Editore"s Note
Tilting at Windmills

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February 12, 2008
By: Kevin Drum

CARBON TAXES....Carbon taxes are clearly a more efficient way of reducing greenhouse gases than a growing hodgepodge of environmental regulations, so it would make sense to quit adding regulations to the pile and instead enact a carbon tax, right? But we don't. Mark Thoma is puzzled:

Despite the economic superiority of taxes over mandates in terms of the efficiency properties, there is substantial public support for mandates such as CAFE standards over taxes, and mandates continue to garner enough votes in the legislature to pass and be signed into law.

Why might that be? In thinking about efficiency as the primary reason for promoting one policy over the other, I think we might be missing something important: equity. More choice is best most of the time, but when it's a matter of being constrained, of not being able to do something you want or need to do, people want that constraint on behavior to be shared equally — especially when it involves something as essential to daily life as energy.

....I don't think policies that allow certain segment of the population to "buy out" of the constraint will find much popular support. If the poor are passed by roaring, gas guzzling, sports cars on the freeway as they drive their gas saving, small hybrid, they won't feel that is fair.

Hmmm. There's probably something to this, but I wonder if the initial assumption is really correct? According to the boffins at the Carbon Tax Center, a couple of recent polls suggest otherwise: A Field poll in November showed 72% of Californians in favor of a carbon tax (though, amusingly, "this declines to 53% if the tax were to result in Californians' paying higher prices for goods and services") and a BBC poll found 74% of Americans in favor of taxing coal and oil as long as the revenues are earmarked for energy research. So Americans may actually be pretty open to the idea of a broad-based carbon tax.

Republican politicians, of course, are a whole different story. Greg Mankiw can yell "Pigou Club" until he's blue in the face, but as a Republican himself he knows perfectly well that it won't do any good because Grover Norquist and the Wall Street Journal editorial page will cheerfully eviscerate any Republican who dares to raise any tax of any kind, regardless of how efficient it is, what it's funding, or whether it's revenue neutral. So while transforming public opinion is always important, in this case a salutary drubbing at the polls for the GOP is probably more likely to move us in the direction of a sensible carbon policy. It certainly can't hurt, anyway.

Kevin Drum 1:46 AM Permalink | Trackbacks | Comments (60)

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Comments

Let them breathe carbon dioxide !

"Lack of awareness of the basic unity of organism and environment is a serious and dangerous hallucination." - Alan Watts

Posted by: daCascadian on February 12, 2008 at 1:56 AM | PERMALINK

Kevin,

Read Andrew Stein in Gristmill. There are times when efficiency standards are actually better than carbon taxes.

Posted by: Frank on February 12, 2008 at 2:20 AM | PERMALINK

I think also, that many people believe (and possibly rightly so) that instead of investing in alternatives, the tax will just be limped into doing business, and regular joes will have to pay it.

Which is something that we've been facing. Have you seen Chevrolet's line of 'efficient' and 'green' vehicles they have for sale?

1) I'll tell you it's more than $50K for it...
2) And there is only the one.
3) It gets worse gas mileage than my current, old-tech car. (Admittedly it carries 40% more passengers. That doesn't excuse 50% more fuel spent.)

Posted by: Crissa on February 12, 2008 at 2:22 AM | PERMALINK

Kevin: in this case a salutary drubbing at the polls for the GOP is probably more likely to move us in the direction of a sensible carbon policy. It certainly can't hurt, anyway.

Hmmm. I'd like to live in that country, rather than the one I do live in, in which the media takes any situation - even a salutary drubbing of conservatives - and ascribes to the a failure to be "more conservative".

Posted by: anonymous on February 12, 2008 at 2:44 AM | PERMALINK

and ascribes to the a failure to be "more conservative".

To the a failure to be ...? I have no idea where my brain went. Gah.

Posted by: anonymous on February 12, 2008 at 2:48 AM | PERMALINK

Crissa is right. It's a lot easier to pay the carbon tax and pass the cost along to consumers and/or move operations overseas than to actually reduce carbon emissions.

Nothing beats mandates.

aa

Posted by: aaron aardvarka on February 12, 2008 at 2:50 AM | PERMALINK

I am astounded to find myself in agreement with the libertarians on one aspect of this issue: the free market can sometimes allocate resources most efficiently.
Cap-and-trade lets us emit carbon what carbon we must emit where it has the most marginal utility, and lets us make other choices elsewhere a bit more rationally.
Markets fail where costs can be externalized; for example, cap-and-trade is a poor strategy for heavy metals such as mercury, lead, and cadmium (o thank you, Preznit W, for this our daily quicksilver) because it is morally wrong to knowingly poison people, even if they're poor.

Posted by: joel hanes on February 12, 2008 at 3:10 AM | PERMALINK

You support an organization which excluded Ron Paul from speaking. This in itself is against science at it's core.
Science is the search for truth. All science must include all circumstance. No ommission or fact or possible fact.
If by your own action you create an outcome then your science is flawed.
You know this!!!!!
So don't complain. You brought it on yourself. Let Dr. and I repeat DOCTOR Ron Paul speak. You may not agree with him, but science seeks truth and required all the facts to make a decision. Otherwise you live in belief and religion and not fact.
Look to your own for the problem and see your error of observation. You call yourself a scientist? hmmmmmmmmm
“..it does not require a majority to prevail, but rather an irate, tireless minority to set brush fires in people’s minds.”
— Samuel Adams
“With public sentiment, nothing can fail; without it, nothing can succeed. Consequently he who molds public sentiment goes deeper than he who enacts statutes or pronounces decisions.” — Abraham Lincoln
“During times of universal deceit, telling the truth becomes a revolutionary act.” — George Orwell
“The state can’t give you free speech, and the state can’t take it away. You’re born with it, like your eyes, like your ears. Freedom is something you assume, then you wait for someone to try to take it away. The degree to which you resist is the degree to which you are free…”
— Utah Phillips

quixotic quest

Posted by: Rob J on February 12, 2008 at 3:51 AM | PERMALINK

I'm not sure it's clear that carbon taxes will effectively reduce emissions. I mean, what are we proposing, taxes of 10%? 15%? 25%?

Consider that we've had a defacto gas price hike of 100% (from $1.50/gal to $3.00/gal) since the start of the Iraq war. Yet gas consumption has increased. And we still see car makers refusing to produce fuel-efficient vehicles unless beaten into submission with CAFE regulations.

So at what punitive level do the taxes have to kick in to produce significant change at a demand level in the market?

(And let's give President Bush due credit. No other politician could have introduced a gas tax of 100% in America - and sent the proceeds to Iran, Saudi Arabia, and Venezuela - and still be in office, with the support of Mr Norquist. Amazing. It's also possible that he actually will reduce greenhouse gas emissions this year, the old-fashioned way - with a contraction of the economy.)

Posted by: Max Power on February 12, 2008 at 4:40 AM | PERMALINK

You can thank Saint Ronnie Reagan for taxphobia – a man who knew virtually nothing about economics, despite majoring in it in college. I highly recommend the book,
Ten Excellent Reasons Not to Hate Taxes. In it, you will acquire knowledge to rebut the tax cut fanatics on the right. For instance, you have been taught that the Boston Tea Party was a revolt against high taxes – it wasn’t! It was actually a protest against tax preferences given to one of the first corporations, the East India Tea Company. Read it.

Posted by: The Conservative Deflator on February 12, 2008 at 5:55 AM | PERMALINK

On the whole, a carbon tax would work well, but consumers aren't always rational about these things. When buying cars, consumers often pay less attention to long term costs (depreciation, maintainance, insurance, fuel) than to the sticker price. The one advantage to CAFE is that it gives the producers a reason to decrease fuel usage without regard to whether the consumer cares.

The biggest problem with a carbon tax is that it may well increase the competitive advantage to foreign producers. Any carbon tax bill needs to address this.

Posted by: Tom on February 12, 2008 at 6:43 AM | PERMALINK

I think people underestimate the conservative distrust of government. My point is if conservatives actually believed the government would use the money for what it says it will...then maybe.

Most conservatives are wary when they believe that tax after tax gets used for purposes not originally intended even after any useful life is gone from even that purpose, let alone the original purpose. Or that programs continue beyond the demonstrable life of the project and the money is not returned.

In a sense it is the same distrust that some have for corporations (e.g. high CEO pay with no results etc...) but applied to the government.

Posted by: AMW on February 12, 2008 at 6:48 AM | PERMALINK

A Field poll in November showed 72% of Californians in favor of a carbon tax (though, amusingly, "this declines to 53% if the tax were to result in Californians' paying higher prices for goods and services"

Statistic of the month. Reminds me of my favorite West Wing line:

...but the people are speaking. Because 68% think we give too much in foreign aid, and
59% think it should be cut.

Posted by: Adam on February 12, 2008 at 7:34 AM | PERMALINK

Yeah, let's tax consumers to fight "global warming" --- while permitting the military to spew into the upper atmosphere metallic salts such as barium and aluminum oxide that promote "global warming." Makes sense to me.

Posted by: JeremiadJones on February 12, 2008 at 8:30 AM | PERMALINK

Efficiency standards (CAFE, light bulbs, etc.) have greater appeal because they don't do very much. Their overall cost is much lower. This is true even though their cost per ton of CO2 reduction is, of course, much higher.

Posted by: John Horowitz on February 12, 2008 at 8:38 AM | PERMALINK

Spending money on conservation, energy efficiency, and research is more important than where the money comes from. To actually control behavior with taxes they would have to be very high relative to todays costs.

Mass transit infrastructure, 100% rebates for home and rental unit insulating, competitive alternative energy research support (not based on political pork), . . .

With diminishing oil reserves and increasing costs these things make sense whether you believe in global warming or believe in doing anything about it.

If we actually wanted to do something about global warming we'd simply decide to leave some carbon in the ground. Maybe prohibit pushing mountains into rivers in West Virginia or make a conscious decision to not lease out federal coal and oil reserves elsewhere in the country (deep mines, deep water, environmentally sensitive areas, roadless areas, etc.). Energy prices might go up but that's sort of the point.

Posted by: B on February 12, 2008 at 8:43 AM | PERMALINK

The idea is to get rid of carbon emissions, right? Why not do both?

Posted by: mdeemer on February 12, 2008 at 8:47 AM | PERMALINK

I think also, that many people believe (and possibly rightly so) that instead of investing in alternatives, the tax will just be limped into doing business, and regular joes will have to pay it.

All taxes imposed on a business are passed towards the consumer. What makes the tax effect is whether or not the business is successful in passing them on.

If alternatives exist that are not economically viable, and the tax makes these alternatives cheaper, then that is one possible way of reducing emissions. Unfortunately, it is unclear whether this will lead to any research being done to make the alternatives cheaper, or whether they will just rely on the tax to support their business model.

Another problem is that, if there aren't any alternatves, then consumers have nothing to switch to. In this case the tax must ensure that the prices are high enough that they reduce the amount of consumption. Unfortunately, as we are seeing, taxes have to be really high for this to be the case, as most people will just drop discretionary spending before they drop energy costs. So this causes a lot of pain on the consumer.

Posted by: Walker on February 12, 2008 at 8:49 AM | PERMALINK


My guess is the poll reflects a willingness and desire to do SOMETHING about reducing greenhouse gases rather than supporting one scheme over another. The great thing is that we're having the conversation about it.

How unlike the GOP, large segments of which still deny global warming, deny evolution, deny National Intelligence Estimates on Iran (or Osama, for that matter), in fact, deny anything supported by data or people who have actually studied the issue.

Posted by: Nat Felton on February 12, 2008 at 8:58 AM | PERMALINK

Another problem is that, if there aren't any alternatves, then consumers have nothing to switch to. - Walker

Exactly. The whole argument for taxes over regulation is that they preserve the conservative sanctity of "choice" for consumers to "choose" a lighter vehicle instead of a heavier one. If that choice doesn't exist then you aren't being very effective at reducing transportation fuel usage. If you make the taxes progressive and rebate part of them back to the working poor that just partially removes the incentive to buy a lighter vehicle.

Posted by: Doc at the Radar Station on February 12, 2008 at 9:24 AM | PERMALINK

Another problem is that, if there aren't any alternatives, then consumers have nothing to switch to.

In what hypothetical world do alternatives not exist?

We cannot be talking about commuting -- MOST commuters have the option of (at least one of) mass transit, car-pooling, working from home, getting a smaller car, getting a motorcycle/scooter, riding a bicycle. And remember, the game is reduction, not religion, so even if you only do the efficient thing half time, that's better than not at all.

We cannot be talking about home heat. Alternatives including upgrading windows, adding insulation, changing to a heat-pump (ground-sourced is supposed to be better, I understand), adding solar, wearing a sweater, adding a wood stove. I'm sure that there's people who lack a themostat with a time schedule; that helps, too.

We cannot be talking about food. Most of us could eliminate beef and pork from our diet (a carbon tax would spike the prices of these two foods); chicken is an alternative.

We cannot be talking about lighting. You can switch to fluorescent if that floats your boat, or (real soon now, and this time for sure) you can switch to LED lights. They're already a worthwhile alternative for undercounter lights.

So what on earth are you talking about? We've got alternatives out the kazoo, what we lack is the motivation to get off our fat asses and use them.

Posted by: dr2chase on February 12, 2008 at 9:55 AM | PERMALINK

Doc,
Would consumers who are given a rebate (to make the tax less regressive and/or tax neutral) really just go on consuming as much as today? Any rational actor would look at the marginal utility, and cut anyway. That way they get the satisfaction of gaining financially from the tax/rebate change.

Posted by: bigTom on February 12, 2008 at 10:11 AM | PERMALINK

Companies that could buy their way out of these regulations would. They do it all the time. Companies factor in the cost of fees/taxes/fines/legal judgments for bad behavior, and usually conclude it's cheaper to keep behaving badly than to clean up their acts.

Unless they're forced to do so, they generally won't.

And yes, there is something inherently unfair about letting big players -- the biggest environmental offenders -- keep polluting while smaller companies who can't afford the taxes have to come into line.

Posted by: sullijan on February 12, 2008 at 10:16 AM | PERMALINK

Let's not stray from the point: what sort of policy actions will actually reduce greenhouse gases and oil dependency?
The answer, it seems, that many of us have come up with, is with Mandates, contrary to the thesis of this posting. I think we can all agree that taxes will be passed on to the consumer, but worse than that, they become the easy target for anyone opposed to raising standards. People will rally against raising taxes like no other political cause, heck, the GOP party platform has basically been built on it.
Mandates, however, require real action, cannot be passed to the consumer, and hopefully, can't be shuffled around (the foolish policy of selling carbon credits comes to mind).
The CAFE standards, for instance, worked marvelously, and just when we achieved the unachievable, we quit, and rolled those standards back to a point of embarrassment! American engineering is more than muscles and horsepower, and we need to make some standards that will prove it.
Also, before someone uses this against me, I agree that the horse trading that existed with the old CAFE standards was a poor policy, and fuel mileage should meet minimum requirements for each vehicle in the fleet - not just an average between all of them.
Does anyone have Jimmy Carters phone number?

Posted by: bindleson on February 12, 2008 at 10:34 AM | PERMALINK

"Equity" is a rationalization, an intellectual argument for why consumers might not want to pay higher prices for gasoline.

The problem with it is that most consumers just don't want to pay higher prices for gasoline. They don't because they are used to gasoline being inexpensive, and because they have stranded investment -- in the form of low-mileage cars -- made because they expected gasoline to remain inexpensive. The same applies to heating oil, propane and natural gas (with the qualification that homes and many commercial buildings don't normally need to be replaced or used less to reduce their energy consumption).

This is not a difficult circumstance to understand. Politicians who insist on never telling the voters anything unpopular reinforce voters' unwillingness to support policy steps that they know are likely to inconvenience them. Credit where it's due, then-Vice President Gore badgered the Clinton administration into proposing a small carbon tax as a budget-balancing measure in the early 1990s, when the federal deficit was thought to be an urgent problem requiring immediate redress. Nothing has been heard of the idea in Congress or from the major Presidential candidates since.

It isn't because politicians are wringing their hands about equity; it's because they don't want to be associated with unpopular ideas. The only more straightforward fact of political life than this is the fact that some problems cannot be addressed only by avoiding unpopular ideas.

Posted by: Zathras on February 12, 2008 at 10:38 AM | PERMALINK

Kevin wrote: "Carbon taxes are clearly a more efficient way of reducing greenhouse gases than a growing hodgepodge of environmental regulations ..."

It is not at all "clear" that carbon taxes are "more efficient" at reducing greenhouse gases than regulation. However, that's a common talking point by emissions-intensive industries who don't want mandatory emissions limits and prefer a tax scheme that will allow them to "game the system" and avoid making any actual reductions.

And "a growing hodgepodge of environmental regulations" is word-for-word Bush administration propaganda against the emissions regulations proposed by California and agreed to by multiple other states, which go far beyond the feeble and useless proposals coming from the Bush EPA.

Unfortunately it is not surprising to find Kevin embracing right-wing corporate Bushist talking points on this subject. The talking points that he recites here are just as bogus as the "Social Security crisis" rhetoric that Kevin rightly criticizes Senator Obama for embracing.

Posted by: SecularAnimist on February 12, 2008 at 10:40 AM | PERMALINK

We do need a carbon tax.

It is far better than CAFE standards and virtually every other law and regulation in reducing CO2, in reducing dependence on foreign oil, on helping alternative energy, etc.

Why can't the Democrats come out with a decent plan?

Posted by: neil wilson on February 12, 2008 at 10:44 AM | PERMALINK

I am with Crissa and others on the board. Carbon tax is not an incentive, and if it is it will have a negligible impact. The cost will just be passed on to consumers and the disincentive will not be high enough to change the behavior of the biggest offenders. This is probably why it gets some political traction. Sadly these "economically acceptable" measures are just window dressing solutions for politicians and the polluters who support them. They delay, or externalize, the inevitable cost of putting more carbon into the atmosphere.

Enlightened government and sound leadership would address the challenge head on and put mandates in place that limit the burning of fossil fuels. At the same time responsible government would invest- it takes tax money- in alternative energy infrastructure R&D.

But Americans don't do infrastructure anymore; they do for-profit service industry instead. Like health care, consumers still pay they just get less for more money. Global warming is too important and too catastrophic to be decided by schemes that are "economically acceptable" to the prophets of neoliberalism.

Posted by: bellumregio on February 12, 2008 at 10:53 AM | PERMALINK

"Why can't the Democrats come out with a decent plan?"
Posted by: neil wilson on February 12, 2008

So long as the Big Money controls America the politicians will 'stay bought'. They don't bite the hand that feeds them.

Only when there's a disaster will corporations need government to do something to help them, then government will move along quickly.

Don't expect too much of the Rich. They focus on making money and things like environmentalism don't interest them or move them.

Posted by: MarkH on February 12, 2008 at 10:54 AM | PERMALINK

Carbon taxes are clearly a more efficient way of reducing greenhouse gases than a growing hodgepodge of environmental regulations

The Washington Consensus is a Twentieth Century delusion. A srong regulatory regime is the best way to prevent environmental destruction. Capitalists and the mafia will dump noxious waste in your children's playground if they are allowed to police themselves. That is a way to accomplish market capitalization, but moderates are wrong to think it is the best way. Strong rules make for better markets and better societies.

Posted by: Brojo on February 12, 2008 at 11:00 AM | PERMALINK

While at first glance a carbon tax doesn't appear to be a bad idea, the problem is that it creates a disinsentive for government to reduce consumption. Reduced consumption results in lower tax revenues. It's just classic politics and human nature; you can't get around it.

Cap and trade schemes also may appear to be a good idea, but the fact is they just don't work. The "cap" basically assures that emissions stay at current levels, while the "trade" stifles innovations in reducing emissions. It's cheaper to buy the right to polute than to invest in new technologies.

Posted by: Dave Brown on February 12, 2008 at 11:13 AM | PERMALINK

Rather than as a "tax increase," I believe Mankiw advocates shifting a portion the tax base to a carbon tax - lowering some taxes in proportion to the newly imposed carbon tax. The impact on state revenue would be neutral though there would be an incentive away from carbon emissions...

Posted by: jackifus on February 12, 2008 at 11:18 AM | PERMALINK

Carbon taxes are more efficient at reducing emissions, comments above notwithstanding. The problem is that you don't know how much a given tax level will reduce those emissions. If a tax of 20% results in a 5% reduction in emissions, then it will be more efficient than a hodgepodge of legislation that achieves a 5% reduction in emissions (note: both the tax and the legislation achieve the same reduction in emissions, the tax allocates the cost of achieving that reduction better across the economy.)

However, the problem is that, if we want to reduce emissions by, say, 20%, it could take many, many years of trying different tax rates, waiting until they have made their effect clear, revising the tax rate, etc., until we get close enough to our goal to be satisfied. Meanwhile, the economy is messed up because the tax rates keep changing in unpredictable ways (if they were predictable, they would have been set to the "predicted" level right off.) So if you want to achieve an X% cut in emissions, legislation will a) get you there far more quickly, and b) will not be as relatively inefficient as would appear from trying to match legislation to a tax cut's effect. In fact, it's entirely possible, and mathematically provable, that apparently inefficient legislation can actually be more efficient than a tax which keeps jumping around until people get the tax level to the point where it achieves the same emissions cut as the legislation.

Posted by: john on February 12, 2008 at 11:21 AM | PERMALINK

MarkH,
I have to disagree. Many rich people are quite concerned about the environment. It is the rich who have time This is not class struggle per se. The consensus, even among CEOs, is that global warming is real and catastrophic if not addressed. Many corporations have spoken out. There are some industries like oil, coal, energy and automotive that want to stay with the lucrative status quo. These people work to obstruct any political action that would alter their gravy train no matter what the cost to humanity and our fellow travelers on this little planet.

It is true that many elites, particularly in the US, have become convinced that neoliberal-no-mandate-nothing-no-governmentism-so-we-are all-free-free-freeism is the solution to everything, but this stupidity is not universal. Thinking people, thinking business people, want to see leadership on global warming and the results that come with it. Decentralized laissez-faire will change nothing.

Posted by: bellumregio on February 12, 2008 at 11:23 AM | PERMALINK

re: carbon taxes not incenting reduced consumption.

I agree that the government would not want its new found revenue to decrease.

However, in their never-ceasing quest to maximize shareholder value, companies WILL minimize expenses. If carbon emissions are an expense, companies will try to lower that expense unless those companies exist without competition... then mandates would have to come in to play.

In Germany, ( others will know better ), they tax product packaging. Consequently, you don't find the bags within boxes within bags that you do here in the states. Tax incentives do work. Though in an environment without competition, mandates are necessary.

Posted by: jackifus on February 12, 2008 at 11:25 AM | PERMALINK

Brojo: Capitalists and the mafia will dump noxious waste in your children's playground if they are allowed to police themselves.

I wish he was wrong, but he isn't. I've had tanker trucks pull up to an empty field adjoining my property and just dump. The one time I saw it, and called the cops, it was "only" raw sewage. There are worse things.

Posted by: thersites on February 12, 2008 at 11:28 AM | PERMALINK

And it wasn't the Mob. The truck belonged to a "legitimate" business.

Posted by: thersites on February 12, 2008 at 11:40 AM | PERMALINK

The Free Market is the ONLY force that can solve this problem:

People will continue to spew carbon (no matter what laws we try to pass), until our global environment is altered such that it no longer sustains 6+ Billion Humans. (take a look at wheat futures lately?)

There will be a mass die off.

Carbon problem solved.

If humans were smart enough to self-regulate, and solve this problem on their own, they'd have begun already (instead of just a few enviro-whack-jobs living off-grid in the hills).

But human beings are not smart enough.

I'm just the messenger.

Nature will deliver the real message, soon enough.

Posted by: osama_been_forgotten on February 12, 2008 at 11:47 AM | PERMALINK

neil wilson wrote: "... a carbon tax ... is far better than CAFE standards and virtually every other law and regulation in reducing CO2"

john wrote: "Carbon taxes are more efficient at reducing emissions, comments above notwithstanding."

What I see here is argument by assertion. Where is the actual evidence that carbon taxes are "better" or "more efficient" than "every other law and regulation"?

And note that I am not asking you to expound some theory according to which carbon taxes ought to be or will be "better" or "more efficient" at reducing CO2 emissions.

I am asking that you provide actual evidence to support your assertion that carbon taxes are better -- not "should be better" or "will be better" according to some theory, but that they actually are better as you have asserted -- than regulation.

You know, there was a very simple and straightforward and very successful regulatory approach to the problem of lead emissions from leaded gasoline: leaded gasonline was banned. Not limited, not "regulated", not taxed, but simply banned. Very "efficient", and very effective.

Posted by: SecularAnimist on February 12, 2008 at 11:49 AM | PERMALINK

Here here, jackifus.

There's been a lot of talk on this string of companies passing on any tax costs to consumers. This is a misunderstanding of the role of prices in a market economy. The price a consumer pays for goods and services is far more than a function of cost - it also has to do with substitutes, competition, marketing, local market conditions and a whole host of other parameters.

Companies pass on costs, to be sure, but that it not to say that they are indifferent to price. By raising the marginal price of carbon emmissions, companies that reduce emissions stand to gain more financially under a carbon tax system than under the current system. Particularly as companies build new plants and infrastructure, they'll factor in emissions costs. Since they'll save more, they'll be able to pass these savings on to customers (in order to undercut competitors.) A carbon tax, and hopefully a sizable one, will reduce emissions.

Stop echoing the fallacy that companies always and in all cases pass on costs to customers.

As a republican, I hope that McCain, who has the political courage to buck the party when the party needs bucking, works towards the tax. Maybe Grover Norquist would be satisfied by a simple exchange - corporate tax for carbon tax? Not that the readers here are interested in the Republicans byzantine debates....

Posted by: rjack on February 12, 2008 at 11:49 AM | PERMALINK
.... Many rich people are quite concerned about the environment.....bellumregio at 11:23 AM

When it comes to coping with global warming, their best plan is to buy land in Paraguay

The land grab project of U.S. President George W. Bush in Chaco, Paraguay, has generated considerable discomfort both politically and environmentally....
Argentinean Adolfo Perez Esquivel warned that the real war will be fought not for oil, but for water, and recalled that Acuifero Guaraní is one of the largest underground water reserves in South America, running beneath Argentina, Brazil, Paraguay and Uruguay (larger than Texas and California together)....

A carbon tax will just become another inflationary price increases like increases the price of gasoline. Real change will have to be mandated.

Posted by: Mike on February 12, 2008 at 11:49 AM | PERMALINK

"Taxes vs Regulations" is simply debating if the deck chairs on the Titanic would be better on the port or starboard side.

We have a global economy based on converting energy to goods and services (and CO2 and garbage). Increased efficiency at that will simply result in higher conversion rates. Our global economy is in a race to the end of cheap energy.

Regulate US businesses and the worst polluters will move to China if they already haven't. Tax US businesses and some of their production will also move offshore. Increase the US energy efficiency by 100% overnight and the savings will simply be invested into new "opportunities" to make money, meaning more conversion of energy to goods and services.

There is no cutting this Gordian knot. It would take a significant permanent shrinking of the global economy and that will not happen until key resources are used up.

Posted by: Tripp on February 12, 2008 at 11:51 AM | PERMALINK

osama_been_forgotten,

Nature will deliver the real message, soon enough.

Yeah. Corn prices are now up because we are beginning to burn our food as fuel.

The real problem is that there is no viable alternative to capitalism and capitalism is not sustainable either. Also we have exported capitalism around the globe and as we know from growing crops mono-cultures are prone to catastrophic failures.

Essentially we have harnessed human greed and we will see the results of that.

Looking back to before we had cheap rock-oil I'm guessing the sustainable population will be maybe two billion. The question now is who is going to die?

I'm just the messenger too.

Posted by: Tripp on February 12, 2008 at 12:02 PM | PERMALINK

Here's my passive aggressive proposal:

Require all drivers who drive a vehicle over a certain weight or that holds more than 5 passengers, let's say, to pass a behind the wheel test and get a special driver's license. Who wants to spend hours at the DMV just to drive a tank? We can use people's laziness to our advantage. And no taxes and no mandates.

Posted by: arksnark on February 12, 2008 at 12:19 PM | PERMALINK

SecularAnimist:

I am not sure you read my entire post, which actually was explaining how legislation could be better in practice than taxes while at the same time taxes can be more efficient than legislation.

To address your question, which is an excellent one, directly:

Economics is not just mathematics and abstract theory. There is in fact a huge body of applied research as well. The empirical question of whether prices in a relatively competitive economy do result in better allocations of resources than legislation does has been long settled, and for the most part they do. The breakdowns occur mostly in situations where there is a near-monopoly or monopsony (very few buyers); then the individuals or firms have enough individual power to break the system. Other situations are where there are high amounts of risk, which people are very poor at evaluating and pricing, and large asymmetries in information (about the product) known by the seller and the buyer. There are others, but they don't seem applicable here. (Hence the value of anti-monopolistic legislation, were it actually to be enforced, the SEC, and product liability laws, respectively.)

You are raising an excellent point, but as it happens I can't see a carbon tax falling into any of the "breakdown in the efficient market economy assumptions" categories. In the real world, grit in the wheels of the economy means that the market isn't as efficient as it appears in (simplified) theory. Still, legislation somehow manages to be much worse in practice, unless it is aimed directly at something that causes a breakdown in the market, such as monopolies or sellers who lie to the buyers about the product.

Posted by: john on February 12, 2008 at 12:55 PM | PERMALINK

I was under the impression we had taxes on gasoline (US average $0.42). You mean more taxes specifically called a carbon tax? Sounds like a good idea.

http://www.energy.ca.gov/gasoline/statistics/gas_taxes_by_state_2002.html

Posted by: Luther on February 12, 2008 at 12:56 PM | PERMALINK

What if the $ was put into something like this:

Scientific America's Solar Grand Plan

"A massive switch from coal, oil, natural gas and nuclear power plants to solar power plants could supply 69 percent of the U.S.’s electricity and 35 percent of its total energy by 2050."

Cost: $420B in incentives over 40 years. By comparison, the Iraq war has cost $1500B so far.

"The $420 billion could be generated with a carbon tax of 0.5 cent per kWh. Given that electricity today generally sells for six to 10 cents per kWh, adding 0.5 cent per kWh seems reasonable."

Posted by: Bruce the Canuck on February 12, 2008 at 1:40 PM | PERMALINK

Lead in gasoline did not cause a breakdown in any markets, it causes a breakdown in the neurological systems of children, though. Legislating lead out of gasoline caused little hardship and cost very little to the consumer and business. Likely the benefits of less lead in our children far outweighed any profits lead provided to any businesses. That will almost certainly be true of less carbon dioxide in our atmosphere. Less green house gases will lessen climate change, and provide much more benefits than the opportunity costs of removing them from our daily lives. That some of the benefits do not end up on corporatate balance sheets is the obstacle that must be overcome. The best way to do that is through the social contract of regulation, not markets.

Posted by: Brojo on February 12, 2008 at 1:46 PM | PERMALINK

Bruce the Canuck,

35 percent of its total energy by 2050.

Notice how they cannot come out and state this in simple language. We need to invest $420B so we can shrink the US economy 65% by 2050.

Actually the world economy would shrink 65% by 2050.

I'm all for investing in solar and wind, but we should not fool ourselves by thinking we can avoid the world economy shrinking by 65% or more as we switch from oil.

Posted by: Tripp on February 12, 2008 at 2:03 PM | PERMALINK

john,

Economics is not just mathematics and abstract theory. There is in fact a huge body of applied research as well.

You sound well versed in economics. What does the research say happens when an economy is based on a finite resource which is used up and can't be replaced?

Posted by: Tripp on February 12, 2008 at 2:06 PM | PERMALINK

There's another way-- Obama & Clinton are 2/3rds of the way there: Cap Emissions & Auction off the permits. That creates a cost on carbon that is set by science (getting to 80% reductions by 2050) and not the politicians.

And give the money back to the public!

From the NY Times!
http://dotearth.blogs.nytimes.com/2008/01/02/paying-the-high-cost-of-climate-control/

Posted by: Sam on February 12, 2008 at 2:30 PM | PERMALINK

Well, if the technology paths for substitutes are known with a fair amount of certainty, and the amount of the resource is known with a fair amount of certainty, the pricing mechanism will do a good job of trading off between everything. In the case of oil, though, the technology paths (efficiency, cost, etc.) are in general not known 20-40 years out with any degree of precision, and how much oil / extraction costs aren't known all that precisely either, so the market mechanism isn't likely to work too well. Unfortunately, legislators don't know more than anyone else. All you can hope for is legislation that will reduce risk of future collapse (Easter Island), e.g., high gas taxes + massive investment in alternative technologies. It's inefficient from an "if we knew everything" point of view, but can be very efficient from a avoiding economic catastrophe point of view.

Posted by: john on February 12, 2008 at 2:34 PM | PERMALINK

Tripp>Notice how they cannot come out and state this in simple language. We need to invest $420B so we can shrink the US economy 65% by 2050.

Uh, no. Also, holy s*** are you paranoid.

Currently, about 7% of the USA's electricity comes from Hydro, and 20% from nuclear. If those percentages stay the same, that accounts for 96% of electricity generation. Throw in a bit more for wind, add some superconducting technology, scale it up for increased consumption, it's in the ballpark.

The bulk of the remaining energy use is in areas where carbon might be captured, or oil for transportation.

Believe it or not, we're in reach of battery-electric vehicles that have a 3 hour range and charge in 15 minutes. They also consume 1/4 the energy of a gasoline car, making the whole argument about "just moving the pollution to a power plant" void. Even if you burn coal to make the electricity, it saves.

At that point we're done, within spitting distance of the most "extreme" (ie Conservative) goals for cutting carbon emissions.

The concept is called "wedges". You don't need a single fix-all solution. You apply through policy a series of solutions, each taking a gradually increasing wedge out of the problem, until the problem is not a problem, 30 years on.

Energy does not equal economy. It decoupled from GDP in about 1970. It's mostly an aesthetic issue now, IMHO. Some people have an attachment to a certain style of conspicuous consumption; hummers over hybrids, bayliners over sailboats. That's not a sufficient reason to "eat the future".

The future outlined will look different, it will feel a bit different. Most people won't even notice. The GDP per capita will be the same, but we'll buy slightly different stuff, and the world won't be half-wrecked for a thousand years.

Posted by: Bruce the Canuck on February 12, 2008 at 2:51 PM | PERMALINK

john: if the technology paths for substitutes are known with a fair amount of certainty, and the amount of the resource is known with a fair amount of certainty

You left out an essential "if" - if everybody knows what everybody else is going to do. If 90% of the people are going to stop using oil, then I've got more time to play with. Methinks the fancy name is game theory, but I prefer to call it playing chicken.

While "90% of the people are going to stop using oil" is an extreme condition, more likely scenarios affect a carbon tax.

For example, car manufacturers can't be certain how consumers will react to a carbon tax. Furthermore, for any approach beyond "smaller and lighter" (important but not everything) they can't be certain how well the technology will work or how much it will cost until it's at least close to production. These uncertainties can take a lot of time to play out.

Bottom line: if you really want somebody to move, you can tax them for not moving or you can just light a fire under their asses and watch them jump. The former may work, but the latter is guaranteed (try it sometime).

Emission and safety regulations were implemented that way. For all the whining and complaining the car companies did, once told they had to meet certain regulations or go out of business, they did it.

I'm not adamantly opposed to a carbon tax, but the marvels of market efficiency are sometimes too slow and uncertain to play out. This is especially true when the price changes are arbitrarily imposed, as with a tax. The problem with the rats in this economic lab experiment is they know they have a vote.

Posted by: alex on February 12, 2008 at 3:15 PM | PERMALINK

Bruce,

Thank you for the response. I appreciate it.

I know all about wedges, but they simply do not add up. Your own proposal states that solar can supply 35% of the US energy usage by 2050. Does that assume an expanding economy, or is that 35% of what we use today? Assuming that is true, is that also true for global energy usage?

Secondly, sadly, to a great degree during the industrial age energy does equal economy. How do you think all that 'increased productivity' happened? With the exception of speculative bubbles the global economy has grown because we have found new and better ways to use cheap energy. How do you think we can feed everyone in the world? Have you ever seen an Amish farm? I have.

Did you know that fertilizers are used world wide to increase yield and are made primarily from natural gas? In the Rift valley - the 'breadbasket' of Kenya, they use fertilizers. All the food production is the world relies on fertilizers.

How can you say that since the 1970s our economy is detached from energy usage? Maybe if you ignore our food production (our last remaining export) and the manufacturing that we simply moved overseas. Mining operations aren't. The global economy is certainly based on energy usage.

Are you claiming that the increase in US and worldwide demand for oil is due simply to conspicuous consumption?

WE are going to be giving up more than our luxuries before this is done. Well, I mean globally. The rich will be behind their barricades giving up nothing.

Posted by: Tripp on February 12, 2008 at 3:36 PM | PERMALINK

Bruce,

I may have missed one of your points. I do agree that we could capture much of the carbon. If we did that global warming would not happen much before the oil ran out.

But as to calling me 'paranoid' - would that I were. Look around at what is happening in the world that makes no sense. See where the explanations don't fit. Draw your own conclusions.

Posted by: Tripp on February 12, 2008 at 3:40 PM | PERMALINK

Bruce the Canuck, Thanks for the Sci-Am link. Great reading. I think we can do it and we will, Huzzah!!

"Solar energy’s potential is off the chart. The energy in sunlight striking the earth for 40 minutes is equivalent to global energy consumption for a year. The U.S. is lucky to be endowed with a vast resource; at least 250,000 square miles of land in the Southwest alone are suitable for constructing solar power plants, and that land receives more than 4,500 quadrillion British thermal units (Btu) of solar radiation a year. Converting only 2.5 percent of that radiation into electricity would match the nation’s total energy consumption in 2006."

Warren Buffett isn't also investing billions into wind farms for nothing.

Posted by: Doc at the Radar Station on February 12, 2008 at 9:58 PM | PERMALINK

One popular solution might be to use a high carbon tax to replace the SS payroll tax.

While we're at it, anyone who manages to get a tax package through Congress totally eliminating corporate subsidies and using the savings to raise the standard income tax deduction to $30,000 will guarantee his party a lock on power for a generation.

Posted by: Kevin Carson on February 13, 2008 at 1:53 AM | PERMALINK

Max Power

You've nailed an important issue on carbon taxation.

In the electric power industry, where there are several ways to skin a cat/ low cost of substitutes, a carbon tax is likely to bring significant shifts away from carbon emissions. The price elasticity of carbon emission in electricity is very high.

35-40% of US carbon emission is electric power, and 80%+ of that emission is coal (for about half the power produced in total). So a relatively simple relative pricing shift is likely to bring big reductions in greenhouse gases.

(lots of complexities about the tradeoffs between more conservation, more gas, more wind, more nukes)

In automotive transport, substitutes are few. The price elasticity of demand is very low in the short run (near 0). The price of gas goes up, and people just spend less money on other things.

In the long run, the evidence is the price elasticity is much closer to 1 (0.4 to 0.7 I believe) ie people do buy more fuel efficient cars. However the income elasticity is positive (more income, more Vehicle Miles Travelled, and nicer cars). VMT rises with GDP, roughly, with only a break in the early 80s (the recession and high unemployment meant roughly 1/10 Americans was not driving to work every day, or the mall).

You have seen a shift in driving habits towards more fuel efficient vehicles, but it's not been huge. Nonetheless, the size of the average SUV has shrunk, and small cars have picked up market share. One of the main reasons for the continuing plight of Detroit.

The biggest problem with no CAFE is that very large, very fuel inefficient cars get built. The median car life is 12 years (and 3 owners, I believe). So those big, fuel inefficient cars are still out there, being driven by the poorest of people (because they are so inefficient, they have high depreciation rates).

If you look at the wikipedia on CAFE (which is edited to condemn CAFE as ineffective) you see that despite the fall in energy prices in the 1990s, the US fleet fuel efficiency stayed relatively high (despite the SUV boom). Government policy was effective in ensuring Americans continued to drive efficient cars, even when their personal choices might not have led them to that.

But the short answer is we can't rely only on the price mechanism, given the magnitudes of the price increase-- the wealth effects would be too large.

Just as in a drought we can't let the rich water their lawns, just because they can afford to.

2 years ago, when London was facing the worst drought ever recorded, the people of East Sussex (rural county about 40 miles SW, with the richest population in the UK) were looking at trucking in their water so they could wash their cars, fill their swimming pools etc.

These are the kinds of bitter social fights we will face, as we enter the world of global warming.

Posted by: Valuethinker on February 13, 2008 at 2:46 AM | PERMALINK

Re conservative lack of support for carbon taxes. This is one of the sad side-effects of the fact that conservative movement pundits put politics ahead of honesty. The movement position is, and has to be, "we can't raise any tax under any circumstances." But, many non-movement conservatives, particularly economists (and even C Krauthammer!), recognize that a carbon tax makes sense on conservative principles. If we really want to reduce consumption - and even some movement conservatives recognize that limiting imports and curbing greenhouse gases are important goals - a tax is the most efficient, market-friendly way to go. (It would also lower commodity prices, which will wrest money from Chavez's and Achmadinejad's coffers.) Thus, the Economist magazine is a big proponent, and while I can't recall any specific names now, many other conservative economics professors agree. In fact, I'm not aware of any conservative outside the conservative movement who doesn't think carbon taxes would be beneficial.

Posted by: Geoff G on February 13, 2008 at 1:36 PM | PERMALINK
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