Carbon Tax

Economists Love Carbon Taxes. Lots of Regular Folks Don't.

Raising the price of gasoline, heat, and electricity is a steep political hill to climb.



Oil company ConocoPhillips just pledged to spend $2 million promoting the carbon tax and dividend plan devised by the Climate Leadership Council (CLC) organized by former Republican Secretaries of State James Baker III and George Shultz. ConocoPhillips is among the CLC's founding member oil companies, alongside ExxonMobil, BP, and Shell.

The goal of the CLC's carbon tax and dividend plan is to reduce carbon dioxide emissions from fossil fuels by increasing fossil fuel prices over time. Under the CLC's carbon tax and dividend plan an initial tax per ton of carbon dioxide would be set at oil and gas wellheads and coal mineheads.

As the tax escalates at a steady predictable rate over the years, higher electricity and transport prices are supposed to encourage increased conservation, greater fuel efficiency, and the development and deployment of no-carbon energy sources. Once the CLC's carbon tax plan is adopted, all other regulations and subsidies aimed at reducing carbon dioxide emissions, e.g., automobile fuel efficiency and renewable portfolio standards, are supposed to be permanently repealed.

Finally, the linchpin of CLC's plan is that all of the proceeds from the carbon tax would be divided equally among U.S. citizens and returned as an annual lump-sum directly to them. The CLC argues that "conferring financial benefits in the here and now would fundamentally alter the cost-benefit time horizon of climate mitigation, re-casting a carbon fee as a popular and even populist solution."

The CLC cites a 2018 study that finds that 70 percent of American households would receive more in dividend payments than they would pay in increased energy prices. Taxpayers in the bottom income quintile would average a net tax cut of 4.4 percent of pretax income while those in the middle quintile would receive a net tax cut of 0.3 percent of pretax income.

While the concept of revenue neutral carbon taxes for addressing the problem of man-made climate change is beloved by most economists, the idea that they are "a popular and even populist solution" may be a bit premature.

The recent Yellow Vest protests in France were sparked by just a 12 cent increase in transport fuel taxes aimed at reducing that country's carbon dioxide emissions. (For the record, a gallon of gas already costs $5.54 in France.) The New York Times suggested that this outburst might have been avoided if the taxes had been specifically devoted to "subsidies to encourage people to use less-polluting forms of energy, and expanding transit networks."

Consider also what happened to carbon tax proposals in Washington state during the past couple of elections. In 2016, a revenue neutral carbon tax referendum failed when environmental activists opposed it on the grounds that the tax revenues should not be returned to voters, but instead be devoted to a panoply of green energy and public transit projects.

In 2018, Washington state voters rejected a carbon tax referendum crafted by environmental activists that would have created a kitty of new tax money available for politically favored groups to shower on their pet projects.

Australia adopted a carbon tax in 2012 that was repealed under popular pressure two years later.

Canada, meanwhile, has adopted a carbon tax scheme imposing a price of $20 per ton that applies to just four provinces (the others have set rates on carbon emissions that are already high enough to meet the new federal standards). Prime Minister Justin Trudeau has promised that 90 percent of the revenues collected will be rebated back to the residents of Saskatchewan, Manitoba, Ontario, and New Brunswick.

Despite the rebate pledge, Yellow Vest protests against the new Canadian carbon tax broke out this past weekend in some cities, including Edmonton, Toronto, Winnipeg, Okanagan, Moncton, Calgary, Saskatoon, and Halifax.

A 2018 World Bank report identifies 51 carbon pricing initiatives as having already been implemented or as scheduled for implementation. These consist of 25 emissions trading systems, mostly located in subnational jurisdictions, and 26 carbon taxes primarily implemented on a national level.

While carbon taxes make sense to economists worried about climate change, raising the price of staples like transport fuel, heat, and electricity remains a steep political hill to climb.

For folks who are worried about climate change, a more politically popular approach might be to incentivize a vigorous technology research and development program that aims at making low carbon energy cheaper than fossil fuels. In the meantime, encouraging economic growth will help to create the wealth needed to adopt low carbon technologies and adapt to whatever harms may emerge from man-made global warming.

NEXT: Brickbat: What a Dick

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  1. — Raising the price of gasoline, heat, and electricity is a steep political hill to climb. —

    Because such burden is primarily carfied by the poor and lower economic classes. Politicians (and leftwing economists) quickly forget that people tolerate taxes provided that the rich are taxed, not them.

    1. This.

      It’s why government will never solve global warming.

      Ostensibly, carbon taxes are a way to make people pay for the environmental damage their power consumption causes.

      But, ostensibly, government is about reducing inequality by making some people pay for other people’s consumption.

      You can’t do both at the same time: hold someone accountable and not accountable for their consumption, simultaneously.

      Gee: I wonder why global warming is still a problem, even with all these governments going on.

      1. In (I’m afraid Quebec has been infected by the ‘do something’ virus) Quebec, we’ve taken to the anti-pipelines hysteria while Montreal banned the use of fireplaces.

        A city where temps are well below – far below – 0c in the winter. So people crank the heaters but then Hydro Quebec and the media scold and lecture people about needing to conserve energy.

        Apparently people have to freeze and live in discomfort.

        For the granola environmentalists who run amok.

        I hate – loathe – politicians who do this. From Legault to Climate Barbie to Trudeau.

        They’re ‘warriors’ in their own minds.

  2. tl;dr – Carbon taxes are another form of rent-seeking in order to prop up pet technologies that couldn’t survive on their own. Screw the peasantry; they need to pay more for the good of the renewable energy fat cats.

  3. Those selfish and ungrateful peasants don’t know what’s good for them. He only way to bring on these necessary policies to appease the Angry Volcano God… I mean, Climate Change, is to impose Climatearia Law through the force of a wielded sword!

  4. “The CLC cites a 2018 study that finds that 70 percent of American households would receive more in dividend payments than they would pay in increased energy prices.”

    So I could use my dividend to offset the increased cost of energy and drive my SUV as much as ever. Cool.

    1. From each according to his carbon, to each according to his needs.

      And “economists” came up with this.

    2. If you typically don’t drive your SUV a huge amount, then you are correct. You would have the choice to use the dividend to continue your habit, and you might well break even. However, since the carbon fee would make gas prices higher, you’d have an incentive to switch to less polluting ways of getting around. The CLC proposal would give you other choices: save more of your dividend check, or spend it on something more fun than gasoline.

  5. I got 99 problems but climate change ain’t one of them. I absolutely do not care. Once we fix all our other problems that actually matter, then maybe we can look at climate change. I’m a little more concerned about a $20T National Debt and the zero effort to curb our spending habits.

    1. And if it is a significant problem, which it may well be though I’m far from convinced, it’s still just one among many problems. And other problems are a lot easier and less costly to do something about with current resources and technology (and political will).

    2. Billy, I agree we need to fix our spending habits. Interest payments on the National Debt cost us about $500 billion a year. But we’re already paying for climate change, to the tune of $250 billion a year in the U.S. (see Sept 24 2018 story in, “Research forecasts US among top nations to suffer economic damage from climate change”). If the greenhouse gas buildup continues, we’ll be paying even more. An advantage of CLC’s proposal, as opposed to some of the other schemes, is that it will boost the overall economy, making it a bit easier to pay off that National Debt.

  6. The fact Trudeau is backing this is enough for me (well, it really was just icing on the cake) to not consent to this idiocy of a carbon tax.

    Always remember. Economists are laggards and only the political class and connected either benefit or don’t feel the pinch.

    It’s the rest of those icky deplorables.

    And for what? Carbon taxes will do exactly squat except to make people poorer.

    It’s simple. Lay down your private jets Steyer and Gore and then maybe – maybe – I’ll take you seriously.

    Cui bono?

  7. It’s interesting that those who are calling for these “carbon” taxes never produce any of their vaunted “science” to show us how the taxes will help the climate. We’re just supposed to take it on faith.

    1. Of course they don’t. And the even bigger lie is that it is sold as “market approach”. It is not market at all. It is a perfect example of central planning. The taxes only work if you set them to the proper level, meaning they reflect the “cost”, whatever that is, of the increased carbon in the air. So whole scheme depends upon a central planner somehow understanding not only the complex workings of the climate but how the entire economy affects that climate by emmitting carbon. Yeah, there is no information problem there.

    2. Not true. For a description of the model that calculates how the CLC plan will help both the economy and the climate, search Google for “E3 Carbon Tax Calculator”.

  8. Most Americans are free market advocates when it comes to their wallets.

    “This costs too much”!
    “We can’t afford that”.
    “Fucking gas is too expensive”!
    “Fucking politicians stealing from me for this pack of smokes”!

    1. Exactly. See Milton Friedman’s “Four Ways In Which You Can Spend Money”.

  9. Economics is a joke. They are overpaid historians and analysts of what happened in economies.

    They rarely correctly predict what the invisible hand wants or will do. If you cannot continually replicate the results, its junk “science”.

    Plus, economists have not kicked Krugman out of their industry shamans club.

    1. The basic good economic theories have already been made public and were just common sense applictions of what most markets do anyway.

      Supply and Demand.
      Moral Hazard.
      50 important economic theories

  10. The fact that economists like carbon taxes shows how badly the field is infected with leftism and how the field in general knows the price of everything but the value of nothing. Taxing energy has cascading effects beyond just the increased cost of it. Indeed, the entire point of taxing it, beyond raising revenue, is to get people to use less of it. That necessarily makes people poorer. If the cost of conserving energy, either by not doing something or somehow doing it more efficiently, were greater than the cost of using the energy, people would already be doing it. Indeed, in many cases they are. What economists never seem to understand is that there are values other than the cost of energy. Having a larger house, having a safer more comfortable car, living in an area that you prefer that is further from your job, are all “goods” as well. And people all things being equal choose those values over conserving energy. All taxing energy does is make those choses artificially expensive and deprive people of their preferences, which is another way of making them poorer.

    It is really amazing that the field of economics has degenerated to such a degree that it thinks making energy more expensive is the way to increased wealth. The entire field has become a cult of central planning, wamred over leftism, and worship of “efficiency” and the personal tastes of the elite over all other values.

    1. I’m sure it’s partly, maybe even mostly ideological. But I think there is also the tendency for academics to think that if they can imagine something working and have a really good model for it, then it should work in the real world with real people. But as you point out, people don’t always behave like the do in economics models.

      1. But I think there is also the tendency for academics to think that if they can imagine something working and have a really good model for it, then it should work in the real world with real people.

        And that Zeb is a very nice description of a central planner.

        1. ‘I come with the ideas, let them deal with the consequences’.


      2. Maybe they should have practical real life work experiences then if they’re going to advance their ideas?

        Don’t tell a businessman they need payroll taxes (insert reason here) or how to run their daily operations etc., if you’ve never run a successful business yourself.

        1. Economists do shit like think the sollution to traffic jams is to put use taxes on roads. It is true that if you make the roads expensive enough to use, people will stop using them. It never seems to occur to economists that people are using those roads for good reason and will be less productive if it is too expensive to do so. They honestly seem to think that everyone gets up and drives around town at 8 every morning and 6 every night because they have nothing better to do and that you could force them not to do so or drive at different times without any second order effects or costs.

          I am dumfounded by how otherwise intelligent people could be that stupid.

          1. Your first mistake is assuming those people seem otherwise intelligent.

            I am sure if you spoke with them, they would say other moronic shit not just about economics.

            They have been giving away college degree for decades, so we have credentialed people who are not intelligent, even on the things they are credentialed for.

            1. Take Shikha for example.

              I am sure that she has some college degrees and she calls herself a journalist, yet she says the stupidest things some of us have ever heard. That and she writes like someone who is not good at journalism.

              1. AO-C has an economics degree too, don’t forget. How else do you think she’s able to delve into such deep and important topics like the Gini coefficient.

                If higher education wants to be useful and applicable to the real world, it must start by ditching Marxist analysis and other fantasy worlds.

    2. Economists like carbon taxes because they think it’s less of an imposition than the suggested alternative as far as I know. It’s advanced question begging.

      1. It rests on the assumption that the only policy objective is to reduce carbon emissions. It fails to understand that even this treatment can be worse than the disease. There’s no way to reduce emissions without crippling economic growth, and that growth will be the source of technological solutions future generations will depend on. Even the least intrusive policy will have compounding effects down the road that effectively shoot our descendents in the feet. There’s a good chance it will be counterproductive to the goal of surviving climate change.

        1. I think it also usually rests on the premise that some policy will be implemented, and so they are looking for the least harmful policy out of a host of harmful policies. I don’t doubt there are economists out there making the case wholeheartedly for carbon taxes, but I think most probably just see it as the least disastrous proposition. You’d have to stretch that a bit to make it ‘love’ carbon taxes.

          Also, in fairness, there are many different types of economists so it may even be true that ‘most’ think it’s a great idea and they love it. I imagine if you include the 3rd world in doctor statistics, you could also say most doctor’s ‘love’ the idea of using cocaine as a therapeutic drug as well.

    3. John, there are plenty of fools who are economists, but it’s unfair to claim the entire field has become a cult. Not all economists would say, as you claimed, that “making energy more expensive is the way to increased wealth.”

      What I consider to be rational economists would agree that energy is a good, and it makes a person’s life better. However, the energy-using person has a choice: buy energy with negative externalities from pollution (ie fossil fuel energy) or buy clean, renewable energy. If the person chooses fossil fuel, then that person gets the energy benefit while the rest of us get little from that person’s choice other than the pollution. It seems fair to adjust the price of the fossil fuel to give people an incentive to choose non-polluting, renewable energy.

      How to “adjust the price?” We either make the fossil fuel energy more expensive, or make the renewable energy cheaper. Making the renewable energy cheaper would expand government. So instead we make the fossil fuel cost more money. A cool “trick” of the CLC proposal is that rather than collecting the money as a tax and giving it to the government, we redistribute it evenly between the many pollution-sufferers.

      That redistribution increases wealth. First, by encouraging renewables, it reduces the cost we all pay for climate change — currently $250 Bn/year in the US. Second, it puts more money in the hands of people who will spend it rather than saving it, which increases overall wealth.

  11. This is an old idea in economics. The idea is that if it something is bad for others (throwing shit in the creek behind your store) but there is no market incentive for you not to do it (your customers will not willingly pay more to cover your proper disposal of the shit versus the other guy who throws it in the creek) then the answer is to tax the activity of throwing shit in the creek at an amount which will incentivize everyone to properly dispose of it. It’s the same idea as the health-insurance penal-not-a-tax-whatever.

    It’s a sound idea, except that it tends to strike the non-cognoscenti as a payoff, and also makes it seem like nobody really cares about shit in the creek, or else they’d be doing something about it, not just collecting a tax that won’t necessarily be spent on mitigating it.

    1. The only problem with it is that the tax only works if you can accurately price the cost of putting things in the creek. With something small and simple like polluting a creek, the govenrment or courts can do that with some degree of acuracy. A carbon tax would require the govenrment acurately calculating the externalized cost of a emitting a ton of carbon into the atmosphere. Get it too high and the tax is inefficient. Get it too low and the tax doesn’t work. There is no way on earth to get the tax right.

      1. That, too. And even if there is a way to get it right, you still have to contend with politics where the decision will be made by people the majority of whom don’t understand what is trying to be done, even if they would be on board if they did. It’s the same problem with Cass Sunstein’s “nudge” — it’s great if you can have the nudging done by a benevolent guru who doesn’t have any conflicts of interest or ideological goals that trump evidence-based policy. But in real life…

  12. So, the great idea is to penalize people’s energy use to fund a wealth redistribution scheme. Yes, that is quite the market based solution. No wonder it is “beloved” by a certain kind of economist. The technocratic social engineer sort Hayek warned us about in “The Road to Serfdom”.

    1. While carbon taxes make sense to economists worried about climate change, raising the price of staples like transport fuel, heat, and electricity remains a steep political hill to climb.

      Maybe Bailey is being sarcastic here. But it seems like he doesn’t understand that it is a steep hill to climb because it makes people poorer and people understandably dont’ want to be poor.

      It doesn’t seem to occur to Bailey that it is an unpopular idea because it is a really bad idea.

      1. But, John, it comes with a built in bribe for the poor!

        1. The bribe can only be paid if the taxes are paid. The taxes can only be paid if people use energy. But the point of the tax is supposed to be to get people to use less energy. So if the tax works as advertisd, it doens’t collect the taxes necessary to bribe the poor. They claim to want to reduce carbon emissions but build their entire bribery system on the assumption that people will continue to emit carbon.

          Gee, it is almost like the whole thing is just a subterfuge to steal money and has nothing to do with “climate” or the poor or anything else. I guess Bailey’s faith in top men is such he thinks they would never do such a thing.

          1. Yes, it is artificial, overly complicated, and a Trojan Horse for another agenda entirely.

            It is Bailey, the guy who thinks self driving Ubers are going to replace personal car ownership.

          2. By the time this ‘trickles down’ to the poor through lack of redistribution, they’ll be dead from lack of heating and cooling so I think you’re really misunderstand the point of these types of policies. They quite literally kill people for the good of the planet, and that is absolutely an intentional result.

            Nevermind that China will laugh all the way to the bank. Sure, communist nations are inferior economically to a free market economy but we threw our free market economy under the bus a long time ago. Combine that with propping up China by cutting off our own production and you have a recipe for a really bad situation. Not for China, though. Only for us.

      2. J: I will point out that I did link above to my earlier article showing that renewable energy mandates hurt the poor more.

  13. No, the goal of the CLC’s carbon tax and dividend plan is to reduce competition and lock in regulatory advantages for incumbent businesses (who can survive the regulations better than upstart competitors).

    The claim that “economists love carbon taxes” requires a highly selective definition of “economists”. A few do but many more think that the economic justifications for a carbon tax are poorly established and that they are highly regressive and largely counter-productive.

  14. Humm, isn’t the US one of the few countries actually meeting the Paris Climate Agreement even though we didn’t sign.

    Yes, all those great green technologies that we don’t have the rare earth minerals for in the US.

  15. Glad the UN is working –
    According to the Climate Damages Tax report launched during the UN climate conference by the World Wildlife Fund (WWF), Practical Action, and others in the “social justice” arena, the CDT would be a new charge imposed on coal, oil, and natural gas producers to account for the damage their products supposedly cause to the climate and to the world’s most vulnerable populations.

    The report argues:

    Already, at only 1?C of global warming, climate change fuelled events include extreme heat waves, rampant forest fires, devastating droughts, catastrophic floods, increasingly destructive hurricanes, typhoons and cyclones and sea level rise stealing people’s homes.

    Everything written there has been disproved but that doesn’t fit their narrative.

  16. Of course most people would not want this since we already pay about half our income in taxes, fees and the benefits we need to survive in life and retirement. Is there no end to how many ways they want more of our money? GEEZE!!!

    1. Tommhan, this is not a typical tax. The revenue collected would go right back out again in payments to US households. You, too, would receive regular payments. Because the top 20% of fossil fuel users consume a lot more than the rest of us, the fees they pay would mean the rest of us come out ahead, financially.

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