To Spur Energy Innovation,Tax Carbon, Says Newsweek Editor Zakaria

Ronald Bailey | April 9, 2007

Newsweek International editor, Fareed Zakaria argues that carbon taxes beat carbon markets as a way to control greenhouse gas emissions and spur technological innovation. He notes that the during the time the Kyoto Protocol was being implemented, 800 coal-fired power plants were built around the world. They emit 5-times more carbon than the Kyoto Protocol cuts. So why a carbon tax?

First, on the front page, the Washington Post details the shenanigans taking place in the European Union's carbon markets (reported here and here in Reason) in which various countries cheat in order to favor their home industries.

Given these problems, Zakaria argues:

Once you tax carbon, you make it cheaper to produce clean energy. If burning coal and petrol in current ways becomes more expensive because of the damage they do to the environment, people will find ways to get energy out of alternative fuels or methods. Along the way, industrial societies will earn tax revenues that they can use, in part, to subsidize clean energy for the developing world. It is the only way to solve the problem at a global level, which is the only level at which the solution is meaningful...

A carbon tax would also send the market a clear and powerful signal to develop alternative energies. Daniel Esty, a Yale environmental expert whose new book, "Green to Gold," is a blueprint for new thinking about the environment, argues that the only way forward is a "transformational approach that creates incentives for innovation and alternative energy. The way we think about these issues is old-fashioned. We're still trying to limit, regulate, control and inspect. We need to become much more market-friendly. Put in place a few simple rules, and let the market come up with hundreds of solutions. We're not even 10 percent of the way down such a path."

In the end, everyone realizes that innovation is the only real solution to the global-warming problem.

Whole Zakaria column here.

Just a heads up--I have done a lot of reporting and just completed an article for The American on carbon markets versus carbon taxes. As a generally market-friendly guy, I've nevertheless concluded that carbon taxes are the way to go. I will link to the article when it appears this summer.

Comments

Timothy|4.9.07 @ 10:48AM|#

Bailey joins the Pigou Club? WTF, mate?

thoreau|4.9.07 @ 10:51AM|#

I'll say this much: Carbon taxes would probably be easier to administer than tradeable carbon credits. Whatever their relative advantages or disadvantages in theory, in practice I suspect one would be simpler to administer.

Which is not, in and of itself, an argument for carbon taxes. Merely a suggestion that if we do go down that road, carbon taxes would be the better fork to take.

|4.9.07 @ 10:58AM|#

when they say carbon, they mean CO2 right?

Otherwise, pencil industries would collapse overnight, :D

|4.9.07 @ 10:59AM|#

As I studied in econ this winter, carbon markets failed due to oversupply--no country would unilaterally issue lower carbon credits than any other, and instead of collectively lowering the credits all together they raised them in echelon.

Taxes would seem to fall into the same trap.

Timothy|4.9.07 @ 11:00AM|#

Oh, I agree that administration of the tax is easier. I just don't think the governmental incentives are any better. As in, I think they'll give breaks to protect local industry just like they're cheating the carbon markets to do the same. Damnable political economy!

Timothy|4.9.07 @ 11:01AM|#

LIT is obviously a tool of big buckyball!

|4.9.07 @ 11:02AM|#

Of course, carbon taxes in the US and Eurpoe will do zero to reduce the building of new coal-fired power plants in China.

In order to reduce global CO2 emissions, every country will have to introduce a carbon tax. Ain't gonna happen.

Unless you want to give the UN the power (and I do mean the power) to collect a carbon tax. Show of hands for giving the biggest kleptocracy known to man a license to print money and hand out favors? Anyone? Anyone at all?

Or, perhaps, a trade war is the answer - we impose a carbon tariff on goods imported from countries that don't have a carbon tax.

|4.9.07 @ 11:03AM|#

Atlanta residents would be very upset when their power bill doubles after carbon tax is created. South Florida residents would be on easy street.

Nuclear baby, and a pox on all the NIMBY's. If I owned acres of land, I'd welcome a nuke plant with open, glowing arms, :)

|4.9.07 @ 11:07AM|#

Timothy,

I'm just sayin...

Besides, big oil has got me, cause damned if they don't pay us minions wells. And where I work doesn't emit carbon, just SO2 and H2S.

|4.9.07 @ 11:08AM|#

Policy makers will never look at Pigovian taxes and not be blinded by $$$. This downside may be offset by scope of the externality reduction, but I tend to agree with Timothy's skeptical perspective.

|4.9.07 @ 11:09AM|#

In fairness, there are examples of pollution markets working quite well-- the SOX market in the US, for example.

It's not totally clear to me that the problem is that of pollution markets so much as the inevitable temptation to cheat any sort of multi-state CO2 agreement like Kyoto. The problem of too much anthropogenic CO2, to the degree it exists, is inherently dispersed throughout the whole globe; it's much easier to have single-state solutions to traditional pollutants whose negative effects are mostly (if not entirely) localized.

If the EU decided on carbon taxes, no doubt you would immediately see a lot of rent-seeking as countries complained that, e.g., poorer countries deserved lower carbon taxes, countries where natural resources and the infrastructure meant that energy was normally more expensive anyway deserved lower taxes, countries where the population was especially price-sensitive deserved lower taxes, and so on. And there would be inevitable article about this type of jockeying and no doubt surprise that the targets weren't met.

On the other hand, the fact that the governments get to keep the tax money would no doubt encourage them to keep the carbon taxes high enough to work. (or higher)

|4.9.07 @ 11:11AM|#

"As a generally market-friendly guy, I've nevertheless concluded that carbon taxes is the way to go."

Translation: "As a generally straight guy, I'd really like to get down on my knees and suck you off Mr. Gore. Oh, and Fareed can watch if he buys some "Sperm Emissions" credits."

As R C Dean said, this will certainly NOT apply to China, which will lead to tariffs that will be roundly supported by nationalists of all stripes in the name of "the environment", when it's just a cover for protectionism.

ed|4.9.07 @ 11:15AM|#

Since when is force an acceptable remedy?

|4.9.07 @ 11:19AM|#

I don't care if you use taxes, markets or whatever, the fact is that non-carbon emitting power generation costs more than carbon emitting. If that were not true, there wouldn't be an issue because no one would be burning coal for power. Anyway you cut it it will cost money and standard of living to do this. The issue is how much. Of course if you are Al Gore flying around in your Gulfstream and living in your gated mansion, what the hell do you care if your power bill is $20,000 this month rahter than the normal $10,000. Hey everyone has got to make sacrifices. If you are ordinary person working for an hourly wage and your electric bill goes from $250 to $500 a month during the winter and hot summer months, you might look at it a bit differently. But you can at least take comfort in knowing that guys like Al Gore are really out there for the little guy.

|4.9.07 @ 11:19AM|#

ed,

Since the force is being applied to stop a tresspass/assault/property destruction..

Think of it as a class action version of throwing a kid with a burning poop bag off your property.

Damn kids with their I-pods and their carbon emissions. Grumble grumble.

|4.9.07 @ 11:19AM|#

Since when is force an acceptable remedy?

Drink!

Timothy|4.9.07 @ 11:23AM|#

Frankly, I wish some sort of Coase bargaining were possible, but in this instance I really doubt it is. What do you do, call up Gaia and be all "Listen, we're going to define you as having property rights, and let people negotiate how much to pay you in order to pollute, sound good?" In the absence of some kind of mystical hippie earth spirit, I think we're stuck with badly manipulated carbon markets or badly enforced carbon taxes.

Let's call them "emissions taxes" because Carbon on its own is so totally awesome.

|4.9.07 @ 11:28AM|#

We're still trying to limit, regulate, control and inspect. We need to become much more market-friendly.

I must have misread this...why do advocates of taxation always speak as if the tax were somehow outside the market? The market has set the price today...inclusive of humanities' desire to limit Carbon emissions...a tax is just a manipulation of the market with all the inherent opportunities for 'flexible' adoption others have pointed out above.

|4.9.07 @ 11:31AM|#

Timothy: I looked at Coase bargaining in this case, and it may just be a failure of my imagination, but I couldn't figure out how you'd overcome the transactions cost for billions of energy using people. Which answers, in part, ed's question about force.

Regarding the equity question--poor people paying more of their incomes for energy--one possible way that I discuss is rebating the carbon taxes as a equal lump sum to every household. It turns out that the such a rebate would more than compensate households in the lower 40% of income range for the extra they pay for energy in the U.S.

Jim Henley|4.9.07 @ 11:32AM|#

As a generally market-friendly guy, I've nevertheless concluded that carbon taxes is the way to go.

Crap! But yes, Ron, this is the kind of issue I've looked forward to you taking up. I'll hop on the article when it comes out.

free-k|4.9.07 @ 11:32AM|#

I always figured a consumption tax would cover this. It takes energy to produce something consumable. The more you consume, the more tax you pay for energy used.

Hey, what do I know?

|4.9.07 @ 11:35AM|#

I'm mostly interested in the incentives lining up the right way. As joe suggests, there is no problem, even in a minarchy, with the use of force to prevent someone from pooping on your lawn. If there is a real public harm to emmissions into a commons, we have a problem that needs to be addressed.

There is no answer that goes exactly the way we'd want it to. You could simply regulate emmissions and deal with the consequences when no one meets your targets. You can tax the pollutant itself, which means you have some way to measure the pollutant itself. You can tax a proxy of the pollutant, which is really a fossil fuel energy tax. You have the same problem with any tax. What happens to the money? Does the tax become factored into the budget such that deterrence isn't really what the government wants anymore?

Blah. I like the incentives to consumers if you go Pigou, but I fear what happens after the money is collected. That said, I don't see another answer. I am a self loathing Pigouvian, I suppose.

|4.9.07 @ 11:36AM|#

The average human emits 1 kg of C02 per day or 365 kg per year.

If we implement a breathing tax, we might reduce this by 50 per person per year, thus eliminating 300 million tonnes of C02 emissions annually on a global basis.

;P

|4.9.07 @ 11:36AM|#

To repeat myself

http://www.iht.com/articles/2007/04/02/news/climate.php

"Over the last few decades, as scientists have intensified their studies of the human effects on climate and of the effects of climate change on humans, a common theme has emerged: in both respects, the world is a very unequal place.

In almost every instance, the people most at risk from climate change live in countries that have contributed least to the atmospheric buildup of carbon dioxide and other greenhouse gases linked to the recent warming of the planet.

Those most vulnerable countries also tend to be the poorest. And the countries that face the least harm - and are best equipped to deal with the harm they do face - tend to be the richest.

To advocates of unified action to curb greenhouse gases, this growing realization is not welcome news.

"The original idea was that we were all in this together, and that was an easier idea to sell," said Robert Mendelsohn, an economist at Yale University.

"But the research is not supporting that. We're not in it together."

The large industrialized countries are more resilient partly because of geography; they are mostly in mid-latitude regions with Goldilocks climates - neither too hot nor too cold."

This is really a case whereby the actors creating the problem are in large part foisting the consequences on others. It is a case of me throwing garbage over my wall into your yard, and you having to pay to have it hauled away if you don't want to live in the filth.

|4.9.07 @ 11:39AM|#

jb,
Taxes would seem to fall into the same trap.

Jb, you gathered the correct information from your econ class.

RC,

Or, perhaps, a trade war is the answer - we impose a carbon tariff on goods imported from countries that don't have a carbon tax.

Hmm, would not work either, and it would be counterproductive: a trade war will make it impossible to export your inflation. If China stops accepting dollars because of our suddendly holier-than-thou approach to climate, then the government will not be able to contain inflation and it will be Weimar Germany all over again, baby!

|4.9.07 @ 11:41AM|#

El mexicano nuevo wrote:
This is really a case whereby the actors creating the problem are in large part foisting the consequences on others. It is a case of me throwing garbage over my wall into your yard, and you having to pay to have it hauled away if you don't want to live in the filth.

Please explain how CO2 should be seen as being filth. Start here:

Timothy|4.9.07 @ 11:42AM|#

Ron: That seems like a pretty reasonable conclusion, given the scale of the thing. I guess you could try using proxies like for shareholder voting, but I'm pretty sure that wouldn't work out all that hot. An attempt at a Pigouvian tax may be the least bad option among many bad options, presuming the goal is lowering emissions of green-house gases into the atmosphere.

|4.9.07 @ 11:51AM|#

Gamito,

"Please explain how CO2 should be seen as being filth. Start here:"

Well, since I know you are actively dishonest in your discussions on this topic, I will simply point you to the recent Supreme Court ruling on the issue.

"WASHINGTON (AP) - The Supreme Court rebuked the Bush administration Monday for its inaction on global warming in a decision that could lead to more fuel- efficient cars as early as next year.

The court, in a 5-4 ruling in its first case on climate change, declared that carbon dioxide and other greenhouse gases are air pollutants under the Clean Air Act.

The Environmental Protection Agency has the authority to regulate those emissions from new cars and trucks under the landmark environment law, and the "laundry list" of reasons it has given for declining to do so are insufficient, the court said. "

My analogy was an analogy.
The yard getting garbage dumped on it is not a real yard... it is a metaphoric yard. And the garbage isn't filth it is a metaphoric filth meant to represent negative consequences.

|4.9.07 @ 11:51AM|#

The thing that irks me is that burning things to optain power is expensive. There is a natural limiting factor in the burning of fossil fuels and that is the cost of doing just that, (assuming governments are actively subsiding such behavior).

Besides I've haven't heard of anyone saying what we should to do keep the icecaps on Mars from melting. Won't someone think of the Martians. In short I think the human cause global warmers are full of hot air.

Gilbert Martin|4.9.07 @ 11:57AM|#

"I've nevertheless concluded that carbon taxes is the way to go"

And I've concluded that doing nothing is the way to go - unless and until the worshippers at the alter of the man-made global warmning religion can come up with some definitive proof that their god is real.

As yet, not a single person on earth has done so.

|4.9.07 @ 12:00PM|#

free-k,

There are more and less energy-intensive methods of producing goods.

And there are more and less greenhouse-intensive methods of producing energy.

We don't want to treat all of the above methods the same. We want to give less carbon-intensive practices a competitive advantage over more carbon-intensive practices.

The point isn't to reduce consumption per se, but to reduce greenhouse gas outputs.

|4.9.07 @ 12:01PM|#

NM: Of course, the underlying assumption is that the poor are going remain as poor as they are today. However, even the IPCC offers scenarios in which global GDP reaches $550 trillion by 2100 and per capita GDP averages $80,000. That would buy a lot of protction against the vagaries of climate change. See my column on the Stern Review.

|4.9.07 @ 12:05PM|#

Ron -- A couple of well-placed commas would have made that headline so much more readable.

ed|4.9.07 @ 12:12PM|#

A carbon tax would also send the market a clear and powerful signal to develop alternative energies.

Again: Innovation is driven by force?
Am I at the wrong address?

|4.9.07 @ 12:12PM|#

Ron,

That is not the underlying assumption at all.

The relative burden is still larger on the poor nations.

|4.9.07 @ 12:18PM|#

Ron,

To expand on that...

The poorer nations will have to put a larger share of their limited resources into adapting to "the vagaries of climate change" than the richer nations even though it is the richer nations largely causing the problem.

|4.9.07 @ 12:19PM|#

jp: Commas added. Does that work for you now? ;-)

|4.9.07 @ 12:23PM|#

Yes. Thank you for the commas.

GILMORE|4.9.07 @ 12:24PM|#

I demand a disclaimer!

|4.9.07 @ 12:32PM|#

The poorer nations will have to put a larger share of their limited resources into adapting to "the vagaries of climate change" than the richer nations even though it is the richer nations largely causing the problem.

If this is the concern, then should we (a) impoverish the rich nations or (b) enrich the poor nations?

Because nothing we do, short of rolling humankind back 300 years, is going to undo whatever contribution we are making to the current warming trend in time to make whatever difference we can make.

|4.9.07 @ 12:44PM|#

RC,

Well (a) is unlikely to happen, so we can ignore that (you economic gloom and doomers make the most extreme environmental gloom and doomer look reasonable).

(b) is a great idea.

Addressing global climate change will likely

a) enrich the rich nations as the move to more resource efficient means of production and sell these new technologies to the poorer nations
b) mitigate the negative impacts on the poorer countries as they enrich themselves.

And since the richer nations are both the primary cause and have greater resources, it might be considered responsible behavior if they use some of their resources to mitigate their actions on others.

If I am throwing filth in your yard, maybe I should be the one paying to remove it.

|4.9.07 @ 12:52PM|#

"Again: Innovation is driven by force?
Am I at the wrong address?"

No, ed.

Innovation is driven by profits. This is a plan to change the system of profit incentives.

You're at exactly the right place.

|4.9.07 @ 1:03PM|#

"...industrial societies will earn tax revenues that they can use, in part, to subsidize...."

That's what worries me.

|4.9.07 @ 1:04PM|#

Neu Mejican:

Could you explain again how raising costs, creating barriers to economic development, and distorting the market via a carbon tax are going to enrich the poor nations?

Innovation is driven by profits. This is a plan to change the system of profit incentives.

Yes, nothing drives innovation like reducing profits via higher tax loads and social engineering via the tax code.

Its worked every time its been tried!

|4.9.07 @ 1:14PM|#

"Yes, nothing drives innovation like reducing profits via higher tax loads and social engineering via the tax code."

Ah, that must explain the stagnation of technology during and immediate after World War 2 - all those high taxes and government programs.

|4.9.07 @ 1:16PM|#

The imposition of a carbon tax may well be the deathnell for rural America. There are many businesses and government facilities in the small towns here in Iowa in which people drive 50 miles to go to work. As the price of gas goes up, these jobs are no longer viable.
Once gas hits $3.50 a gallon or so, people will stop working in these places. It will essentially become impossible to live or work in rural America. I would anticipate:

* a large number of people looking for work.
* a large number of failing businesses as people leave.
* a large number of mortgage foreclosures as the small towns empty of people going to larger towns. Their houses will be worthless.
* a massive migration of people from small towns to larger ones.

The increasing urbanization of America is not necessarily a bad thing and has been ongoing for perhaps a hundred years. But this change will be fairly abrupt and devastating for the rural states. Businesses and government facilities can move, but there are costs and will take time. In the long run people will adapt, but in the short run, such a tax will destroy a huge percentage of the economy of the rural states.

|4.9.07 @ 1:18PM|#

It's really, really obvious that you're just hiding behind buzzwords, RC.

"Social engineering" - ooh, sound scary!

"Distorting the market" - oh noes! The costs of things will change!

Your determination not to consider the actual, specific proposals and effects is coming through clearly.

Carbon taxes would make it profitable to develop and provide carbon-free energy technologies: true or false, RC?

True or False?

Answer the question being asked for a change.

|4.9.07 @ 1:28PM|#

"Carbon taxes would make it profitable to develop and provide carbon-free energy technologies"

Why? Profitable for whom? Profitable how?

If I successfully lobby the government to tax my competitors at a higher rate, that does not make me a better businessman, and it does not by itself improve the quality of my goods and services. Putting a five hundred pound jockey on Sea Biscuit does not make my pig a racehorse.

|4.9.07 @ 1:28PM|#

Well, I think it would less harmful to collect taxes via a emitted CO2 tax than from our current income and FICA tax code, so if those who are most alarmed by the prospect of man-made global warming wish to supplant the current tax paradigm with an emitted CO2 tax, I'd be fine with it, as long as it was done via the amendment process; that is, an Amendment which specifically prohibited any Federal Tax, except one on emitted CO2. If some of the alarmists aren't willing to go that far, I guess they don't believe in their own rhetoric.

|4.9.07 @ 1:37PM|#

RC,

"Could you explain again how raising costs, creating barriers to economic development, and distorting the market via a carbon tax are going to enrich the poor nations?"

I refer you to a book on the topic.

http://www.natcap.org/

Not a flawless read, but it should give you the basic information you need to understand the concepts.

The gist-

The actions that need to be taken to address global warming lower costs, eliminate barriers to economic development, and remove current distortions in the market.

Like I said, you economic gloom and doomers are the worst. Nothing about this issue implies that we need to role back development to pre-industrial conditions.

|4.9.07 @ 1:39PM|#

Will Allen,

Even Al Gore's proposal is to shift the tax burden from labor and income to material throughput. This is essentially what you are advocating, so you and Al Gore are on the same page even if the specifics are a bit different (Al Gore's plan is lacking as many specifics as yours).

|4.9.07 @ 1:44PM|#

It will essentially become impossible to live or work in rural America.

So an Incovenient Truth is really part of a conspiracy to drive the population from the red states to the blues states so that the democratic party can wreak its revenge on Karl Rove.

ed|4.9.07 @ 1:45PM|#

joe: Innovation is driven by profits. This is a plan to change the system of profit incentives.

By force. Now I get it. You're here to help us.

|4.9.07 @ 1:46PM|#

Yeah, Neu, joe informed me previously about Gore's proposal, but if it isn't done via the Amendment process, and explicitly prohibits all Federal taxes excpet one on emitted CO2, it's a deal-killer for me, because otherwise it just becomes another tool for those who favor an expanded state. Of course, if Gore actually believes his rhetoric, sacrficing the income and FICA tax system via an Amendment should be an acceptable trade-off, given what he says the stakes are.

Matt Damon\'s Voice|4.9.07 @ 1:55PM|#

DEMAND CURVE, I SAY
IN MATT DAMON'S VOICE SO GAY
DEMAND CURVE ALL DAY!

|4.9.07 @ 2:13PM|#

There is a simple solution that would appeal across the spectrum from the war mongering neocons to the tree humping eco-freaks. It's really quite simple.

We just need to sit down with Russia, China, England, France, N.Korea, and Israel and agree to systematically launch nuclear missiles with the intent of culling 5 billion or so people from the world. This would immediately stop global warming as energy production and expenditure would plummet, and it would cause some good old fashioned nuclear winter to counterbalance the warming already happening.

Plus it would stop all of that constant complaining from the poor nations about how their government and our government policies are keeping them from little freedoms like eating. Bloody whiners.

Of course, some of you may strongly object to my Global Warming plan as genocide, but as odds are you will be one of the ones chosen for culling, your objections are purely just selfish and you must hate the Earth.

Barring this, we could take some easier steps than taxing. Mainly:

1. All air conditioning and heating units in all government owned facilities and buildings will be permanently disconnected and scrapped. If the masters get cold in the winter, they can bring in a congressman or two to spew some hot air.

2. No more private jets for any government workers. They pride themselves on being men and women of the people, let them ride coach with their constituents. And security shouldn't be a problem because the highly trained men and women of the TSA are making sure bad things don't get on planes.

3. All government cars will be replaced with electric vehicles or better yet, all elected officials (especially city leaders) will be forced to ride mass transit. Let them see how well the system works first hand.

|4.9.07 @ 2:17PM|#

To be honest, I could give two lumps of goat poo for the whole "global warming" hullabaloo.

However, I feel it's a national security imperative to destroy the value of oil, to deprive those nations which have it of any form of economic power. Let their citizens grow up, democratize and join the free world or slowly die as the Russians are doing now. I feel that it's an imperative on par with destroying Communism, worthy of bearing any burden, opposing any foe, and so forth.

So, IMO, anything that causes the value of oil to drop is good, and reducing consumption of it is a pretty obvious way of reducing its value. To me, that means putting in a low watermark price of at least $100/bbl, letting the underlying value shrivel as demand drops. It'd even be worth forming an anti-oil cartel with Old Europe to do so! It may be cutting off your nose to spite your face, but if your nose has virulent cancer in it, wouldn't that be worth it?

Of course, we'd need fast-track for new nuclear plants (with preapproved pebble-bed designs for even speedier implementation) and reprocessing facilities, and Nevada is just gonna have to take one for the team. But Petroleumism needs to be destroyed as much as Communism did.

|4.9.07 @ 3:49PM|#

DEMAND CURVE, I SAY
IN MATT DAMON'S VOICE SO GAY
DEMAND CURVE ALL DAY!

Yeah, I'm not entirely buying the "tax our way to innovation" thing, either.

|4.9.07 @ 4:06PM|#

Eric:

Not to mention, the whole "regulate our way to growth" thing is a little bit of a mystery to me.

The actions that need to be taken to address global warming lower costs, eliminate barriers to economic development, and remove current distortions in the market.

I continue to be mystified by how imposing new taxes and/or artifical costs via "cap and trade" eliminates barriers to economic development and removes market distortions.

Seeing as taxes and regulations are generally regarded as barriers to economic development and sources of market distortion.

Mike Laursen|4.9.07 @ 4:13PM|#

Once a carbon tax becomes a major source of revenue funding ongoing government programs and all their bureaucratic employees, wouldn't there be a powerful motivation to not cut carbon emissions too much? Ten years from now, we're not going to see Congressmen arguing that we can't reduce greenhouse emissions because it will endanger vital government services?

|4.9.07 @ 4:13PM|#

I think most here agree that there is an externality. Is regulation, carbon trading, or taxation the best way to handle it?

I'm afraid we are in a situation where carbon trading hasn't worked. I don't know about taxing our way to innovation, but we still need to address the externality, don't we?

|4.9.07 @ 4:34PM|#

Hello? Do we still have libertarians on this board? Taxes, government?
The governments of this world will never solve the alleged problems of global warming. You don't have to be a GW denier to admit that...

|4.9.07 @ 4:37PM|#

I think most here agree that there is an externality.

Sure, why not?

Is regulation, carbon trading, or taxation the best way to handle it?

This presupposes a couple of things:

(1) That the externality of industrial CO2 emission is costly/harmful. As far as I know, the only purported harm of CO2 emission is its purported contribution to global warming. If that's the case, then I think we are a long way from agreeing that this externality needs to be addressed at all.

(2) That "regulation, carbon trading, or taxation" will result in any meaningful decrease in global CO2 at all. I submit these means will not achieve the desired end without a revolutionary change - namely, the ceding of sovereignty to an international Superstate with the power to impose and enforce laws.

Which raises the next set of questions: What will doing nothing about CO2 cost and what will reducing CO2 cost? Which cost is greater?

|4.9.07 @ 4:38PM|#

I'm afraid we are in a situation where carbon trading hasn't worked.

How much carbon trading have we actually tried? I know the EU set up a market and proceeded to give everyone far more credits than made sense.

|4.9.07 @ 4:42PM|#

RC,

"I continue to be mystified by how imposing new taxes and/or artifical costs via "cap and trade" eliminates barriers to economic development and removes market distortions."

Read the Natural Capital book.
It should demystify some of the thinking.

You are missing an important part of the argument regarding carbon taxes. They are not an increase in taxes. Most proposals are for a shift in taxation from one sector of the economy to another. As such they remove the current market distortions without increasing the total cost burden that taxes represent. Many schemes even lower the tax burden overall. Advocates would call the new market distortions "market corrections." You can quibble with that characterization, but people are talking about reformulating the government's relationship with markets, not increasing the burden that government introduces into the market.

This seems to be a perfect opportunity for any one who considers taxation and regulation as "barriers to economic development and sources of market distortion" to advocate for making those barriers and distortions minimal. Otherwise you end up tacitly supporting the status quo, which I am sure you are not a big fan of.

|4.9.07 @ 4:55PM|#

You are missing an important part of the argument regarding carbon taxes. They are not an increase in taxes. Most proposals are for a shift in taxation from one sector of the economy to another.

Putting all other arguments aside, this just seems implausible as a political goal. Note the teeth-pulling over the last few years just to get Spanish War-era taxes revoked.

thoreau|4.9.07 @ 5:22PM|#

Carbon trading amounts to picking an outcome and letting people figure out how to get there. Compared to other forms of regulation, I guess it's a lesser evil.

Carbon taxes amount to setting up incentives and letting people pick an outcome in response to those incentives, as well as other incentives present in the marketplace. Compared to carbon trading, it's even less bad.

If carbon taxes were offset with income tax cuts, it would be even less bad.

thoreau|4.9.07 @ 5:22PM|#

Notice I didn't say "better" or "good." I said "less bad."

|4.9.07 @ 5:34PM|#

And compared to no new regulation?

|4.9.07 @ 5:39PM|#

They are not an increase in taxes. Most proposals are for a shift in taxation from one sector of the economy to another.

The naivete embodied in these sentences is almost touching. If the argument for carbon taxes rests on the reduction or repeal of other taxes, then I call Game Over.

One of the fundamental fallacies to the carbon tax is on display right here:

Once you tax carbon, you make it cheaper to produce clean energy.

Actually, what you do is make it more expensive to produce dirty energy. Slapping a tax on coal plants doesn't take one penny off the cost of nuclear plants.

thoreau, because I think neither carbon taxes nor carbon trading will do a damn thing to actually reduce global CO2 output in any meaningful way (absent the imposition of the Total Global State), of the two I prefer carbon trading, because the Euros have already shown us how to emasculate it. A carbon tax would be much harder to marginalize.

thoreau|4.9.07 @ 5:40PM|#

Eric-

Well, then we have to consider the cost of not addressing externalities.

Then again, under a regulated system we have to consider the cost of externalities that aren't addressed because the system fails.

All I'm saying is that if one is committed to addressing an externality via policy, it's best to pick the least intrusive route, and the one that steers clear of picking or mandating an outcome.

|4.9.07 @ 5:44PM|#

Sensible, but:

All I'm saying is that if one is committed to addressing an externality via policy, it's best to pick the least intrusive route, and the one that steers clear of picking or mandating an outcome.

The "success" of the carbon tax would rely on whether the preferred outcomes happen, though. If they don't, the tax will presumably go up. I don't think it avoids mandating an outcome; it just avoids explicitly stating an outcome.

thoreau|4.9.07 @ 5:51PM|#

Eric-

I'd say that it incentivizes a range of outcomes. This reduces the chances of disastrous unintended consequences, but it also reduces the odds of it achieving the most desired outcomes. A carbon tax would incentivize reductions in CO2 emissions, but the extent of those reductions would not be guaranteed.

The gentler tool may not be the most effective, but at least it's the least harmful. First, do as little harm as possible...

|4.9.07 @ 5:53PM|#

All I'm saying is that if one is committed to addressing an externality via policy, it's best to pick the least intrusive route, and the one that steers clear of picking or mandating an outcome.

I'm not quite sure why you think the states or the feds will be fair in any assessment of a "carbon tax." As already noted, it will just become another revenue stream they can't live without and any attempt to mitigate it will be met with shrill claims of budget poverty. Cigarette taxes anyone?

Smokers of today, meet the pariahs of tomorrow: the internal combustion automobile driver! Can carbon-free roads be far behind?

|4.9.07 @ 5:59PM|#

I'm not arguing against using a gentler tool, Thoreau. I'm disputing that a carbon tax is that much gentler a tool, even in the unlikely case it could be constructed in the way Gore or Neu Mejican would like.

(And how gentle a tool could it be if we're relying on it for federal revenue?)

|4.9.07 @ 6:07PM|#

And incidentally, framing it as "First, do as little harm as possible" just bugs me. The "First, do no harm" rule doesn't demand action that may be no better if inaction is harmful - it demands action that is better than doing nothing.

|4.9.07 @ 6:17PM|#

Erichalfbee

For the record, I am not convinced that carbon taxes are the right mechanism.

I do, however, think it is important to discuss them as proposed rather than as RC and others satirize them.

RC - so it is tacit support for the status quo then...naive or not, the proposals are not for additional taxes. Seems like I have seen tax cuts occur many times in my life. I certainly seem to have to re-learn the income tax nightmare each year as tax burdens are shifted from one priority to another. Why are these proposals so much different.

Your lack of faith in the human ability to innovate and adapt their functioning to meet challenges is sad.

Gloom and doom.
Don't do or propose anything different.
All change will make things worse.
No good will come from meddling.
The current system is bad enough, change can only make it worse.

Yadda yadda

|4.9.07 @ 6:22PM|#

Eric.5B,

"The "First, do no harm" rule doesn't demand action that may be no better if inaction is harmful - it demands action that is better than doing nothing."

This has embedded in it the assumption that our current system can be described as "doing nothing."

In fact, the current system does a lot of things to shape the energy market. The dichotomy is between keep doing what we are doing and do something different. As such, we should examine which of the actions will do as little harm as possible.

To say that a change in action must demonstrate it is an improvement over current practice would be more accurate, but I am surprised you are so satisfied with the current regime of energy sector taxes and regulations.

|4.9.07 @ 6:23PM|#

And remember folks,

The current regulatory regime subsidizes the use of CO2 intensive energy.

Part of the plan is to get rid of those subsides (again, even Gore calls for this).

|4.9.07 @ 6:31PM|#

This has embedded in it the assumption that our current system can be described as "doing nothing."

In a sense - the burden is on you to show that adding regulation or taxation or any such measure will produce better results than the lack of whatever specific regulation or taxation or other measure you support. Pointing out that we have government involvement in these areas already just dodges the issue.

In fact, the current system does a lot of things to shape the energy market. The dichotomy is between keep doing what we are doing and do something different. As such, we should examine which of the actions will do as little harm as possible.

Then argue against subsidization of CO2-intensive energy or any other government policies that force harmful behaviors, don't argue a false dichotomy between two different sets of government policies.

|4.9.07 @ 6:34PM|#

Or, to put it a very different way - why not get rid of the government's existing shaping of the energy market before we all dive into the new way government should shape the energy market?

|4.9.07 @ 6:42PM|#

Eric,

"In a sense - the burden is on you to show that adding regulation or taxation or any such measure will produce better results than the lack of whatever specific regulation or taxation or other measure you support. Pointing out that we have government involvement in these areas already just dodges the issue."

Not really. You are again characterizing this as a proposal to ADD additional taxes. It is instead a proposal to CHANGE the way the government collects money. Much of the change being proposed by the environmental movement involves getting rid of things that most libertarians have been arguing against for decades. This is an opportunity to provide another motivation for these changes.

"don't argue a false dichotomy between two different sets of government policies."

False dichotomy?
I don't follow.

Dichotomy: current system vs. changed system

Nothing false about that dichotomy.

I have already stated that I am not advocating the carbon taxes, just honest debate regarding them.

|4.9.07 @ 6:46PM|#

"why not get rid of the government's existing shaping of the energy market before we all dive into the new way government should shape the energy market?"

Sounds like a good place to start.

thoreau|4.9.07 @ 6:56PM|#

Or, to put it a very different way - why not get rid of the government's existing shaping of the energy market before we all dive into the new way government should shape the energy market?

I'd be fine with that. I'm not sure the Iraq hawks would be, however...

|4.9.07 @ 6:56PM|#

Not really. You are again characterizing this as a proposal to ADD additional taxes. It is instead a proposal to CHANGE the way the government collects money.

You do notice that you're switching back and forth between the issues of tax collection and of "shaping the energy market", right?

Now, I'll admit straight out that I patently don't believe it's feasible to shift all federal taxes to carbon taxes. If we get carbon taxes, we're not losing any existing taxes. (And if you want to dispute the likelihood of that, go for it. I've yet to see anyone supporting this plan give any plausible argument for how they see this happening.)

But that's a side issue. The larger issue that you've posed is the way government shapes the energy market. Your false dichotomy comes in here - that the only choices we have are the current way government shapes the market and this proposal for how the government should shape the market.

Dichotomy: current system vs. changed system

Please, that's just fatuous.

"why not get rid of the government's existing shaping of the energy market before we all dive into the new way government should shape the energy market?"

Sounds like a good place to start.

And you demonstrate why, yourself.

thoreau|4.9.07 @ 7:00PM|#

If we get carbon taxes, we're not losing any existing taxes. (And if you want to dispute the likelihood of that, go for it. I've yet to see anyone supporting this plan give any plausible argument for how they see this happening.)

Actually, I could see a situation where the only way to end a Republican filibuster of a carbon tax is to include cuts in other taxes as part of the legislation.

Or am I being too optimistic?

|4.9.07 @ 7:05PM|#

Actually, I could see a situation where the only way to end a Republican filibuster of a carbon tax is to include cuts in other taxes as part of the legislation.

That presupposes almost-overwhelming support for a carbon tax and firm Team Blue willingness to drop every other tax - including all those targeted taxes designed to produce various social effects.

Is there a reason we should think those things would be true?

|4.9.07 @ 7:11PM|#

And another question - if, miracle of miracles, we manage to shift all federal taxes to carbon taxes, how precisely would you, NM (or you, T), characterize the immediate effects of dumping the revenue load of the entire federal government on fossil fuels and other taxable items and activities?

|4.9.07 @ 7:14PM|#

"The larger issue that you've posed is the way government shapes the energy market. Your false dichotomy comes in here - that the only choices we have are the current way government shapes the market and this proposal for how the government should shape the market."

When discussing the government and government policy toward energy markets it seems reasonable to limit the discussion to the choices involving the government.

Government will be involved in energy markets.

Given that fact, the "least harmful" rule that Dr. T proposes becomes a dichotomy between keep doing what we're doing, or do something different. Shifting from taxation on labor and income to taxation on material throughput (particularly CO2) is the basic proposal usually advocated by those who work on carbon tax plans.

Do nothing is a more radical proposal.
It involves getting government out of energy markets entirely. This seems the least likely outcome.

|4.9.07 @ 7:15PM|#

"characterize the immediate effects of dumping the revenue load of the entire federal government on fossil fuels and other taxable items and activities?"

Now who is being fatuous?

Obviously any plan would involve a gradual shift, not a "dump."

thoreau|4.9.07 @ 7:17PM|#

Eric-

I didn't call for shifting all taxes to carbon, just reducing some taxes to introduce a moderate carbon tax.

|4.9.07 @ 7:19PM|#

And just to be clear Eric,

No one, to my knowledge, has ever proposed shifting all taxation onto carbon taxes. We would be talking about a relative shift implemented in steps.

|4.9.07 @ 7:33PM|#

Now who is being fatuous?

Obviously any plan would involve a gradual shift, not a "dump."

I'd say define "gradual" - and re-iterate the question.

No one, to my knowledge, has ever proposed shifting all taxation onto carbon taxes.

You're right, I overstate. However, under any approach, existing taxes aren't going to go away.

Do nothing is a more radical proposal.
It involves getting government out of energy markets entirely. This seems the least likely outcome.

...OK, I find your redefining "do nothing" from "the status quo" to "a completely libertarian energy policy" in the course of a couple of posts disconcerting.

I find your characterizing of trying to get government out of energy markets as an absolutist goal tedious.

Given that fact, the "least harmful" rule that Dr. T proposes becomes a dichotomy between keep doing what we're doing, or do something different.

(As do I find your happy conflation of "do something different" and "do this".)

But I find your balking at trying to pare down government involvement in the energy market in favor of the rewriting of the whole federal tax system as just a plain deal-breaker.

|4.9.07 @ 7:38PM|#

Thoreau, I wasn't trying to put words in your mouth; I was just soliciting your opinion on the negative impact of the carbon tax plan. But never mind.

But honestly, I'm sick of the topic for now. As always happens in GW threads, the bullshit is just too thick. I'm out.

|4.9.07 @ 7:54PM|#

An ideal risk analysis would first figure the costs to society (and how those costs are distributed) of the warming due to CO2 RELATIVE to costs arising from natural climate variablity. Next, the costs of implementing "solutions" (and how those costs are distributed) should also be figured.

I would conjecture that the costs of CO2-induced warming relative to natural variablity (REL henceforth) is virtually zero, whereas the "solutions" would cost trillions of dollars per year.

Even if the REL costs are not actually zero, we currently have no means of ascertaining what they actually are.

If we assume that warming of any kind is "bad" -whether CO2 caused or natural - then there are many "solutions" that could be implemented to cool temporarily the climate, none of which involve reducing CO2 emissions and most that are vastly cheaper.

|4.9.07 @ 8:23PM|#

Eric.5B.

I am sorry discourse is so disconcerting for you.

Most people can shift effortlessly between various framings of an issue without getting queasy.

"But I find your balking at trying to pare down government involvement in the energy market in favor of the rewriting of the whole federal tax system as just a plain deal-breaker."

Talk about your false dichotomies. Please explain how we effectively pare down government involvement in the energy market without rewriting the federal tax code?

And when did advocating start meaning balking?

"I find your characterizing of trying to get government out of energy markets as an absolutist goal tedious."

So absolute removal of the government from energy markets isn't an absolutist goal?

Riiiight.

If you mean "reduce government involvement" don't say "get government out of."

"I'd say define "gradual" - and re-iterate the question."

One of the reasons I am not advocating the carbon tax at this point in the debate is that I haven't seen a good analysis that would answer the question you ask (pared down to the scope of the actual proposals, of course).

|4.9.07 @ 8:28PM|#

New Guy...

I have not seen a good argument made as to why you would assume that addressing carbon emissions (particularly when you are talking about the entire spectrum of possible approaches) would have any negative impact on economies. Most of the things that would have the biggest impact (increased efficiency, for instance) would have a positive impact on the economy.

|4.9.07 @ 8:47PM|#

Neu Mejican,

Meeting emission specifications for CO2 would be a least COST exercise. Any existing technological processes would generally becomes less efficient if you impose new constraints- such as limiting CO2 emissions.

Efficiency gains are not always desirable from an economic point of view.

|4.9.07 @ 8:57PM|#

New guy,

Don't have time to continue this, but you could start here...

http://www.rmi.org/sitepages/pid116.php

To get a different view of the problem.

Single Issue Voter|4.9.07 @ 11:54PM|#

You Prius driving soccer moms just keep creaming over your carbon tax... it ain't gonna happen.
We still have a substantial rural working class population in this country that carries A LOT of political sway with both parties-particularly when their interests align with their wealthier neighbors/employers.

Paul S|4.10.07 @ 1:20AM|#

This is hilarious. Ron Bailey showed up with a football and you all are arguing about the designated hitter rule. Did anyone here actually read Zakaria's article? It only took me five minutes. Here's a choice quote:

"Put in place a few simple rules, and let the market come up with hundreds of solutions. We're not even 10 percent of the way down such a path."

Zakaria's article -- and RB's comments re:same -- compare [cap-n-trade + (random subsidies for methanol and switch grass)] vs. Pigovian tax. Yes, both approaches require *GASP* government action, but will produce different results, and be subject to different degrees of system-gaming.

Moreover, pigovian taxes explicitly attempt to monetize externalities, which would a) make something previously un-profit-worthy (i.e. conservation, efficiency) suddenly profit-worthy, and b) work (albeit incompletely) even if some players refused to participate (China, I'm looking in your general direction.) While this violates the sacred libertarian tenet that All Government Action is Evil, it has the lovely side effect of, um, CREATING a market in which one of you sharp young entrepeneurs can get rich.

This is a lesser-of-two-evils fight, not a do-no-evil fight. There are *varieties* of evil, you know: kicking puppies ain't the same as machinegunning pensioners.

|4.10.07 @ 2:10AM|#

"Along the way, industrial societies will earn tax revenues that they can use, in part, to subsidize clean energy for the developing world"

And tax revenues from the Lottery will be used to fund public schools...

|4.10.07 @ 2:20AM|#

/that should be "revenues from the lottery", not "taxed revenues"

"This is really a case whereby the actors creating the problem are in large part foisting the consequences on others. It is a case of me throwing garbage over my wall into your yard, and you having to pay to have it hauled away if you don't want to live in the filth."

Thats what Radical Islam says about Hollywood & America - dumping cultural poison into their backyards. I think Carbon taxes are moot, as Iran will put the climate back into "balance" for us.

|4.10.07 @ 3:03AM|#

Have any of you seen this video?
The Great Global Warming Swindle at:

http://video.google.com/videoplay?docid=4340135300469846467&pr=goog-sl

(Sorry, I haven't been able to do links with this browser)
I found it quite interesting.

M. Simon|4.10.07 @ 8:00AM|#

A tax on carbon?

Steel contains carbon. Food is full of the stuff. Plastics - ditto. Limestone - more of the same. Firing weapons emits carbon dioxide - etc.

Taxing carbon could be a government bonanza.

As a libertarian I'm all for government control of nearly everything.

M. Simon|4.10.07 @ 8:05AM|#

About 80% of the CO2 added to the environment in the last 100 years comes from natural sources.

I propose nature pay 80% of the tax.

M. Simon|4.10.07 @ 8:18AM|#

Since the sun is responsible for at least 80% of global warming I propose a solar tax.

If the sun is shining where you live you pay more in taxes. (Seattle should do OK).

Deserts would be heavily taxed.

We could coat everthing with aluminum foil to lower taxes. People wearing tin foil hats would be taxed the least.

M. Simon|4.10.07 @ 8:33AM|#

If we can reduce CO2 in the atmosphere by 90% we can eliminate photosynthesis.

That will solve all our problems.

However, if we can double the CO2 crops and trees will grow a lot better. (Them dope growers could teach us a thing or two about CO2).

Burn more fuels. It is good for the trees.

|4.10.07 @ 9:54AM|#

While this violates the sacred libertarian tenet that All Government Action is Evil, it has the lovely side effect of, um, CREATING a market in which one of you sharp young entrepeneurs can get rich.

It doesn't create a legitimate market, it either (a) distorts an existing market by artificially burdening some things and privileging others and/or (b) creates a new arena for rent-seeking behavior.

|4.10.07 @ 12:03PM|#

Eric.5B.

I am sorry discourse is so disconcerting for you.

Most people can shift effortlessly between various framings of an issue without getting queasy.

Fine, you can't take a hint. More plainly put, your juggling between a specific discussion of taxes and generalities about all policies from moment to moment is patently dishonest.

"But I find your balking at trying to pare down government involvement in the energy market in favor of the rewriting of the whole federal tax system as just a plain deal-breaker."

Talk about your false dichotomies. Please explain how we effectively pare down government involvement in the energy market without rewriting the federal tax code?

Another way you are being deeply dishonest - I suggest reducing government involvement and therefore removing or reducing taxes, while you suggest the same thing to some scale, with the additional task of constructing new taxes. One is a greater task than the other.

And when did advocating start meaning balking?

When you describe it as a "good start", and then in your next post describe the same thing as impossible. If you picked one, you wouldn't hear a complaint.

"I find your characterizing of trying to get government out of energy markets as an absolutist goal tedious."

So absolute removal of the government from energy markets isn't an absolutist goal?

Riiiight.

If you mean "reduce government involvement" don't say "get government out of."

Please. I'm no absolutist, and I'm quite aware you never completely extricate government from any arena, even in a best case. You aim for removal, you end up with reduction if you win. If you want to play pedant, try arguing honestly first. Otherwise, make friends with the likes of Grotius and Dave W.

"I'd say define "gradual" - and re-iterate the question."

One of the reasons I am not advocating the carbon tax at this point in the debate is that I haven't seen a good analysis that would answer the question you ask (pared down to the scope of the actual proposals, of course).

Then why argue so contemptibly in favor of it?

|4.10.07 @ 9:28PM|#

Eric.5B,

"your juggling between a specific discussion of taxes and generalities about all policies from moment to moment is patently dishonest."

How is this dishonest? Tax proposals are made in a larger context. I am sorry you have a hard time with my juggling skills, but they hardly rise to the level of slight of hand.

"Another way you are being deeply dishonest - I suggest reducing government involvement and therefore removing or reducing taxes, while you suggest the same thing to some scale, with the additional task of constructing new taxes. One is a greater task than the other."

True enough, I guess. One is a larger task than the other. What's your point? How am I being dishonest again?

"When you describe it as a "good start", and then in your next post describe the same thing as impossible."

A good start indicates that I agree with it as a first step. If it brings about the desired outcome you can stop. I still, however, find it unlikely that the attempt would be successful. The government will continue to be involved in the energy market, so the next step is to make sure that its reduced involvement is as wisely designed as possible (a wise man said "You aim for removal").

"If you picked one, you wouldn't hear a complaint."

Again, you offer a false dichotomy based on an overly restricted reading of my position. (I will not call it a dishonest reading - communication is hard).

"If you want to play pedant, try arguing honestly first."

I am not sure you know what the word "honest" means. At no point in this discussion have I tried to deceive you in anyway.

"Then why argue so contemptibly in favor of it?"

I am not sure that is a fair representation of what I was doing (let us shy away, again, from accusations of it being a dishonest representation of my postion).

This started with RC Dean misrepresenting the idea of a carbon tax as an additive tax. That is not how I understand carbon proposals currently being put on the table. Instead, I thought it was important to recognize that the carbon tax proposals involved shifting taxation from one sector of the economy (labor and income) to another (material throughput) without increasing (and potentially decreasing) the overall tax burden. To discuss this structural change in the system requires that other factors be brought in. If a decision on carbon taxation is to be made it would be dishonest to make it based on a misrepresentation of the proposal. So I thought it was important to keep the characterization of carbon taxes "honest."

I guess I should follow the example of others on these boards...(oh, I don't know, like someone named Eric misrepresenting carbon taxation as a proposal to place the entire burden of federal taxation onto carbon, or, despite not believing it possible, proposing that the government get entirely out of the energy sector... then sling accusations of "dishonest" when someone else throws a couple of hasty internet posting up that imply the agreement with the exact same position).

Imprecise, sloppy.
That is how communication works.