Local opinion: Tie carbon fee/dividend to wealth redistribution and innovation

In 2024 candidate Trump promised to eviscerate the Biden administration's climate policies. In 2025 President Trump kept his promise. He is now hellbent on rooting out any residual environmental correctness. A prevalent Democratic response has been "climate change and the environment are secondary issues, voters care about affordability." This is wrong-headed. The vast majority of voters care deeply about climate change and the environment. The Biden administration just whiffed when they had an opportunity to address the issue in an economically and politically sound way.

Let's revisit first principles. Granted not all economists understand that there is a strict correlation between the concentration of atmospheric greenhouse gases and climate. But virtually all economists know that to reduce greenhouse gas emissions, the textbook prescription is a price on greenhouse gas emissions. To be brief, the private sector is 4 times the size of the government sector, and markets have a proven track record. If we do not give businesses, individuals and local governments an economic incentive to make green decisions, then often they will make counterproductive choices. For example in the absence of pricing carbon, budget conscious people will do the self-interested thing and keep their gas powered cars.

The basic problems with a tax on fossil fuels, and also with energy efficiency standards, are that higher energy costs disadvantage U.S. businesses, and energy costs disproportionately impact those with lesser incomes. The first problem can be substantially addressed by using a carbon border adjustment mechanism, a version of which is sponsored by Republican Senators Cassidy, Graham, and others (who also support secondary sanctions on Russian oil).

The main point of this op-ed is that there is an end around to the first problem, which many have pointed out in these pages: the revenue neutral carbon/fee dividend proposal of the Citizen's Climate Lobby and the industry aligned Climate Leadership Council. This proposal would impose a gradually increasing fee on carbon at the wellhead or mine, and the revenue would be distributed to (for example) the bottom 80% of households.

The primordial fear among Democrats is that Republicans will conflate carbon fee/dividend with a tax. But consider this: (1) the top 1% control ~1/3 of the household wealth of this country, the top 10% control ~2/3, and the bottom 50% control ~3%; (2) globally the top 1% produces as much carbon pollution as the bottom 2/3; and (3) whereas ~7% of households own multiple residences, those with lesser incomes will be trapped by climate change. If a politician cannot make the argument that it is fair to charge a fee for carbon pollution and to redistribute the revenue to those with lesser incomes, then said politician has no business running for office.

In what sense did Biden whiff on this? In July 2021 climate legislation was blocked by Senator Manchin. Biden could have reached across the aisle to Senators Romney, Graham and others to pass carbon fee/dividend. He chose the go it alone with the Inflation Reduction Act. We cannot replay history. But it is a fact that this choice politicized our response to climate change. This is disastrous, and we need to learn from this.

What is at stake? Over the past 3 years, the global mean temperature has exceeded the preindustrial average by ~1.5 C, the 2015 Paris Climate Agreement's preferred target. We are now hitting climate tipping points, such as the irreversible decline of coral reefs. Greenhouse gas emissions are increasing at a record rate. Human population will increase by ~20% by 2050. The energy demands of AI (a competing species, which is indifferent to climate change) will multiply many fold. It is now a virtual certainty that global mean temperature will exceed 2 C around 2040-45. This will trigger feedback loops, such as tundra melting and release of methane, which will further accelerate warming. Beyond this, uncertainty dominates because our climate is so far removed from equilibrium.

Bill Gates has recently argued that the only way out of climate purgatory is innovation, such as fusion. This may be true.

How can we simultaneously slow climate change, marginally address income inequality, and spur innovation? Adopt carbon fee/dividend.