A Revenue-Neutral Approach to Pricing Carbon in Massachusetts

Leading innovation CEOs, investors and entrepreneurs participated in the Alliance for Business Leadership’s 8th annual CEO Summit on Sustainable Business in Boston on October 22nd.  Pricing carbon at a state level, similar to a policy implemented in British Columbia with the support of the business community there, was one of the bold proposals discussed.

As early as 2009, the Alliance Board of Directors resolved to support pricing carbon pollution.  Since then the Alliance has been one of the few cross-sector business groups to urge policy-makers to recognize the business benefit of a more accurate accounting of the public costs of fossil fuels.  In fact, the Alliance has sometimes been the sole cross sector business group to advocate for the strategic benefits of renewable energy and innovations like Cape Wind.

But it’s not an easy road.  The US Congress is stymied by polarizing ideologues.  In this climate, how can an intelligent approach to pricing carbon be developed? What options are there?  Is this an economic opportunity?  Why would anyone support something called a carbon tax?  Several Alliance Leaders believe they have relevant insights.  Consequently, Alliance Leader Zaurie Zimmerman was good enough to organize and moderate a collaborative session entitled A Revenue-Neutral Approach to Pricing Carbon in Massachusetts.

To provide a leading Bay State business leader’s perspective, Zaurie invited Geoff Chapin, CEO of the fast growing for-profit company Next Step Living.  For a political perspective Zaurie invited State Senator Michael Barrett of Lexington, MA, who is the prime legislative proponent of a MA carbon tax. At its core the carbon tax is an economic approach to promote a fundamental change in people’s behavior.  So to represent the dismal science, and explain the mechanics of revenue neutrality, economist Marc Breslow was invited to round out the panel. Together, and fielding great questions from the audience, the panel laid out what they see as the “bulletproof reasons” why Senator Barrett’s proposal to respond to the global warming challenge is an opportunity for Massachusetts to lead nationally.

From left to right: Zaurie Zimmerman, Senator Mike Barrett, Geoff Chapin and Marc Breslow

From left to right: Zaurie Zimmerman, Senator Mike Barrett, Geoff Chapin and Marc Breslow

What follows is a blog post from Zaurie Zimmerman, Managing Principal of Zaurie Zimmerman Associates, Inc. and a Director of Climate XChange:

Former Treasury Secretary Henry Paulson, Jr. is no stranger to a crisis. To many he had the steadiest hand during the financial crisis of 2008.  This past June he stated in the New York Times, “This is a crisis we can’t afford to ignore. …We need to act now.  …The solution can be a fundamentally conservative one that will empower the marketplace to find the most efficient response.  We can do this by putting a price on emissions of carbon dioxide – a carbon tax.”

Employment by Industry: from Implementing a Revenue-Neutral Carbon Tax: Summary of Preliminary Findings, October 2014

Employment by Industry
from Implementing a Revenue-Neutral Carbon Tax: Summary of Preliminary Findings, October 2014 

As we see in the media each day, the social cost of carbon pollution and its impact on our economy is growing.  Taxpayers will be burdened and put upon to clean up the secondary effects of burning fossil-based fuels; polluted air and water, but most worrisome, the devastation caused by extreme weather events. Respected economists of all ideological persuasions support the approach of a carbon tax as the most efficient way to cut emissions.

Following are some of the basics of the policy, with a summary of the key questions and answers covered by our panel on A Revenue-Neutral Approach to Pricing Carbon in MA:

Q.  What does pricing carbon via a “revenue-neutral carbon tax” mean and why is it the right approach for Massachusetts?

Massachusetts imports all of its coal, oil and gas. In the proposed legislation, the government will collect revenue on all fossil fuels entering the state and then return 100% of it to businesses and households.  Resulting higher prices at the pump and for heating fuels will incentivize businesses and individuals to consider and modify their purchasing behavior.

Why is it good for Massachusetts? We will purchase less out of state energy. Dollars will stay in the Massachusetts economy, stimulating job growth and increasing gross state product. Clean energy will become a relative bargain, which willturbo charge investment in clean energy technology.  The tax will be in proportion to the greenhouse gas potential of the fuel.  It will start at a modest level and increase in a predictable manner that will allow businesses and households the flexibility to decide when and how to adjust energy consumption patterns.  They can plan ahead.  And here’s the best part.  They will get money back each year (or month), through either a rebate or tax cut. They can use the money to invest in energy efficiency or renewable energy, pay their energy bills, or pay other expenses. Business and consumers that generate fewer carbon emissions relative to others will be net winners. And business competitiveness and low-income households will be protected.

This is the only policy commensurate with the required scale of transforming our economy.  Unlike other legislation, this one has the potential of changing the behavior of every business and consumer in Massachusetts. When our state demonstrates the benefits this policy delivers, we will set an example that will propel other states forward (VT, WA and OR are advancing similar legislation) and create pressure to adopt it at the national and global levels. And Massachusetts can once again make history by leading the nation on an issue of crucial importance to our future.

Q.  Why should business leaders commit their time and expertise to lead on this bold and challenging campaign?  What are the opportunities and challenges?

Progressive businesses understand the value garnered by thought leadership. Visionary business leaders who aspire to a stronger future elevate the culture of their companies.

Geoff Chapin made the point well. “Employees value companies who lead boldly and support challenging issues central to their future, often inspiring their loyalty, commitment and performance.”Senator Barrett pointed out that the Massachusetts legislature commonly passes bills to meet present and ongoing challenges. A solid base of support by business and community leaders resulting in legislative support will be needed, but because this bill will be revenue-neutral, he sees it as achievable.

Q. Do we need to call it a carbon tax?

Words matter. And what we call the carbon tax will affect support. In the press it is widely cited as a tax.  British Columbia passed a successful “Carbon Tax Act” 6 years ago and it has performed brilliantly (see http://www.pembina.org/blog/lessons-from-bcs-carbon-tax). Many urge reframing, though others caution that euphemisms could lead to accusations of cloaking the truth. Even so, a revenue-neutral carbon tax is quite unlike the other taxes we pay. As George Schulz says, “It’s not a tax if you return all the money, it’s a fee.“  And this tax on pollution is one the State wants taxpayers to avoid. A communications firm will be enlisted shortly to advise on the messaging: “carbon fee and rebate”, a “clean energy credit”, “fair carbon pricing” or “rebates for conservation” etc. have all been suggested. There is more work to do to develop the right terms for this conversation. But it’s great to at least begin the conversation we need to be having.