Environment & Energy Report

House’s Tax Writers Enter ‘Thorny’ Carbon Tax Debate

March 6, 2019, 9:45 AM

The House’s tax-writing panel is taking its first steps toward what will become a fractious debate: whether a carbon tax is the best way to tackle climate change and how to use the more than $1 trillion in new revenue it would generate.

A carbon tax remains a red flag for most Republicans—including those who hold the majority in the Senate. But moderate House Democrats also worry about how it might affect those with low incomes. Former Rep. Carlos Curbelo (R-Fla.), who offered the first Republican-led carbon tax bill last summer, predicted that “it’s not going to happen anytime soon.”

A carbon tax levies a fee on the production, distribution, or use of fossil fuels based on how much carbon their combustion emits. Such a fee is likely to be an issue, along with the broader Green New Deal (H.Res. 109), that Democratic hopefuls in the 2020 presidential race will be debating, lawmakers on the House Ways and Means Committee said.

The committee’s chairman, Rep. Richard Neal (D-Mass.) is under pressure to endorse the ambitious jobs and climate blueprint, and join roughly one-third of House Democrats. Neal said he is “committed to passing legislation out of my committee that will help bring down emissions” while also boosting efficiency and clean energy in a Feb. 26 statement.

Ways and Means Democratic staff has contacted at least one potential witness for a carbon-tax hearing, and Neal said he will hold one in the months ahead.

Some energy giants are backing a price on carbon, including BP Plc and Exxon Mobil Corp. But Curbelo said GOP support remains the linchpin to passage—and that is a tough vote for members in swing districts who need support from both parties.

“This is, without question, a thorny issue,” said Curbelo, who lost his seat in November and is now a fellow at Columbia University’s energy policy center.

Variety of Potential Uses

A $25-per-ton tax placed on oil producers, natural gas refiners, and electricity generators could raise more than $1 trillion in new revenue over the next decade, the Congressional Budget Office estimated in December.

Revenue from such a measure could be used to cut payroll taxes, address infrastructure, or reduce the deficit. Rebates also could be used to shield households from increased energy costs as a result of the tax.

House Democrats “are united around the fact that we must do something meaningful about climate,” said Rep. Hakeem Jeffries (D-N.Y.), who chairs the House Democratic Caucus.

The Green New Deal doesn’t explicitly mention a carbon tax. But freshman Rep. Alexandria Ocasio-Cortez (D-N.Y.), the proposal’s best-known champion, said she backs one.

“I think at this point the conversation has shifted enough that a carbon tax is conceivably a very moderate policy now,” she said.

Laying the Groundwork

Ways and Means dipped into the carbon tax issue a decade ago during Barack Obama’s presidency, but only to hold hearings. House Democrats opted instead to move cap-and-trade legislation through the Energy and Commerce Committee.

The cap-and-trade bill, requiring emitters to buy and sell allowances, or permits, for each ton of greenhouse gases to emit, died in the Senate in 2010.

Rep. Earl Blumenauer (D-Ore.), a carbon-tax advocate on Ways and Means and a Green New Deal supporter, was disappointed his panel was sidelined from the debate when climate change “was kind of ceded” to the energy committee.

“There is broader energy both in our caucus now, and in the outside world,” said Blumenauer, who plans to reintroduce a 2018 bill to impose a carbon fee on coal, petroleum products, and natural gas.

But some veteran Ways and Means Democrats are still seething over the 2009 slight, noting the Senate never took up the House-passed bill. Democrats subsequently lost their House majority in 2010.

“Don’t forget, Ways and Means went through this in 2009, and we’re not going to forget that,” said Rep. Bill Pascrell (D-N.J.). “Because a lot of people put their vote on the line when they didn’t even have to.”

Pascrell and other committee Democrats, including Ron Kind (Wis.) said they fear a carbon tax could hurt low-income earners. Kind wants to ensure revenue “gets returned back to low-income working families in my district so they don’t pay a disproportionate burden,” adding that Wisconsin could be hurt because of its dependence on coal.

Jurisdictional Friction

Energy and Commerce Committee Democrats now concede Ways and Means will have significant jurisdiction over a carbon tax. But the idea still faces huge hurdles, said Rep. Peter Welch (Vt.), a senior Energy and Commerce Democrat.

“A carbon tax, a lot of us think that’s a good idea. But I don’t think anybody thinks we could ever get it through” as long as Republicans control the Senate and executive branch, Welch said.

Energy and Commerce Republicans, in the minority for the first time in eight years, also say they don’t want to see their committee cede authority on the issue.

“I think you fight for jurisdiction,” said Illinois Rep. John Shimkus, the top Republican on Energy and Commerce’s climate change panel.

Political Realities and Critics

Curbelo, the former Florida lawmaker, drew widespread attention in July 2018 with his carbon tax bill, but it drew just two GOP co-sponsors.

Anti-tax groups argue that voters have panned state carbon taxes. Washington twice voted down a carbon tax ballot initiative, most recently in November.

“There really isn’t a constituency for this out there, given that it will raise prices for everything from heating your home to fueling your vehicle,” said Mike Palicz, Americans for Tax Reform’s federal affairs manager.

But the tax could be the only policy that both addresses climate change and provides the boost in revenue needed over the coming decade, supporters argue.

The 2017 tax law’s cuts expire for individual taxpayers after 2025, which will prompt a push to extend them particularly for middle-income earners. Nearly a half-dozen trust funds, including Social Security, will be heading toward insolvency.

“My view is that a carbon tax is justified by climate—and necessitated by fiscal issues,” said Alex Flint, executive director of the Alliance for Market Solutions.

To contact the reporters on this story: Dean Scott in Washington at dscott@bloombergenvironment.com; Kaustuv Basu in Washington at kbasu@bloombergtax.com

To contact the editors responsible for this story: Gregory Henderson at ghenderson@bloombergenvironment.com; Chuck McCutcheon at cmccutcheon@bloombergenvironment.com

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