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AN OPEN DIALOGUE

Call it carbon tax, fee, or dividend!

Does the name really matter?

Abdullah Shibli
Human
consumption of fossil fuel is a significant contributor to climate change. Economists have for ages been advocating for a tax on carbonemissions to combat air pollution. The tax, popularly known as "carbon tax", is levied on products that emit carbon and is one of the measures adopted by many countries to reduce the consumption of fossil fuel in an effort to address the threat of climate change.
All this is Common knowledge. However, the measure has never been an easy sell in any major market, including the US, Russia, and China, the three major polluters. It is gradually dawning on its supporters, which include luminaries such as the 2018 Nobel Laureate economist William Nordhaus, that the problem might be in the name itself. Taxes have never been liked by the population, in ancient times or in the modern era. Only now have perceptive politicians finally made the decision to shun the name, and embrace a modified one. An alternative name, carbon fee, has been suggested in the hope that a "fee" would appeal more to the masses than a tax, while others have recently floated the idea of a carbon "dividend". As many readers will agree, a dividend has a sweet ring to it and is much more likely to generate interest than a “carbon tax" among sceptical voters.
More than 2,000 years ago, the Greek writer Heliodorus first voiced the dilemma that many of us face when we call a favourite person or cause by a certain name. "By what name shall I call thee?" Heliodorus asked his lover in Aethiopica. He understood the power of a name.
It appears that policymakers, particularly those who support carbon emission pricing, can finally test whether a name change can really flip the fate of an unpopular policy. Some doubt that renaming a tax into a dividend would sway a voter's mind. Didn't Shakespeare ask in a poetic fashion, "What's in a name?" and then go on to suggest that a rose by any other name would smell as sweet?
Admittedly, there are some minordifferences between the tax and dividend proposals. The proponents of carbon dividend have tweaked the original carbon tax programme to include a payback. While the modality is still in the works, the group lobbying for carbon dividend also stipulates that revenues raised from the tax would be refunded to the taxpayers in dividend payments. Some of America's familiar names, including George Schultz (Reagan’s Secretary of State), Jim Baker (George HW Bush's Secretary of State) and Janet Yellen (Former Chair of the Federal Reserve), have voiced their support for this initiative for pricing carbon emissions. The dividend plan is now named Baker-Schultz to garner
conservative buy-in for this programme.
The business community is now on the side of the Baker-Schultz Plan. ExxonMobil, an American multinational company in the oil and gas business, recently announced that it is giving USD 1 million to support the carbon dividend campaign in the US. The headlines in the media were meant to grab attention: “With $1 Million, Exxon Mobil Corp Helps Fund Carbon Tax Campaign." The name ExxonMobil evokes the memory of the massive oil spill in Alaska by Exxon Valdez in 1989 and the corporation has since then been under a cloud. Nonetheless, the contribution by ExxonMobil to Americans for Carbon Dividends (ACD), an advocacy group, is expected to give
the supporters of carbon tax a big boost, and make a "big difference to the US political debate over the plan," according to Ted Halstead, chief executive of ACD. "What makes it real for members of Congress is when real companies start putting real money on the table," he said. "That's what takes it from a good idea to a viable idea."
The support for carbon tax or carbon dividend, coming from ExxonMobil, which profits from selling oil and gas to consumers, also signals a big change in the global debate on carbon reduction and efforts to boost renewable energy. While ExxonMobil has favoured the idea of carbon tax for more than a decade, so far it has not been willing to put its
PHOTO: DIMITAR DILKOFF/AFP
money where its mouth is. Moreover, because of its position as the largest US oil group and the first large oil company to support carbon tax, its advocacy will lead others to follow suit. In September, ExxonMobil, Chevron, and Occidental Petroleum joined the Oil and Gas Climate Initiative, a group of leading international companies including Royal Dutch Shell, BP and Saudi Aramco, which has pledged to support the Paris climate agreement and is funding technologies for reducing emissions.
However, the fate of carbon tax or dividend in the US is not clear yet. The concept has been around for some time but has not received much traction, as mentioned earlier. Exxon's support of
carbon tax is part of a three-pronged policy initiative. First of all, there is a fine play of semantics here. Because Americans have always looked askance at any new tax, it is expected that Congress and the American public would be more receptive to a scheme which, firstly, is labelled as a "dividend" programme, and secondly, would leave the tax burden unchanged.
Secondly, ExxonMobil, in seeking support from both Republicans and Democrats for its plan to put a price on carbon emissions, is doing so in return for abolishing existing regulations on greenhouse gas emissions. Analysts say that the "company would rather face a single, overarching tax than a patchwork of taxes and regulations to address climate change."
The proposed tax would thus remove all existing restrictions on current emissions, meaning that there would be no limits on CO2 emissions by electricity-generating plants or automobiles. The oil industry has long been pushing for consistency in the regulatory framework. Unfortunately, US policy on greenhouse gas emissions has webbed and flowed with changes in administration and the mood of the political party at the helm in Washington, DC. Therefore, the plan supported by ExxonMobil has advantages for oil companies because it includes a commitment to sweep away regulations on emissions, thereby reducing compliance costs and uncertainty.
Finally, the tax would also help push the power industry away from coal, potentially boosting demand for gas, which creates lower carbon dioxide emissions when used to generate electricity. Exxon is a big player in the global market for gas, including LNG.
It is expected that after the US midterm elections in November, the new Congress will seriously consider the passage of a carbon tax. Whether the name change will make the uphill battle any easier is hard to speculate. If the Baker-Schultz Plan manages to win over reluctant lawmakers and overcome public resistance, this will be a big victory for politicians over the economists.Dr Abdullah Shibli is an economist, and Senior Research Fellow, International Sustainable Development Institute (ISDI), a think-tank in Boston, USA. His new book Economic Crosscurrents will be published later this year.