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March 03, 2022 The Tax Lawyer

Captured: Regulating to 1.5C Through Tax and Escaping from Regressive Pitfalls

Vol. 75, No. 2 - Winter 2022

by Ryan M. Gurule


President Biden and Congress are advancing an ambitious tax and spending package that will help to combat climate change and address historic wealth inequality. Nonetheless, more can and should be done to combat climate change and to limit global warming to 2 degrees Celsius above preindustrial temperatures—a goal we are not currently on track to achieve according to the latest UN studies.

Among other regulatory tools, the United States regulates greenhouse gas (GHG) emitting activities through taxing provisions. The utility of regulating through tax policy in the context of climate change is two-fold. First, as others have noted, a tax is particularly well suited to make GHG-emitting activities comparatively more expensive in a way that can force taxpayers to bear the externalized social costs of GHG-emitting activities resulting in climate change. Second, tax policy can be crafted to redistribute wealth and income in light of the disproportionate (or regressive) burden that is likely to fall on low-income and marginalized communities as a result of climate change harms—such as extreme weather events, food insecurity, and migration patterns. The Code does not currently adequately fulfill either of these regulatory purposes. In part, this may be because of the view shared by many that there is a conflict between regulating to limit GHG emissions through a carbon tax and regulating to advance progressive policies.

This Article uses the nonrefundable tax credit for carbon capture, utilization, and sequestration in section 45Q of the Code, and an implicit regressive carbon tax on the public created by failing to curb climate change, to urge an end to arguments pitting a carbon tax or improved Pigouvian subsidies (such as a revised section 45Q as discussed herein) against progressive goals. The time has arrived to move past a perpetuation of current policy—which is a poor tool for curbing GHG emissions and which is entrenching regressive results of climate change—and to implement a policy that is more transparently designed to both actualize green goals and achieve progressive results.

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