Pope Francis has made it clear that all of us have a responsibility to be good stewards of this planet and as such must address the challenge of climate change.
Many frame this issue as capitalism vs. Christianity or as economic prosperity vs. morality.
But it doesn’t have to be one or the other. Just as capitalism has lifted millions out of poverty, it can also provide the answer to the climate challenge.
Science tells us the earth is warming and that greenhouse gas emissions are the cause. Some dispute these assertions; others debate the extent of the impact. Yet the fact remains there is some probability of damage to our human ecosystem, with varying levels of potential negative outcomes.
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The answer to this economic-environmental dilemma is surprisingly simple: Harness the power of the market and create a global, uniform price on carbon.
If we were to impose a revenue-neutral pollution fee on major greenhouse gas emitters, we could use half of the proceeds to lower the U.S. corporate income tax rate to a more globally competitive level and return the rest to households. These “carbon-funded tax cuts” eliminate any economic drag that higher energy prices would create, as the government would not be extracting any new revenue from the economy. By targeting half of the revenue to reducing our uncompetitive corporate tax rate, we enhance the competitiveness of U.S. companies in the global economy, stimulating growth and job creation.
Consumers win because a carbon-pollution fee would encourage the manufacture of more fuel-efficient vehicles, homes and appliances. It would provide incentives and certainty to business decision-makers to invest in cleaner energy and energy efficiency. It would reduce the current indirect subsidies for fossil fuel resources: the “social costs” those fuel sources impose on all of us, such as increased health care costs resulting from burning coal or losses suffered by drought-stricken farmers.
Some U.S. policymakers have ruled out a “carbon tax,” on the basis that it would make us less competitive in the global economy and reduce our rate of growth. And standing alone, it would. But coupled with reducing taxes on business, as Harvard Professor Dale Jorgenson points out in his book “Double Dividend,” it would enhance economic growth. If engineered to spread globally, it would enhance U.S. competitiveness.
We can internationalize the fee with a two-way, border-adjustment mechanism,
applicable to goods imported from or exported to countries without comparable carbon pricing. This would provide incentives to other nations to similarly price emissions or see their exporters pay the U.S at our border. No nation wants to watch its exporters pay a fee to our government when it could instead collect that revenue for itself, so such a border adjustment would quickly lead to widespread adoption: a global, uniform price on carbon.
President Obama plans to join other world leaders in Paris this year to pledge to reduce our emissions. But this pledge, combined with pledges other nations can reasonably be expected to make leading to the Paris climate summit Nov. 30, will get us only a fraction of the emissions reductions scientists say are needed. Worse yet, the Paris meeting will produce only pledges – with no third-party monitoring, no penalty for countries that fall short and no agreed international framework or incentives to help achieve these pledges.
Carbon-funded tax cuts offer a way to implement our Paris pledge and reduce emissions faster, and far more efficiently, than current EPA plans to require each state to impose emission reductions on power plants. In addition, a global, uniform price on carbon would enhance the worldwide competitiveness of American manufacturers, thanks to our nation's unparalleled access to cheaper, cleaner energy sources.
Combating climate change is the foremost environmental, geopolitical and moral challenge of this century. Leading the world to a successful response will require honesty, clear thinking, bipartisan cooperation and skillful international engagement. As we contemplate the pope’s encyclical, let’s harness the free enterprise system to rise to the challenge and protect our planet for generations to come.
Former Ambassador Bill Eacho, visiting professor at Duke University’s Sanford School of Public Policy, has co-founded the Partnership for Responsible Growth to advocate a pro-growth approach to the climate change challenge.