Conservative thinkers are playing host to a liberal idea: the enactment of carbon taxes. The issue is making news right before the national elections in the fall, and it could gain increasing momentum.

The American Enterprise Institute, which just held a conference on the subject, is saying that the fundamentals underpinning carbon taxes deserve to get aired. Many liberals would agree. But most -- if not nearly all of conservatives -- would disagree that the idea has validity. Contrary to that thinking, however, carbon constraints is a policy that is making international headway, and one that over time will ingratiate itself into U.S. energy policies.

“We have to have a system where all forms of energy bear their full costs,” says George Shultz, former U.S. Secretary of State under President Reagan. “For some, their costs are the costs of producing the energy, but many other forms of energy produce side effects, like pollution, that are a cost of society.

“The producers don't bear that cost, society does. There has to be a way to level the playing field and cause those forms of energy to bear their true costs. That means putting a price on carbon. We've studied a variety of ways to do that, and to me the most appealing way is a revenue-neutral carbon tax. That is, you distribute all the revenue from the carbon tax in some fashion back to taxpayers, so there is no fiscal drag on the economy,” Shultz concludes.

The GOP legend, who issued his remarks to Stanford University, goes on to say that British Columbia has such a carbon tax. In that case, the government there gradually increased the tax and then redistributed it to individuals, making it popular.  He adds that the Republicans have historically been known as the party that issued policies to protect the environment, noting that it was under President Nixon that the 1970 Clean Air Act passed.

Schultz’ comments are coming on the heels of the AEI confab. There, both Republicans and Democrats gathered to discuss the potential policy. According to news reports, representatives from Al Gore’s climate campaign and AEI’s own scholars represented the Republican view point, as did a former congressman from South Carolina who is starting the Energy and Enterprise Initiative. The progressive view is one led by U.S. Representatives Henry Waxman, D-Calif., and Ed Markey, D-Mass., both of whom have chaired key energy committees.

Technologies Key

Among those scholars not present at the AEI meeting  was AEI’s Ken Green, who used to favor the carbon tax but now says the idea is “anti-competitive.” A carbon tax, he fears, would simply go into general revenues. He adds that unilateral action by developed countries would give unfair advantages to those developing countries that would have no such curtailment efforts.

“I naively thought that a revenue-neutral carbon tax might be possible, and if done right, might offer economic benefits that might mitigate its economic harms; if we replace taxes on productivity with taxes on consumption, we might get a net economy-wide benefit,” writes Green, in an EnergyBiz Insider column appearing a year ago.

Most of the earlier discussions centered on a carbon tax or cap-and-trade scheme, where carbon ceilings are set and utilities must meet them, or buy credits that allow them to exceed such limits. But those debates occurred after President Obama came to Washington and when his party controlled both legislative chambers. When the Republicans took over the U.S. House in 2010, those ideas died.

Under a carbon tax, government would tax utilities according to their carbon footprints that can be readily measured. NextEra Energy says that it is a fairer way to compute results and that it is easier to administer than a cap-and-trade system. The proceeds from the carbon fee would then be targeted directly to an account that would help fund the development of new technologies.

“Although both a tax on emissions and a cap-and-trade system use the power of markets to achieve their desired results, a tax is generally the more efficient approach,” adds Peter Orszag, former director of the Congressional Budget Office. “Studies typically find that over the next several decades, a well-designed tax would yield higher net benefits than a cap-and-trade approach.”

If the president is re-elected, the notion of carbon constraints will get resurrected. And while such policies would still have an uphill climb over the next four years, that will slowly change as the technologies to enable the capture of carbon dioxide are developed and potentially commercialized.

EnergyBiz Insider is named a 2012 Finalist for Original Web Commentary presented by the American Society of Business Press Editors. The column is also the Winner of the 2011 Online Column category awarded by Media Industry News, MIN. Ken Silverstein has been named one of the Top Economics Journalists by Wall Street Economists.

Twitter: @Ken_Silverstein