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Illustration: Rebecca Zisser/Axios

As a carbon tax slowly emerges from political purgatory in Washington, the biggest sticking point looming over the policy is what to do with the money raised from the tax.

The big picture: I know, we're talking about a fantasy here because Republicans controlling most of Washington right now, including President Trump, categorically oppose carbon taxes. But the policy is slowly gaining support in pockets across the political spectrum, which could pick up momentum after the 2020 elections. So let's suspend our disbelief and look at this tussle over the cash, which is central to everything.

Driving the news: After a decade of stasis, some lawmakers, think tanks and advocacy groups are beginning to push policies with various prices per ton of carbon dioxide emissions, as well as different uses for the money.

  • One proposal pushed by oil companies and former GOP politicians, which starts at $40 a ton of carbon dioxide emitted, would raise $200 billion a year. A $20 per ton tax would raise more than $1 trillion over about a decade.
  • Putting aside conservative opposition to creating any new taxes, divisions are emerging over how to use carbon-tax revenue, like sending it back to consumers or investing in renewable energy.
  • This tension gets at the heart of the challenge of addressing climate change: Make fossil fuels more expensive without hitting pocketbooks too much and/or make cleaner energy technologies cheaper.
“Fighting about that — what to do with the money raised from a carbon tax — is the hardest thing to overcome in Congress.”
— McKie Campbell, former Republican staff director, Senate energy committee

Among the public, the most popular use of money raised from a carbon tax is to restore the environment, according to a recent poll by the University of Chicago's Energy Policy Institute and the AP-NORC Center for Public Affairs Research.

  • More than two-thirds of respondents said they would support a carbon tax if money went toward those goals.
  • The next most popular uses of the money are renewable energy and public transportation.
  • What people say they want may not be what ends up happening. Washington state voters rejected a ballot initiative last November setting an initial price of $15 per ton of carbon dioxide emissions and directing the money toward similar priorities.
  • It failed mainly because big oil companies poured $30 million into fighting it, citing exemptions other industries received.

The most high-profile proposal at the moment, and the one that has the most support among economists, is to rebate most or all of the money back to consumers in dividend checks.

  • This option got less than 50% public support in the aforementioned poll.
  • Backers of the dividend approach say this would change corporate behavior while shielding consumers from rising energy costs to avoid protests like what France experienced when it raised fuel prices.
  • Canada will be a test case with Prime Minister Justin Trudeau running for reelection this year. His administration is rolling out a carbon tax at an initial $20 (Canadian) a ton with dividend checks in provinces that don't have their own pricing regimes.

Former GOP Rep. Carlos Curbelo of Florida, who just lost reelection, introduced legislation last summer creating a $24 per ton carbon tax that would have repealed the federal gasoline tax and used the money mainly to fund infrastructure. He says this is more convincing to voters than a rebate.

  • "The benefit of the expenditures needs to be more tangible," said Curbelo, who is now working on these issues in other capacities. "I just don't know if it’s going to generate the political energy that's going to be necessary to get something like this across the finish line."
  • Rep. Francis Rooney (R.-Fla.), who is the only Republican supporting recently introduced carbon tax legislation rebating the money, prefers using it to either reduce the payroll tax or replace the gas tax, according to his office.

Some conservatives say a carbon tax should be used to address fiscal woes.

  • Five major trust funds, including those funding highways, Social Security and Medicare, will be insolvent within 14 years, according to a fact sheet by Alliance for Market Solutions, a conservative group founded in 2017 pushing a carbon tax.
  • "A climate-only deal is much less likely to succeed on its own," said Alex Flint, executive director of the group and former member of Trump's transition team. "If the revenue is used in a fiscal space it can create a second constituency and the political support necessary to get a deal done."

What's next: Now controlled by Democrats, the House is holding two hearings on climate change Wednesday. Legislation laying out the Green New Deal, a set of vague progressive policies transforming the economy in the name of fighting climate change, could be introduced in Congress as soon as this week.

The bottom line: It's unclear if a carbon tax will be part of that legislation or a focus of the hearings, but the UN says a price on carbon emissions is central to any climate policy, and that means this cash fight is too.

Go deeper:

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