Carbon Tax


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Source: Seattle Times

“The carbon tax is dead; long live the carbon tax” is the headline of Tyler Cowen’s Bloomberg column on the failed (again) Washington State carbon tax.  And rather decisively, per the picture on the left.

“Maybe its failure on the ballot in Washington state will inspire economists to come up with better arguments” challenges the subhead. I can’t resist.

The key question for a carbon tax is, what do you get in return? What do you do with the money? Washington’s carbon tax would have, according to the Seattle Times,

It would have taken effect in 2020, rising year after year to finance a multibillion-dollar spending surge intended to cut Washington greenhouse-gas emissions. The initiative reflected proponents’ faith that an activist government can play a key role in speeding up a transition to cleaner fuels.

The fee would have raised more than $1 billion annually by 2023, with spending decisions to be made by a governor-appointed board as well as the state’s utilities

Well, perhaps the voters of Washington State were not so much against a carbon tax per se, but had less than full faith that a large increase in green boondoggle spending by Washington State government was a good idea. They need only to look south at California’s high speed train to see cost-benefit analysis at work in dollars per ton of carbon saved.

And in fact it violates the whole idea of a carbon tax. The point of a carbon tax is to give people and businesses an incentive to figure out their own ways to cut carbon emissions. The whole point is not to fund big government projects. If you want to fund big government projects, you do it out of the broadest based and fairest tax you can find.

As Tyler suggested,

But maybe it’s time for a change in tactics. These new approaches might start with the notion that we can address climate change without transferring more money from voters to politicians.

Here are three ideas:

Idea 1: One answer is obvious: a revenue-neutral carbon tax. Use the carbon tax to offset other taxes. Tyler anticipates this with

The economist can respond, correctly, that a carbon tax will ease the path to greener outcomes, and that other taxes can be cut as recompense if necessary. But it seems right now there is not enough trust for such a grand bargain to be struck. 

Perhaps. But if the carbon tax were coupled with an explicit reduction in other taxes, it might help to convince people. If carbon taxes were coupled with elimination of other taxes, it would help more. Taxes are like zombies. If you just lower the rates they tend to come back. If you eliminate them entirely, perhaps requiring referendum for their reinstatement, there can be more trust. Couple the carbon tax with elimination of, say, state property taxes, income taxes, or sales taxes.

And in the end we all know taxes must equal spending. You can convince voters there won’t be more taxes if there isn’t more spending. Advertising the carbon tax as a substitute for carbon spending; simultaneously eliminating green boondoggles, would help to seal the deal.

Idea 2: The Baker-Shultz plan, or Americans for Carbon Dividends, (previous blog post here) has another bright idea: Send the proceeds back to the voters. Write everyone a nice check. This ensures that the money doesn’t go to boondoggles, and gives every voter a stake in keeping the scheme going. It is highly progressive, which Democrats should like.

I had a similar idea a while ago: Rather than a tax, give each American a right to, say x tons of carbon emissions that they can sell on a carbon market. That also gives everyone an incentive to vote for the system. And it states the issue squarely. You, a voter, are having your air polluted. You have a right to collect on that damage. It makes it clear that carbon is a fee, a penalty, not a “tax.” The point is to disincentivize the use of carbon, not to raise revenue for the government to spend. “Tax” is a loaded word in American culture and politics. Carbon rights takes the whole discussion away from “tax.”

Idea 3: Lastly, one could pair the carbon tax and fee with a trade: A hefty fee, in return for elimination of all the other carbon subsidies and regulations. To those who don’t believe in climate change: ok, but our government is going to do all sorts of crazy stuff. Let’s cut out the rot and just pay a simple fee instead. No more electric car subsidies — $15 k from taxpayers to each Tesla owner in Palo Alto — HOV lanes, windmill subsidies, rooftop solar mandates, washing machines that don’t wash clothes anymore (hint: do NOT buy any washing machine built since Jan 1 2018), and so on and so forth.

I think on the left the strategy has been to ramp up climate hysteria: if we just yell louder and demonize opponents more, the voters will buy it. No matter how much of a problem you think climate is, let’s admit that’s not working. In part the claims are now so over the top that everyone can tell it’s gone too far. No, the way to put out fires in California is not to build a high speed train.

When, in the name of science the IPCC writes things like this — right up front in the executive summary —

D3.2. …For example, if poorly designed or implemented, adaptation projects in a range of sectors can increase… increase gender and social inequality… adaptations that include attention to poverty and sustainable development (high confidence).  

D6. Sustainable development supports, and often enables, the fundamental societal and systems transitions and transformations that help limit global warming to 1.5°C. … in conjunction with poverty eradication and efforts to reduce inequalities (high confidence)…. 

D6.1. Social justice and equity are core aspects of climate-resilient development pathways that aim to limit global warming to 1.5°C… 

D7.2. Cooperation on strengthened accountable multilevel governance that includes non-state actors such as industry, civil society and scientific institutions, coordinated sectoral and cross-sectoral policies at various governance levels, gender-sensitive policies…. (high confidence). 

D7.4. Collective efforts at all levels, … taking into account equity as well as effectiveness, can facilitate strengthening the global response to climate change, achieving sustainable development and eradicating poverty (high confidence)

You can’t blame the suspicious Washington State voter from wondering if perhaps a larger agenda isn’t being financed here.

There is a sensible middle. Voters who want to do something about carbon, but not finance massive boondoggles or a collectivist progressive agenda. Environmentalists who want to do something about carbon that actually will work. Skeptics who understand, as long as we’re going to so something, let’s do it efficiently via a carbon fee rather than at massive cost as we are doing now.

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