Carbon Tax

Is a Temperature Indexed Carbon Tax the Real Solution to Global Warming?


CO2 Tax

University of Guelph economist and statistician (and long time critic of the scientific "consensus" on climate change) Ross McKitrick is offering an intriguing new idea for addressing the problem of man-made global warming: a temperature indexed carbon tax. It would start out low, be revenue neutral and indexed to the temperature increases or decreases in the tropical troposphere. McKitrick points out its advantages:

Proposals for carbon taxes have to answer two questions: what should be the starting rate, and how should the tax rate change over time. Since, as I have said, a low carbon tax coupled with reductions in income taxes would likely be neutral or mildly beneficial at the macroeconomic level, it is conceivable that agreement could be reached in favour of a small carbon tax, even if people are otherwise divided about the underlying seriousness of the global warming issue. The second question, namely what the dynamic rate-setting process should be, is where views get polarized and agreement breaks down. How quickly should the tax rise, or should it go up at all? One side considers CO2 a great threat to the planet and wants a firm commitment to a rapid rise in the tax rate over the coming decades, to slow down the emissions they believe are causing global warming. The other side does not view global warming as a problem, and would view any plans to increase in the tax as an unnecessary cash grab.

There is no grand scientific answer to this dilemma. Some economists crank up giant computer models that were built on the assumption that we understand all the parameters of the climatic and economic systems, and they print out what they view as the mathematically-optimal tax path based on computations of marginal social damages and so forth. Of course the polarized groups do not believe these models or their printouts, for different reasons, so such plans are usually dead on arrival.

I propose instead that the best way to proceed would be to put a small tax on CO2 emissions, and tie its subsequent evolution to a suitable measure of atmospheric temperatures. If temperatures go up, so does the tax. If they do not, the tax does not change. In this way everybody will expect to get the policy they think best, and whoever turns out to be right deserves to be so. Sceptics who do not believe in global warming will not expect the tax to go up, and might even expect it to go down. Those convinced we are in for rapid warming will expect the tax to rise quickly in the years ahead. Companies managing factories and power plants will have to figure out who is more likely to be right, because billions of dollars of potential tax liabilities will depend on what is going to happen. Nobody will benefit from using false or exaggerated science: instead the market will identify those who can prove they understand the climate well enough to make accurate forecasts. And policy-makers will be guaranteed that, whatever the tax does in the future, the policy will turn out to have been the right one.

At first blush, McKitrick's proposal seems quite sensible because it harnesses the vast dispersed knowledge of scientists, manufacturers, fossil fuel suppliers, renewable energy innovators, and speculators to address the problem of climate change. Take a look and see what you think. 

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  1. First, there would need to be credible evidence that man-made global warming is actually occurring.

    1. Why? If it’s revenue neutral, then is the burden shift to high carbon consumers really that much of a radicalization? How does this not act as a reasonable middle ground?

      The issue I’ve always had with a carbon tax is its ability to reasonably assess carbon usage without the need for an onerous carbon branch of the IRS. Beyond that (BIG) problem though, there’s a lot of value to the political compromise embodied in this proposal.

      1. If it’s revenue neutral

        Point to the revenue neutral moves that have been revenue neutral over any time-span.

    2. But there’s a consensus among really smart scientists who derive their funding from government sources. They couldn’t possibly be motivated by self interest. They’re government! Government is selfless! The ones motivated by profit are the ones who cannot be trusted. They rely on voluntary exchange which is icky, unlike threat of violence which is noble.

  2. It would be a disaster; every time you give governments a new type of tax, they add it to the mix, and the overall tax burden ratchets up dramatically. Given the almost irrefutable observational evidence that CO2 is a minor driver of global climate using carbon tax policy to maintain climate inside some beneficial band is not likely to show any benefit at all while further hobbling economic development and dooming many people unnecessarily to shorter lives with greater poverty.

    From a public choice theory standpoint it’s a stupid idea, on a par with the Heritage foundation proposing a mandate requiring the purchase of health insurance.

    1. Well yes, that’s the real key. Once you open the door to a Carbon Tax, you’ve simply allowed for yet more favoritism, while also providing a giant new revenue mechanism that will never be allowed to simply supplant existing revenue streams.

      That’s why I would oppose it in the end, sans a Constitutional amendment.

    2. It’s even a stupid idea from an environmentalists point of view as it will drive carbon intensive industries to countries with weaker environmental standards leading to a net increase in global pollution.

  3. This could work. Except for one thing. Congress will never pass it.

  4. Revenue neutral?

    Haaaaaaaaaaa ha ha ha ha ha! That’s great! A tax that is used only to change behavior and not for revenue! And people are stupid enough to believe that shit? Fuck! Anyone who believes that is so open minded that their brain has fallen out of their head!

    1. Yeah, that’s crazy stupid. Right up there with how lottery proceeds will be used “for the children,” or that our Social Security money is sitting in a lockbox somewhere, ready to be used.

      1. Wait a minute..

        Are you telling me lottery money isn’t going to the children? And my money I been paying into SS is not in a lock box waiting for me?


        What are you going to tell me next? That government taking over healthcare isn’t going to lower cost nor improve quality?

        Take it all back!

  5. I’m going with “No.”

  6. Everybody: So all objections about its feasibility are based on government failure (aka politics), right? Assuming away this minor problem (sarc), the economics of it seem pretty sound to me. People really do put their money (not their ideology) where their mouths are and win or lose based on their actual grasp of future temperature trends.

    1. Everything runs on energy. Everything. That’s what our prosperity is based upon. Making energy more expensive will make everything more expensive and thus make everyone poorer. If climate change is indeed real, then wouldn’t a richer society be better equipped to deal with it than a society that has been made poorer by making energy more expensive?

    2. And if the temperature rises as CO2 emissions decrease we get to pay an even higher carbon tax to keep it revenue neutral even though CO2 isn’t the driver?

      1. ^^^ THIS!

    3. Ron,
      Assuming the impossible, I still have two issues with it:
      1) It’s ‘social engineering’ via taxes. Not a good thing to even offer a government.
      2) Why do you assume rising temps are bad?

      1. S: (1) All taxes are social engineering, e.g., progressive income taxation.

        (2) Depends on how fast and how high.

        1. I understand the reason humans are only hominid left is because they adapted to rapid climate change in Africa where other hominids could not. Do you really want to make the case that rapid climate change, that our ancient ancestors could deal with, is now the largest problem facing modern humans. Have we really not climbed that far out of the cave?

          1. Climate change doesn’t have to drive us to extinction to still cause problems. If temps do rise fast and high adapting could get really, really expensive and cause a lot of misery.

            1. In that case it’s best that we destroy wealth and make energy more expensive so dealing with it will be that much more difficult, right?

            2. My greater point is that a large part of human evolution is adaptation. Also our ancestors survived without the fedgov dictating from on high the best solution. Society has already adapted to climate change without a central bureaucracy dictating the terms. People like to save money, conservation saves money. Energy efficiency saves money. Fuel economy saves money. If solar panels become cost effect who would not want to put solar panels on their roof and not pay the power company? I think millions of people are better problem solvers than Top Men.

            3. LynchPin1477| 7.3.13 @ 11:10AM |#
              “Climate change doesn’t have to drive us to extinction to still cause problems.”

              How about if it (net) doesn’t cause problems? Like, maybe growing food gets cheaper?
              Do we even know enough to decide which behavior should be favored?

              1. Cheaper food? You want farmers to live in poverty because they can’t get a good price for their food? What kind of a sick monster are you? We need policy that causes food to be more expensive. That way farmers have more money to spend, and that stimulates the economy!

                1. “We need policy that causes food to be more expensive. That way farmers have more money to spend, and that stimulates the economy!”

                  And it has the added benefit of requiring government intrusion to ‘adjust’ food prices!
                  A win-win!

              2. Sevo,
                That is a point I think people miss. They think the earth is static and climate patterns don’t change. I have read that domesticated crops in Europe came from the Fertile Crescent which is now mostly desert. Over time regions that were fertile become deserts and places that were winter waste lands become fertile. Controlling this is impossible. The best we can do is raise living standards so people can afford to either relocate or adapt to the new environment. Also is sevo short for sevoflurane?

                1. Floridian| 7.3.13 @ 11:47AM |#
                  That is a point I think people miss. They think the earth is static and climate patterns don’t change.”

                  Even among those who know climate is dynamic, there is the hubris to presume we know the ‘right’ temperatures, like we know the ‘right’ species which ‘should’ exist.
                  Personally, I like me some cows, but I have real doubts about ‘preserving’ millions of acres of land so the 5 or 10 remaining wild condors have a place to live.
                  They aren’t; they’re now human pets.
                  And “Sevo” is not that.

            4. Or rising temperatures could increase the availability and lower the cost of food, and make energy and resources cheaper by expanding access to them in currently inhospitable climes. In fact, judging from the historical record, that looks like the most likely outcome.

        2. All taxes are social engineering

          Except (maybe) the Single Land Tax.

          1. All taxes are social engineering

            Isn’t minimizing governmental social engineering, including when it’s done through taxes, an important aspect of libertarianism? Not sure what the point was there or am I missing something.

        3. high

          In the long run, Im betting on the other direction.

          Well, in the very long run, when the sun expands, I guess it will get much hotter.

          But, in the even longer run, heat death of the universe will win out.

          But an ice age is still the short long run way to bet.

        4. “(1) All taxes are social engineering, e.g., progressive income taxatoion.”
          Good reason to get rid of income tax, not a good reason to add one more layer of control

          “(2) Depends on how fast and how high.”
          Perhaps, but that needs to be answered before we start rewarding possibly harmful behavior. Your recent links have shown that ‘fast and high’ aren’t there.

    4. Actually, the economics of it are terrible too.


      So let’s say the temperature drifts up because the cosmic ray flux dies and we get less cloud formation (one of the cooler theories out there).

      And so we start jacking up carbon taxes, and people reduce their energy consumption, and they suffer privations, while the climate continues on its merry way completely unaffected by the misery!

      From an economic and scientific perspective this is fucking retarded. It’s cute on paper, like my son’s idea to have the U.S. Army invade Egypt to restore order, but anyone with half a brain should recognize instantly that it’s a colossally stupid idea.

      In fact, rather than fixing the incentives of people to do science so that they do it honestly, it’s actually increasing the incentive to do the finger-on-the-scale crap science that do date has reliably buttressed the “consensus”; it provides people who game knowledge with additional tools to get rich off of pump and dump schemes.

      1. I should ammend my statement to state that CO2 does warm the Earth, but that the changes in the concentration of it in the Earth’s atmosphere due to artificial sources is not the primary driver if being a significant source of change. I was sloppy choosing my words in my rage.

      2. t: Under McKitrick’s scheme, since CO2 is not driving the climate, you could make highly profitable bets in the futures market and laugh all the way to the bank at those foolish enough to believe such a thing.

        1. And those not in a position to make such bets could at least comfort themselves with knowing that their taxes are higher.

        2. Under McKitrick’s scheme, since CO2 is not driving the climate, you could make highly profitable bets in the futures market and laugh all the way to the bank at those foolish enough to believe such a thing.

          Right, because the Earth’s climate would magically become static allowing me to predict future tax rates!

          1. Right, because the Earth’s climate would magically become static allowing me to predict future tax rates!

            Gaia can remain irrational longer than a man can remain solvent.

            1. Yep.

              I’m just livid that so many smart people are willing to imperil human civilization over such a stupid superstition.

              1. I’m just livid that so many smart people are willing to imperil human civilization over such a stupid superstition.

                Religion makes people do strange things.

        3. Does that mean when the temperature spikes up during El Nino periods, we get hit with a higher carbon tax? What about slower temperature changes due to multi-decadal ocean cycles? Should they filter out high-frequency patterns before determining the tax? If so, then we will have to wait some years before knowing what the tax is and wait even longer before we know if our privations had the intended effect. It’s a control loop with a hell of a lot of lag.

    5. I don’t think you can put the politics aside. Both the problem and the proposed solution are purely political.

      1. Exactly…

        It was an unpalatbale and shitty political solution in search of a problem that would justify it to people that would otherwise never accept it.

    6. No the economics are not sound.

      It will lead to more pollution by shifting carbon intensive industries to countries with weaker environmental standards.

      The only way that it could work is with a global government or trade barriers to prevent the aforementioned offshoring.

    7. No the economics are a failure too.

      The idea that we can predict the level of carbon taxation which is “revenue” neutral is a non starter because it inherently involves a wild assed guess as to how people will respond to changes in the taxes.

      Maybe the carbon tax obscures the tax cost to consumers and they don’t change their behavior as much as predicted and the tax brings in lots more revenue than expected, or maybe it exposes it and consumers radically alter their preferences to avoid the tax and it brings in a lot less.

      Even if you solved that you have to deal with long term changes in behavior and technology. As technology advances we need to consume less energy to achieve the same ends, this means that tax revenue would not be stable over time.

      Finally it ignores the incentive to “tinker” with the temperature measurements to artificially raise tax rates. How many measurements do you make, using what technology, how are they averaged, etc.

      This also creates a highly unstable economic situation as year over year temperature fluctuations vary MUCH more than changes to the actual climate do

  7. It would start out low, be revenue neutral and indexed to the temperature increases or decreases in the tropical troposphere

    Why the tropical troposphere? Why not the higher latitudes? Seems like there’s more variation outside the tropics, IIRC. Will they pay us if it goes down from the baseline?

    1. BL: BL: McKitrick argues that that is where the climate models predictions of future warming are most robust.

      1. Thanks, Ron. I think it is because they are predicted to change the least. Which seems to be a hole in the plan. This isn’t a Coasean bargain, its a fig leaf, IMO. If you want to create a science-based tax on external drivers of localized climate change, the best thing to do would be a universal particulate emissions tax. Temperature is a terrible indicator of effect. US average temperature is way above average, but we’re having a cool, rainy 4th of July weekend locally. An essentially 2 decade change in rainfall is reverting to previous patterns refilling both surface and sub-surface water sources — hopefully in time to save the Appalachicola Bay oyster industry, because harvesting my own would suck.

    2. The CAGW cult’s model of the Earth’s atmosphere is such that were CO^2 (or the release of any other greenhouse gas) were increasing the Earth’s temperature, it would show up as two bands of much warmer air in the troposphere in the temperate zones of both hemispheres.

      Those bands, BTW, have yet to manifest themselves. Tying tax rate to the troposphere temperatures forces the CAGW cult to put its money where its mouth is.

      1. Tying tax rate to the temperate zone troposphere temperatures forces

        Right? The tropical variations are fairly stable in both seasonal and absolute terms in everyone’s models if I understand correctly.

        1. Wow, how did I miss that?

          Time for a nap, I think… 🙂

  8. “Assume a can opener.”

  9. Just think of all the tax revenue we can collect from the sun.

  10. How do we tax poor people in Third World countries, whose burning habits contribute up to a quarter of harmful emissions?

  11. I like the idea of it being evidenced based, but it doesn’t seem to avoid all of the issues. You still have to set a starting rate and agree on a scale factor between temperature and the tax. I also don’t like the idea of taxes fluctuating every year in an unpredictable way. That does not seem to be a recipe for economic stability. But maybe averaged over some appropriately long time-scale it would be OK. You could actually base the tax for the next, say, 5 years off of the previous 5 years, so that businesses actually do have a good idea of what it will be in the year or two before the new rate kicks in. So I think there are some definite positives here.

  12. No.

    Ronald asks the easiest questions.

  13. In case of ice age, the government pays us all money for the carbon we use?

    1. No. Then you get to pay a penaltax for not using carbon.

  14. Coase is greater than Pigou.

    1. You need a t-shirt of him standing over him after a knockdown, like Ali-Forman.

      1. There needs to be a video, like the Hayek v Keynes ones.

      2. Or, we could just take Coase to Pigou’s grave and let him piss on it.

        1. I do need to give Pigou props, he say the measurement problem with Pigovian taxation:

          It must be confessed, however, that we seldom know enough to decide in what fields and to what extent the State, on account of [the gaps between private and public costs] could interfere with individual choice.

          1. s/say/saw/

          2. From the Pigovian tax wiki page:

            Peter Boettke brings forth that “The Pigouvian remedy was to bring marginal private costs (subjectively understood) into line with marginal social costs (objectively understood). The problem, James M. Buchanan pointed out, was that the analyst had to specify the conditions under which objectively measurable costs could be ascertained by economic and policy actors. In general competitive equilibrium there are also no deviations between marginal private costs and marginal social costs. In other words, Buchanan (like Ronald Coase) pointed out that Pigouvian tax remedies are either possible and redundant, or impossible to set because the conditions presupposed for their establishment either eliminate their necessity or (if absent) preclude their enactment.” In other words, “Karen I. Vaughn has pointed out the dilemma involved in this situation. To calculate the appropriate corrective tax, the policymaker must know the equilibrium price; yet the situation demanding correction implies a disequilibrium situation.”

            Maybe Bailey will read that, UNDERSTAND IT and move on from his ridiculous series of carbon tax proposal posts.

        2. “Or, we could just take Coase to Pigou’s grave and let him piss on it.”

          I don’t think he should stand in line.

      3. I think you mean Ali-Liston.

  15. Interesting. Repeal the 16th as part of the package and we’ll talk.

    1. Yes. And that specific order. First repeal the 16th, then discussion can begin.

      If the discussions take 30 or 40 years, thats fine.

  16. Is a Temperature Indexed Carbon Tax the Real Solution to Global Warming?

    No, because I don’t believe in solutions to non-problems.

  17. How does Dr. McKitrick propose that we enforce this tax on rapidly developing, hugely populous nations such as China and India? To be clear, I’m all for the American government taxing Chinese industry.

  18. Is a Temperature Indexed Carbon Tax the Real Solution to Global Warming?

    No. Next question.

  19. Any “solution” to global warming that doesn’t involve China is a non-starter.

    The entire western world could run on Unicorn farts tomorrow and China will still be pumping out new coal fired plants which will offset said Unicorn fart emissions.

    The amount of scientific ignorance in debating policies such as this is staggering.

  20. Hopefully we will get tax credits when the temperature dips below normal.

  21. Since people live on the Earth’s surface, atmospheric absorption effects increase with latitude, water covers most of the tropics , and McKitrick’s specialty is cherry picking in the sevice of accusing people of cherry picking, maybe we should get a second opinion.

  22. Some people here call it “social engineering,” but it’s not. The principle of the carbon tax is to make the cost of energy reflect the actual cost of production and use, including any environmental costs. That’s free market capitalism. It’s also clearly fair except to a “no new taxes” ideologue. The global temperature trigger mechanism helps take out a lot of the uncertainty about what the environmental costs really are.

    I’m a liberal and I’m on board, although I agree with others that it’s unlikely to pass. How has the environmental community responded to the idea.

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