Why We Endorsed Baker-Shultz Proposal for Regulating Carbon

The Four Freedoms Democratic Club has passed a resolution recommending adopting the Baker-Shultz proposal as a starting point for building a bi-partisan consensus for regulating the fossil fuels that are warming our planet. Member Mike Shatzkin (@MikeShatzkin) explains the rationale for the resolution and our plans for promoting widespread adoption of this proposal.


There is very broad acceptance of the idea that we have to "put a price on carbon" -- meaning tax fossil fuels -- to make markets work against the CO2 loading of our ecosystem that is warming the planet, changing our climate, and, ultimately, threatening human civilization. Despite that, Federal legislation to levy such a tax hardly ever even makes it to the proposal stage.

And that's because there is vigorous disagreement about what to do with the money that pricing carbon will raise. The most dedicated environmental activists, who drive a lot of the discussion, want to see that revenue employed to push renewables and to address environmental justice issues, helping the people who have been most adversely affected by fossil fuel extraction and consumption. That is known as a "revenue-positive" approach.

On the other side of that argument is the idea that carbon taxing should be "revenue-neutral". That can be as complicated as "tax swaps" -- cutting other taxes to the extent that the carbon pricing revenue substitutes for it. But it also can be very simple. For over a decade, an activist non-partisan organization called Citizens' Climate Lobby has advocated simply refunding the money per capita to households in a program they call climate-fee-and-dividend.

Simply refunding the money that way has at least four distinct virtues. First: it is effectively income redistributive, since energy consumption generally increases with income and wealth. Second: it is simple and easy to understand. Third: it enables conservatives to support it even if they don't want to see a growth of government revenues. Fourth: since most people will get more money back from such a tax or fee than it will cost them, this approach builds political support for the idea of taxing carbon to reduce the CO2 load that is hurting us all.

And now there's a fifth reason for everybody who wants to tax carbon to support it. It is the fastest way to break the logjam that has locked us into inaction up to now.

Why is that? Because a group of self-avowed Republicans calling themselves the Climate Leadership Council -- organized (and well-explained) by Ted Halstead, led by former Secretaries of State James Baker and George Shultz, and including leading conservative and GOP economists Martin Feldstein and Gregory Mankiw -- has proposed its own version of CCL's idea. Of course, no elected Republicans in the Koch Brothers era has announced support of the Republican idea. But if Democrats do, they simultaneously endorse what can then be fairly called a "bipartisan solution" and they force Republicans to make a public choice between supporting something their party elders have proposed that is gaining bipartisan acceptance or be seen clearly to be opposing what a bipartisan consensus advocates on behalf of all humanity.

For those reasons, the Four Freedoms Democratic Club -- of which I'm a member -- has recently endorsed a resolution calling on Democrats to support the CLC proposal as a legitimate starting point for a bipartisan solution to put a price on carbon. We are beginning outreach to other Democratic clubs and elected officials to seek additional support for this idea.

What we'd hope to accomplish quickly is to get at least some Republicans to embrace the CLC proposal and to propose it in Congress, which the Republicans still control. If that doesn't work over the next year, our efforts will almost certainly exacerbate the split between reasonable Republicans and their climate deniers, making it that much more likely that Democrats will take control of Congress in the November 2018 elections. And then Democrats can put forward this bipartisan idea.

The CLC Baker-Shultz proposal actually spells out a starting point for the carbon tax that is considerably more aggressive than what Citizens' Climate Lobby proposed. CLC wants to start at $40 per ton of CO2, which translates to about 40 cents a gallon for gas. The CCL proposal suggested a starting point of $15 a ton. So, in that way, the CLC proposal is extremely aggressive and worthy of support

There are two "poison pills" in the CLC proposal which we would want to mitigate or eliminate through negotiation.

One is that CLC calls for government regulation of fossil fuels to be curtailed or eliminated because the tax will "solve the problem". The Democratic position should be that we build milestones into the bill so that only as CO2 reductions are achieved through the tax are the regulations eliminated. That is, we'll curtail regulation when we have evidence that we have successfully reduced CO2, not in anticipation of that fact.

The other is that CLC calls for fossil fuel companies to be relieved of liability for the negative impacts of their products. What Democrats should insist on is that the relief from responsibility not apply in cases of fraud. That is: we'll excuse honest ignorance, but not deception or lies.

Frankly, from where I sit, taxing carbon is so urgent that I personally would accept even these two poison pills to get the tax with the full refund. But if Democrats take the positions advocated here, the political wind should be at our back. Certainly, many Republicans will balk at defending removing regulations whether they're needed or not and defending oil companies from liability whether they deliberately lied or not.

But where we have to start is by endorsing the basic outline of Baker-Shultz as a legitimate starting point for a bipartisan solution to put a price on carbon. Those of us who know how urgent this is must put aside our differences of opinion about what is ideal to grab this opportunity to make something happen fast. We know we have no time to lose. This is the political step that demonstrates we understand that.