Democrats Want To Tax Big Polluters, But Is It Enough?

Several U.S. Democrats want to tax the country’s largest polluters over the next 10 years and collect up to $500 billion in the process. But is their proposal tough enough?

That question is important because pollution taxes, which have risen in popularity over the past few years, are not always as effective as one might think.

The OECD monitors energy tax trends, and it has released research finding that many pollution tax rates are actually too low to encourage shifts to cleaner energy. That’s because the taxes often become bogged down by politics or exemptions.

With that in mind, how does the new U.S. proposal compare?

On August 4, U.S. Sen. Chris Van Hollen, D-Md., released draft legislation, the Polluters Pay Climate Fund Act, based on an interesting premise. The act would tax the country’s largest fossil fuel extractors and oil refiners, including both domestic and foreign companies, on their emissions over the past two decades — not their current activity.

Specifically, it would require those entities (including companies like ExxonMobil

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, Chevron

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, and Shell) to pay a fee on their emissions between 2000 and 2019. The proceeds would go into a Polluters Pay Climate Fund and be used for various climate-change-related projects.

Van Hollen and his cosponsors, including Sens. Bernie Sanders, I-Vt.; Sheldon Whitehouse, D-R.I.; and Elizabeth Warren, D-Mass., say it’s possible to retroactively calculate how much carbon and methane the companies have introduced into the atmosphere using carbon attribution research. Under the proposed legislation, both the Treasury Department and Environmental Protection Agency would be responsible for making those calculations, using publicly reported operations and production data.

The lawmakers are eyeing a relatively small pool of the largest U.S.-operating fossil fuel companies; they say only 25 to 30 would fall under the tax. Negligence or lack of intent is not an excuse: Companies would pay based on a strict liability standard. That said, they would be able to dispute any determinations.

All told, the lawmakers think fossil fuel companies should contribute $500 billion to the climate change fight over the next 10 years. That will likely cost the heaviest polluters $5 billion to $6 billion annually, according to Van Hollen.

The act sounds promising, but there are some issues that could hurt the proposal’s effectiveness. The first is that it covers only past, not current, activity.

In a release, Van Hollen said backward-looking assessments ensure that corporations — and not consumers — will pay the tax, because the assessments cannot be characterized as an ongoing cost of production. But there’s nothing in the bill to encourage companies to reduce their current emissions, which is equally as important in the climate change fight.

Furthermore, Congress can levy taxes retroactively, but that doesn’t mean that taxpayers won’t fight back. The long, retroactive nature of the tax could generate legal challenges, which would substantially delay the collection of any funding.

Further, the measure applies to a very small number of companies, and there’s arguably room to expand the tax to other sizable producers.

The $500 billion that Democrats want to raise is just a drop in the bucket when looking at current and future climate-change-related costs.

For example, reinforcing the nation’s coastal communities from sea rise is estimated to cost $400 billion over the next 20 years. Wildfires are ballooning in size and costing billions each year. These are important considerations because, according to the U.N.’s latest findings, climate change is intensifying and the window of opportunity to slow it down is quickly closing.

We can’t afford partially effective climate tax measures; we need ones that will generate the maximum impact.