Economists—both liberal and conservative—love carbon taxes. The levies, they say, would create market incentives for people to reduce their consumption of fossil fuels and, more important, encourage the development of new “clean” technology.
Makes perfect sense, but to many voters and, hence, to many politicians, carbon taxes mean something else: They require consumers to pay higher prices today in return for the promise of a more livable planet sometime in the future. It is a trade many voters--from France to Canada to Washington State—are rejecting.
In Washington State, for example, voters easily defeated a November referendum to create a first-in-the-nation carbon tax—for the second time since 2016.The tax, strongly opposed by the oil industry, would have raised $1 billion by 2023. While carbon tax supporters now say they will try to convince the state legislature to pass the levy, it is hard to see elected officials flocking to approve a law that was backed by only 44 percent of voters.
Canadian second-thoughts
Seven other states, including New York and California, reportedly are considering carbon pricing initiatives, but the Washington State outcome is likely to give them second thoughts.
In Canada, Liberal Prime Minister Justin Trudeau made a carbon tax a top priority and the levy is due to take effect on April 1. Some provinces have enacted their own version and, in those that have not, a federal tax will kick in. The federal levy initially is set at $20 a ton of carbon emissions, equal to about 4.4 cents per liter of gasoline, and would rise to $50 per ton in 2020. A nice description is here.
It was probably not surprising that the western, conservative, and resource-heavy provinces of Manitoba and Saskatchewan either repealed or refused to enact their own carbon taxes. But so did Ontario, which includes heavily urbanized Toronto. New Brunswick’s tax was deemed insufficient by the federal government.
Now, those provincial leaders are banding together to try to get the federal tax reversed, and conservatives are aiming to make the issue a key plank in parliamentary elections scheduled for October.
Riots in France
Then, there is France. President Emmanuel Macron explicitly campaigned as an environmentalist, and, as part of his agenda, supported increases in both existing carbon taxes and separate motor fuels taxes. The carbon tax, already €44.6 per ton of carbon dioxide emissions, is due to double by 2022. Macron also moved to raise taxes on gasoline and diesel fuel. Gasoline in France already costs the equivalent of $6 per gallon.
The result: Riots. While the revolt now has gone well beyond the tax issue, the beleaguered Macron has agreed to suspend the new energy taxes for six months—and to cut other domestic taxes.
In part, Macron may have fallen victim to his own mixed messages. On one hand, he promoted the tax hikes as part of his broad environmental initiative. Yet, of the €34 billion the tax hikes were expected to raise this year, about 20 percent was to go for green projects. The rest would be used to reduce the nation’s budget deficit. None would go to more popular uses such as new spending or other tax cuts.
Carbon dividends
Some believe that rebating carbon tax revenue to households is a way to build public support for the initiative. For instance, a group called the Carbon Leadership Council has backed a carbon tax and dividend plan drafted by former Republican Treasury secretaries James A. Baker III and George Shultz (as well as TPC advisory council member Greg Mankiw). My TPC colleagues Donald Marron and Elaine Maag recently wrote a paper explaining how such an arrangement would work.
But the troubled Canadian program includes a promise of rebates. For example, the federal government estimates the average Ontario household will pay $244 in direct and indirect costs for carbon next year but will receive $300 back, for a net benefit of $56. It will be interesting to see if the promised rebate saves the tax.
The politics of all this is confounded by voter responses in the US to gas taxes. The federal government has been unwilling to raise the gas tax for 25 years. Yet, since 2013 more than half the states in the US have raised or restructured their motor fuel taxes. Just this past November, California voters easily rejected a voter initiative to roll back a 2017 gas tax increase. On the state level, at least, voters seem OK with the idea of raising gas taxes to finance roads or other public infrastructure.
But it is important to distinguish those gas taxes from taxes aimed at mitigating climate change. While many US voters seem willing to pay higher taxes that are framed as user fees, taxpayers here, and perhaps elsewhere in the world, are not so enthusiastic about levies that are promoted as an environmental initiative. And until that changes, or unless they can find another, more politically attractive use for the revenue, supporters of carbon taxes face a long uphill battle.
