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.