Economics, Energy and the Environment

Why a carbon tax is still a bad idea

Once again, the New York Times has published an article calling for a carbon tax, and not a little baby one either: This would be a carbon tax with teeth:

Early studies by the Intergovernmental Panel on Climate Change estimated that a carbon tax of up to $80 per metric ton of emissions — a tax that might raise gasoline prices by 70 cents a gallon — would eventually result in climate stability. But because recent estimates about global warming have become more pessimistic, stabilization may require a much higher tax. How hard would it be to live with a tax of, say, $300 a ton?

If such a tax were phased in, the prices of goods would rise gradually in proportion to the amount of carbon dioxide their production or use entailed. The price of gasoline, for example, would slowly rise by somewhat less than $3 a gallon. Motorists in many countries already pay that much more than Americans do, and they seem to have adapted by driving substantially more efficient vehicles.

And this particular carbon taxer doesn’t even pretend to revenue neutrality, or to reducing other taxes that might stimulate the economy:

A carbon tax would also serve two other goals. First, it would help balance future budgets. Tens of millions of Americans are set to retire in the next decades, and, as a result, many budget experts agree that federal budgets simply can’t be balanced with spending cuts alone. We’ll also need substantial additional revenue, most of which could be generated by a carbon tax.

So let us, once again, review why a carbon tax is a bad idea:

1) Taxes on carbon are not simply taxes on consumption, they’re a tax on production as well, since energy is a primary input to production (and is a growing share because of increasing automation). Taxing both production and consumption seems like a poor way to stimulate your economy, reduce your costs of production, or make your exports more competitive.

2) Carbon taxes are regressive. Poorer people spend a higher portion of their household budget on energy than do the better off. If you were to posit redistributing the tax to the poor, you could deal with this, but if your tax is just a new revenue stream for government (which it will become sooner or later regardless of the initial design), higher energy costs and higher costs for goods and services are going to slap the lower-end of the income spectrum hard.

3) Taxing carbon gets you virtually no climate or health benefit unless it exists within some binding, international carbon control regime, which is unlikely to occur – even the author of the NYT article acknowledges this. China and India will dominate global carbon emissions for the next century, while emissions in the U.S. and developed world are already level or in brisk decline. And, global negotiations over carbon controls have become an utter farce in which developing countries go fishing for wealth and intellectual property transfers, while developed countries mouth platitudes and make promises they have little intention of keeping.

4) Carbon taxes engender industry and capital flight, and become highly contentious. As for the idea of border adjustments, some argue that such adjustments would violate international trade accords and would be hard to deal with given current international institutions. Others argue that even if you could implement them, border adjustments aren’t useful.

5) Carbon taxes are really quite disingenuous, as we know that there’s likely to be no climate-related or carbon-impact-related benefit. Why not be honest and just call for a VAT tax? How about some transparency? Why not just say, “we think you’re consuming too much, and are going to tax you until you stop?”

6) Carbon taxes would put a share (potentially a large share) of the U.S. tax system under the influence of bureaucrat-scientists at the U.N., who gin up more and more scary scenarios in order to justify their existence. Climate scare-mongering by the IPCC is a one-way ratchet: things are always “worse than we projected.” You can guarantee that there would be steady pressure to tax carbon at ever-higher rates (and transfer some of that booty to developing countries!) every time a new report of the United Nations Intergovernmental Panel on Climate Change comes out. Get ready to hear “the consensus of scientists now feels the carbon tax is too low” every few years. Do we really want “the science” of climate change as developed by the United Nations and interpreted by the EPA setting our tax rates?

7) As we already have a vast array of regulations which are aimed at reducing carbon emissions, new carbon taxes would represent double-taxation. You’re already paying carbon taxes in the additional costs of new vehicles with higher fuel emission standards, more expensive appliances that aim to conserve energy, renewable energy standards that raise your cost of electricity, etc. Nobody in the environmental movement is talking about trading these rules and regulations for a carbon tax.

For the record, I’m a “lukewarmer” (as best described at the tail end of this recent article), and I’ve written (since 1998) that some resilience building actions would be wise in the face of climate risk, but a carbon tax? Carbon taxes may look good as an abstract exercise in economics, but in the real world, like other eco-taxes, they would quickly morph into just another form of taxation that feeds the ever-hungry maw of big government.

2 thoughts on “Why a carbon tax is still a bad idea

  1. The entire man-made global warming brouhaha is a complete and utter fraud. Anyone who perpetuates it perpetuates a fraud. Anyone who advocates taxes or laws based upon it perpetuates tyranny founded on a fraud.

    AEI is thoroughly pseudo-conservative.

    If AEI were a car, David Brooks would be its hood ornament.

  2. Not only is this “remedy” based on a hoa, it has nothing to do with clean air or the environment. If the alleged offender is profitable enough to come up with the bribe for his indulgence, then it also remains business as usual.

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