Carbon tax provides effective, bipartisan climate solution agreeable to both sides of political aisle

Capitalism is a machine, and like many machines, it possesses a variety of knobs that we can turn to improve performance or mitigate dangers. Capitalism is an excellent tool for production. No other economic system in the world — excluding those that only exist on the dusty pages of an old red book — has eliminated absolute poverty, generated immense wealth, sparked labor-saving innovative technologies or otherwise uplifted mankind from material destitution as much as free enterprise has. However, as many rightly note, so much production has some negative side effects. One of the most troubling byproducts is industry’s contribution to the climate crisis. Unlike many unsavory aspects of business, these harmful implications are entirely external, meaning that industrialists have little financial incentive to mitigate what would always be negative externalities. Industry, in the natural pursuit of growth, will continue to pollute our Earth, not because industrialists are evil, but because they lack something which every human being operates by: incentive. 

We’ve realized this for a long time now, and, in line with modern American tradition, there were many attempts to use only the government to solve our problems. Initial attempts to create an incentive for producers to “go green” involved mountains of jargonistic administrative regulations and mandates, drenched in so much legalese that only a specialized environmental lawyer could ever make sense of the madness, all courtesy of the Environmental Protection Agency. Inevitably, legal loopholes and the relative inefficiency of these state enforcement mechanisms, even during the Obama-era where the EPA received a massive boost in funding, ultimately proved ineffective and often killed American jobs via harsh regulatory burdens. With these regulations proving to be more trouble than they were worth, the next idea was to simply subsidize innovators of green energy by providing conditional financial rewards. However, these incentives were often handed out in an arbitrary and confusing fashion. Once more, the labyrinth of paperwork regarding the qualifications for these subsidies dissuaded all but the largest gurus — armed with their legions of well-dressed lawyers — to take advantage of these subsidies. Thus, these attempts at green corporate welfare stifled competition amongst innovators, leaving us with little gain and plenty of taxpayer money wasted, all on the part of the government’s own incomprehensible apparatus which guarded well-intentioned incentives behind endless red tape to the point of unattainability. It is not surprising that the same entity which controls the Department of Motor Vehicles cannot also expeditiously control corporate behavior. 

Thankfully, there is a third option — an option endorsed by numerous economists and politicians of all backgrounds from around the world. In an insightful move to humor the state’s favorite pastime while also playing to the market’s strengths, free of the government’s bureaucratic slog, there has been steadily-rising bipartisan support for a budget-neutral and border-adjustable carbon tax. The idea behind this policy is simple. Corporations pollute and pollution is bad. Corporations only care about profit. Therefore, we should turn the knobs of our economic machine and make it unprofitable to pollute. The tax would be scaled and based on how much carbon any specific producer outputs. Emissions are easily measurable and, consequently, the policy costs very little to enforce. Since corporations loathe taxation — taxation which we can increase if they are not being responsive enough — they would therefore have a very strong incentive to pursue carbon-saving practices, innovate green production models and otherwise do their very best to avoid having their profits shaved into by the absolutely rapacious Uncle Sam. Since there is very little administrative complexity to such a policy, and every major corporation would feel its pressure, there would be few loopholes to exploit as was the case with Obama-era administrative regulations and subsidies. In fact, unlike what we see with often-unreachable subsidies, financial incentives to “go green” would be constant, fair and universal. Once producers begin to find ways to limit their emissions while remaining productive, thus retaining American jobs, their tax burden would automatically be lessened and shareholders would stop screaming into the ears of their Chief Executive Officers to find a way to reduce the profit-killing effect of the tax. 

It gets even better for both liberals and conservatives alike. Such a tax could be made budget-neutral, meaning that the state does not use this revenue to further bloat itself. Instead, these funds can be given to the people in the form of dividends, tax breaks or even universal basic income, further shielding the working-class from any temporary corporate attempt to raise prices in response to the tax. As such, this policy would aid the poor, retain our jobs, curb against government expansion and otherwise ensure that the American people do not have to suffer either the pollutive self-interest of corporations or the characteristic ineptitude of government and its labyrinthine regulatory efforts. This policy combines the best of both worlds: utilizing both the capacity for innovation present within the free enterprise system and the stern, yet flexible, guidance of Uncle Sam to produce an outcome that works for everyone except for insistently pollutive mega-corporations. 

Incentives are everything. We are inherently self-interested creatures, and humanity’s aptitude for capitalism — and, as history has shown, only capitalism — is evidence of this fundamental fact. Rather than attempting to destroy the machine which powers our economy or leave it completely unsupervised to the point of burning out of control, we should instead simply turn the knobs in a way that internalizes negative externalities, promotes environmental progress, all while protecting ourselves from the unintentional side-effects of an ever-enlarging state. As seen in the Canadian province of British Columbia, where this policy has already been implemented with great success, corporations will responsively and responsibly take measures to reduce their environmental impact: if not for the sake of Mother Earth, then certainly for their quarterly reports. 

Email Lance Lawson at

lelawson@email.wm.edu.