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December 05, 2007

My Commenters Is Smarter Than I: Global Warming Edition

Responding to my pessimism on carbon taxes, Dave Roberts sez:

Ezra, I think you're overlooking three possibilities.

One is the aforementioned larger Democratic majorities. Certainly not all Dems are good on the issue but the closer you get to 60 reliables the closer you get to large-scale policy change.

Two is proposing (and selling) a tax shift rather than a simple tax. This is what most in the Pigou crowd really want. Imagine, e.g., Obama saying: "I'm not going to raise your taxes. I'm going to make your taxes smarter. Right now we tax something that we want more of -- work -- and have a zero tax rate on something we want less of -- polluting the atmosphere. It makes more sense to me to move those taxes from work to polluting so we get more of the former and less of the latter."

Three is that the combination of a mildly good energy bill (like the one going up this week) and a mildly good climate bill (like the one before EPW this week) will create an increasingly large and monied set of constituencies that support, and by that I mean profit from, tough climate policy. The combination of pressure from the private sector with pressure from national security groups and religious groups and hunting & fishing groups and international aid groups and green groups and every other country in the world except fucking Liechtenstein will eventually create an atmosphere in which even Republicans are forced to act.

None all that likely on its own, but maybe in combination ...

That shift rhetoric makes a lot of sense.  Of course, you then run into the problem of people who want to finance the government arguing that this shift reduces funds.  The tax here is meant to make people do less of the thing that gets taxed.  If it functions correctly, revenues will fall.  So it seems like a pretty unstable way to fund your governmnt: Either the tax fails and carbon consumption holds, or the tax works and the government starts going broke.  We tax work, in part, because it's fairly inelastic -- people basically need to work, and so it's a stable activity to tax.  What we're hoping is that they don't need to use carbon, and so taxing it will make them use less.  In either words, we're hoping that carbon use is elastic.  That would make taxing it an effective way to discourage use, but not to run your government.

That said, Dave's points make sense to me, and one of the big elements I left out is the possible and necessary construction of pro-carbon tax constituencies, rangig from the renewable energy sector to businesses who fear for their future.  The question is how long these constutencies take to mature into a counterbalancing force.


December 5, 2007 | Permalink


Except, it won't fall to zero, right? I mean, we're not going to be a zero-emissions society in the next fifty years, if ever. So you should be able to reach a steady state...

Posted by: Nicholas Beaudrot | Dec 5, 2007 11:30:25 AM

Here is all you need to know about carbon emmissions. In 2005, theUS emmitted 5.8 gigatons of CO2, China 5.1 gtns. By 2030, China is projected to emit 11.4 gtns, the US 6.8 and India 3.3. Bottom line, the growth in China Will exceed our current output by 2030, so even if we cut our emmissions to zero, there will still be more CO2 emmitted in 2030 than there is today, and best case reductions are probably on the order of 25%, which all the scientists say will make no difference..

Posted by: Scott | Dec 5, 2007 11:55:38 AM

Ezra, you're supposed to be a wonk. You'd do with this what Bush did with his first tax cuts. You say we're going give you a big tax break on work for the next three years and instead tax carbon emissions to make up the difference. If the carbon tax is producing much less revenue three years down the road, you let the tax break, not cut, expire or create a new and smaller one.

As for how long it will take? It's already here, but people who aren't into the stock market don't know where to look.

The big infrastructure companies that are so cozy with our government and every government Foster-Wheeler (FWLT), Shaw Group (SGR), and McDermott (MDR) all make a bundle selling technology that cleans up emissions. They're one part of that constituency. Also, the solar industry is no longer on the fringe. First Solar, FSLR, is worth more than any infrastructure company (17 billion market cap) and they're great at dealing with the government--most companies in solar are as that used to be the only way they could get funding With oil over 90 and better technology they're profitable on their own and could be a powerful anti-carbon lobby.

Need I also mention GE's wind-turbine business?

Posted by: Cliff Mason | Dec 5, 2007 12:02:19 PM

I think the most straightforward thing to do would be to refund the total revenue from the carbon tax each year to income tax filers.

At the end of each year, the IRS divides the total receipts from the carbon tax by their estimated number of filers (I'm assuming they can estimate this pretty accurately), and everyone gets a tax credit for that amount.

Refundable or not? I can see both sides of this issue. Making it refundable would be an extra $X in the pockets of the poorest Americans. On the other hand, it raises the question of which non-workers are allowed to file and get the refund (16-year-olds?), and raises the incentive to cheat.

Alternatively, the carbon tax funds could be directly deposited to a private retirement account (add-on, not carve-out!) which every citizen has, and can be withdrawn tax-free at retirement, or by the estate in event of death.

Posted by: Brock | Dec 5, 2007 12:12:22 PM

We taxed the crap out of gasoline, and look, usage radically declined! yeah, us!..... oh, wait.

Posted by: John Casey | Dec 5, 2007 12:24:40 PM

On the other hand, I should note that my proposal does not cut income taxes at the margin. If you think that the disincentive effects of the income tax are very important, then this is a problem.

(I don't think they're very important at the current marginal rates. The supply-side elasticity of work is very low, except for low-earners married to high-earners, who pay their spouses higher marginal rates, get nothing from SS contributions, and really don't *need* to work anyway. And I wouldn't be surprised if marginal tax rates affect rock stars' decisions about whether to go on tour. Other than that, most of us work however much our employer tells us to.)

Posted by: Brock | Dec 5, 2007 12:33:14 PM

I think you're slightly missing the point, actually -- energy use is generally thought to be fairly inelastic, and it's tough to separate out carbon from that. The most likely scenario is that carbon use is fairly inelastic, but a tax will reduce it a little bit and encourage the development of technologies that increase elasticity. Regardless, you could discover either that carbon use went down a lot, in which case you could stay revenue-neutral by using something like Brock's proposal, or it doesn't, and you massively increase private-sector interest in reducing carbon output, even if they can't do it yet.

Posted by: Dennis | Dec 5, 2007 12:55:04 PM

Either the tax fails and carbon consumption holds, or the tax works and the government starts going broke.
Aaaargh! I hate hearing this argument all the damn time!

1) The federal budget is already in deficit--so the government is already "going broke."

2) Why would you assume this is the last tax law that will ever be passed? If emissions drop, causing tax revenues to drop, we say "Yay!" and find other sources of revenue to fund the government services we decide we need to fund. How hard is that?





Posted by: Dyon | Dec 5, 2007 12:56:42 PM

Of course, you then run into the problem of people who want to finance the government arguing that this shift reduces funds. The tax here is meant to make people do less of the thing that gets taxed. If it functions correctly, revenues will fall.

A carbon tax should be coupled with a pay out to biochar producers and others who can remove co2 from the air.

Posted by: Floccina | Dec 5, 2007 1:00:30 PM

This article on taxation and prohibition has some ideas that could be relavent to a carbon tax:

Posted by: Floccina | Dec 5, 2007 3:26:35 PM

The problem of declining greenhouse gas tax revenues is a bridge we can burn when we come to it. In the mean time, we can raise a lot of revenue from it. We really could, for a certain period of time, use those revenues to lower taxes, improve infrastructure, pay off debts, or whatever. If it turns out to be temporary in revenue terms -- well, it will have been nice while it lasted, won't it? Revenue streams are still worth something even if they don't last forever (and, correspondingly, revenue streams that do last forever can still have a finite net present value, depending on their growth rate and the discount rate).

Posted by: Julian Elson | Dec 5, 2007 5:47:49 PM

I would think that all the pigouistas would be an endangered species by now. From 2000 to 2007 we increased the price of gas by 300% without slowing down the growth in carbon dispersal.

Detroit didn't build the miracle car. People did not cut back their driving in any meaningful way. This is equivalent to a $700/ton carbon tax.

Say it together; "a carbon tax won't work"

Posted by: RobbL | Dec 5, 2007 7:29:40 PM

RobbL wrote:
Detroit didn't build the miracle car. People did not cut back their driving in any meaningful way. This is equivalent to a $700/ton carbon tax.

Say it together; "a carbon tax won't work"

I would bet the farmers could make biochar for less than $700/ton.

Posted by: Floccina | Dec 6, 2007 10:10:30 AM

RobbL: and, sure enough, US manufacturers like GM and Ford, which focus on big, fuel-hungry SUVs, are making healthy profits, while Toyota, which manufactures small, energy efficient cars, is on the brink of bankruptcy.

Wait, what?

Posted by: ajay | Dec 6, 2007 11:01:21 AM

It seems to me that when we finally run out of harmful things to tax, then we can default back to taxing income. Of course, since at this point we'd be living in Fantasy Land, we probably won't need taxes anymore anyway.

Posted by: slag | Dec 6, 2007 12:38:49 PM

A Washington State Carbon Tax wiki: http://carbonwa.wikispaces.com/ for your reading and fact-checking enjoyment.

Posted by: slag | Dec 6, 2007 12:45:54 PM

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