But some centrist and even liberal Senate Democrats have warned their colleagues that this proposal could disproportionately hurt middle America and spark a political backlash. It is also unclear whether the carbon tax proposal can be crafted in a way that does not run afoul of Biden’s pledge to shield Americans earning under $400,000 from new taxes.
The impasse illustrates how difficult it is for lawmakers to agree on getting Americans to pay for climate pollution. Though polls show that Americans increasingly favor climate action to curb fossil fuel emissions that are warming the planet, their reluctance to pay higher gasoline taxes or electricity rates are making it harder for Biden to deliver on a central promise of his presidency.
Allies of the administration in Congress have proposed a rebate that would return some of the revenue raised by a carbon tax to low-income Americans, but even that plan faces resistance. Skeptics point out that both foreign countries and U.S. states that have tried implementing similar versions of a carbon tax have faced political firestorms over the matter.
“Every economist in the world loves a carbon tax — it is a great way to raise revenue while doing something about climate change,” said Howard Gleckman, a senior fellow at the Tax Policy Center, a nonpartisan think tank. “But hardly any politicians in America want to do it. People hate paying more at the pump for gasoline, and the White House from the very beginning has made clear it does not want to own that.”
In recent days, Senate Finance Committee Chair Ron Wyden (D-Ore.) and Sens. Sheldon Whitehouse (D-R.I.) and Brian Schatz (D-Hawaii) have pitched administration officials on how the measure could be structured without raising costs for middle-income households. But no legislation has emerged, and Democrats are rapidly running out of time to unveil a plan as House Speaker Nancy Pelosi (D-Calif.) pushes a vote as soon as this week on the economic package.
The White House declined to comment on the record Monday.
Democrats’ current economic plan primarily consists of three broad categories — an expansion of social welfare programs, a suite of measures designed to combat climate change, and new tax hikes on corporations and the rich.
After years of failing to enact climate legislation, Democrats have united around an approach that largely seeks to give tax benefits to motorists, utilities and industries to encourage them to switch from using gasoline, coal and natural gas to renewable energy. The biggest climate provisions in the bill — clean energy payments to utility companies, clean energy tax credits for large firms and tax incentives for purchases of electric vehicles and bikes — seek to make the clean energy transition politically attractive through incentives rather than costs.
The reconciliation bill would also impose penalties on utilities that fail to reach renewable energy targets, a concept that has aroused opposition from utilities, who have passed along their positions to Sen. Joe Manchin III (D-W.Va.). Manchin said on CNN that he opposed such penalties.
Democrats have argued that overall these policies would make substantial headway toward addressing climate change in a way that could also prove politically popular. An analysis by the Rhodium Group released last week found that Democrats’ emerging package — which does not have the carbon tax — could cut U.S. greenhouse gas emissions by nearly 1 billion tons in 2030. It remains unclear whether it would be enough to meet Biden’s pledge to cut emissions by at least 50 percent compared to 2005 levels by the end of the decade.
Unlike most of Democrats’ current climate policies, a carbon tax would make fossil fuels more expensive, by increasing the price of gasoline at the pump and electricity bills wherever utilities still rely on coal and natural gas. But at $15 a ton, the change would be modest, approximately 14 cents a gallon. Economists want higher prices; Nobel Prize winner William Nordhaus, a Yale economics professor who served on President Jimmy Carter’s Council of Economic Advisers, said in a recent interview that he would seek a carbon price of $100 a ton. In March, the American Petroleum Institute said it supported a carbon tax, though it did not say how big.
For three decades, carbon pricing has amounted to political kryptonite. President Bill Clinton proposed a broad-based energy tax in 1993, and while Democrats dropped it from their budget bill, some of the House members who voted for it lost their seats. During the Obama administration, a carbon price emerged as a key component in a 2009 cap-and-trade climate measure approved by the House that later stalled in the Senate. Democrats suffered a wave of defeats the next year, with some members again faulting the climate vote for their losses.
Washington state, among the most liberal in the country, has rejected a $15 a ton carbon tax proposal in 2018 amid opposition from activists on the left about how the generated revenue would be used.
And presidents who have reversed their tax pledges have also fared poorly. George H.W. Bush, for example, famously vowed, “Read my lips: No new taxes,” during his 1988 campaign. He eventually raised capital gains taxes in 1990, and lost his reelection bid in 1992.
Still, some lawmakers and economists argue the White House’s tax pledge limits the potential effectiveness of its climate goals, and said a carbon tax could be designed to insulate middle class Americans from its financial pinch.
“It’s a great idea: It’s ridiculous how cheap gas is in the U.S. relative to Europe or Japan,” said Dean Baker, a liberal economist at the Center for Economic and Policy Research, a left-leaning think tank. “Realistically, you can say there will be a few people falling through the cracks but you can say, ‘Here are the numbers and 99 percent have been made whole.’ ”
The idea has gained traction amid a scramble for revenue among Democrats to pay for their $3.5 trillion economic package. Centrist Democrats have balked at the extent of tax hikes on the rich and on businesses needed to pay for the measure, leading other lawmakers to revive an array of ideas to raise new funding.
Opposition to carbon taxes isn’t limited to the United States. In France, President Emmanuel Macron proposed a fuel tax and then faced a popular uprising among people in rural areas, who had less flexibility in reducing their driving than people who lived in cities.