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A Call for a Carbon Tax From Elon Musk…and Many Others

Congress should seriously consider a carbon tax, Tesla Motors CEO Elon Musk told me at the New York party last week announcing his company’s Motor Trend “Car of the Year” win. “We tax cigarettes and alcohol, so it seems like common sense, really.”

My question had actually been about EV subsidies. In his 2012 budget proposal, President Obama floated, though has not exactly fought for, increasing the current $7,500 federal income tax credit for battery vehicles to a $10,000, and reformulating it as a direct rebate so that consumers could claim it when they buy their car. Musk said he was unaware that proposal was even on the table. He supports it, but he still favors a carbon tax, with better electric car incentives as “the next best thing.”

The carbon tax may actually have more political support than the $10,000 EV rebate idea, because even some electric car advocates are hesitant to open up debate about EV incentives when an effective $7,500 credit is already in place. As one told me, “Why take the risk of all the public scrutiny?”
A Simple Idea…With Big Effects

The idea is simple enough. As the Wall Street Journal describes it, “Put a price tag on the harmful emissions from fossil fuels, such as oil and coal, and use the revenues to fund clean-energy development, pay down the deficit or slash taxes.” And indirectly, of course, spur electric car development by making them a more cost-effective transportation solution.

Musk is not alone in seeing a carbon tax—or at least a coherent national energy policy—as the best solution to reducing our foreign oil addiction and addressing global warming. Bill Ford, executive chairman of the company that bears his name, has long supported higher taxes on gasoline, and he told me that an energy policy could give Ford “some clarity about where the U.S. is going as a country.” Without it, he said, the outlook for green cars resembles “throwing darts.”
Growing Support

It will be fascinating to see if a carbon tax finally gets traction in Congress. Depending on how it’s applied, it could be a major boon for electric car sales by stabilizing higher gasoline prices. And, indeed, as Musk says, the value could be greater than Obama’s proposed ramping up of EV incentives. President Obama dodged an opportunity to commit to a carbon tax at his press conference Wednesday, but such polar opposites as the conservative American Enterprise Institute and the liberal Brookings are giving it serious consideration.

All sorts of policy makers support a carbon tax. “Putting a price on carbon is fundamental,” wrote Oxford professor Dieter Helm in a New York Times op-ed this week. “If consumers and businesses do not bear the cost of their carbon pollution, they won’t do much about it.”

And MIT has also weighed in with a report that calls a carbon tax a “win-win” for America. The authors, Sebastian Rausch and John Reilly, say that revenue from a carbon tax could offset the effects of the expiring Bush-era tax cuts. “In addition to economic benefits, a carbon tax reduces carbon dioxide (CO2) emissions to 14 percent below 2006 levels by 2020, and 20 percent below by 2050,” the report says.

Such a tax, they say, could also reduce oil imports 10 million barrels a day by 2050. “The carbon tax would shift the market toward renewable and other low-carbon options, and make the purchase of more fuel-efficient vehicles more economically desirable.
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