Media Maturity Smoothing Carbon Tax Path
08/2/2008 by Charles Komanoff
Match the statement with the "green" source:
- Statement 1: Expensive energy is a powerful medicine. It may hurt when taken, but it brings long-term cures for a host of ills.
- Statement 2: Willingness to advocate an explicit carbon tax is the real test of whether either [presidential] candidate is ready to confront [global warming].
- Statement 3: Pricey gas is mostly just economic pain. But beyond the agony at the pump, life is getting a little better in ways we may not notice.
- Source 1: Sierra (Club) magazine
- Source 2: Al Gore
- Source 3: Greenpeace
Answer: None. The statements are real, alright (though elided slightly here), but none is from a certified greenie. All three are from articles in mainstream magazines: Business Week (The Real Question: Should Oil Be Cheap), National Journal (How to Get Serious About Energy Policy), and Time (10 Things You Can Like About $4 Gas), respectively. All three appeared in the past month.
Nor were the quotes chosen selectively. Almost any sentence picked at random from the articles would say the same thing: Expensive energy, though painful for a nation built on cheap fuels, is an absolute necessity for dealing with oil dependence and global warming.
Clearly, a change is in the air. America is growing up, as I argued in an article in Gristmill in May reporting public rejection of the gas-tax "holiday" proposed by Senators Clinton and McCain.
Naturally, not everyone in the media has gone adult. Rush Limbaugh, for one, dismissed the Time article as yet another attempt to "tell you how to live 'cause you're too stupid to know, by effete-snob Drive-By Media leftists." But a new consensus is emerging among mainstream media: "There's no faster mechanism than high prices for oil to change behavior... You suddenly are reminded how the economy works." (Time, quoting author Eric Roston) "Expensive energy, in many ways, is good." (Business Week) "A revenue-neutral package of a carbon tax and cuts in other taxes is surely within the bounds of domestic political salesmanship." (National Journal)
Of course, the recent rise in energy prices is neither sufficient nor optimal. Higher energy prices are best delivered via tax policy so the increased revenues can be socially invested or, better, returned to individuals and families, rather than lining the pockets of obscenely wealthy Saudis, Russians and Texans. A rising trajectory of prices also needs to be locked in. (Business Week: "What really drives behavior is not the actual price, but the perception of where costs will be over the long term.") A host of market barriers still impede energy efficiency. And tackling carbon emissions requires a carbon tax; coal's abundance ensures that the market can't manage alone.
The National Journal article, by veteran political reporter Clive Cook, is notably upbeat on the last possibility. The subhead reads, "Politicians of both parties take it for granted that the American voter cannot tolerate an explicit tax on carbon," a notion that the article calls into serious question. We close with these excerpts:
The country's mood on global warming has changed -- most people now seem to take the danger seriously -- but public opinion on energy policy has two contradictory strands. People are worried about rising temperatures and changing climate; but they are also worried about expensive gas. If you are serious about reducing carbon emissions, expensive gas is not a problem; it is an unavoidable part of the solution.
Politicians of both parties take it for granted that the American voter cannot tolerate an explicit tax on carbon, which would be the best way to curb greenhouse gases. This supposedly immovable resistance is why the presidential candidates advocate a system of tradable emission permits instead. But if cap-and-trade binds tightly enough to make a difference, it will necessarily make carbon-releasing fuels more expensive. The system cannot work any other way: It can succeed only by attaching an implicit tax to carbon.
As it happens, I think the political toxicity of a carbon tax as against cap-and-trade--assuming we are serious about this, and contemplating a cap-and-trade system that makes a difference--is exaggerated. A revenue-neutral package of a carbon tax and cuts in other taxes is surely within the bounds of domestic political salesmanship. But also bear in mind the decisive international advantage of a straightforward carbon tax.
Yes, America should lead on global climate change, but it cannot solve the problem alone. Its efforts will be futile unless other big emitters -- especially China and India -- join in. Reaching agreement on a global cap-and-trade regime, and coordinating each country's efforts within it, would be fantastically difficult. Think about Europe's problems with Kyoto, and multiply by 10. It would be far, far simpler to organize international efforts around a harmonized carbon tax. Why strive to coordinate a million quantities, when you can gradually coordinate a single price?
Photo: Flickr / J.A. Campbell
U.S. Carbon Tax would push trading partners China and India to follow
We can lead the world, not just by example but by incentive! To avoid disfavoring domestic products, a U.S. carbon tax should "level the playing field" by taxing "embedded carbon" — the carbon emitted in producing imported goods. This "harmonization" is sanctioned by international trade agreements. Facing carbon taxes on exports to the U.S., our trading partners will either enact their own carbon taxes or lose the potential carbon tax revenue on exports.
Straightforward harmonization is a tremendous advantage of a carbon tax over "cap-and-trade" systems. China and India firmly reject emissions caps, citing their need to increase emissions to achieve decent living standards. This contentious issue of setting appropriate caps depending on level of development largely vanishes under a system of carbon taxes. Once the biggest trading partner in the world (the U.S.) starts taxing carbon, everyone will have incentives to "get with the program." A harmonized carbon tax would save years of struggle to set appropriate caps and determining how they would inter-relate and instead would create incentives to reduce emissions where and when the cost is least.
Comment by James Handley — August 3, 2008 @ 12:05 pm
No tax has even been revenue neutral and I seriously doubt that this one will either. Combined with rising gas prices, a carbon tax will considerably add to the price of everything including food and anything else that is transported to market.
This is to be balanced by income tax reductions????? Be serious. Seniors on fixed\limited incomes won’t benefit from the income tax reduction but will suffer from the consequences of higher prices for everything brought about by the carbon tax. Everyone who has filled out an income tax form also knows that by the time you do all the calculations to get any "income tax credit" that it amounts to small change.
As a Liberal, I won’t be voting for a carbon tax in the next election.
Comment by Paul Ronnoco — August 5, 2008 @ 9:26 am
Paul,
There are several ways to make a carbon tax revenue-neutral. (Conservative economists support revenue-neutral carbon taxes, too. Look up the papers and speeches of Ken Green at AEI, or Greg Mankiw at Harvard. Nearer the center, see Yale’s William Nordhaus and Gilbert Metclaf and on the liberal side, see Rob’t. Shapiro.) CTC advocates either a "dividend" or a "tax shift" (or a combination) to make the tax revenue-neutral.
I share your well-founded fears about handing Congress $ trillions to dole out to the powerful. (See FoE’s analysis of revenue "giveaways" the Lieberman cap-and-trade bill.) There are ways to assure that a carbon tax is truly revenue-neutral. Dion’s proposal (in Canada) is for the Auditor General to certify that all carbon tax revenue has been distrubuted; none used as general revenue.
You might prefer a "Carbon Tax and Dividend" over a "Carbon Tax Shift." Under either, the carbon tax is imposed upstream on coal, oil and gas entering the economy. Everyone’s fossil fuel prices (and prices of goods that use them) would gradually rise, creating incentives for conservation and renewables. Under a "dividend," revenue would be divided equally and distributed to each household, while under a "tax shift" the funds would be used to reduce or eliminate other taxes. But neither is a net tax increase, which is why conservative economists are supportive.
A dividend would more than offset fuel price increases (and the resulting price increases in other goods) for those whose consumption is below average. And the divided avoids the problems you mention of getting your money back and includes people who don’t file income taxes or pay payroll taxes.
A tax shift might also be progressive, depending on what taxes are reduced with the carbon tax revenue. Al Gore suggests using the funds to reduce payroll taxes. But as you note, not everyone pays payroll taxes. Personally, I prefer the dividend approach because it’s so transparent and reaches everyone.
Comment by James Handley — August 5, 2008 @ 3:01 pm
Thank you for clarifying the tax issues that are plaguing the nation right now. There are so many statements floating around that it is difficult to separate the truth from the lies. Your efforts to clarify are much appreciated.
Comment by Taxes — August 14, 2008 @ 3:05 pm
It could well be that SOME media are showing maturity and responsibility. Still, the political cartoon
http://www.chicagotribune.com/news/opinion/chi-edcart-multimediagallery,0,5944816.gallery
shows that the visceral reactions to energy matters are problematic, to put it mildly.
Comment by David Collins — August 16, 2008 @ 10:32 pm
My apologies: I neglected to state that I refer to the THIRD cartoon in the series. Sorry about that!
Comment by David Collins — August 16, 2008 @ 10:34 pm