The Costs of Inaction
I began my speech by noting that climate change is not just a distant threat.
Right here in Alabama, I told the audience, we’re already seeing the effects of a changing climate. Sea level rise is sending salt water into the state’s freshwater basins, contaminating drinking water and harming fish populations that fuel the state’s economy. Economic infrastructure—like Louisiana State Highway 1, which the oil and gas industry uses to deliver resources to its plants—is literally sinking. And more intense storms and bigger storm surges are putting coastal communities at risk.
Because of impacts like these, counties bordering the Gulf of Mexico are currently grappling with damage amounting to $14 billion annually.
Climate change also poses significant economic risks to the United States as a whole, of course, from an additional $7.3 billion in annual damage to coastal property and infrastructure to 10 percent declines in yields of corn, wheat, soy and cotton in the Midwest and the South over the coming decades. Increased energy demand due to rising temperatures could cost residential and commercial energy users an additional $12 billion per year.
We cannot afford to ignore these risks.
A Simple Swap
So, how can we reduce carbon emissions in a way that benefits everyone?
I noted that most economists—both Republican and Democrat—agree that putting a price on carbon is the easiest way to quickly reduce greenhouse gas emissions at the lowest cost.
I acknowledged the failure of the 2009 Waxman-Markey bill, which called for a cap and trade system requiring businesses to buy permits to cover their emissions. In that case, Congress proposed spending the proceeds from the permits on a huge number of new government programs. In hindsight, it’s not surprising that critics were unwilling to support a program that would grow the federal government.
But suppose we did something else with the money from a price on carbon. Suppose we looked to grow the economy instead of growing the government.
Here’s what I proposed to the audience: let’s swap one tax for another.
A carbon tax of $20 per ton would raise more than $100 billion per year. That’s enough to replace the revenue we’d lose if we reduced the corporate tax rate from 35 to 25 percent.
A carbon tax like this could be simple to administer. It would put less drag on economic growth. And it would incentivize new technologies that accelerate the transition to cleaner energy and enhance our competitiveness in the global marketplace.