Sign In or Create an Account.

By continuing, you agree to the Terms of Service and acknowledge our Privacy Policy

Economy

A Carbon Tax Is Back on the Table

The Trump tax cuts expire in 2025, which means things are about the get wacky in Washington.

•
Putting a price tag on pollution.
Heatmap Illustration/Getty Images

Climate policy has been all over the place lately thanks to pressure from interest groups, pre-election jitters, and the plausibility of a re-elected President Donald Trump laying waste to existing climate policy.

But further in the future, beyond the ups and downs of electoral politics, there’s a policy cataclysm coming that, some hope, could create an opening for that long sought, always denied dream of climate policy: the carbon tax.

Let’s back up. There are two things happening that might free up this policy space, one domestic, and the other overseas. At the end of 2025, much of the Tax Cuts and Jobs Act, otherwise known as the Trump tax cuts, will expire, including several provisions that many in Congress will want to extend, including lower income tax rates, a higher standard deduction and personal exemption, and an expanded child tax credit.

At the same time, much of the revenue that helped pay for those tax cuts — such as limitations on deductions for mortgage interest and state and local taxes — will also expire.

Measures that reduce taxes tend to be popular and those that raise them tend not to be, and that’s as true with the Trump tax cuts as with anything. (Since basically the day the TCJA passed, there’s been intense bipartisan opposition to the limitation on deductions for state and local taxes, for example.) That they’re expiring all at the same time will create a policy free for all.

And just as the Trump tax cuts expire, the European Union’s Carbon Border Adjustment Mechanism will come into full effect in January 2026, complementing its existing cap-and-trade and carbon pricing system. Essentially, CBAM is a tariff on imports from countries that don’t price carbon the same way the EU does, and it’s designed to prevent what’s known as “leakage,” where producers in countries with a carbon price simply offshore emissions-intensive production to countries that don’t. (It also helps make sure those products from other countries aren’t able to undercut domestic producers on price, a facet of the policy some have pooh-poohed as protectionist.)

Starting last year, EU trading partners had to begin reporting the carbon content of some emissions-intensive exports in preparations for payments starting in 2026. One of those trading partners is the United States, which exports some $351 billion worth of goods to the EU, second only to Canada.

Bills that would just address the carbon price gap have been proposed several times in the current Congress, including by climate stalwart and Democrat from Rhode Island, Senator Sheldon Whitehouse, plus some Republicans who think America should get an advantage over China for having a less carbon-intensive manufacturing sector.

This all creates a kind of celestial alignment in favor of a policy that has been rejected so many times (RIP the 2009 cap-and-trade bill and Bill Clinton’s BTU Tax) — or at least that’s what its advocates hope. Based on the history of carbon taxation and related polices, you might be pessimistic. But we haven’t seen a year like 2025.

“If you think about carbon price relative to raising people’s income taxes, when you put it in the whole fiscal conversation that’s going to happen in 2025, it’s going to look more attractive,” Catherine Wolfram, a Massachusetts Institute of Technology economist and former Treasury official in the Biden administration, told me. Wolfram was also one of the authors of a paper released last week by the Brookings Institution’s Hamilton Project mapping out how various climate policies could emerge from the witch’s brew of TCJA expiring and carbon tariffs would actually effect U.S. emissions.

The paper concluded that of the seven 2025 climate policy options they considered — including doing nothing to the IRA and enacting planned new emissions rules, doing nothing to the IRA with no new emissions rules, repealing the IRA, expanding the IRA tax credits for clean electricity, instituting a carbon fee starting at $15 a ton, instituting a clean electricity standard that would mandate a certain portion of electricity be produced from non-carbon-emitting sources with fees for noncompliance, and a carbon fee along with repealing some parts of the IRA — the carbon fee and the clean electricity standard would bring emissions down by the most, just missing the stated 2030 target.

And that’s just U.S. emissions. Wolfram said that if the U.S. were to institute a carbon fee, it would be a major step towards a worldwide carbon price, as countries would want to avoid paying fees to both the U.S. and Europe for pollution-intensive exports. “The more countries that get in this game,” Wolfram said, “the more powerful that policy can be.”

Whitehouse spoke at a Brookings event last week, saying, “We’ll find out a lot when people start getting tariffed through the European Union CBAM,” and that even Republicans were “pricing curious” due to the specter of carbon tariffs. “The forces are converging on making that work,” he added about the idea of finally getting a carbon price of our own.

Wolfram is also — cautiously — optimistic. “We haven’t tried since 2009. That’s 15 years ago,” she said. “The climate continues to change, and it’s changed pretty dramatically in the last 15 years. I don’t think we should have too many conclusions about what’s possible.”

Editor’s note: This story has been corrected to reflect that Whitehouse is a Senator from Rhode Island.

Green

You’re out of free articles.

Subscribe to access Heatmap's exclusive climate and energy polling, award-winning journalism, and subscriber-only events, now just $99 $79.20/year.
To continue reading
Create a free account or sign in to unlock more free articles.
or
Please enter an email address
By continuing, you agree to the Terms of Service and acknowledge our Privacy Policy
Hotspots

Meta Data Center Federal Pipeline Review Due Early Next Year

And more of the week’s top fights around development.

The United States.
Heatmap Illustration/Getty Images

1. Richland Parish, Louisiana – Gird your loins for the coming fight over the Meta Hyperion data center’s gas pipeline.

  • On Wednesday, the Federal Energy Regulatory Commission laid out plans for an environmental assessment of the Entergy pipeline for the Meta data center under the National Environmental Policy Act and stated it’ll be issued in early January 2027. Federal agencies have been ordered by the panel to complete any remaining decisions on authorizations by April.
  • The decision to do an environmental assessment under NEPA will be controversial. The Sierra Club filed comments to FERC stating they wanted an environmental impact statement instead that took into account the environmental impacts of the data center being fed by the pipeline, as well as a review of the project’s cumulative impacts, as the activist group said they’re explicitly linked to the data center’s operations. “The power stations and data center are not remote or speculative developments unrelated to the proposed action,” their comments read.
  • This is quite similar to what’s playing out with the Green Chile pipeline in New Mexico for Oracle and OpenAI’s Project Jupiter, which we recently explained could turn into litigation with high stakes for future gas pipelines linked to data centers. But to me, this conflict with Meta feels like it has more at stake for this individual project, as it’s playing out while construction on gas power plants for the data center has been underway for almost a year after earlier being blessed by state regulators.
  • I asked Sierra Club what could happen next. Eric Huber, one of their managing attorneys, told me on Thursday, “I heard the EA is expected in January, but we are in wait and see mode and will decide on further steps when it comes out.” Meta and Entergy did not respond to a request for comment.

2. Spartanburg County, South Carolina – I have one last data center race to tell you to watch on Tuesday: South Carolina’s 4th, on the northern rim of the state.

Keep reading...Show less
Yellow
Plus

Is the Election Really About Data Centers?

Talking with Kevin Gundersen, the head of public affairs for Digital Realty.

Kevin Gundersen
Heatmap Illustration

This week’s conversation is with Kevin Gundersen, head of public affairs for data center developer Digital Realty. On Wednesday, Digital Realty released a fascinating poll as part of Infrastructure for America, a pro-data center organization that also includes Compass, Vantage Data Centers, and QTS. The poll pushed back on the idea that we’re currently in the middle of a “data center election”; instead, it found most voters are not expected to choose their national elected officials based on a politician’s stance on data centers.

I reached out to folks involved in the poll's release, and they put me in touch with Gundersen, whom I’ve met before and consider to be a straight shooter. He accepted my invitation to do a candid hot-seat chat about the findings, his thoughts on all the data center attack ads, and whether his industry’s actually recovering any ground with the American people.

Keep reading...Show less
Yellow
Politics

Why Project Certainty Is the Thorniest Part of the Permitting Bill

Can a key section of BAAJA be saved from unintended consequences?

Donald Trump and Congress.
Heatmap Illustration/Getty Images

Any bipartisan bill to update the nation’s permitting laws was always going to be a compromise, with advantages for the oil and gas industry as well as clean energy. Proponents of the Senate’s latest attempt at permitting reform have painted it as a delicate balance, a hard-won opportunity, and an all-or-nothing deal.

What, then, to make of drafting errors, or unintended consequences?

Keep reading...Show less