James A. Baker III was the 61st secretary of state and 67th secretary of the treasury. Greg Bertelsen is chief executive of the Climate Leadership Council.
And it would be a mistake for the United States to do so without adopting a plan that compels other large carbon-emitting nations to do the same. The Biden administration is right to recognize the risks of climate change, but it has so far failed to come up with a way to ensure against the risk without ceding a competitive advantage to China and other nations. Republicans in Congress are right to worry about U.S. competitiveness. But by failing to meaningfully engage on the climate issue, they are handing Democrats a political advantage and missing an opportunity to strengthen our economy against international rivals.
However, there is an approach that would serve all interests — the interests of Republicans and Democrats, as well as the interest of progress on both climate change and U.S. competitiveness. It lies in leveraging an underappreciated strength of our economy: our success in low carbon-emission production.
A plan co-authored by Secretary Baker and the late George P. Shultz holds the key to placing market pressure on China and other nations to start doing their part. It would place a fee on all carbon emissions in the United States, an approach that most economists believe is the most efficient and effective way to reduce such emissions.
But rather than giving that money to the federal government, all of the revenue from the fee would be returned to Americans in the form of a quarterly dividend. A household of four would receive $2,000 annually, enough to provide the vast majority of households with more money than they would pay in higher energy costs. As a result, this fee would not expand the federal government, and therefore should not be considered a tax.
But it would incentivize the private sector to find new and better ways to reduce emissions. This is a far better route than forcing the United States to wean itself from fossil fuels (while other nations fail to do so) because it harnesses a set of critically important strategic assets of our country: our abundance of affordable and cleaner energy, and our unmatched powers of innovation.
One can almost hear the scoffing from China, India and Russia as the United States attempts to unilaterally restrict its oil and gas production, only to have a growing global demand filled by competing nations that produce fossil fuels with more emissions. And yet climate change can’t be effectively addressed unless most of the other biggest emitters follow suit. As much as some might like, we can’t force these large emitter nations to impose restrictions such as those being considered in the United States.
So, a critical component of our plan is a feature that would rebate to U.S. manufacturers their fees on exports to any nation without a similar carbon program. If any country refused to go along, it would have to pay a penalty to send its goods into the United States. Access to the world’s largest market would obviously put pressure on China and other nations to reduce their own emissions — or pay a surcharge to sell their goods in the United States.
The United States is already in a leadership position on reducing carbon emissions, a fact that is starting to gain attention in both political parties. “China, for example, has just kept emitting more, and done it shamelessly,” Senate Minority Leader Mitch McConnell (R-Ky.) recently said. President Biden’s climate envoy, former secretary of state John F. Kerry, has also noted China’s lackluster record. “They have a massive coal dependency,” he said earlier this year. “We have to try to get them to move further.”
The economic upside here is unmistakable. U.S. steelmakers, for example, are far more efficient in low-carbon production than their major global competitors, according to a recent study commissioned by the Climate Leadership Council. By applying a carbon fee to domestic and imported steel, U.S. industry would win across the board. Overall, the study found, the U.S. economy is 40 percent more carbon efficient than the world average, and nearly every U.S. industrial sector enjoys a carbon advantage over most of our key trading partners.
The European Union is already preparing legislation to charge imported goods for their emissions. Ultimately, we should partner with Europe and our other allies to form a bloc of countries that similarly price carbon. As the world’s largest economy, the United States would best serve our industries by acting first, and establishing new rules regarding global trade and climate policy that are transparent, enforceable and, above all, fair to U.S. industry.
In the global contest that is shaping the 21st century, adopting the Baker-Shultz plan offers a clear-cut and immediate way to outmaneuver U.S. rivals and, at the same time, reduce the risk of climate change in a globally effective way.