a different tax....

That a carbon tax is the solution to climate change is one of those things generally and widely agreed among those who have studied the problem. It’s even a reasonable thing to do even if climate change isn’t the catastrophic problem some fear, even if it’s not really a problem at all. The biggest perversity concerning all this is that the most vociferous opponents tend to be among the environmentalists themselves, those very people who claim at least to want to solve the problem. The reason for this is ignorance.

The environmentalists – or perhaps just too many of them – aren’t grasping what is being proposed nor why. We are not trying to raise tax revenue, that’s not the point at all. A carbon tax still works even if we collect the money then burn it all – a long as we sequestrate the CO2 of course. This is important, well, it is at least as important as climate change itself, which is why it’s so disheartening to see those very environmentalists not grokking the point.

Support for slapping a tax on carbon emissions is about as widespread as an environmental measure can get. Environmentalists and progressive Democrats who have long championed a carbon tax have recently been joined by big oil companies and establishment Republicans. It’s the one cause that unites Bernie Sanders and Exxon Mobil.

So why do reliably blue states keep failing to put one in place?

The essential economic analysis is that carbon emissions are an “externality.” There are costs to third parties of the freely chosen activities of consenting adults. If there aren’t such third party costs then the adults get to consent – as long as your bedroom contains only those freely consenting adults then what goes on there is up to you. But if there are those third party costs – say, the noise from the enjoyments causes lost sleep among the neighbours – then some societal power to force an adjustment seems reasonable enough.

Again, economics analyses here by suggesting that we’ll get too much, or too many, of those third party costs if people aren’t paying for them. If we’ve not got to pay to soundproof the orgy then we’ll have more orgies than if we do. It’s fair that we insist upon such soundproofing perhaps. But sometimes we cannot insist upon such direct actions – then we’ve got to try and change the price system. Which is what the carbon tax does.

There are benefits to using fossil fuels – transport, heat, cooking and so on. Given current technological levels immediate banning would mean billions die – commonly thought to be a Bad Thing. But there are those costs imposed upon others as well in the climate change the emissions cause. The answer is that we look to that greatest good of the greatest number, the utilitarian answer. Where emissions produce more value than the damage they cause – including over time – then we want them to continue. Where they don’t then we want them to stop. That way we get the maximum possible value being created and thus all humans – over time – are as rich as we can be given current technologies.

Calculating what this number is, this tax rate, is also known as determining the social cost of carbon emissions. The Stern Review may or may not have exactly the right number but it’s a good enough starting point, $80 per tonne CO2. Say 50 cents or so per gallon of gas. Slap that tax on and we’ve corrected the price system. People who use gas are now paying the environmental costs of their use. So, anything they use it for must create greater value than the damage being caused. We’re copacetic at this point, we’ve the optimal level of emissions.

Note that this logic still works whatever you think of the rate. 1 cent or $100 a gallon, the logic is still the same, we’re only arguing over what is that social cost of carbon. Stick a tax on of whatever it is and we’re done.

Even if climate change isn’t a problem, or isn’t happening, we do still need some tax revenues somewhere. It’s also better to tax consumption than incomes or capital, better to tax things inelastic in demand with respect to price than those elastic. Fossil fuel consumption taxation is a consumption tax and the demand for fossil fuels is, in the short to medium term at least, inelastic. We’re fine with fuel taxation therefore.

Which is why every economist who has even glanced at the subject agrees that a carbon tax is the way to go. Just do it and we’re done.

Given that this is so then why is it that we’ve not already got one? And why is it that it can be and often is the environmentalists who prevent one? Because they’ve not grokked that economic point as yet. They’re still thinking that raising tax revenue is the point, raising the money to spend on battling climate change. But that just isn’t the point at all. As above, if we just burned the cash we’d still solve climate change.

Sure, OK, maybe we might need to spend money battling climate change. I don’t think so but then so what? But even if we do that’s still not the argument in favour of a carbon tax nor is it why one will work. Worrying about the revenue is just to be musing on the wrong point. But that is what is happening:

That was the story with Initiative 732, a Washington state carbon-tax measure that generated national attention before it went down in flames in 2016. The group behind it, Carbon Washington, tried to appeal to bipartisan support, planning to use money raised from the tax to lower the state’s sales and business taxes. It had endorsements from some Republicans, climate scientists, and, of course, Leonardo DiCaprio.

But in a twist, some progressive and environmental groups — including the state Democratic party — turned against the initiative, arguing it would waste tax dollars. Low-income residents spend more of their paychecks on gas or home heating, and opponents worried the carbon tax might hit them too hard.

It doesn’t matter how much money is raised nor what it is spent upon. The tax, in and of itself, is the solution, for it is that which corrects market pricing for those third party effects:

Carlyle’s idea was to use money from the proposed tax to fund sustainability projects, like renewable energy, forest resilience, and assistance for low-income residents. But it split the usual supporters, too. The Quinault Indian Nation, whose reservation is facing the threat of a rising sea, opposed the bill for not being aggressive enough and placing too much of the tax burden on citizens.

There’re none around but us citizens to pay taxes which takes care of that. But again, what the money is spent upon is not the point, that it is charged is.

And that, sadly, is why we don’t have that carbon tax. It is the one simple and sure solution to climate change, a point every economist has been shouting from the rooftops. It also doesn’t matter what the money is spent upon, it matters only that fossil fuel users are alleviated of the cash. That’s all that is necessary for it to work. And unless and until those environmentalists get their heads out of wherever and into the textbook chapter on Pigou Taxes then that’s also why we’re not going to have a carbon tax.

Or as we should put it, the reason we’re not already solving the problem the environmentalists are most worried about is because of the base ignorance of the environmentalists. With admittedly, the odd exception of those who get it right.

Seriously, come on, even Exxon assumes a carbon tax these days.

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27 COMMENTS

  1. Here is what the Bible says about taxes:

    Romans 13:6-7
    6 For because of this you also pay taxes, for the authorities are ministers of God, attending to this very thing. 7 Pay to all what is owed to them: taxes to whom taxes are owed, revenue to whom revenue is owed, respect to whom respect is owed, honor to whom honor is owed.

    Here is some light reading about socialising the economy.

    • You’ve done it Tim–congrats and well done!!

      Now lets see if the trolling arsehole actually dares to come on here with his own words. He hasn’t been banned–he is free to speak HIS mind. Not regurgitate great C&P chunks of someone else’s crap.

  2. You are wrong. Carbon tax is a ripoff waiting for its chance. There’s just so much wrong with even the principle of taxing faux-harmful behaviour of any kind. Tax should be to raise money for spending in the most general universal way possible. Not for politicians to punish the unfashionable, or the rich, or fat people, or drinkers or people who use energy. Carbon tax is compounded by the angels-on-a-pinhead branch of economist enthusiasts, the ones who believe that shit you learn in econ 101 has any relation to the real world. It’s just as much tyranny as any proposal from Public Health England.

  3. “It’s even a reasonable thing to do even if climate change isn’t the catastrophic problem some fear, even if it’s not really a problem at all.”

    Tim, a new tax, even if we burn the revenue and even if there was no problem, is not a reasonable thing to do, only a thing that makes you feel you are offering a reasonable half-measure to more draconian Greenie proposals. It was a “reasonable” alternative to Hillary Clinton’s proposal for an American NHS to “merely” compel at gunpoint every citizen to purchase insurance (to the government’s specifications). We are now in a mess because of Republican half-measures.

    (1) Climate changes, in the short-, medium-, and long-term. Everything on Earth changes, including air pressure, the apparent tilt of the planet, sea levels from low to high tide, the mix of species and the evolution of new diseases, and eventually the shapes and locations of the continents. The best way forward is to remain wealthy enough to adapt to tomorrow’s surprises. (2) The degree of human influence is unknowable, as there is no human-free Earth available as a control. (3) It is unknowable what the typical average surface temperature is, and what is the best one. It is unknowable whether our efforts will defeat “global warming” or merely slightly hasten the onset of the next ice age. (4) Those insisting that “humans have some role to play” (the current reasonable-sounding rhetoric) are the same people who use other excuses, from school shootings to statistical inequality by race and sex, to likewise advocate a bigger government role. And they lie about everything, and a few of them admit that the goal of the current push, and of the Paris accord, is to bleed wealth from the developed world into Third World tyrannies. Detecting increased atmospheric CO2 is a truth on which all the lies are built, just as is the fact that a Trump aide did indeed take a business trip to Russia.

    There is no need for a market-based solution to a non-problem as a compromise with people acting in bad faith.

    • PS – The carbon tax using the very free-market-sounding Carbon Credits is a tax that politicians can raise (by decreasing the supply of credits in any given year and thus driving up the price of each one) without voting to raise a tax; that is, without any political consequences.

        • Carbon Credits are not money; they are a receipt that you have paid a tax. In this case, the receipt happens to let you do something that used to be legal but now is illegal without it. This permission is transferable, but by the same token, the holder cannot count on a Carbon Credit as a store of value, as the total number of them is unknowable. The process is taxation; it is not banking.

          • I understood they could be traded between companies. And that in countries not unfamiliar with corruption handed out to fake carbon-users who would trade with real carbon users. For real money. They may not be a store of value (what really is?) but if you can get money for them and they come from government…

  4. Get rid of him FFS. For off-topic. For threadbombing. For spite, I don’t care.

    And as for the headline, those environmentalists don’t give a toss for your economics, because what they really are is luddites, and what they really want is dismantling of the industrial society and reversion to the garden of Eden in their minds. They will agree to any step on the road but they will never stop until their goal is reached, one reasonable-sounding bit at a time. It isn’t wise to give an inch.

  5. When those shouting about the evils of fossil fuels reject the solution to the problem, it may be ignorance, or it may be that they have a hidden agenda. I suspect a bit of both.
    There are all the various subsidy junkies who won’t give up their fix.
    There are all the virtue signallers who would be forced to find a new way to signal their virtue.
    He’ll there’s all those people who love going on demonstrations who would need to find a new cause.

  6. I notice from the charts that under the carbon tax scenarios not only does the mix of fuels change but electricity generation itself might drop from 5T kWh to something on the order of 4.6-4.7T kWh. So, several percentage points. That’s significant. I understand that the amount of carbon tax is intended represent a way of putting the external costs of global warning upon the end users, and a carbon tax should indeed both change the mix of fuels and reduce electricity consumption, but that reduced consumption does imply some reduction in economic activity. I’m curious how well thought out are these variables and the impact on economic growth and ultimately on the average joe’s well being?

    • All the numbers are made up, especially the imaginary externalities and their pricing, and the charts assume ceteris paribus. It’s naive. Like the Stern review with its assumptions of the unknowable. Like all economic forecasts it for amusement only, or to give spurious support for a case prompted by some other motive.

  7. All the numbers are made up, especially the imaginary externalities and their pricing, and the charts assume ceteris paribus. It’s naive. Like the Stern review with its assumptions of the unknowable. Like all economic forecasts it for amusement only, or to give spurious support for a case prompted by some other motive.

  8. Why do economists regard energy prices as inelastic? Pretty well everything that is done requires energy of some sort. So a carbon tax is going increase the cost of doing those things. Raising the price of those things. Many of those things are elastic. Less of them will be done.
    Wasn’t there an “oil crisis” some years back? Producers hiked the price. Said at the time, pushed the world into recession.

  9. “The biggest perversity concerning all this is that the most vociferous opponents tend to be among the environmentalists themselves, those very people who claim at least to want to solve the problem. The reason for this is ignorance.”

    No. The reason for it is that it doesn’t achieve their stated reason for it all, which is to cripple Western industry and transfer its wealth and knowledge to the developing world. They’ve said so openly enough, although it’s not well-publicised.

    “Which is why every economist who has even glanced at the subject agrees that a carbon tax is the way to go. Just do it and we’re done.”

    No. A carbon tax is the *wrong* solution, because people disagree on the price of the externality. That’s why you need something that has the same sort of disagreement over value to pay for it with.

    What you do is issue ‘climate bonds’ a negotiable financial instrument whose value depends on future climate outcomes. For example, consider a bond that will pay 15% interest per year on the day sea level rises passes 1 metre, but is voided in 2100. If you believe Al Gore, it’s highly valuable. If you don’t it’s worthless. So this is the ideal product to pay your carbon taxes in, or to pay for mitigation and renewables, or to bribe industry to stop emitting. If the warmers are right, the sceptics pay the costs. If the sceptics are right, the warmers do.

    It works like a futures market, by bringing the costs of future events into the present, where the market can act on them.

    Of course, the reason nobody has done so (or any of the other obvious solutions, like deregulating nuclear power or dumping iron into the oceans) is that it doesn’t achieve their real aims. It would also reveal just how few people really believe in climate change, when the market price immediately dropped to near zero…

    Where there is a disagreement about economic costs or values, there is arbitrage to be made. If nobody is making money from it, that must be because there’s no disagreement.

  10. If you had a “carbon” tax where the revenue went straight back to the people (per capita payments) avoiding government spending completely; and you had a binding constitution that prevented government from ever pissing money away on other “carbon” related environmental projects, then it might be worth considering.

    But since neither (let alone both) of those will happen, then a “carbon” tax is big government’s wet dream of a tax – one on civilisation itself. You’ll have a “carbon” tax along with all the other tax-and-spend. “Carbon” induced climate change won’t ever go away, it will get “worse” so moar tax.

    If environmentalists being stupid is the only thing stopping this anorak-economist induced catastrophe, then we’ve finally found a use for stupid environmentalists.