The Public Policy

A Carbon Copy of a Bad Idea

Cap-and-tax was bad enough -- we don't need a carbon tax, backed as it is by those who wouldn't have to pay it.

By 11.19.12

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With the exception of an attempt by New York Mayor Bloomberg to divert attention away from his city's woeful lack of disaster preparedness, global warming didn't rate a mention in the presidential election campaign -- but it returned soon after with a vengeance. Karl Rove hadn't stopped arguing over the Ohio result when various voices affiliated with the losing party (such as several scholars from the American Enterprise Institute and Greg Mankiw, a Harvard economist who advised Mitt Romney) began suggesting that a carbon tax was a really good idea going forward. There are good reasons for conservatives to contemplate how their approach to young single women, gays, and immigrants might have contributed to recent defeats, but there is no reason to think that a switch on energy policy -- which is really economic and industrial policy -- might help. A carbon tax would punish the middle class and harm the broader economy now and going forward. It should be defeated the same way as cap-and-tax was defeated.

The first argument advanced in favor of a carbon tax is that it would help reduce emissions that allegedly cause global warming. This is why NASA atmospheric scientist James Hansen occasionally moonlights as an economist to push a carbon tax. Yet a carbon tax that is set high enough to significantly affect emissions would be devastating to American household budgets. A lower carbon tax will have no noticeable effect on emissions.

As Chip Knappenberger of New Hope Environmental Services recently demonstrated, even a complete elimination of U.S. carbon emissions today would not detectably affect global temperatures or sea level in 2050 or 2100. Only a globally harmonized carbon tax could do anything to reduce emissions to the levels which alarmist scientists say are necessary, and the experience of the failed Kyoto Protocol shows that developing nations will not accept anything that reduces their prospects for economic growth. Therefore, a U.S. carbon tax will not do anything to stave off or even mitigate whatever threat global warming might present.

The second argument advanced in favor of a carbon tax is that it could be revenue neutral, replacing another tax, such as the payroll tax, and thereby moving us from taxing a "good" activity -- labor -- to taxing a "bad" one -- emissions. Yet studies show that a carbon tax is highly regressive. This is because the costs of a carbon tax are ultimately borne not by the emitters, but by their customers, employees, and investors. This is why several energy company CEOs have lined up behind the tax. They don't pay it. The automobile driver pays the tax when she fills up at the pump. The worker pays it when he opens his paycheck. The retiree pays it when she receives her pension check. The carbon tax does not in the end tax waste, but productive behavior.

One recent study that looked at the effects on consumers of carbon tax found that the costs -- largely in the form of more expensive gas and electricity -- would be up to eight times greater for the poorest families than for the wealthiest. This means that in order for even a revenue-neutral carbon tax to be fair, far more tax revenues would have to be diverted to the poor to make up for the effects of the tax than is currently the case. That in turn means significant cuts in some government services to make up for the newly diverted revenue.

But now, with the fiscal cliff fast approaching, some have abandoned these arguments and instead are pushing for a carbon tax as a revenue enhancer. A price on carbon of $15/ton, which is generally bandied about as a politically feasible starting point, would yield about $80 billion in extra revenue. Yet the size of the fiscal cliff is some $560 billion. To solve that problem by means of a carbon tax would require a carbon tax of over $100/ton, and costs to the average household in terms of increased energy costs of over $2,000 per year. That represents not so much a fiscal cliff as a fiscal brick wall for the average American. Even that might not be enough.

Returning to the subject of global warming, in 2009 in Copenhagen, President Obama promised developing nations that Western countries would provide a fund of $100 billion annually to help alleviate the effects of global warming. If the President intends to keep that promise, with Europe in disarray thanks to the Euro crisis, most of that burden will fall on America. A carbon tax could quite easily end up in Asia or Africa without America seeing a cent's benefit.

None of these facts have changed from the cap-and-tax debate. Forces like Exxon Mobil are now lining up behind a carbon tax -- because they would not have to pay it. Conservatives should remain true to their principles and oppose this carbon copy of a bad idea.

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About the Author
Iain Murray heads the Center for Economic Freedom at the Competitive Enterprise Institute and is the author of Stealing You Blind: How Government Fatcats Are Getting Rich Off of You.