Climate change is an existential threat, and fiscal policy contains many of the tools for tackling it. But scholars of tax law have not given much attention to climate policy. (There are a few notable exceptions, including Reuven Avi-Yonah, Daniel Hemel, Mitchell Kane, Roberta Mann, Janet Milne, Tracey Roberts, Clint Wallace, and David Weisbach.) My sense is that many tax scholars shy away from climate policy because they see it as a daunting subfield that requires special technical knowledge.

In The Green Transformation and Tax Policy Criteria, Kimberly Clausing bridges this divide. She shows that traditional criteria for good tax policy—such as revenue, distribution, administrability, and efficiency—are at stake in climate policy as well.

(1) Revenue. Revenue is at stake whenever climate policy is handled through the fiscal system. Carbon taxes are potentially significant sources of revenue. In the United States, for example, Clausing estimates that even a modest carbon tax—beginning at $15 per metric ton and rising slowly to $65 per metric ton, and exempting politically sensitive goods such as gasoline and heating oil—would raise $600 billion over ten years. On the flipside, clean energy subsidies (such as those enacted in the Inflation Reduction Act) can cost hundreds of billions of dollars over a similar timeframe.

(2) Distribution. In developed countries, carbon taxes and clean-energy subsidies are often regressive. That is one important reason why climate policy should be viewed as one part of a larger fiscal system. It is a familiar move in tax policy to argue that an efficient but regressive policy should be offset with a separate adjustment to the fiscal system. This point carries over especially well to the climate context because many jurisdictions implement climate policy through their tax codes. That fact makes it more likely that that climate policy and distributive offsets can be linked, politically.

(3) Administrability. As in other domains of tax policy, administrability is crucially important but not particularly flashy. Clausing makes three recommendations that many tax scholars will quickly recognize. Policies should be targeted. They should be simple. And they should be flexible. Moreover, policies should suit the administrative capacity of the jurisdictions that must implement them. Countries with greater state capacity might be able to execute technically sound but complex policies; others with less capacity might favor a simpler approach.

(4) Efficiency. A carbon tax is (literally) the textbook example of a Pigouvian tax. Carbon emissions impose negative externalities; an obvious remedy is to internalize those externalities by means of a tax. Moreover, because climate change is a global externality, in principle, it would be ideal to coordinate on a global solution. One challenge to global coordination is that there are powerful incentives to free-ride off the contributions made by other actors: Yet another problem in climate policy that should be refreshingly familiar to tax scholars.

Within each of these criteria, there are further points of contact between climate policy and tax policy. A border adjustment is an important tool that a country can use when it enacts climate policy unilaterally; the border adjustment charges foreign firms for the carbon tax that they would have paid if they were located domestically. Clausing argues that border adjustments face a dilemma. They can either target differences in ambition—ensuring that countries with weak climate policies pay more at the border—or differences in competitive position—ensuring that firms face similar costs regardless of how their home countries implement climate policy—but not both. This result parallels other impossibility results, such as the familiar marriage tax trilemma. In both cases, policy tools that seem capable of satisfying multiple desiderata force policymakers to choose between competing objectives.

Another point of contact is the principle of targeting. Tax scholars are quite familiar with the fact that there are many possible policy instruments for redistributing resources from the rich to the poor. One of the central aims of tax policy is to identify the best instruments, given their likely effects and binding constraints. As Clausing points out, similar problems—concerning both intra-national and international distribution—are front-and-center in climate policy. 

Clausing shows that climate policy and tax policy share more than just a few tools; they also share many common concerns. In climate policy, many of the key challenges are ones that tax scholars have wrestled with for decades. Tax scholars should jump into climate policy; the water is warm. And getting warmer.