Why is Naomi Klein So Cool on a Carbon Tax?

(Daniel Lazare is a writer living in New York City; his books include The Frozen Republic, The Velvet Coup, and America’s Undeclared War.)

Naomi Klein is not exactly bubbling over with enthusiasm about a carbon tax, and since she has emerged as a leading voice on climate change, it’s worth exploring why. She barely mentions the topic in This Changes Everything: Capitalism vs. The Climate, her magnum opus on global warming, and was oddly dismissive in a recent interview with Grist. “I don’t think a carbon tax is a silver bullet,” she said, “but I think a progressively designed carbon tax is part of a slate of policies that we need to make this transition … [to] rapid renewables.” But then she went on to disparage the analysis that is at the core of the carbon-tax argument:

You know, I’ve been making these arguments around economics, but there is nothing more powerful than a values-based argument. We’re not going to win this as bean counters. We can’t beat the bean counters at their own game. We’re going to win this because this is an issue of values, human rights, right and wrong. We just have this brief period where we also have to have some nice stats that we can wield, but we shouldn’t lose sight of the fact that what actually moves people’s hearts are the arguments based on the value of life.

So on one hand we have economics, the stuff of “bean counters” and other bloodless sorts, while on the other we have values and morality. A carbon tax would be beneficial, but since we will never beat the economic analysts on their own turf, there’s no point even trying. Instead, we should concentrate on things that stir the soul, such as human rights.

Naomi Klein: Why is she so cool on taxing carbon pollution?

Naomi Klein: Why is she so cool on taxing carbon pollution?

Or so Klein maintains. But there’s something off-putting about such arguments. The distinction between economic analysis and morality, for instance, smacks of anti-intellectualism. Not only are head and heart separate and distinct in Klein’s world, but there’s no question as to which is on top. But her view of a carbon tax is also incorrect. It’s not for bean counters only. Like any real-world phenomenon, a carbon tax is multi-dimensional, which means that it has not only an economic component but a political and moral aspect as well.

How so? Everyone knows what the purpose of a carbon tax is. It’s to internalize the externalities, to take the growing costs associated with fossil fuels and bundle them into the price of such fuels so that the individuals using them have a more accurate idea of how much a specific activity truly costs. When drivers understand how expensive gasoline really is when all the attendant costs are taken into account, then they’ll treat it with the respect it deserves.

This is the sort of economic wonkery that no doubt leaves Klein cold. But it is not only an economic argument. Externalities include not only environmental and congestion costs and the like, but such items as the cost of insuring an uninterrupted flow of oil from the Persian Gulf. Expenditures like these aren’t trivial, needless to say. Indeed, one study published in Energy Policy puts them at a stunning $7 trillion for the years 1976-2007, not including the Iraq War, which, according to Joseph Stiglitz and Linda Bilmes, may wind up costing $3 trillion more.

This is a political externality as much as an economic one. If we agree, moreover, that the invasion of Iraq was fundamentally about oil, then there is another external cost to consider, that of lost lives. This includes not just the 4,500 U.S. servicemen killed since 2003, but a half million or more Iraqis. Klein, curiously enough, made no mention of the spiraling conflict in the Middle East in either This Changes Everything or her Grist interview, yet it’s as much a consequence of unconstrained fossil-fuel use as is global warming. But if we adjust fuel prices to reflect the growing human wastage that carbon addiction causes, then it becomes clear that a carbon tax is not just an economic or political instrument, but a moral one too.

Economics, politics, and morality are different ways of approaching the same problem. They are not antagonistic as Klein seems to think, but complementary and mutually supporting. Whether or not a carbon tax is a silver bullet, it’s a means of attacking over-reliance on fossil fuels on all fronts simultaneously. That doesn’t make it a magic wand that will wave all such problems away. But it’s one of those elegantly simple ideas – like one person-one vote or liberté, egalité, fraternité – that easily roll off the tongue yet are politically explosive. That’s their beauty since they require that society be turned upside down before such a basic principle can be implemented. And what can be more soul-stirring than that?

Photo by Ed Kashi, courtesy of Grist.

Last modified: February 13, 2015

Conservatives: Unpriced Carbon Pollution is Theft — Milton Friedman Would Tax It

Free dumping of CO2 pollution into the atmosphere is nothing less than “theft” from future generations who stand to suffer from unabated global warming, declared University of Chicago economist Steve Cicala at a symposium last week in honor of the conservative icon Milton Friedman. “It is theft,” said Cicala. “That’s a loaded term, but if someone else has a better term for taking something from someone without their consent and without compensating them, I’d be happy to hear it.”

E&E News reports that Cicala and former Obama White House adviser Michael Greenstone, who holds the Friedman chair at the U. of Chicago and directs its Energy Policy Institute, asserted that “if the late free-market economist Milton Friedman were alive today, he’d probably support pricing carbon.”

Free-Market Economist Milton Friedman
Free-Market Economist Milton Friedman

According to E&E, Cicala and Greenstone argued that,

Friedman… would have viewed climate change as a negative externality associated with burning fossil fuels and would have believed that society was entitled to recover its losses from those who emit carbon to advance their economic interests… While there is a market for the products that are associated with greenhouse gas emissions — like electricity, fuel and steel — there is no market for the pollution inflicted by their manufacturers on the public. [Read more…]

Last modified: November 12, 2014

Is the rift between Nordhaus and Stern evaporating with rising temperatures?

Lead author of this joint post is Peter Howard, Economic Fellow at the Institute for Policy Integrity at New York University School of Law.

The political task of enacting carbon taxes ­― and maintaining those in place ― has proven so daunting that questions of the tax’s appropriate level have gotten short shrift. Carbon tax advocates do not often discuss: How high is the optimal carbon tax? Along what trajectory should it increase over time? What, if anything, can climate science tell us about the right carbon tax to aim for?

Prof. William D. Nordhaus, Yale University

Prof. William D. Nordhaus, Yale University

In the academic realm, the distinguished Yale economist and public intellectual William Nordhaus has taken a leading role in the discussion. Nordhaus first modeled energy-economy interactions in the 1970s, and since the early 1990s successive versions of his Dynamic Integrated model of Climate and the Economy, or DICE model, have been used to estimate costs and benefits of carbon mitigation strategies in one prestigious report after another ― most recently in the Fifth Assessment Report by the UN Intergovernmental Panel on Climate Change (IPCC).

Given Nordhaus’s concerns over global warming, reflected in his ongoing repudiations of climate change denialists as well as his impatience with cap-and-trade schemes, it has been jarring for some to see him advocate for a relatively low carbon tax. In his 2008 book, A Question of Balance, which relied on the 2007 version of DICE, Nordhaus proposed a year-2005 starting price of just $8 (U.S.) per short ton of CO2 (from his Table 5-4, adjusted to 2012 dollars and recalibrated from metric to short tons and from C to CO2), which would then take two decades to double and another 30 years to double again.

Nicholas Stern (Baron Stern of Brentford)

Nicholas Stern (Baron Stern of Brentford)

In contrast, the Carbon Tax Center and its allies at the Citizens Climate Lobby have long advocated a steeper, stepwise ramp-up, with an initial price of around $10 per ton of CO2 followed by annual increases of the same magnitude for at least a decade and perhaps much longer. This policy recommendation is more in line with the views of Nicholas Stern ― lead author of the Stern Review on the Economics of Climate Change (2006) ― who argues that strong climate policies are necessary immediately to forestall large future damages from global warming. In the past, Nordhaus (along with several other economists) disregarded these findings based on the low discount rate assumed in the report.

Recently, however, this difference in opinion between the Nordhaus and Stern camps with regards to policy (though not discount rate assumptions) has lessened. Using the latest version of the Nordhaus model, DICE-2013, Nordhaus finds an optimal initial (2015) carbon price of approximately $21 per short ton of CO2 in 2012 U.S. dollars (a near tripling from DICE-2007). Moreover, the optimal tax according to Nordhaus rises more rapidly over time as compared to DICE-2007.[1] A tax of this amount would restrict the average global temperature increase to approximately 3 degrees Celsius above pre-industrial levels.[2]

As economist and NY Times columnist Paul Krugman noted in his review of Nordhaus’s 2013 book, The Climate Casino,even Nordhaus seems surprised by his finding that both the international consensus of a 2 °C limit and the carbon tax necessary to achieve it are nearly economically rational.[3] And given that DICE-2013 fails to account for climate tipping points (as Nordhaus himself notes), an even lower temperature limit and higher carbon tax are justifiable.

Stern has now taken this recent scholarship a step further. In a June paper co-authored with economist Simon Dietz, Stern demonstrates that the DICE framework can support an even stronger mitigation effort than the latest Nordhaus specification of the model.Their paper, “Endogenous growth, convexity of damages and climate risk: how Nordhaus’ framework supports deep cuts in carbon emissions” (co-published by the Centre for Climate Change Economics and Policy as Working Paper No. 180, and by the Grantham Research Institute on Climate Change and the Environment as Working Paper No. 159), is not a rehash of the Stern-Nordhaus dispute over discounting. Rather, the paper accepts Nordhaus’s choice of discount rate for argument’s sake but modifies the 2010 edition of Nordhaus’s model in three critical ways. [Read more…]

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