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Chapter 49: The Carbon Tax

The campaign had tackled a series of the nation’s most intractable problems, from healthcare to immigration, with a consistent, cool-headed logic. Now, it was time to address the largest and most complex system of all: the planet’s climate. The issue was a perfect storm of scientific complexity, economic anxiety, and partisan hysteria. The right largely denied the problem existed; the left proposed a multi-trillion-dollar centrally planned solution. Julian, true to form, saw it as a simple pricing problem.

He unveiled his climate and energy plan not at a rally, but at a press conference held at a non-partisan scientific institution. He walked to the podium holding a single sheet of paper.

“Good morning,” he began, addressing the assembled reporters. “My opponents have climate plans that are thousands of pages long. They are a labyrinth of subsidies, regulations, and tax credits. My entire climate plan is on this single sheet of paper. It is based on one simple, powerful, and honest principle: the price of a product should reflect its true cost.”

He laid out the argument with the calm clarity of a university lecturer. “For a century,” he said, “we have been burning carbon-based fuels to power our civilization. This has produced immense prosperity. But it has also produced a profound cost, an externality that is not reflected on any balance sheet: the cost of a dangerously warming planet. The entire problem of climate change is the result of this single, catastrophic pricing failure. My plan is not to regulate our way out of this problem, or to subsidize our way out. My plan is to simply fix the price.”

He then detailed his three-step proposal, a model of radical, elegant simplicity.

“Step one,” he said. “We will implement a single, predictable, upstream tax on carbon. The tax will be applied at the point the carbon comes out of the ground or enters the country—at the wellhead, at the mine, at the port. Not at the gas pump. Not on your electricity bill. We will tax the carbon itself, at the source. This is the simplest, most efficient, and most honest way to price the environmental cost.”

“Step two. On the same day that the carbon tax goes into effect, we will eliminate every single existing energy subsidy in the federal budget. No more tax breaks for oil and gas exploration. And,” he added, pausing for effect, “no more tax credits for electric cars. No more subsidies for solar panel manufacturers. No more special treatment for wind turbines. The carbon tax itself, by making fossil fuels honestly priced, will automatically make cleaner energy economically competitive on a truly level playing field. The government will no longer be in the business of picking winners and losers in the energy market.”

The reporters in the room began to murmur. This was a radical departure from any existing climate plan.

“And step three,” Julian concluded, his voice clear and firm. “This is the most important part. To ensure that this is not a regressive tax that hurts working families and the poor, one hundred percent of the net revenue generated by this carbon tax will be returned directly to the American people on a per-capita basis. Every month, every legal resident of this country will receive a direct deposit into their bank account. A carbon dividend.”

He looked directly into the cameras. “This is not a government program. The government is merely the collection and distribution agent. It is your money. A dividend from our shared ownership of our shared atmosphere. If your carbon footprint is smaller than the average, you will come out ahead. You will make money. If your carbon footprint is larger than the average, you will pay more. The choice will be yours.”

He finished by explaining the philosophy, a philosophy of pure empowerment. “The government should not be telling you to buy a Tesla or to insulate your house. The government’s job is to tell you the truth about the cost of carbon. Once the price is honest, the ingenuity and common sense of the American people will take over. You will choose to carpool, to buy a more efficient car, to develop new technologies, not because the government told you to, but because it makes simple, economic sense. It is the most pro-choice, pro-freedom, and pro-market way to solve the greatest collective action problem in human history.”

The proposal created a political explosion. The fossil fuel industry was enraged by the tax. The green energy lobby, which had grown fat and dependent on government subsidies, was also, to the surprise of many, enraged. The far-left attacked it as a “regressive tax,” deliberately ignoring the dividend that made it progressive. The far-right attacked it as “globalist social engineering.”

But economists from across the political spectrum, including a skeptical but impressed Dr. Evelyn Reed, praised its breathtaking simplicity and economic efficiency. And more importantly, ordinary people understood it. The idea of getting a direct “carbon dividend” check in the mail every month was not just a good policy. It was a political masterstroke. Julian had taken the most complex, terrifying, and abstract problem of our time and presented a solution that was simple, fair, and put money directly into the pockets of the American people.

The Discourse, Chapter 49; The Economics of Honesty

Section 49.1: The Pigouvian Tax as an Elegant Solution

The centerpiece of Julian Corbin's environmental platform is a direct application of a core concept from environmental economics known as a Pigouvian tax. The core idea, first proposed by economist Arthur Pigou in the 1920s, is that the most efficient way to deal with a negative externality (a cost imposed on a third party, such as the environmental damage from pollution) is to levy a tax on the offending activity that is equal to the amount of the harm it causes.

Corbin's proposal is a classic, textbook-perfect Pigouvian tax. He is arguing that the market "price" of fossil fuels is a lie, because it does not include the immense cost of its environmental damage. His carbon tax is therefore not a punishment or a revenue-raising measure; it is a price correction. He is not trying to centrally plan the economy; he is trying to make the market more efficient by forcing it to tell the truth about the true cost of carbon. This is a deeply conservative, market-based approach to a problem that is usually associated with left-wing, command-and-control regulation.

Section 49.2: The "Dividend" as a Political and Economic Mechanism

The single most brilliant element of the policy, from both a political and an economic perspective, is the carbon dividend. A simple carbon tax is politically very difficult to pass because it is, by its nature, regressive—it disproportionately affects the poor, who spend a larger percentage of their income on essential energy like gasoline and heating.

By making the tax 100% revenue-neutral and returning the money directly to the people on a per-capita basis, the policy is transformed from a regressive tax into a progressive wealth transfer.

• A wealthy person with a large house and three cars will have a very large carbon footprint. They will pay far more in the carbon tax than they receive in the universal dividend. They are a net payer into the system.

• A lower-income person living in a small apartment and using public transportation will have a small carbon footprint. They will pay very little in the carbon tax, but will receive the exact same dividend check as the wealthy person. They are a net beneficiary of the system.

This structure is a political masterstroke. It creates a broad, powerful, and self-interested coalition of lower- and middle-income voters who will directly and visibly profit from the policy every single month. It turns a complex environmental policy into a simple, popular, and populist economic policy.

Section 49.3: The Rejection of Industrial Policy

Corbin's simultaneous proposal to eliminate all energy subsidies—for both fossil fuels and renewables—is a radical and intellectually consistent rejection of industrial policy. Industrial policy is the idea that the government should actively intervene in the market to "pick winners and losers" and to steer investment towards strategically important sectors (like electric vehicles or solar panels).

Corbin’s argument is that the government is a terrible venture capitalist. He believes that a complex system of subsidies and tax credits is inefficient, prone to corruption (as industries lobby for their share of the subsidies), and ultimately stifles true, breakthrough innovation by propping up politically favored technologies. His platform is a profound statement of faith in the power of a truly free and honest market. He is not telling the market what the solution to climate change is (solar, wind, nuclear, etc.). He is simply telling the market what the problem is (carbon now has an honest, high price), and then trusting the decentralized, competitive process of innovation to find the best, cheapest, and most efficient solutions. It is the ultimate expression of his belief in the power of a well-designed, decentralized system over the commands of a central planner.