How to cut CO2 emissions

The conventional wisdom about how to reduce carbon emissions is wrong. It can be cut without heavy government regulation.
The conventional wisdom about how to reduce carbon emissions is wrong. It can be cut without heavy government regulation. GETTY

Before taking office, Sen. Thom Tillis said getting “the regulatory environment back to a level where the cost of doing business and the uncertainty is reduced” will be his top priority. A recent survey of registered voters found an overwhelming majority of Americans – including half of Republicans – support government action to curb global warming. These two sentiments seem to be at odds; conventional wisdom has been that only more regulation or a complex cap and trade scheme or complicated tax credits to promote use of renewable energy will reduce our dependence on fossil fuels and reduce greenhouse gas emissions. But the conventional wisdom is wrong. Congress can reduce regulation, simplify the tax code and reduce greenhouse gas emissions by enacting a revenue neutral fee and dividend program on fossil fuels.

We currently rely on complex regulations and tax provisions to curb global warming. Last year the EPA proposed rules requiring utilities to reduce carbon dioxide emissions. The cost to comply with the rules is uncertain, but the cost of generating electricity will certainly increase. This additional cost will undoubtedly be passed on to businesses and consumers.

These regulations will hurt the competitiveness of American companies relative to industries abroad whose costs will not be increased by the regulations. Moreover, regulations necessitate new bureaucracies to monitor and enforce the new rules. To comply, a utility must monitor CO2 emissions and submit reports to the government; likewise, government employees will have the added responsibility of reviewing the reports and auditing the utility’s practices.

Congress and state legislatures have enacted complex tax credits to promote wind, solar and other forms of renewable energy. These credits can lower the cost of renewable energy, but you often need an army of lawyers to decipher the rules and structure deals to get the credits. And tax credits don’t do much good for a homeowner who pays little income tax, but would like to install a solar system on their home. These tax credits must also be periodically renewed, which means every few years the financial incentives on which the renewable industry is based are threatened with elimination, which is not sustainable.

A better way to do it

A simpler solution to these regulations and byzantine tax rules is at hand – a revenue neutral carbon fee and dividend. Former Secretary of State George Schultz promotes this plan as the conservative answer to climate change, because it won’t increase the size of government, enables businesses and consumers to predictably plan for the future and unleashes the creative energy of all Americans to find ways to reduce our CO2 emissions.

Carbon fee and dividend works like this:

A steadily-rising fee – starting at $15 per ton of carbon-dioxide – is placed on fossil fuels at the first point of sale, increasing by $10 per ton of CO2 each year. Revenue from the fee is divided up equally and returned to all households. Border adjustment tariffs are placed on imports from nations that do not have an equivalent carbon-pricing mechanism in order to maintain a level playing field for American businesses.

Regional Economic Models, Inc. (REMI), a firm that corporations, governments and academic institutions turn to for economic forecasting, conducted a study on the carbon fee and dividend proposal. They found that in the first year, a four-person household would receive an annual dividend of $600. After 10 years, the total annual dividend would be around $3,500. This feature is critical: instead of impeding economic growth, a carbon fee will grow the economy, create jobs and put money in the pockets of American households. REMI found that within a decade, a revenue neutral carbon fee and dividend system will create more than 2 million new jobs and increase GDP by about $80 billion per year.

In addition, REMI found that after 10 years our CO2 emissions will drop 33 percent from current levels, which is substantially more than the proposed EPA regulations will accomplish.

EPA regulations are coming

The Supreme Court has already held the EPA may regulate carbon dioxide. So the EPA’s regulations are likely to take effect. Before we spend time and money arguing about the regulations and before utilities spend billions of dollars to comply with them, Congress should enact carbon fee and dividend. With carbon fee and dividend, cumbersome regulations and tax laws can be eliminated, uncertainty for businesses will be reduced, national greenhouse gas emissions will sharply decline, and businesses and consumers, not government, will find the best way to reduce CO2 emissions.

Bill Blancato is a Winston-Salem attorney.