Why a Carbon Tax Would Be Good for Sustainable Business

bunsundesigns October 4, 2015

A tax on carbon is coming to the fore as the centerpiece of a solution that meets these tests. Although most conservatives in Congress are not yet using the “T word” publicly, it’s clear that, behind closed doors,0 it is under active consideration. Back in April, ASBC’s Richard Eidlin, VP of Policy (and one of the authors) attended an 80-person meeting in Dallas, hosted by Trammell Crow, a real estate developer and producer of Dallas’ annual Earth Day event. Nearly everyone there, from Suncor (an energy company) to the Hoover Institution (a conservative think tank) to Natural Resources Defense Council (NRDC, an environmental group) agreed that the best comprehensive solution was a national tax on carbon. It was encouraging to see the discussion move from “is there a problem?” to “what’s the optimal role of government and markets in the solution?”

In another sign of progress, former Republican Congressman Bob Inglis and Democratic Senator Sheldon Whitehouse have brought forward climate plans designed to appeal to conservative business interests. Whitehouse and Inglis will discuss their plans in an open meeting with business leaders at ASBC’s 4th annual Sustainable Business Summit. Senator Whitehouse first introduced his plan at the American Enterprise Institute, a leading conservative, free-market think tank.

Because of the strength and power of business in the United States, no plan for climate protection can pass without active support from business. This likely requires three components:

 1 A simple, clean, price-on-carbon system. This is preferable to complex regulations that are hard to get right and easily gamed.

 2 A way to protect American business from “free riders.” US-based businesses will suffer if the US imposes a price on carbon and other countries don’t.

 3 A path to deal with the costs of the stranded assets of the fossil fuel industry and its customers. The industry is simply too big and too politically powerful to be ignored.

“The discussion is moving from ‘is there a problem?’ to ‘what’s the optimal role of government and markets in the solution?’”


Of all possible climate solutions, a carbon tax is the most economically-efficient, most transparent, easiest to plan for, and hardest to game. That’s why many business leaders prefer it. The general parameters of a carbon tax are simple: the federal government would apply a specific tax amount to all carbon used in the country. The tax must be set high enough to incentivize companies to reduce emissions while also giving businesses and households sufficient time to adjust. Meanwhile, other proposals like cap-and-trade have had uneven results in world carbon markets. It’s a good solution in theory, but in practice it has proven difficult to set the right cap and to adjust the cap properly over time.

Purely regulatory approaches are also hard to get right, and given the dysfunction in Congress, it’s almost impossible to make reasonable adjustments to regulations as the need arises. And they can bring the problems of government attempting to pick winners and losers among different industries and technologies.


But how do we ensure that other countries take similar steps and compete with us on an equal footing? Modeled on successful treaties such as the European Union and the World Trade Organization, the Climate Club would be essentially a trade treaty that allows member countries to trade with us without tariffs if they put a price on carbon similar to ours. Countries that don’t join would be penalized with a trade tariff. US business interests would protected as each country weighs the cost of carbon reduction with the cost of tariffs.


“Stranded assets” are the assets that will no longer be useful once we move off coal and oil. These include the value of reserves left in the ground, and of the equipment used to extract, process, and burn these fuels. Revenues generated from the carbon tax could be used to offset the loss of stranded assets. Carbon-dependent businesses could receive loans or credits as they transition to a new business model. Communities that are economically dependent on the fossil fuel industry could be assisted. Low-income households could be supported in reducing their energy use.

With Congress jammed, business leaders must press for a practical solution that works for all stakeholders – including those who depend today on fossil fuels. It won’t be easy, but if business leads, the political establishment will follow.









American Sustainable Business Council advocates for policy change and informs business owners and the public about the need and opportunities for building a vibrant, sustainable economy. Through its national member network it represents more than 200,000 businesses and more than 325,000 entrepreneurs, executives, managers, and investors from a wide range of industries. www.asbcouncil.org

Stakeholder Capitalism
Join the SOCAP Newsletter!