It's OK to oppose Kyoto - just fix the tax code

Despite the stalemate over global warming, the round of climate-change negotiations that begins Monday in Bonn, Germany, actually provides President Bush an opening. He can maintain his opposition to the Kyoto Protocol. But at the same time, he can embrace a solution the Europeans already support - one that addresses both global climate change and America's domestic energy problems.

That solution is environmental tax reform: balancing economic, environmental, and energy concerns by changing what we tax and why. In a nutshell, that means increasing taxes on things like energy consumption and recyling the added revenues back to the economy through other kinds of tax cuts.

In parts of Europe, revenues from taxes on carbon, petroleum products, and pollution have been used to cut employment and income taxes, to promote job creation, and to fund other economically beneficial measures. The beauty of this approach lies in its flexibility; each country has tailored it to its unique environmental, energy, and economic needs. Some of these countries have, in effect, made addressing climate change an explicit part of their overall energy policies.

This kind of approach makes good economic and political sense for several reasons. Redirecting the additional revenue from environmental tax reforms back into the economy in the form of tax relief for businesses and consumers would mitigate the effects on low-income people, small businesses, and other consumers who would be harmed by higher prices. It would also ease the transition to cleaner, more-efficient energy sources by addressing the concerns of energy-intensive companies and ensuring that no jobs or communities are unfairly affected. It would also help create a sturdier marketplace, reduce wild price fluctuations and uncertainty, and lead to a cleaner, healthier environment.

How could it work in the United States? On the tax side, environmental tax reforms would be phased in gradually, allowing individuals to prepare and businesses to take advantage of normal capital turnover cycles in purchasing more efficient equipment.

On the revenue side, the candidates for tax cuts are many, but should include energy assistance to low-income people, relief for energy-intensive companies trying to make the transition to cleaner ways of doing business, and incentives for the development and use of cleaner technologies. Revenue could also fund efforts to improve energy transmission or help finance the construction of natural gas pipelines and incentives for low-sulfur diesel fuel, which in the future could provide more than twice the energy efficiency with less pollution than gasoline.

Advocating a new way to tax - albeit as a substitute for existing taxes - might sound like heresy to some. But economic models from the European countries that have adopted this approach have, by and large, shown positive employment and little or no GDP impacts. At the same time, the rate of carbon emissions has decreased in Europe overall.

Moreover, recent polling also shows that additional energy taxes in the US might not be the nonstarter politicians think they are; in ballot measures across the nation last year, voters approved 63 percent of measures calling for tax increases. The bottom line is that most people appear willing to pay more for energy if it means solving problems they care about, like climate change or reducing personal taxes.

One thing that both sides in the energy debate agree on is that we can't "drill" or "conserve" our way to a lasting solution.

It's time we backed up rhetoric with real action. As the administration and Congress debate our nation's energy policy, with climate change being a necessary part of the equation, they should explore the considerable advantages of using the tax code to recognize the true environmental and other costs of energy and to promote greater energy efficiency across all sectors of our economy.

All the evidence suggests that environmental tax reform is flexible and that it works. For the president, it would also be a way to move US energy and climate policy in a positive direction and at the same time limit the political fallout from his decision to reject the Kyoto Protocol.

Alexandra Deane Thornton is the executive director of the Center for a Sustainable Economy.

(c) Copyright 2001. The Christian Science Monitor