Most conservatives—when pressed—will acknowledge the benefits of replacing command-and-control greenhouse gas regulation with a carbon tax. But they resist taking the idea seriously because, they maintain, there’s absolutely no chance that environmentally minded Democrats would ever accept the deal.

Two questions:

  • How do they know that? Have conservatives ever talked with environmentalists or Democratic leaders about a trade along these lines? Or is this just uninformed speculation?
  • When did that ever stop conservatives from forwarding their favored ideas? The Heartland Institute, for instance, wants to abolish the EPA. The Heritage Foundation wants to cut the size of government in half. And everyone wants to legislatively repeal the Affordable Care Act. Whatever the merits of those ideas, they have zero prospect for success (at least for the foreseeable future).

Why would environmentalists accept the deal? Many of them understand full well the advantages of a tax vis-a-vis regulation.

  • They care about maximizing efficiency in the course of reducing emissions because the lower the cost of reducing a unit of emissions, the more emission reduction we can afford.
  • They have reasons to oppose the rent seeking that follows from regulatory action. Regulatory favors done for well connected interest groups reduce emission reductions and an upstream carbon tax will frustrate that behavior.
  • They prefer economy-wide emission controls (provided by a tax) to regulations which only reach targeted sectors of the economy.
  • They understand the pitfalls associated with major regulatory undertakings at EPA. It can take decades for proposed rules to navigate the gauntlet of administrative and judicial challenges before taking effect.
  • They appreciate the need to get industry behind greenhouse gas emission reductions and believe a carbon tax—with associated corporate income tax cuts (perhaps)—is a means of doing that; there is a surprising degree of corporate support for a carbon tax.
  • They mean to encourage joint, international action against climate change and believe that a carbon tax is a better means of facilitating that than conventional regulation.

To be sure, there will undoubtedly be some environmentalists who so distrust markets and market actors that they will never accept a carbon tax in lieu of regulation. But the environmental leadership in Washington has now, on balance, embraced what only a few decades ago was considered little more than libertarian science fiction; market-based regulation. My conversations with Democrats in the House and Senate, leaders of environmental NGOs, and Democratic party insiders reveal a surprising amount of support for swapping EPA regulation for carbon taxes … at least in theory.

Of course, a carbon tax deal will require compromise from all parties, so no one will get everything they want. The bottom line for conservatives should be eliminating EPA regulatory authority over greenhouse gas emissions. As long as that is accomplished, the deal is worth making. Anything beyond that, such as eliminating green energy subsidies, is gravy. Even if the energy subsidies remain untouched by a carbon tax bill, they will be harder to defend in the future because their main rationale—addressing environmental externalities due to inaccurate price signals—no longer holds.

Conservatives will likely also want to ensure that carbon tax revenues are recycled in the form of income tax cuts to ensure revenue neutrality. Nothing wrong with that … but I’m unconvinced that taxes tomorrow—with interest—are preferable to taxes today (which is exactly what we choose when we run deficits). Regardless, revenue neutrality should not be a sticking point. Environmentalists first and foremost want emissions reductions, and if they have to use carbon tax revenues for income tax cuts to get them, what do they care … especially if it increases the support for—and the political sustainability of—the carbon tax?

And if the deal cannot be made, then fine. Conservatives will now have a campaign message that better resonates with voters (66 percent of whom believe that global warming is happening, 70 percent of whom support regulating carbon dioxide as a pollutant, and 64 percent of whom support strict emission controls on existing coal-fired power plants) and a means of competing (finally!) for environmentalist support.