The old joke is that if you put all the world’s economists end to end they still wouldn’t reach a conclusion. That’s another way of saying that economists routinely disagree with each other—often completely.
Nonetheless, much of the public and many journalists treat a recommendation from a group of economists like the word from Mt. Sinai—as long as they agree with it.
That kind of response was widespread when, as the Wall Street Journal recently reported, a group of economists signed a statement emphasizing that “Global climate change is a serious problem calling for immediate national action.” Among the signatories were some prominent conservative economists, including Paul Volcker, Alan Greenspan, Ben Bernanke and Martin Feldstein.
The statement calls for a carbon tax, arguing that it should be revenue neutral, so as not to provide justification for increasing the size of government. To achieve that, the statement argues for returning the revenue from the CO2 tax to all citizens through equal lump-sum rebates.
A carbon tax, according to these economists, would correct a well-known market failure: firms are not required to pay for their carbon dioxide (CO2) emissions in spite of the fact that they impose costs on everyone by contributing to global warming.
The first problem with the proposal is that these economists ignore the benefits everyone enjoys from increased CO2 in the atmosphere through increased plant growth—and thus more abundant and affordable food. If “market failure” justifies taxing an activity for its hidden harms, does it also justify rewarding it for its hidden benefits?
Even if increased CO2 has a net harmful effect, the proposed tax still has serious flaws. Among other things, the proposal has three main flaws:
(1) It would cost low income households much more than they are likely to get back in rebates,
(2) It is based on a simplistic view of the way the political process works,
(3) It will likely have an imperceptible effect on total CO2 in the atmosphere, since other large energy using nations, such as China and India, are not likely to implement a similar tax.
The proposed tax with accompanying rebates may be government revenue neutral, but it cannot be household revenue neutral. The intent and impact of a CO2 tax is to raise the price of coal, natural gas, and gasoline so that households and firms will switch to higher-priced wind power, solar power, and electric vehicles powered by wind and solar. When this happens, consumers will be purchasing wind and solar power that is much more expensive than what they presently pay for coal, natural gas, and gasoline. Consumers will therefore be forced to spend substantially more money on energy and energy-related bills—and less on everything else. Yet the wind and solar industries will pay no carbon dioxide taxes.
Thus a “successful” carbon dioxide tax that dramatically reduces carbon dioxide emissions will collect little tax revenue and will return little money to the American people. Households would see dramatic declines in discretionary income as a result of their uncompensated higher energy bills.
A carbon tax would be particularly burdensome for low-income households. A 2012 study by the Brookings Institution and the American Enterprise Institute estimated that a tax of $15 per ton of CO2 would cost the poorest 10 percent of Americans 3.5 percent of their income.
Political reality suggests that if a tax on CO2 is implemented, it will not work the way many who signed the statement would like it to work. Either proponents on the left, in spite of promises to the contrary, would combine it with other regulations designed to advance their agenda, or interest groups lobbying on behalf of energy-using industries would water down its provisions, which would render it ineffective without a much higher tax rate.
The prediction that it would be watered down by interest groups is consistent with a carbon tax proposal included in a recent referendum rejected by voters in the State of Washington. “That tax would have exempted aviation and maritime fuel as well as ‘energy intensive, trade-dependent businesses’ such as steel plants, aluminum producers and pulp and paper mills.”
The rising atmospheric concentration of CO2 is the result of the combined emissions from countries all over the world, not just America. Developing countries, such as India and China, are highly dependent on energy-intensive manufacturing for their growing economies and are not likely to implement a CO2 tax that would raise costs and make it harder for them to compete in the world economy, their essentially do-nothing “commitments” to the Paris climate accord notwithstanding.
Every country has an incentive to free ride and let other countries’ residents but not their own bear the costs of a carbon tax. They would like their own residents to share in the benefits but not in the high costs.
William Nordhaus estimated that if half the countries of the world implemented a carbon tax, the tax would need to be approximately 3 times as high as if all countries implemented it.
Developing country governments recognize that a carbon tax would impoverish many of their residents who are only beginning to enjoy the benefits of higher standards of living made possible by burning fossil fuels. A carbon tax, if implemented in the US, would harm those Americans who are struggling most to make ends meet. But it likely would not have enough effect on world CO2 emissions to matter.
This article was originally published on CNSNews.com.
Francisco Machado says
The government taxes money from the producers of hydrocarbon fuels raising the cost of fuel/energy to the public then returns to the public the money taken from the foel producers to cover the higher cost of energy to the public. Like riding a merry-go-round. You go round and round without getting anywhere, then get off where you got on. Since nothing, Progressives notwithstanding, is actually “free,” how many man hours and how much taxpayer money is this boondoggle going to cost?
Ian says
Following is a quote from Dr. Ottmar Endenhofer
IPCC co-chair of Working Group #3,
November 13, 2010 interview [H/t Dr. Charles Battig]
“We [UN-IPCC] redistribute de facto the world’s
wealth by climate policy…”
“One has to free oneself from the illusion that
international climate policy is environmental policy.
This has almost nothing to do with environmental
policy any more…”
Note interview date, November2010.
So as always…. “follow the money”.
Mary Jones says
Just to clarify-
1. An increase in CO2 in the atmosphere is not helpful to plants in the long run. Observations of the boreal forest and other biomes have made it clear that changes in the environment are causing great stress to plants, reducing the rate at which they complete photosynthesis and stunting their growth. (This process is called “browning.”)
2. CO2 is not the only pollutant created by fossil fuels and industry. Methane is also a major issue, and toxic. Global warming aside, the air pollution from fossil fuels is causing serious health problems across the US, especially in low-income communities.
3.Good news! The cost of renewable energy is plummeting, and wind and solar will soon be much, much cheaper than coal. There is a reason fossil fuels are called “nonrenewables”- they are running out, like it or not. Renewable energy is the ONLY long-term solution. Any ecological or health benefits are just bonuses.
Carbon tax aside, I hope this helps clarify some of the science behind the issue. Have a lovely day.
Derek McDoogle says
I like how you mentioned that a carbon tax would be particularly burdensome for low-income households. It is cool to think that economists are thinking about dividing the money to all the citizens gathered from carbon fees. Thanks for the information about how the rising atmospheric concentration of CO2 is the result of the combined emissions from countries all over the world, not just America.