What You Need To Know About Carbon Taxes: Elon Musk’s Climate Change Solution

Forbes

Chris Helman, a senior editor for Forbes, joins “Forbes Talks” to explain carbon taxes after Elon Musk tweeted the tax would solve climate change.  0:00 Introduction 1:02 The U.S. Carbon Tax 3:31 The Biggest Problem With Climate Change Taxes 8:12 What Will Happen Economically Going Forward? 12:12 What Can We Do Now To Lessen The Effects Of Climate Change?  Subscribe to FORBES: https://www.youtube.com/user/Forbes?sub_confirmation=1  Fuel your success with Forbes. Gain unlimited access to premium journalism, including breaking news, groundbreaking in-depth reported stories, daily digests and more. Plus, members get a front-row seat at members-only events with leading thinkers and doers, access to premium video that can help you get ahead, an ad-light experience, early access to select products including NFT drops and more:  https://account.forbes.com/membership/?utm_source=youtube&utm_medium=display&utm_campaign=growth_non-sub_paid_subscribe_ytdescript  Stay Connected Forbes newsletters: https://newsletters.editorial.forbes.com Forbes on Facebook: http://fb.com/forbes Forbes Video on Twitter: http://www.twitter.com/forbes Forbes Video on Instagram: http://instagram.com/forbes More From Forbes:  http://forbes.com  Forbes covers the intersection of entrepreneurship, wealth, technology, business and lifestyle with a focus on people and success.

Transcript

00:00 Hi everyone, I'm Rosemary Miller here with Chris Hellman, a senior editor here at Forbes,

00:08 here to tell us all about carbon tax.

00:11 Thank you so much for joining me today, Chris.

00:13 Good to be here.

00:15 So Chris, Elon Musk made a tweet this week saying that the only action needed to solve

00:20 climate change was a carbon tax.

00:23 For starters, what is a carbon tax?

00:27 Well in simplest terms, it's when the government charges you a fee for the amount of carbon

00:33 dioxide or other greenhouse gases that you emit into the atmosphere.

00:39 Carbon taxes around the world most often take the form of a tax on fuels that are made out

00:44 of hydrocarbons or fossil fuels, you know like gasoline or diesel or heating oil.

00:50 So you know if you'd like to drive a big truck that burns a lot of diesel, it would only

00:55 make sense that you pay a little bit more of a carbon tax than someone who uses a plug-in

01:00 hybrid.

01:02 And so do we have a carbon tax in the U.S. currently?

01:05 Well not on the federal level, Rosemary, but there is like a patchwork of laws and mandates

01:13 that states have decided on.

01:15 I was looking at an analysis by the Tax Policy Center and they were considering the effect

01:20 that various rules across the United States have on average and they said it comes out

01:26 to about $5 per ton of carbon dioxide emitted.

01:31 That's about like where all this bundle of taxes and regulations stands today.

01:36 But you know California has a lot of other rules that govern the kind of fuel that gas

01:42 stations can sell.

01:44 They mandate cleaner burning gasoline so it costs refiners more to make fuel in California

01:50 and then the refiners pass those costs along to motorists when they fill up.

01:55 So they're paying kind of an indirect carbon tax in California to have that cleaner fuel

02:01 that's mandated by the states.

02:03 There's different ways to get at it.

02:06 Is this the reason California has the cleanest power grid in the nation, right?

02:11 Well they pretty much do.

02:14 That kind of got underway about 15, 20 years ago when California first started imposing

02:20 a carbon cap and trade system.

02:23 That's where the power utilities have to trade the right to emit amongst each other and if

02:30 the state caps that amount every year then over time they've managed to get a less carbon

02:36 intensive power grid in California.

02:39 But you know there's some drawbacks to taxing carbon or mandating lower carbon.

02:47 The effect in California has been that the average homeowner in California pays about

02:52 22 cents per kilowatt hour for electricity and that's about twice the cost in like Iowa

03:01 or Texas and many other states where it's more like 10 cents per kilowatt hour.

03:05 So California has mandated and taxed its way to a cleaner power grid and cleaner emissions

03:13 but it's at the expense of paying more for that power.

03:17 So okay, couldn't people who drive big trucks or you know they work at a company or own

03:23 a company that emit a lot of CO2 into the air, couldn't they just move to a different

03:27 location and keep dropping the CO2 into the air?

03:31 Yeah that's the biggest problem that we have with any kind of carbon tax that's imposed

03:37 on the nation level because I was amazed by the numbers recently I was looking at how

03:42 much more coal China is burning in recent years.

03:47 China I was amazed to learn burns more than five billion tons of coal per year versus

03:52 just about I think it's less than one billion tons now in the United States.

03:57 So no matter what the United States or some other Western nations do about our emissions,

04:03 you know if countries like China and India are not also trying to reduce coal, it really

04:08 doesn't matter what California might do for example.

04:10 And so there's this concept called carbon leakage and for years the United States has

04:17 kind of benefited from it because European manufacturers of you know chemicals or pharmaceuticals

04:23 and steel they've moved operations out of Europe to the United States because we didn't

04:29 have any kind of blanket carbon taxes and because we had really cheap energy in the

04:34 form of natural gas.

04:37 So it would be really disappointing to those companies to have to change their strategy

04:42 all over again.

04:44 But you know that's that's something that we'd have to consider that that idea of carbon

04:48 leakage.

04:49 Well do you think the U.S. could get a carbon tax and if so what would the right amount

04:54 be?

04:55 Yeah I don't I don't think that would happen right now.

04:58 There's there's about zero chance of that passing this Congress.

05:02 And the carbon tax I think has become a political non-starter and that's in large part because

05:09 the two parties really disagree on how bad carbon dioxide is and what should be done

05:14 about it.

05:15 We breathe the stuff out every day so it's it's not toxic it's not going to kill us.

05:20 It might kill us by causing the greenhouse effect and rising the sea levels.

05:26 But I was I was amazed to learn that under the Trump administration the Environmental

05:32 Protection Agency considered that the social cost of carbon was equivalent to about five

05:39 dollars per ton of carbon dioxide emitted.

05:44 Now fast forward to the Biden administration the EPA now says that the social cost of carbon

05:49 is about two hundred dollars per every ton emitted.

05:54 So depending on who's in who's controlling things you'll have very a very wide gap between

06:00 how bad you think the effect of carbon dioxide is.

06:05 So I don't know if all those numbers make sense.

06:08 Yeah I mean that's a really wide gap as you said but Chris make that make sense for us.

06:13 What do you mean by that?

06:15 Yeah that's one of the hardest the hardest parts of reporting on carbon taxes and carbon

06:22 emissions is that you know how does how does that apply to us right.

06:25 So I guess the easiest thing is to think of it in terms of what would it do to the price

06:30 of a gallon of gas.

06:32 So right now the average cost of gasoline in the United States is around three dollars

06:36 a gallon.

06:37 It'll vary pretty widely.

06:40 I was looking at a report by the Congressional Budget Office that determines that if we had

06:45 just a twenty five dollar per ton carbon tax in the United States that would have the effect

06:53 of raising the price of a gallon of gas by about a quarter.

06:57 So maybe twenty five cents a gallon to account for a twenty five dollar carbon tax.

07:06 Now you know that's we could probably cover that right from two dollars or three dollars

07:11 to about three dollars and twenty five cents.

07:14 That's doable.

07:15 But if we were trying to cover like I was saying before if the social cost of carbon

07:18 is two hundred dollars a ton then if we were trying to cover all of that impact in carbon

07:24 taxes we'd have to add about two dollars a gallon to the price of gasoline.

07:30 So that would be a more than than 50 percent increase in gasoline prices.

07:35 But you know the same thing would happen only more so with with natural gas.

07:39 Those of us who who cook and heat our homes with natural gas especially down here in Texas

07:45 a twenty five dollar carbon tax would increase the wholesale price of natural gas by about

07:52 a dollar and a quarter per million BTU.

07:55 So for those of us who've paid a gas bill recently that would be about a 50 percent

08:00 hike on today's natural gas price with with just a twenty five dollar per ton carbon tax.

08:07 So I don't know it could be a big difference to people's pocketbooks.

08:12 Wouldn't that put like a massive break on economic activity.

08:17 Yeah no absolutely would.

08:20 Taxes pretty much all taxes do in one way or another.

08:24 You're forcing people to give up money or capital that they would otherwise employ somewhere

08:30 else they would invest it in something else that they thought was a better idea than what

08:33 the government thinks it should be invested in.

08:37 And I think Canada is really going through this right now because Canada's Prime Minister

08:43 Justin Trudeau and his party got approved recently a nationwide carbon tax and they're

08:50 starting to see the potentially negative effects of that especially when it comes to people

08:55 who if you're living out in Quebec or the Maritimes you're spending hundreds of dollars

09:00 already to get heating oil to fuel your home to keep from freezing to death in the cold

09:06 winters there.

09:08 And so they're complaining so much about having to pay hundreds of dollars for this carbon

09:12 tax all of a sudden that the government relented and gave them a waiver for a few years on

09:18 the heating oil tax.

09:20 And so now the Canadian farmers are saying hey hold on y'all we need that too because

09:24 you know they're spending more to heat their barns and to dry their grain in the wintertime

09:32 in these at these Canadian farms than they're spending on the natural gas.

09:36 They're spending more on the carbon tax for this gas than they're spending on the gas

09:41 itself.

09:42 Does that make sense?

09:43 So there's there's a lot of people concerned about the negative impact of such a carbon

09:48 tax which is why it's it's not going to come to the United States anytime soon.

09:53 Well without the politically unpopular carbon tax.

09:57 What are some other ways that politicians have found to discourage carbon intensive

10:00 activities and encourage greener energy investments?

10:04 Yes yeah.

10:07 So if a carbon tax is not politically popular it only makes sense that the politicians will

10:11 try to find ways around that to to you know more politically palatable things.

10:16 And that happened recently with the 2022 Inflation Reduction Act which I think should have been

10:23 called like the Green New Deal Act because there's so many incentives for low carbon

10:28 energy development.

10:30 So OK if you're building a wind farm for instance you can get 30 percent of your upfront investment

10:37 in your wind farm back in the form of tax credits.

10:41 So these are one for one offsets against a federal tax liability that you're getting

10:47 back just because you decided to invest in wind or solar or other green generation.

10:53 And OK here's some numbers for us.

10:55 According to the Committee for Responsible Federal Budget the tax credits for electric

11:01 vehicles are going to amount to about 70 billion dollars between now and 2031.

11:08 And credits for carbon dioxide sequestration are going to be about 50 billion dollars.

11:16 So here's some more specific examples.

11:19 If you have a machine that can inject carbon dioxide deep under the earth and hold it there

11:26 forever sequester carbon dioxide the federal government is going to give you eighty five

11:31 dollars per sequestered ton in tax credits.

11:36 So if you're a big oil company and you have huge amounts of profits every year you're

11:40 like I am absolutely going to try to inject carbon dioxide deep into the earth in order

11:45 to get this eighty five dollars a ton.

11:48 So instead of taxing people into not doing things what the government is doing with the

11:55 Inflation Reduction Act is incentivizing this corporate behavior to invest in projects that

12:02 otherwise might not make sense for them that they think in the long run will be will be

12:08 for the greater good for lowering emissions for everyone.

12:13 That sounds very generous.

12:15 Well Chris is there anything else on your radar regarding carbon tax that you believe

12:18 should be on ours.

12:21 Well let me think.

12:25 I think you can make the argument that the average American taxpayer is already effective

12:31 effectively paying a carbon tax to the extent that we underwrite the green tax credits in

12:38 the Inflation Reduction Act and other government programs.

12:41 So you know if we're paying our taxes that's offsetting these subsidies and tax credits

12:47 that the federal government is giving for these projects.

12:51 So I'd like to consider that our tax credit that we've already already paying right.

12:56 So it's a trade off.

12:57 I prefer the government incentivize entrepreneurs to invest in a socially responsible way rather

13:03 than punishing and penalizing people for just driving a big truck or heating their homes.

13:09 But that's what that's what makes it such a contentious political issue.

13:12 And you know that's why Elon Musk thought he'd have some fun tweeting about it this

13:17 week.

13:18 Well thank you so much for joining me today Chris.

13:21 Great to be here.

13:22 Thanks Rosemary.

13:22 Thanks for having me.

13:23 [END]

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