Will change in political landscape make carbon tax inevitable?

Tax on Carbon

The loss of a Democratic Senate seat in Massachusetts may have sent a few moderate ripples through Washington, but it could turn out to play a significant role in America's energy future.

This slight shift in the political landscape is likely to mean that the much-hyped "cap-and-trade" bill will not get passed this year. As a result, decision makers will be left with little choice but to pass an equally unpopular and contentious bill if they want to start seriously cutting carbon emissions - a carbon tax.

Something else that looks set to get the carbon tax wheels in motion is the current level of US budget deficit, expected to reach $1.35 trillion in 2010, according to US Congress estimates. The present and previous administrations have had to balance wars overseas and damaging recession which has meant excessive spending and falling revenue. By 2020, the government's debts will equal 77.2 percent of G.D.P. This level of indebtedness has not been seen since 1950, in the aftermath of the borrowing to finance World War II, and even these are based on relatively optimistic economic projections.

Creative ways to make money

This means the Obama administration has to be rather creative with ways to make money. Raising standard taxes is a highly unpopular move across the board but with taxes on emissions (either through cap-and-trade or the slightly more crude tax on carbon) Obama also appears to be helping the environment - two birds, one stone.

This would be a major source of much needed revenue for the government, but many economists are suggesting that this form of tax should be "recycled" by lowering income taxes or corporate taxes or giving it back to households in dividend checks.

This is where the nature of the tax changes from 'revenue maker' to 'problem solver', and this is where people may hopefully start changing their perception of tax as a means of fighting climate change rather than a means for Washington to line its pockets.

Homes and cars with 'eco-bling'

Generally speaking when something gets taxed people use less of it, so on paper a carbon tax, or carbon permit auction revenue, should work. But it isn't just the business world that will be affected. It will impact anybody using traditional fuels to power their cars or heat their homes, and as wealthier groups decide to decorate their homes and cars with 'eco-bling' (such as roof-mounted wind turbines), this will increasingly be the poor and middle classes.

So whereas the shift in political landscape may make a tax on carbon more likely, it won't make it any easier to take.

Related Articles:

BP Chief: Renewables can't meet our needs | Offshore drilling still high on the agenda | IEA hikes up forecast

Like this article? Get the RSS feed: