Ricochet is the best place on the internet to discuss the issues of the day, either through commenting on posts or writing your own for our active and dynamic community in a fully moderated environment. In addition, the Ricochet Audio Network offers over 50 original podcasts with new episodes released every day.
The Tiny Little Problem with Carbon Taxes
Economists frequently offer carbon taxes as a market-friendly policy for dealing with climate change. It’s pretty simple: Tax what you don’t want (or as an economist would put, tax unwanted externalities). And if you want less fossil fuel consumption and the carbon emissions that go with it, make coal, oil, and natural gas more expensive with a levy. But there is a slight– I feel embarrassed even to mention it — problem with carbon taxes, according to Jesse Jenkins of the Breakthrough Institute:
There’s only one hitch: people generally want their energy to be cheaper, not more expensive! In July, Australia repealed its carbon tax, ending a brutal, decade-long fight over climate policy. The repeal is just the latest and most glaring example of the extremelyuphillpolitical battle facing any effort to put a hefty price on carbon—i.e., a price sufficient to fully internalize the social costs of CO2 emissions and substantially reduce greenhouse gas emissions.
It goes on:
In a new peer-reviewed paper published in the June edition of Energy Policy (Vol 69), I dive in to these “political economy constraints on carbon pricing policies” and their impacts on the economic efficiency and environmental efficacy of climate policy. …
What I find is that while estimates of the full social cost of carbon range from $15 to $150 per ton of CO2 in 2012 dollars (rising steadily each year), households in the United States may be willing to pay as little as $2 to $8 per ton to combat climate change, according to a range of public values and willingness-to-pay research. … In the real-world, political constraints can mean carbon pricing policies end up falling far short. That creates an opportunity for improved climate policy designs that perform much better under political economy constraints.
One other political problem: Some conservatives have embraced the carbon tax as a substitute for top-down environmental regulations, such as fuel economy standards. But many on the left see such a levy as additive, which is not surprising given the above analysis. So, indeed, there are other options …
Published in General
It really comes down to this. You need cheap energy for you economy to thrive. People want their economies to thrive. They want jobs, money, prosperity and all that goes with it. To artificially raise the cost of energy via taxation so the political class can just steal / use the money to fly and drive everywhere they please while normal folk can’t afford to drive to work or heat their house is a hard sell.
Well, the arguments economists make is…you can do this tax once you’ve figured out 2 things:
1) That there is a negative externality in the first place
2) That you can measure the cost of this externality.
Neither of these 2 requirements, before you actually put a tax to try and internalize the effects of a negative externality, is actually met today.
They can’t prove that there…is…a “social cost of CO2”, nevermind figure out…how much….this cost is.
Bet they really fudged the question on this one. If you polled the average citizen and asked them “Do you want your energy bill to be higher next year, do you want to pay more to drive your car or take the bus?” I doubt you would find a large majority that would happily agree to pay more.
The really gigantic problem with carbon taxes is that they are unjustified on their own terms. Global warming, aka climate change, is sold as a catastrophic man-caused disaster that will destroy the planet. A thermal runaway is underway, according to popular culture by way of computerized climate models, fueled by our addiction to oil and free market capitalism–hence the need for a carbon tax, the EPA war on coal, and other draconian measures.
But what if the models are wrong? The climate change cognoscenti acknowledge that detectable global warming stopped cold 18 years ago. In 2008, NOAA explained the so-called “pause” thusly:
Six years on there is still no global warming, so the science is settled, right? After all, we are now more than 95 percent confident that the models are wrong. Time for a scientific reset? Not so fast. This is a lucrative gig the political-academic axis has going for itself. Not for nothing did environmental activists, aware of the data, hedge their bets a few years back by dropping “global warming” in favor of “climate change,” a moniker sufficiently elastic to encompass anything.
In summary, there is currently no scientific justification for policies, whether market friendly or not, for “dealing with climate change.”
Ever since the energy crisis years of the 1970s we’ve had a steady stream of politicians say, “People will drastically cut gas consumption once we tax the price to the magic number of ‘x’.”
Then ‘x’ comes and goes and is replaced with another magic number. And consumption STILL doesn’t come down.
And that goes for electricity and natural gas. Do you think Al Gore keeps his thermostat below 67° in the winter?
To return to the carbon expenditure of the 1860’s the entire planet would have to change their lifestyle from where it is now to that of Eritrea. Well, that in addition to killing off about 5/6ths of the humans on the planet.
Anything less than that is still adding carbon to the atmosphere at a greater rate than the 1860s.
I’ll believe it is a crisis when the people telling me it is a crisis act as if it were a crisis. Until then, carbon taxes are a way to transfer power to political elite and their Carbon Ambassadors.
Absolutely right. Travel the world and observe how people move about: In wealthy Austria the fossil fuel-burning internal combustion engine reigns, even with a 100+ percent tax–diesel runs about $8 per gallon. How about desperately poor Ethiopia? Same thing: those who can afford it–the minority–crowd into diesel-powered taxi buses, everyone else walks. The energy density and surplus of fossil fuels are simply unbeatable.
Many of my Silicon Valley neighbors like to swan about in their ostensibly planet-saving Teslas while maintaining a Land Rover on standby in the garage. Needless to say, this strategy is not an option for most.
There’s also the argument that’s often made on the left – that tax rates do not impact decision-making in terms of earnings, purchases, etc. That the tax, whatever it is, does not impact the choices made.
Yet progressives would love nothing better than a carbon tax (well, ok, they might like planet-wide servitude to a UN-sponsored panopticon, but that’s another story), in part to a) raise revenues to pay for things they want (like more climate studies and ways to reduce greenhouse gases that said studies tell them they must limit), and b) to incentivize people to change their purchasing, and their behavior.
It must be wonderful to be able to ignore the two-faced nature of your belief system.
This is relevant to me because our firm is working on a campaign to fight the expansion of California’s cap-and-trade program to gasoline and diesel fuel. The new tax rolls out on January 1st and we’ll eventually be paying an extra $8 every time we fill up.
The interesting thing is that opposition is high and across the board. The only people who are in favor of this are highly educated, affluent, white, strong liberals. Even people who like to think of themselves as green and eco-friendly are abandoning this path once they realize it’ll hit them in their pocketbooks.
Of course, it also doesn’t make selling these plans any easier when the money is being used for high-speed rail. It’s simply a means to an end that has nothing to do with the environment.
It should be remembered that externalities are a “signed” quantity, being both negative and positive. This makes their accurate assessment even more difficult.