It has now been 12 months since Donald J. Trump was elected President of the United States, a man who as a candidate for the job called the scientific evidence for climate change “a hoax,” vowed to deregulate the American economy from what he considered to be onerous oversight, and bring back jobs that he claimed were lost as a result of the effort to combat the rise in global atmospheric temperatures. So, now is a good time to examine the president’s words and deeds regarding climate change – a sort of first-year job performance review or report card. What has he been able to accomplish? Has he laid a foundation for a successful agenda? And what are the most significant challenges to his energy and climate policy objectives?
For more than a century, the U.S. federal government has subsidized the production of fossil fuels through the tax code. These tax expenditures – amounting to de facto government spending – lower the cost of investment and increase the revenues from fossil fuel production. However, research shows that the subsidies do very little to increase U.S. fossil fuel production, because the impact of subsidy use on investment decisions depends on other factors such as technological improvements in oil and gas drilling, shifts in energy demand in the global energy market, production decisions by the Organization of the Petroleum Exporting Countries, and unsettling political events in the Middle East. Without achieving much, if any, useful economic impact, fossil fuel subsidies are transferring about $4 billion annually from the pockets of taxpayers into those of fossil fuel producers.
A carbon tax provides certainty about the price of emissions, but it does so in a context characterized by uncertainty about its environmental benefits, economic costs, and international relations implications. Given current knowledge, suppose that the government sets a carbon tax schedule. In the future, a higher (lower) carbon tax could be justified by the resolution of uncertainty along the following ways: climate change turns out to be worse (better) than current projections; the economic costs of a carbon tax are lower (higher) than expected; other major economies implement more (less) ambitious carbon mitigation programs. This paper describes the design of a predictable process for updating the carbon tax in light of new information. Under this “structured discretion” approach, every five years the president would recommend an adjustment to the carbon tax based on analyses by the Environmental Protection Agency, the Department of the Treasury, and the Department of State on the environmental, economic, and diplomatic dimensions of climate policy. Similar to the expedited, streamlined consideration of regulations under the Congressional Review Act and trade deals under trade promotion authority, Congress would vote up or down on the presidential recommendation for a carbon tax adjustment, without the prospect of filibuster or amendment. This process could be synchronized with the timing of updating of nationally determined contributions under the Paris Agreement in a manner to leverage greater emissions mitigation ambition by other countries in future pledging rounds. The communication of guiding information and the latest data and analysis could serve as “forward guidance” for carbon tax adjustments, akin to the Federal Reserve Board’s communication strategy.
Through an evaluation of the 2009 Recovery Act’s State Energy Efficient Appliance Rebate Program, this paper examines consumers’ response to energy efficiency rebates. The analysis shows that 70 percent of consumers claiming a rebate were inframarginal and an additional 15 percent–20 percent of consumers simply delayed their purchases by a few weeks. Consumers responded to rebates by upgrading to higher quality, but less energy-efficient models. Overall the impact of the program on long-term energy demand is likely to be small. Measures of government expenditure per unit of energy saved are an order of magnitude higher than estimates for other energy efficiency programs.
Domestic carbon pricing policies may impose adverse competitiveness risks on energy-intensive firms competing with foreign firms that may bear a lower carbon price. The risks of competitiveness effects include adverse economic and environmental outcomes, which can undermine political support for carbon pricing. Competitiveness policies, such as border tax adjustments, output-based tax credits, and related policies, also carry potential risks: unfavorable distributional outcomes, less cost-effective, and harming international trade and climate negotiations. This paper reviews the theoretical and empirical research on competitiveness risks and the risks posed by competitiveness policies, and presents two alternative frameworks for evaluating competitiveness policy options.