Everyone from the President on down professes to want more hi-tech jobs and cleaner energy. Here’s a prescription for getting them: enact a gradually-rising carbon tax but delay its implementation for two years to avoid dampening the fragile economic recovery.
That’s former Fed Vice-chair and Princeton Econ. professor Alan Blinder’s message in “The Carbon Tax Miracle Cure,” broadcast today from the pulpit of free-market orthodoxy, the editorial page of the Wall Street Journal:
[A] carbon tax… should be enacted now [but] set at zero for 2011 and 2012. After that, it would ramp up gradually… What’s critical is that we lock in higher future costs of carbon today.
Once America’s entrepreneurs and corporate executives see lucrative opportunities from carbon-saving devices and technologies, they will start investing right away—and in ways that make the most economic sense… I can hardly wait to witness the outpouring of ideas it would unleash. The next Steve Jobs, Bill Gates and Mark Zuckerberg are waiting in the wings to make themselves rich by helping the environment. Jobs follow investment, and we need jobs now.
Blinder recommends using carbon tax revenue to reduce the deficit and underscores the advantages of a carbon tax over other deficit reduction strategies:
[E]very realistic observer knows that closing our humongous federal budget deficit will require a mix of higher taxes and lower spending as shares of GDP. Forget about value-added taxes and other new levies you may have heard about. A CO2 tax trumps them all… reducing our trade deficit, making our economy more efficient, ameliorating global warming, and showing the world that American capitalism has not lost its edge.
Now that “hiding the price” behind cap-and-trade has crashed politically, Prof. Blinder is urging Congress to try the opposite: show the price—two years ahead of time—and let the expectation of a rising price on CO2 pollution do its job-creation and climate work. As for the politics, Blinder drags out the familiar Churchill quote: “You can always count on Americans to do the right thing—after they’ve tried everything else.” It’s a cliché, all right, but it might just apply.
David F Collins says
It’s comforting to see high-level folks like Blinder favoring a Carbon Tax. However, I do not like his view, that the take from the Carbon Tax should be used for deficit reduction; to me it seems much like treating it as federal government revenue.
If the Carbon Tax does its job of reducing fossil fuel use (iter al.), to fight Climate Disruption and «Peak Oil», eventually the take from this tax will decrease. In other words, the federal government would have an interest in not reducing «carbon» emissions too much, which might severely impact carbon tax revenues.
Jeanne Fudala says
David Collin’s points are “spot on”.
And, besides, though not an economist, I should think that the revenue neutral tax/fee and dividend approach would be among the best ways to bolster the fragile economy without any kind of delay; it already has built in gradual increases; and the sooner to gain the political will to enact it the better.
Robert Malin says
Yes this is great that this is being broadcast from the Fountainhead itself The WSJ and yes we need to be vigilant on this as a fee & rebate program that “incentivizes” reducing the users’ carbon footprints. The timing to try to get some buzz on this may be ripe as I believe I just read that the European Carbon Exchange is shut down due to fraud.
meenal says
“Once America’s entrepreneurs and corporate executives see lucrative opportunities from carbon-saving devices and technologies, they will start investing right away—and in ways that make the most economic sense”. I disagree. Here in PA, we knew the rate caps on electricity were coming off on 1/1/2011, at least 2 years beforehand. Afraid I didn’t see very residents or businesses investing in electricity conservation.
I disagree with tying the carbon tax to the deficit. The deficit didn’t just happen. It was caused by our spending habit on the military (to protect our oil under middle east nations) and our bailout of the finance industry. The deficit is a creation of the Bush era, and we’ll need to find another way to reduce it; I seem to remember Clinton had left us with no deficit. Returning the tax to the people is the best option.
James Handley says
hi Meenal,
Probably the biggest initial effect of enacting a carbon tax in advance of implementation would be to provide an assured rate of return for investors in renewable energy sources. They’d know that their product would soon start to be competitive with coal. And the clearer (and higher) that price signal is, the lower their risk and thus the larger the investment in renewables.
As to revenue return, I’m intrigued by Obama’s new payroll tax cut that just went into effect last month. It’s small and only for a year. (The 2% reduction amounts to $2,136.00 for workers paying the maximum payroll tax.) But that tax cut is bound to be popular and should stimulate job growth. What about extending and expanding it with carbon tax revenue? Strikes me as a linkage that could help us sell a carbon tax. “Tax what we burn, not what we earn!”
Jim Lazar says
This was also mentioned by KLGates in their recent “Our Energy Policy Uncertainty Continues” available at:
http://www.climatelawreport.com/2011/03/articles/government-policy/us-our-energy-policy-uncertainty-continues/index.html
The fact that he tops out at $200/ton is an indication of a serious proposal that might actually work.