A Carbon Tax Would Kill Coal and Harm the Middle Class

A Carbon Tax Would Kill Coal and Harm the Middle Class

A decade ago, coal generated almost half of America’s electricity while natural gas produced about one-fifth of the total. With the onset of the Obama years, coal groaned under the sustained weight of federal regulatory pressure, a public campaign to vilify coal, low natural gas prices, and a reluctance of capital to invest in what was largely seen as a source of energy under official government assault. Thus in 2017, after 10 years of decline, coal provided 30.1 percent of America’s electricity —second to natural gas at 31.7 percent. 

Donald Trump’s election, with the help of Ohio and Pennsylvania coal country, unleashed a tectonic shift in the energy landscape. President Trump’s withdrawal from the Paris climate agreement and jettisoning of the Obama Environmental Protection Agency’s Clean Power Plan confirmed the end to the federal government’s war on coal.

This change in energy policy, unforeseen by the elites, has required a nimble tactical shift by some of the world’s biggest energy companies and environmental groups to maintain their war on coal. Thus, there has been a renewed push for a tax on carbon dioxide emissions.

The Clean Power Plan would have contributed to the shutdown of coal power plants nationwide. Specifically, it would have curtailed the ability of generators to switch between natural gas and coal to produce reliable base load electricity in a cost-effective manner. The result would have been to push electricity prices up by 20 to 30 percent

What the Clean Power Plan would have done through a direct federal mandate, a carbon tax would do via a financial penalty. Since whatever you tax you get less of, a carbon tax is merely a different means to the same ends: the reduction of carbon emissions by reducing coal use. 

But since all fossil fuels produce carbon dioxide emissions, a carbon tax is really just a tax on energy. And we use energy in the production and consumption of all goods and services. Thus, a carbon tax would increase the cost of cement and steel as well as food, clothing, transportation, and home heating and cooling. 

A carbon tax is also regressive, since the working poor and middle class spend a far higher proportion of their budget on energy than do the wealthy. Increasing energy use has, since the advent of the Industrial Revolution, tracked very closely with increasing lifespans and quality of life. Abundant, reliable, and affordable energy is essential to modern civilization. A carbon tax runs counter to this beneficial trend.

The impulse for corporate cronyism can cut both ways. While multinational oil and gas companies support a carbon tax, big petrochemical interests seek to stop American energy exports. The 40-year federal ban on the export of U.S. crude oil was lifted in early 2016 and the Trump administration is encouraging the export of American liquefied natural gas. This has caused the U.S. petrochemical industry to fear that losing access to cheap gas and oil feedstock will harm its competitiveness on international markets. So, as the oil and gas industry leverages government to increase demand for natural gas at the expense of coal, the petrochemical industry is working the same government to depress the price of oil and gas.

Such cutthroat competition is natural in a free market. But policymakers must resist the urge to place government’s heavy thumb on the economic scales. A carbon tax is an unnecessary intervention that would disproportionately harm coal while hiking the price of oil and gas as well, leaving average Americans to pay the price. 

Chuck DeVore is the vice president of national initiatives at the Texas Public Policy Foundation.

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