, including a carbon tax, international corporate tax changes and closing loopholes for businesses that pay through the individual income tax system.

Senator Ron Wyden of Oregon, the chairman of the Senate Finance Committee, confirmed that the Senate majority leader had asked him to craft legislation that would put a price on carbon emissions but to ensure that the policy would respect Mr. Biden’s pledge not to raise taxes on families earning less than $400,000.

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That could be done with some kind of rebate or “carbon dividend” to help taxpayers as the country transitions from gasoline-powered vehicles to electric cars and trucks and from coal- and natural gas-fired electric power plants to renewable energy, Mr. Wyden said.

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“A price on carbon, such as a carbon tax, provides the economic incentive for the quickest, cheapest and most comprehensive emission reductions across the entire economy,” said Richard Newell, president of Resources for the Future, a nonpartisan energy and environment research organization.

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A recent analysis by Mr. Newell’s staff found that a tax on American carbon dioxide pollution that started at $15 per ton and escalated to $50 per ton by 2030 would cut domestic carbon emissions by about 44 percent from 2005 levels — getting the Biden administration most of the way to its ambitious goal of reducing greenhouse gases by 50 percent from 2005 levels by 2030. It also found that such a program could actually lead to lower, not higher, electricity bills.

A carbon tax could also solve another worrisome problem for Democrats: Under the rules of the Senate, only legislation that strictly qualifies as budget policy may be included in the bill, which is being moved through Congress under a fast-track process known as reconciliation.

A pollution tax would easily pass that test.

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The tax would be applied directly to coal mining companies, large natural gas processing plants and oil refiners, based on the emissions associated with their products, with one exception: Oil refiners would very likely be charged for producing diesel fuel and petrochemicals, but not gasoline — a way to try to prevent cost increases from hitting most American drivers at the pump. READ MORE

Excerpt from Politico's Morning Energy: WYDEN’S RECONCILIATION PRIORITIES: Senate Finance Chair Ron Wyden is standing behind carbon pricing and solar tax credits under reconciliation as lawmakers start trimming and cutting to match moderates’ opposition to the $3.5 trillion topline figure. The chairman’s blessing signals the two priorities could avoid the cutting block for at least some time, but ME isn’t making any predictions about what will survive the reconciliation chaos.

Carbon pricing saw a major boost in Democratic interest in recent weeks in the wake of the summer’s devastating climate change-driven natural disasters, Wyden said, with “a whole host of senators” approaching him saying “let’s go all in to create a pricing strategy.” Democrats are bouncing ideas to create a carbon pricing scheme that won’t violate Biden’s pledge not to raise taxes on households who make under $400,000 a year, including possible exemptions for gasoline.

Wyden made the remarks during a news conference Tuesday to push for Sen. Jon Ossoff’s solar tax credits under the Solar Energy Manufacturing for America Act to be included in the reconciliation package. The bill would bolster a U.S. solar supply chain through tax incentives — in a move to reverse the heavy reliance on foreign solar components.

Ossoff added supply concerns circling around the current solar tariff fights “underscore the urgency of passing the legislation now because it will take some time to scale up production.” READ MORE

Excerpt from Plugged In-Richochet: Democratic Sen. Sheldon Whitehouse of Rhode Island joins “Plugged In” hosts Josh Siegel and Neil Chatterjee to talk about all things reconciliation.

Whitehouse says a fee on carbon emissions is “highly likely” to be included in Democrats’ climate and social spending package. He warns the U.S. would look like “jerks and putzes” if Congress fails to pass climate legislation before the U.N. climate conference in Glasgow. LISTEN to AUDIO

Excerpt from New York Times/Seattle Times: The almost certain demise of the clean electricity program at the heart of Biden’s agenda — which comes as scientists say forceful policies are needed to avert climate change’s most devastating impacts — has prompted outrage among many Democrats and has led several to say now is the moment for a carbon tax.

“I’ve had a carbon pricing bill in my desk for the last three years just waiting for the time,” said Sen. Ron Wyden, D-Ore., chair of the Senate Finance Committee.

“What has been striking is the number of senators who’ve come to me about this since early fall — after Louisiana got clobbered with storms, the East Coast flooding, the Bootleg wildfires here in my own state,” said Wyden, speaking by telephone Saturday from Oregon. “Now there are a number of senators, key moderate senators, who’ve said they’re open to this. And a lot of House folks who have said they would support it if the Senate sends it over.”

But a carbon tax can be politically explosive. Industries could pass along their higher costs, leaving Biden and fellow Democrats vulnerable to claims that they are raising taxes on the middle class at a moment when inflation and energy prices are rising. Environmental justice advocates say a carbon tax permits companies to continue polluting, albeit at a higher cost, which disproportionately harms low-income communities. And it is unclear if Manchin, whose vote is crucial to Biden’s legislative agenda, would support a carbon tax.

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As they seek alternatives, White House officials are also weighing a voluntary version of a cap-and-trade program, which would create a market for polluters to buy and sell allowances for a certain amount of emissions.

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In recent days, as White House officials were trying to forge a deal, Manchin told them he would not support any legislation that includes a clean electricity program. Manchin, whose state is a major coal producer and who has financial ties to the coal industry, has said abandoning fossil fuels will harm the country’s energy independence and would make climate change worse.

Once his opposition to the clean electricity program became public Friday, several fellow Democrats expressed outrage.

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Congress “cannot afford to gut” the climate provisions in the bill, Rep. Alexandria Ocasio-Cortez, D-N.Y., wrote on Twitter. “This issue is bigger than ideology. It is a moral imperative for humanity and our planet’s future to reduce and eventually eliminate emissions,” she wrote. “There are many ways to do it, but we can’t afford to give up.”

Sen. Jeff Merkley, D-Ore., has been involved with the “No climate, no deal” rallies. “Listen, my state is burning up. We’re losing our snowpack, the ocean’s acidifying, affecting our shellfish,” he said Saturday. “This is a code red.”

Merkley said he would not vote for a reconciliation package that did not have “significant climate provisions,” but he said he was open to any option that cut carbon dioxide emissions in half by 2030 and produced carbon-free electricity by 2035. READ MORE

Excerpt from Politico's Morning Energy: Shopping the Climate Options ... DEMOCRATS DON'T STOP RALLYING: After a weekend of bemoaning the apparent demise of the Clean Electricity Performance Program — the most ambitious part of their climate plan — Democrats' mood suddenly turned chipper on Tuesday and they expressed new optimism that a deal could come together soon. But just what will make up that deal is floating in the ether.

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Chatter that a carbon tax was the political solution to replace the CEPP was quickly quashed by Senate Energy Chair Joe Manchin, who told reporters that a price on carbon was “off the board.” Senate Finance Chair Ron Wyden continues to push clean energy tax credits under his committee’s purview that he says will yield the lion’s share of President Joe Biden’s goal to cut U.S. carbon emissions by at least 50 percent by 2030, but details of that are still being worked out with the House.

One environmental advocate close to negotiations on a new climate proposal told POLITICO’s Burgess Everett and Anthony Adragna that a “Plan C” could also involve pouring tons of money into grants, loan guarantees and other programs aimed at curbing emissions.

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MEANWHILE IN INDUSTRY: BP, Shell and thirteen other companies threw their support to climate provisions in the Democrat’s current budget reconciliation framework Tuesday. “The climate provisions in the Build Back Better Act support our own investment in low-carbon innovation and will help us grow our business and remain competitive globally while also meeting our climate goals,” the group said in a letter to House Majority Leader Nancy Pelosi. Interestingly, the companies, which also include Unilever, Ikea and Carrier, said they “look forward to discussing the revenue provisions including potential alternative approaches.” READ MORE