It is clear that we need to do something to confront climate change. Assuming you agree with the previous statement, please continue. If not, please read the footnote. So the question is: how to most efficiently reduce GHG emissions?
A carbon tax and a system of mandates designed by legislators are the leading options. If we let politicians design the code of mandates to reduce carbon taxes, the laws will be vulnerable to lobbyists, political groups such as the Iowan corn farmers, and the basic ignorance of Congressmen on the changing complications of energy technologies. For example, the past two years have seen politicians run towards ethanol as our savior, but the next two years will hopefully see legislators run away from ethanol even faster. The EPA has gradually learned that environmental problems are solved through markets much more efficiently than through mandates, which is why increasingly more of their regulations are designed around economic incentives rather than mandates. Our tax on SOx and NOx emissions reduced the emissions at much lower than the predicted cost, and proved to be the best example of how efficient a tax can be at achieving lower pollution. This is why Europe now is using a market to meet its Kyoto obligations.
A carbon tax, by raising the price of conventional power, would incentivize the supply renewable power like solar and wind. It would discourage the use of inefficient equipment, wasteful processes, dirty cars, and coal power.
The externalities produced by pollution should be internalized via a pricing scheme that makes polluters pay for the damages caused by their pollution. Just as we would want a company that ejects its toxic waste into a river to pay to clean it up, we should make companies that emit greenhouse gases into the atmosphere to pay for the costs they impose on society. Economists favor Pigovian taxes like a carbon tax because they tax a "bad" (e.g. pollution) rather than a "good" (e.g. income). The levy of a tax tends to reduce the production of what is taxed, so we'd prefer to tax pollution rather than income. In fact, the carbon tax can substitute for some of the income tax, payroll tax, or other taxes that tax "goods". Alternatively, revenue raised from the carbon tax can be used to pay for research for green technologies, reducing the deficit, bailing out social security, or other programs.
The common objections to a carbon tax are: 1) it would cost us too much to impose a tax on emissions. 2) A carbon tax will let the big polluters continue to pollute by simply paying more money. 3) Who would pay the carbon tax? 4) Would a carbon tax be regressive? I'll address each of these concerns.
1) Cost
To the contrary, there are a number of economic arguments for doing something now. First, prevention is usually cheaper than the cure. It would be far costlier to let climate change run its course than to try to stop it. According to the Stern Report, the effects of climate change may cost us 10-20% of global GDP, making it the biggest market failure in history, while the cost of avoiding that climate change will cost on the order of 1% of GDP. Second, because we've done so little thus far to reduce our carbon footprint, the first carbon reductions can be done at no--or even negative--net cost. Green buildings usually pay for themselves within a few years. California's Global Warming Solutions Act will reduce California's 2020 emissions to 1990 levels at zero cost, according to three separate studies1. Third, any emissions-saving technologies we put in place now will benefit us in all future years by lowering future emissions. The faster we move, the sooner we see the benefits. Finally, developing clean technologies will be a major driver of economic growth in the 21st century. Far from being a drag on our economy, clean technologies can be exported all over the world. If we hesitate in developing these technologies, Europe will steal a march on us, because they aren't waiting to develop solar power.
2) Big Polluters
The biggest polluters are not immune to economic incentives. If they find themselves paying the biggest share of the carbon tax, they will adjust their operations to reduce the tax they owe. They will either clean up or be forced to take on other projects to offset their emissions. And letting each company decide how to most cost-effectively reduce their carbon footprint will be more efficient than a one-size-fits-all system designed by Washington DC.
3) Who Pays?
There seems to be some confusion in how one would measure and administer a carbon tax. Really, it is quite simple in practice. Every fuel contains a known amount of carbon. A price on carbon emissions can easily be translated into a surplus fee on the sale of fuel, be it gasoline, coal, oil, or natural gas. The utilities that pay a higher fee for fuel would pass that fee onto the consumers. Consumers, seeing rates go up, would be encouraged to minimize their consumption, which is exactly the purpose of the carbon tax.
4) Do the poor pay more?
I don't know if a carbon tax would be regressive or progressive. While the poor may spend a larger fraction of income on gasoline, the rich may take more airplanes, have bigger (or multiple) houses, fancier electronic gadgets, larger SUVs, and buy more products that take energy to produce. According to one study, the highest earning quintile of American households would pay 3.6 times as much as the lowest quintile of a carbon tax, though the lowest quintile would pay a larger fraction of their income. If it turns out that the carbon tax is heavily regressive in practice, part of the funds raised from the tax can be transferred back to the poor in a reduced income tax on lower tax brackets or some such device.
References
1
- “Economic Assessment of Some California Greenhouse Gas Control Policies: Applications of the BEAR Model.” In Managing Greenhouse Gas
Emissions in California, ed. Michael Hanemann and Alexander Farrell, Chapter 2.
University of California at Berkeley: The California Climate Change Center. January. - California Climate Action Team: Climate Action Team Report to Governor Schwarzenegger and the Legislature. March.
- Center for Clean Air Policy: Cost Effective GHG Mitigation Measures for California: Summary Report. January 19.
Further Reading
The Case For Doing Something, Reason #144
As Jared Diamond writes in his recent NY Times article, as the developing world develops, they will consume more and begin to mimic the pattern of the first world. If they come to consume as much as the first world, the world consumption factor would increase by eleven times--equivalent to a global population of 72 billion people at current consumption rates. Optimists argue that we will be able to support the predicted global population of 8 billion in 2030, but we certainly cannot support an effective population of 72 billion people. Jared Diamond's book Collapse argues very effectively that the strains produced by the gap between the haves and have-nots leads to many of the geopolitical problems in the world today. In the future, as demand for resources grows, it will be very difficult to diplomatically allocate the resources without reverting to war. Hence, this year's Nobel Peace Prize was given to the panel studying and urging action to mitigate climate change.
If this still sounds far-fetched, Tom Friedman makes the point that the money we spend on gas goes to the Saudis. The Saudis are the biggest funders of madrasas in Pakistan and throughout the Middle East, and most terrorists come from madrasas.
1 comment:
this is terribly creepy of me. i thought you should know that you stole my url. but i'm glad you're putting it to good use. we should have been right at the heels of denmark and sweden on this one... although, it has but slowed their emissions output.
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