Pricing carbon dioxide is the cheapest, most efficient way to cut emissions, because it harnesses the ingenuity of individuals and businesses to find the best path to decarbonization. To offset consumers’ higher energy costs, the E.U. would offer them potentially tens of billions of dollars in aid, derived from the revenue the carbon tax would generate. To keep industries from leaving Europe for nations with lower carbon taxes, the E.U. would impose a carbon border adjustment — a tariff on goods from countries that lack stringent emissions policies of their own. As long as the border duty offsets only the extra costs European businesses face — and does not serve to disguise unwarranted trade protectionism — this arrangement would limit harm to E.U. businesses and encourage foreign exporters to adopt stronger environmental policies of their own.
Unknowable today is whether E.U. policymakers will stick with their program or undercut the policy when prices start to rise, as they have in the past. What is clear is that their basic outline — price emissions, recycle the revenue back to consumers, impose a border adjustment — is the most rational policy response to climate change.
U.S. leaders should embrace it, too. Instead, Republicans mostly stick their heads in the sand. Democrats want to act, which is an improvement, but they appear to favor setting mandates and spending massive amounts of money, rather than pricing carbon. They should rethink this approach. Imposing a carbon tax would raise revenue, cut emissions and cost less than mandate and subsidy programs. A bonus is that it would be clearly kosher under the complex Senate “reconciliation” rules Democrats need to honor to dodge a Republican filibuster.
The Democrats’ apparent alternative — a sprawling and expensive clean electricity policy that would provide other incentives for utilities to increase the amount of the nation’s power that comes from emissions-free sources — would certainly be better than not acting. If the choice were between this policy and nothing, Democrats should seize the opportunity. But Democrats are not yet at that point. Climate change calls for an aggressive, well-designed and persistent response.