The year of 2019 is quickly turning into the year of carbon pricing proposals.
On Thursday, July 25, three new federal economy-wide carbon pricing bills were introduced in the US Congress by the following congresspeople and their co-sponsors: the Stemming Warming and Augmenting Pay (SWAP) Act, proposed by Congressman Francis Rooney (R-FL); the Raise Wages, Cut Carbon Act, proposed by Congressman Dan Lipinski (D-IL); and the Climate Action Rebate Act, proposed by Senator Chris Coons (D-DE). Then on Friday, August 2, John Larson (D-CT) released the America Wins Act. These four bills join two other bills introduced in the current Congress: the Energy Innovation and Carbon Dividend Act, proposed by Congressman Ted Deutch (D-FL) in January; and the American Opportunity Carbon Fee Act, proposed by Senator Sheldon Whitehouse (D-RI) in April. Another bill is also expected later this year from Brian Fitzpatrick (R-PA).
As I discussed in “Carbon Pricing 101,” there are many policy options for implementing a carbon tax. The 2019 carbon tax bills run the gamut of policy options, while also signaling where there is and is not agreement on these options. Table 1 reviews the carbon tax bills introduced in 2019 thus far (download here).
Table 1: Comparing Carbon Pricing Proposals
| Bill (Sponsor and Cosponsors) | Energy Innovation and Carbon Dividend Act (Ted Deutch and 58 cosponsors) |
American Opportunity Carbon Fee Act (Sheldon Whitehouse, Brian Schatz, Martin Heinrich, Kirsten Gillibrand) |
Stemming Warming and Augmenting Pay Act (Francis Rooney, Dan Lipinski) |
Climate Action Rebate Act (Chris Coons) |
Raise Wages, Cut Carbon Act (Dan Lipinski, Francis Rooney) |
America Wins Act (John Larson) |
|---|---|---|---|---|---|---|
| Initial Tax Rate (per metric ton) | $15 | $52 | $30 ($2021) | $15 | $44 | $52 |
| Annual Adjustments | $10 + inflation | 6% + inflation | 5% + inflation | $15 + inflation | 2.5% + inflation | 6% + inflation |
| Starting Year | 2020 | 2020 | 2021 | 2020 | 2020 | 2020 |
| Revenue Use | Taxable Carbon Dividends | Tax Credits, Social Security Beneficiary Payments, State Block Grants ($10 billion) | 70%: Payroll Tax Cuts 10%: Social Security Beneficiary Payments 10%: Block Grants for Low-Income Assistance 10%: Adaptation, energy efficiency and advanced research and development |
70%: Taxable Carbon Dividends to single filers (income <$100k, phase out from $80k to $100k), joint filers (income <$150k, phase out from $130k to $150k) 20%: Infrastructure 5%: Research and Development 5%: Transitional Assistance |
94%: Payroll Tax Cuts and Increases to Social Security Benefits 5%: Low-Income Home Energy 1%: Weatherization Assistance |
54%: Infrastructure Spending 43%: Consumer Tax Refunds to Low Income Households 3%: Transitional Assistance |
| Automatic Adjustment Mechanism | Yes: Additional $5 price increase | No | Yes: Additional $3 price increase every other year | Yes: Additional $15 price increase | No | No |
| Covered Gases | All Greenhouse Gases | All Greenhouse Gases | All Greenhouse Gases | All Greenhouse Gases | Energy-Related Carbon Dioxide Emissions | Energy-Related Carbon Dioxide Emissions |
| Exemptions | Farms, Armed Forces | None | Ozone-depleting substances (if Kigali Amendment has been ratified) | None | None | None |
| Fluorinated GHG Fee | 10% | 10% to 100% (10% adjustment from 2022 to 2031) | 100% | 20% | 10% | N/A |
| CCS Refunds | Yes | Yes | Yes | Yes (with restrictions) | Yes | Yes |
| Border Adjustments | Emissions-Intensive and Trade Exposed; i.e., Iron, Steel, Steel Mill Products, Aluminum, Cement, Glass, Pulp, Paper, Chemicals, Industrial Ceramics | Energy-Intensive Manufactured Goods; Energy costs greater than 5% of total cost | All Manufacturing Sectors (and metal ore, soda ash, and phosphate processors) with 5%+ GHG intensity and 15%+ trade intensity | Emissions-Intensive and Trade Exposed; i.e., Iron, Steel, Steel Mill Products, Aluminum, Cement, Glass, Pulp, Paper, Chemicals, Industrial Ceramics | Rebates/credits for fossil fuel exports; taxes applied to "imported taxable products" | Rebates/credits for fossil fuel exports; carbon equivalency fee applied to imports of "carbon-intensive goods" |
| Regulatory Action | Suspends GHG related | Not specified | Moratorium on most GHG | Not specified | Suspends GHG related | Not specified |
| State Law Preemption | No | Not specified | No, but declining credits for carbon price payments to states | No | Not specified | Not specified |
The biggest difference among the proposals is in terms of the price path—which includes the initial tax rate and the increase over time—and the use of the revenues, with significant implications for the expected costs and benefits of each policy. Figure 1 displays the difference in carbon price rates over time (note: the bills from Sen. Whitehouse and Rep. Larson have the same price path). The bills from Sen. Coons and Rep. Deutch are the most aggressive, with steep year-over-year increases. But even the least aggressive price path (Rooney) would significantly reduce US emissions beyond the much-discussed Paris agreement targets (see below).
Figure 1: Difference in Carbon Price Rates over Time
Other smaller differences among the policies relate to automatic adjustment mechanisms, moratoriums on GHG-related regulations applied to stationary sources, and the interaction of a federal carbon price with existing state or regional carbon pricing. These differences are relatively minor.
On other details, the policies are virtually identical. Each provides rebates for emissions that are captured and utilized or sequestered and each provides a system (though the system varies across bills) that taxes the import of certain goods and/or rebates the export of certain goods, known as border adjustments, to maintain a balanced competitive environment for US producers and to prevent increases in emissions outside the United States.
Our Goulder-Hafstead E3 model (2013) predicts the change in energy-related carbon dioxide emissions from baseline, based on the proposed carbon price. Under the various proposals, emissions are projected to be between 3.12 (Coons) and 3.92 (Rooney) billion metric tons; thus, each policy is projected to deliver emissions reductions that far exceed the Paris targets (Figure 2).
Figure 2: Projected Energy-Related Carbon Dioxide Emissions
Figure 2 displays projected energy-related carbon dioxide emissions—representing 82 percent of all greenhouse gas emissions in 2017—under a business-as-usual scenario and under each policy. (The business-as-usual projections are from the Energy Information Administration’s Annual Energy Outlook (2019) reference case.) In 2025, energy-related carbon dioxide emissions are projected to be about 5 billion metric tons in the absence of further climate policy, and an emissions target of 4.32–4.44 billion metric tons is consistent with the Paris targets of 26–28 percent below 2005 levels, a target each policy easily exceeds.
Each carbon pricing proposal is projected to be a significant new source of revenue for the federal government each year.
Figure 3: Generated Revenue
And not only do the policies differ in how much revenue they generate (Figure 3), but the policies also differ significantly in how the revenues will be used. The Deutch and Coons bills both provide carbon dividends to households. However, the Coons bill phases out the dividends for high-income households and provides money for infrastructure spending, R&D, and transitional assistance to affected workers and communities, whereas the Rooney and Lipinski bills primarily put the revenues toward minimizing payroll taxes and increasing social security benefits and the Larson bill spends most of the revenues on infrastructure .
In the current political climate, it is unlikely that any of these bills will become law. But the discussion they raise will hopefully help future policymakers find common ground and perhaps set the stage for future bipartisan action that confronts the climate challenge.
