Global Warming - Carbon Tax

(See here) a Slate Webzine piece by Anne Applebaum that proposes a carbon tax on fossil fuels which she describes as being a simple solution to the Greenhouse Gas emmission problem.

First let me state that I am not totally opposed to what Anne proposes. A carbon tax would indeed be a step forward. Perhaps it could even be described as being a major step in the right direction. However this alone, while it would contribute to a solution to the problem, would not resolve the problem if enacted in the manner Anne proposes.

What does Anne propose? We just tax fossil fuels to death. However she also proposes that we use the resulting revenue to solve the Social Security problem or eliminate income taxes amongst other suggestions.

She describes any system of carbon trading as being unworkable. Actually, she makes a pretty good argument for why such a system might be difficult to get Congress to enact in any workable format and she does so elegantly with only a couple sentences. Let me quote them:
Though I once thought otherwise, I no longer believe that a complicated carbon-trading regime—in which industries traded emissions "credits"—would work, even within the United States. So much is at stake for so many industries that the legislative process to create such a regime would be easily distorted by their various lobbies.

Now I am not so sure that Congress would be all that incapable of yielding anything beneficial as long as there was some adult supervision of their efforts provided by the voters. However the level of supervision required might indeed be difficult to obtain. What happens if your Senator really does represent your viewpoints on just about everything except he insists on granting loopholes to coal fired electrical generating plants? You want to puke at just about everything his/her opponent represents except the opponent has a strong position on limiting greenhouse gasses. Are you going to become a one issue voter?

That is the problem voters currently face. However, as more and more voters continue to become concerned about global warming, I believe that politicians themselves are going to be forced to adopt postions concerned about global warming if they wish to remain, or first be elected, to office.

My own objections to Anne's proposal is my viewpoint that every dime of revenue raised by a carbon tax should be devoted to eliminate the problem of CO2 emmissions, not to solving the Social Security problem. Social Security needs a long term fix, not a temporary band aid provided by carbon taxes for one thing. If we simply tried to tax fossil fuel use out of existance, eventually, if we were successful, the revenue stream would disappear. This does not sound like anything approaching fiscal responsibility in my opinion.

Revenue generated should be used to subsidize alternative energy sources and research and development seeking solutions to the problem.

Now I believe in motivating the free market to assist the government in coming up with a solution. What would happen if Exxon-Mobil was motivated to spend all their profits over the next five years (an amount approaching 200 billion dollars) to come up with a method to escape the carbon tax? If Exxon-Mobil's efforts yielded methods to completely (or even partially) mitigate the effects of burning a gallon of gasoline, wouldn't this be desirable? If Exxon-Mobil was motivated to do so by the profit potential of escaping from the carbon tax, wouldn't this be a good thing?

If Exxon-Mobil was motivated to invest all profits, or even just a significant portion of profits, into research and development of a solution, would that be all bad? Would it be wrong for the government to even use some of the revenue generated by the carbon tax to even subsidize Exxon-Mobil's research efforts?

I am a strong believer in the powers of the free-market. I am not at all convinced that the government will be wiser in expending generated revenues to come up with a solution then would be the profit motivated private sector. If you want efficient expenditures, put corporate America in charge and dangle future profits in front of their noses as a carrot. Just force them to put some of their own money at risk while you do it.

By the way, I think I would also insist that a "carbon tariff" should be placed on all imports produced without being subjected to a carbon tax in order to protect our own economy and simultaneously motivate other nations to adopt it.

Carbon tax instead of carbon trading? OK, it has some potential. I still like some aspects of carbon trading, however carbon taxes, too, might be a workable solution.

I am in favor of any avenue that leads, eventually, to success.

As a truck driver, I will give this analogy. If you pick up a load of freight in Houston on Wednesday that needs to be in Atlanta by Friday morning, there is more then one decent route you can travel to get there. Which route you choose is not what is important, what is important is that the freight is delivered ontime. It is not so important that we adopt one specific method to solve global warming as it is that the method we settle on solves the problem.


Blogger Michael said...

At the end of the day, a carbon tax is simply a more restrictive and less economically sensitive version of carbon trading.

The idea is actually quite simple (though its implementation may be less so). Basically, we put an economic value to something that we are taking for granted in being free; i.e., the cost of dumping carbon into the atmosphere.

If we make companies pay an economically realistic cost, then market forces will pull towards reducing this cost. For example, chemical companies cannot dump industrial wastes into rivers (as they once could - or else, face heavy fines or criminal prosecution). One can consider this to be a "heavy" economic cost - as such, companies find other more economic methods of disposing of this waste.

The appeal to carbon trading, especially on a global level is that it allows for specialisation across international boundaries. Some industries will by their nature continue to produce CO2 "more than their fair share". However, if this excess carbon is offset by someone else producing LESS than their fair share, then on a global perspective, everything is still "okay". This will also give an economic incentive for nations and industries that have the capacity to markedly reduce carbon emissions to do so if their can trade their carbon credits to others.

Carbon trading can work both domestically and internationally, as long as there are realistic goals and targets set, and appropriate monitoring enforced. There is, of course, also a large incentive to cheat and systems must be put into place to limit this.

Michael Tam

2/10/2007 05:41:00 AM  
Blogger Little David said...

Well, Anne Applebaum did make a valid argument for simplicity in her piece, and a carbon tax would be at least marginally simpler.

I believe that most of the strengths of carbon trading could be realized a carbon tax. That is, as long as the revenue received from the tax was dedicated towards carbon emmission mitigation. For example, tax revenue could subsidize solar panels. Solar energy might then become more competitive in the market place because it is subsidized and is not subject to the tax itself.

In some ways, a carbon tax might be even more effective in reducing greenhouse gasses if society chose to be more aggressive at some point in the future.

The weakness of the carbon tax would be that politicians would want to tap into the revenue stream to pay for things unrelated to carbon emmissions.

However I am not totally against carbon trading either. I just want to see some method enacted. Either way would be acceptable to me, it seems both ways have strengths and weaknesses.

2/11/2007 05:59:00 AM  
Blogger Michael said...

One problem with carbon taxation is that as with all taxation brought to bear on large corporations (motoring, oil, energy industry, etc.), there is a multitude of loop holes that can mitigate (or at least lessen) the desired response (not without substatial changes in taxation laws). Furthermore, the brunt of the increased cost will probably eventually be put onto the consumer - and a carbon tax is in essence an energy tax.

This type of tax is usually regressive, i.e., a greater burden is placed on the poor (a person who earns 5 times as much as another rarely uses 5 times the energy).

A carbon tax is mostly stick and not very much carrot while carbon trading is more balanced. It is certainly more complex to set up but will work better (insofar as the goal of reducing carbon emissions) in the long term.


2/12/2007 03:25:00 AM  
Blogger Little David said...

All the costs in the end are going to be borne by the consumer under either method.

Even with carbon trading, there will be cost increases in energy.

For example, a coal fired electrical plant needs carbon credits to continue operating. They will either be forced to purchase these on the open market or invest in clean energy capacity to generate their own credits. Either way, the costs per kilowat hour are going to increase.

As for your argument about loopholes with the carbon tax, that is the same argument that Anne used against carbon trading. She seems to think carbon trading, due to increased complexity, would be more apt to suffer from damaging industry preferences. One I could see might be corn growers in Iowa being given excessive credit for the ethanol they refine for example.

I am not trying to argue against carbon trading. I am only stating my own opinion that either way would work. If we can get the majority of citizens to agree to either way I think that would be progress in the right direction.

The devil would be in the details, and "adult supervision" by voters would be required to ensure any attempt at legislation did not result in garbage.

2/12/2007 09:07:00 AM  

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