My anti-anti-carbon tax argument [corrected]

UPDATE 12 Noon ET: I made what is, for someone who's worked as a professional fact checker and copy editor, the rather terrible error of not looking at the byline of what I was criticizing. Pethokoukis had linked to the post, but it was written by Benjamin Zycher. Corrected below.

James Pethokoukis Benjamin Zycher has an anti-carbon tax response to Greg Mankiw’s recent pro-carbon tax column. I think Pethokoukis’ Zycher's argument is erroneous for several reasons.

Pethokoukis Zycher writes:

Economics first.  The US emits about 17 % of worldwide emissions of greenhouse gases (GHG).  If we apply the MAGICC climate model developed at the National Center for Atmospheric Research, and assume the IPCC mid-range emissions path for the 21st century, an immediate cut in US emissions by half would reduce global temperatures a century by now by 0.1 degrees.  As the standard deviation is 0.11 degrees, that reduction could not be measured reliably.

Me: Any analysis that limits the effects of a U.S. carbon tax to U.S. emissions is unreliable. A U.S. carbon tax could and should be applied to imports from non-carbon tax countries as well. It should aim, as the book The Carbon Crunch advocates, at applying to carbon production, not consumption. A U.S. carbon tax would also, besides pricing out some U.S. carbon emissions, tend to spur low- or no-carbon technological developments that also could be exported and applied internationally. Pethokoukis’s Zycher's focus only on the obvious, direct effects of a U.S. carbon tax is the kind of static analysis that supply-siders used to decry.

Pethokoukis Zycher writes:

Science next.  Assume that the IPCC-class climate models are correct, despite the reality that they can predict neither the past nor the present. Assume any set of predicted effects, however apocalyptic.  It remains the case that the proposed tax is inconsistent with the underlying climate science.  Why?  Because the effect of increasing GHG concentrations is logarithmic: The marginal impact of emissions declines as concentrations increase.  As the developing world consumes more fossil fuels—the inexorable human pursuit of higher living standards is universal—GHG concentrations will rise, which means that (changes in) US emissions will matter less and less, unless one assumes a large increase in the vulnerable capital stock without adaptation by markets. 

Me: The effect of increasing GHG concentrations is logarithmic, in that each doubling of emissions is expected to produce roughly the same temperature increase. This does not mean that going forward there is less and less reason to worry about greenhouse gases. Emissions may well rise fast enough to outpace the logarithmic effect and produce an accelerating warming (and delayed temperature effects of carbon already in the atmosphere may also be significant). But in any case, what we ultimately care about is the impact of the temperature increases. Does Pethokoukis Zycher feel confident that, say, the difference between a 3.5 degree warming and a 2 degree warming is insignificant (because we avoided a doubling of the first 2 degrees)?

Pethokoukis Zycher also asserts a carbon tax should decline over time (to reflect the alleged declining impact of warming), rather than rise as proponents often suggest. But note that a gradual ramp-up of a tax would reduce shocks to the economy and offer incentives to reduce carbon emissions (and develop new technologies) in advance of expected increases in the tax.

Pethokoukis Zycher writes:

Moreover, the tax would be inconsistent with the principles of efficient taxation under democratic institutions.  Taxes are prices for public services, and the pursuit of efficiency in public spending means that tax prices should reflect the valuations that individuals place on those services.  Proposals for carbon taxes offer no plausible link between the economic burdens that the tax would impose and the differing benefits of public spending across individuals.  Because the tax would be hidden in the prices of goods and services, it would obscure rather than clarify the cost of government, a “fiscal illusion” effect inconsistent with the pursuit of fiscal discipline narrowly and efficiency in the size of government generally.

Me: I’m not sure what kind of tax really makes “a plausible link between the economic burdens that the tax would impose and the differing benefits of public spending across individuals.” Certainly the income tax doesn’t do this; one taxpayer might pay much more than another, in absolute or proportional terms, without necessarily benefitting more from whatever the government does with the money. As for being “hidden in the price of goods and services,” surely people will know that increased prices at the gas pump and elsewhere are related to any carbon tax that’s been imposed by the federal government; if not, that would suggest the tax really isn’t much of a burden, and in any case some form of disclosure could be added (e.g., your gas receipt saying x dollars or percent of this bill resulted from the carbon tax).

Pethokoukis Zycher writes:

The carbon revenues will engender a large rent-seeking tug-of-war exercise the result of which is difficult to predict; but it is far, far, far from obvious that improved “economic efficiency” would be prominent among them.

Me: Yes, there will be fights over government funding, just as there are now. If a carbon tax replaces (as it should) some portion of income taxes, payroll taxes or other taxes, this effect could be limited. In the present situation, fossil fuel companies have done an excellent job of promoting their own interests over broader public interests, so a carbon tax will have the benefit of reducing that effect. The question is not whether a carbon tax will be perfectly designed and implemented, but whether it would be an improvement over current public policy. I don’t find in Pethokoukis’s Zycher's argument a compelling reason to think it would not.

Will anti-carbon tax arguments make a comeback?

In the Wall Street Journal today, an op-ed: “Will the Carbon Tax Make a Comeback?” by William O’Keefe, CEO of the Marshall Institute and a former executive of the American Petroleum Institute. 

It begins with some triumphalism about the defeat of Bill Clinton’s proposed BTU tax almost 20 years ago, which O’Keefe describes as “a similar gambit” to a carbon tax. O’Keefe writes:

The proposal provoked a brutal backlash, to the surprise of no one but the Clinton White House, environmental advocates, and liberal members of Congress such as Henry Waxman (D., Calif.). The vocal anti-BTU coalition included small businesses, the agriculture sector, the building trades, the transportation industry, manufacturers and even social-service organizations that relied on gasoline and heating oil to care for the poor and homeless.

A few months after Mr. Clinton proposed the tax, the administration and Democrats in Congress abandoned the idea. As the great English writer Samuel Johnson observed, there is nothing like a hanging to concentrate the mind. "BTU" became a verb, and from then on no politician wanted to be "BTU-ed." A year later, in November 1994, voters gave control of the House to Republicans for the first time in decades.

Me: Ah, good times, good times. Actually, wait a second. The BTU tax would’ve been imposed on a broad range of energy sources including non-carbon ones such as nuclear and hydropower, and had no mitigating cuts in taxes elsewhere. A carbon tax, aimed at promoting non-carbon energy sources and coupled with cuts in income and payroll taxes, might get a very different reception.

Here’s more O’Keefe:

A carbon tax is intellectually elegant to economists but dangerous and complex in practice. The theoretical basis is to raise taxes on things considered bad (carbon from energy consumption) and to lower taxes on things considered good (labor, for example).

But energy is consumed to produce things that people value, and there are no near-term substitutes for fossil fuels. So a carbon tax would affect food prices, consumer goods, electricity, mobility, charitable works and more. It would also destroy jobs, and a recent study by the Congressional Budget Office concluded that it would "impose a larger burden on low-income households.

Me: Yes, “energy is consumed to produce things that people value,” but some types of energy produce vast social and environmental costs that a carbon tax would make better reflected in energy prices. Why not let people keep more of their money to begin with, and then choose (directly and indirectly) among energy sources?

As for there being “no near term substitutes for fossil fuels,” that is a straw-man argument. There are some non-carbon substitutes for fossil fuels and importantly there are also lower-carbon fossil fuel substitutes for higher-carbon fossil fuels. A carbon tax would accelerate the recent push toward more use of natural gas. The goal is not some green utopia but rather a more sustainable mix of energy sources.

O’Keefe:

A carbon tax is a slippery slope. Once in place, small changes in rates would yield large increases in federal revenue. Who is naive enough to believe that Congress wouldn't be tempted to make small increases that accumulate over time?

Me: Yes. There should be small increases that accumulate over time. In fact, there should be a schedule of such increases, so as to minimize shocks to the economy and encourage investment in cleaner energy. Gradualism would be a virtue in a carbon tax, not the insidious menace O’Keefe portrays.

O’Keefe:

What's more, the climate-change justification for a carbon tax is bogus. Greenhouse-gas emissions are rising in China and other emerging economies, not in the United States. Carbon-dioxide emissions in the U.S. have been declining and by 2035 will return to 2005 levels, the Energy Information Administration projects.

Me: U.S. carbon-dioxide emissions declined from 2005 to 2010. From 1990 to 2010, they increased by 10.5%. The U.S. remains the second highest emitter of CO2 in absolute terms and a far larger per-capita emitter than China and other emerging economies. Moreover, a properly designed U.S. carbon tax would impose costs on imports from countries that don’t have a carbon tax, precisely because this is a global problem that requires international action to address it.

O’Keefe:

Advances in climate science, meanwhile, raise even more doubt about the assertion that human activities are the primary cause of warming. Former NASA scientist Roy Spencer, for example, has shown that temperatures since 1976 have risen and stabilized in parallel with the Pacific Decadal Oscillation, a natural climate pattern affecting all sorts of natural phenomena. An increasing number of experts now admit that natural variability is poorly understood and poorly reflected in the models that are the foundation of so much climate-change dread.

Me: There remains a strong consensus among experts that human-caused greenhouse gas emissions are the primary driver of climate change--and O'Keefe's wording is rather slippery, as the number of contrarian experts could be increasing while remaining very low, and as acknowledging uncertainties about natural variability does not equate to thinking they plausibly could account for global warming. Also, fossil fuels, especially coal and oil, indisputably cause vast damage to humans and the environment even apart from climate change. But O’Keefe’s resort to the science denialism card is revealing. It suggests that he and his editors perceive that his case against a carbon tax can’t stand up without that crutch.

Carbon tax posterity

The following is "clearly true" only if you view a carbon tax in isolation from the tax cuts made possible by the carbon-tax revenues:

While many environmentalists focus on mitigation (cutting greenhouse gas emissions), many of the economists who spoke at the conference argued that adaptation through wealth creation is the better strategy. Policies aimed at reducing energy consumption to mitigate man-made global warming would likely result in a poorer, less technologically adept future in which future generations would be less able to address the problems caused by climate change. This is clearly true and as a reluctant proponent of a carbon tax, I am painfully aware of this trade-off.

As John Locke Foundation economist Roy Cordato explained: "A higher tax today means lower production and output of goods and services tomorrow, making future generations materially worse off. In setting a carbon tax you must show that future generations would value the problems solved by reduced global warming more than they would value the goods and services that were foregone." He argued it's not possible to know the preferences of future generations, but providing them with more wealth and better technologies will give them more options to express whatever preferences they have.

How about providing them with more wealth and better technologies by cutting taxes on capital gains, dividends, etc., while taxing carbon?

Asymmetric carbon benefits

Megan McArdle explains some of a carbon tax's benefits over cap-and-trade. For one thing, cap-and-trade requires governments to understand carbon demand well enough to know where to set the cap without (a) having no effect, or (b) handing out favors to interest groups. Plus, a carbon tax allows trade-offs among competing priorities, rather than just assuming carbon emissions must stop at a certain level. She writes:

Ideally, we should understand what the economic cost of carbon emissions is, and use a carbon tax to raise the price until it includes the cost of that negative externality. If, once we have raised the cost of carbon to the price of the utility + the negative utility, and people still continue consuming carbon-intensive goods, then that is telling us something important about the value of that added carbon-intensive economic activity.

I'd add to Megan's points that a carbon tax provides revenue that lets you cut taxes elsewhere.

By the way, the "negative externality" from carbon-based energy is not just climate change but also serious problems of ordinary air pollution and environmental damage from mining and drilling--plus the geopolitical disaster of buying oil from dictators and terrorism enablers.

UPDATE: Fixed spelling of McArdle.

Carbon tax considerations [updated]

David Frum makes a case--and it's a powerful case--for taxing carbon. Unfortunately, there isn't currently an administration in place that's willing to take such a step (and unlike the recent Republican challenger, the president does not have economic advisors known for high-profile advocacy of a carbon tax).

I would emphasize a point David makes, which is a central insight of the recent book The Carbon Crunch (which I've only had a chance to skim so far), that a carbon tax must fall ultimately on consumption, not just production. In other words, it's futile and counterproductive to put a tax on a factory in one country that just encourages the company to move to a country without a carbon tax. Rather, goods must be taxed as they enter the importing country, if they're made someplace without the tax.

UPDATE: Bipartisan opposition in the House.

Flex-fuels roundup

There's a good deal more on the flex-fuels mandate debate at NRO's Planet Gore. See here, here, here, and here. In the latter post, Robert Zubrin writes "So it comes down to this: Who do you want to win, us or them?" ("Them" being the Islamists.)

I think what it really comes down to is whether the mandate would do any good, strategically or environmentally. It's hard to see how it would. Alcohol fuels would remain uncompetitive in terms of price (as well as carrying their own environmental problems), as discussed by Jerry Taylor here. I expressed my doubts in various posts, such as here and here.

Even with the mandate in place, alcohols would only have a chance at competing if you did something to keep gas prices high--such as an oil import fee, a gas tax, or a carbon tax. As I've pointed out repeatedly, I favor a carbon tax. But if you impose a carbon tax, what would be added by having the flex-fuels mandate? Basically, nothing. If alcohol still can't compete post-tax, the mandate won't enable it to do so.

Moreover, a carbon tax has the virtue of not requiring government to pick winners, other than "anything but carbon." It would let electric and hybrid technologies that may be economically and environmentally superior to alcohol fuels compete on a level (non-carbon) playing field.

UPDATE: Fixed spelling of Zubrin.

A Heritage of hooey

Yesterday I happened across a Heritage Foundation post "Carbon Tax a Recipe for Economic Disaster," and was struck by its lameness, its pile of assertions without analysis. I clicked through the links and found some other Heritage pieces that too had little analysis and less that was persuasive or even relevant. "A Carbon Tax Would Harm U.S. Competitiveness and Low-Income Americans Without Helping the Environment" is the most substantive piece there but still is very lacking: it can't be bothered to assess such possibilities as that a carbon tax would be coupled with cuts in other taxes; it relies on boilerplate denialism such as "the field of climate science is far from settled"; it presents a graph showing the effects of a defunct cap-and-trade bill as a stand-in for analysis of a carbon tax, and while noting that U.S. action would be ineffective in restraining climate change without international action, makes a hand-waving assumption that there's no possibility of such action even if the U.S. puts an import fee on goods from countries without a carbon tax. How do you know that, Heritage?

Anyway, reading that stuff put me into somber reflection on the sorry state of much think tank "analysis." Today I see Heritage is getting a new president, as Sen. DeMint makes an early departure from the Senate. Sadly, it does not look like this change will spur any rethinking--or first thinking--on climate and carbon; but maybe some future Heritage papers will press the "it's snowing" line of obscurantism.

Gusher of carbon confusion

This book looks likely to cause a stir: Gusher of Lies: The Dangerous Delusions of Energy Independence, by Robert Bryce.

I'm not too impressed with the one part I have read, a boxed section on carbon taxes near the back of the book. Bryce writes:

Carbon taxes might help reduce carbon dioxide emissions, but to achieve those reductions, all of the world's countries would have to agree to (1) participate in such a program and (2) agree on a price.

That's bad writing ("agree to ... agree"). Moreover, it's wrong. We wouldn't need to harmonize our carbon tax with other nations' carbon taxes, any more than we harmonize every other tax. The assumption lurking in there is that a carbon tax would cripple a country's competitiveness, so all countries should be equally hobbled. But a carbon tax that's combined with lower taxes on work and investment is compatible with a highly competitive economy.

And over time, a nation that leads in non-carbon energy will have a distinct economic advantage. Those considerations should outweigh any concerns that other countries will free-ride on our carbon reductions. I doubt China and India will want to remain stuck in the oil-and-coal age forever while the U.S. develops everything from space solar power to algae biodiesel.

Half-baked reasoning

I'm often impressed by the ability of Reason magazine these days to express ideas that I largely agree with--and make me think maybe I was wrong, since so much of the magazine is so facile and lame. A case in point is this piece by Anthony Randazzo on "The Third Way":

A new conservative movement that takes libertarian ideas seriously could use the inertia created by the nation's new progressivism to slingshot itself into the future on a platform of reduced government, lower taxes, and limited interventionism, while also respecting climate change (adjusting the tax code to encourage green reform without any expense to taxpayers) and reforming the immigration system (opening the borders as the market demands labor without sacrificing security).

Some problems with the article (not an exhaustive list):

1. Randazzo praises "the small government, Goldwater-style GOP of old" and also states that the GOP has never been "a party of small government based on classical liberal principles," without clarifying what if any distinction he has in mind to reconcile these divergent descriptions.
2. He writes that "If the Ron Paul movement tells us anything, it's that the Republican Party can be more than a party of old white guys with bad hair cuts," but fails to note any difference between Ron Paul's anti-immigration fear-mongering and Randazzo's pro-immigration stance.
3. Randazzo presents his ideas as an electoral winner for the GOP without showing the slightest awareness that many of these ideas are deeply unpopular; e.g. a carbon tax. To wit, point 4:
4. He suggests having a carbon tax "without any expense to taxpayers." But even a revenue-neutral carbon tax will shift burdens from some taxpayers to others, exacerbating its deep unpopularity regardless of its plausible merits on environmental and security grounds.
5. His "limited interventionism," if it's anything like Ron Paul's, would damage remaining Republican credibility on national security, and blur distinctions between Republicans and Democrats on foreign policy. Isn't his whole thrust that Republicans shouldn't be a watered-down version of Democrats, or is that OK if we're talking about foreign policy?
6. Randazzo argues against "moving toward the political center" without noting that many of his positions (a carbon tax, open the borders) are not associated with an unyielding conservatism.

I too think the Republican Party should become more libertarian. But libertarianism, like other ideologies, is not immune to wishful thinking and mediocre arguments.

Carbon tax adjustments

Interesting piece: "The Carbon Tax Is Overrated," by Evan Soltas at Bloomberg View. Actually, the headline obscures the key point, which is that a carbon tax can be modified to reflect and adjust to uncertainties about the costs and risks associated with carbon emissions. It seems to me one might come away from reading this more favorably disposed to a carbon tax than one was at the outset.

Carbon tax hindsight

Ronald Bailey:

After advocating a carbon tax as the least bad alternative, I have been persuaded that it's politically impossible. People are not going to vote for a politician who promises to significantly boost what they pay at the pump and pay for power.

I almost agree with him, but not quite. The uproar over high energy prices in the past year or so has convinced me that, under most circumstances, a carbon tax is politically impossible. However, there are times when this would be different. Imagine if George W. Bush, right after 9/11, had said that, as a matter of national security as well as environmental protection, we'll be phasing in a carbon tax and an oil import fee, while reducing various income and payroll taxes. I think that would have passed, and been a great accomplishment. Too late now.

Taxes, and Chelsea Clinton, in 2038

The financial magazine Research celebrated its 30th anniversary by running an issue filled with articles about what finance and the world will be like 30 years forward. Here's something from my piece "What Will Taxes Be Like?":

It was not until 2018 that the “Consumption Plus” tax was enacted. This system was reminiscent of the 20-20 plan [Lawrence] Lindsey had proposed, except its rates were higher, combining a 23 percent VAT with a 28 percent flat tax on income above an inflation-adjusted threshold. In addition, the legislative package increased the carbon tax that had been in place since 2015, while providing credits for vehicles fueled with carbon-negative algae biodiesel.

Now, in 2038, this basic system is still in place, although the VAT has been increased to 24.997 percent. (A constitutional amendment limits it to “below 25 percent.”) The flat tax on “premium income” and the carbon tax have also been hiked. However, some of the wealthy have become adept at using tax derivatives that let them exchange their tax exposure portfolios with those of foreign speculators. There are concerns that nobody really understands the systemic risks involved in this new market.

In any event, taxation will be a major issue in the upcoming 2040 presidential election. The octogenarian Republican incumbent, Bruce Willis, vows to hold the line against proposals for new taxes on space development, seabed mining, algae farming and cosmetic surgery. However, the likely Democratic nominee, Chelsea Clinton, has said “It’s time to balance the budget, and the lunar colonists should pay their fair share.”

Super-investor Ken Fisher also contributed an article, his being on "What Will World Markets Look Like?" and it so happens that Fisher, quite independently, had a vision of Chelsea Clinton as presidential contender:

Senator Chelsea Clinton (D-NJ) lost the 2036 presidential race to the incumbent, former Texas governor Barbara Bush. Clinton is deciding whether to mount another campaign to unseat the likely 2040 Republican nominee, current Vice President Jenna Bush. The Bushes ran in 2036 under the motto, “Get a Two-fer.”

Could Ken Fisher and I both be wrong?

Carbon tax toxicity

This has a desperate, rearguard quality to it. Climatewire reports on a looming scare campaign by the Competitive Enterprise Institute. Excerpt:

Climate skeptics concerned about the rise of conservative groups favoring a carbon tax are preparing a response that seeks to make the policy politically "toxic" for Republicans who might consider it.

The pre-emptive effort, still in its early stages, is designed to discredit the idea that taxing carbon emissions is a good trade-off for lower corporate and individual tax rates, as the nation lurches toward, perhaps, a wide-ranging overhaul to its tax system.

Particularly worrisome is the influence that Mitt Romney's key economic advisers, three of whom support taxing carbon, might exert on the Republican Party as lawmakers weigh difficult choices to avert sunsetting tax cuts and to reduce the $16 trillion deficit. Other prominent economists, like Arthur Laffer, who advised President Reagan, also advocate taxing carbon over income.

Question is what they'll come up with now that the idea of billboards with Theodore Kaczynski on them has already been used.

Carbon tax fallout

Greg Mankiw describes the carbon tax debate moment that I noted earlier:

As a former energy secretary during the Clinton administration, Richardson has presumably studied these issues. But here he demonstrates extraordinary ignorance (or perhaps extraordinary disingenuousness) about the economic impact of cap-and-trade systems. By contrast, Obama shows extraordinary clarity and honesty about the effects of the policy he is proposing.

The economics is straightforward and uncontroversial. Both carbon taxes and cap-and-trade systems put a price on carbon, raising the cost of producing carbon-intensive products such as gasoline. In both cases, this cost will be passed on to consumers. The government can, however, raise revenue through a carbon tax or auction and use that revenue to reduce other taxes and help offset the adverse income effect.

In case you are curious, Hillary Clinton is the next speaker on this question, but she does not weigh in on the particular issue of carbon taxes vs cap-and-trade. Instead, she offers some typical vacuous blather about requiring utility companies to help us all become more energy efficient. I think of this as "magic-wand economics." Like your fairy godmother, the President can wave a magic wand and make your problems disappear.

Andrew Samwick sees the moment as a microcosm of the Democratic contest:

I think that this exchange, which is a stark example of differences that over the past year have been more subtle, gives an indication of why Senator Obama may have appeal that crosses over the political center. I can respect his answer but not the other two.

Grist magazine, however, prefers Clinton's feel-good environmentalism:

People are already sacrificing. We need a road out of that.

Carbon revenue choices

Sociologist Monica Prasad argues that a carbon tax won't reduce carbon emissions unless the revenues are directed back to industry for non-carbon research. I have my doubts; there's a long history of government subsidies for energy and technology not doing much good. But I could be wrong. Still, if zero percent of the carbon tax revenues are used to cut other taxes, you're going to end up with a very highly taxed economy, and that's not such a good thing either.

UPDATE: Some interesting, and mostly skeptical, responses from Charles Komanoff of the Carbon Tax Center, and economist Andrew Samwick.

Book note: Carbon Crunch

Review copy requested: The Carbon Crunch: How We're Getting Climate Change Wrong--and How to Fix It, by Dieter Helm (Yale University Press). This book will, and should, cause a stir. Here's an excerpt from a review in the latest Economist:

Green activists, politicians and NGOs will hate this book. But Mr Helm has done a service to everyone else by describing what a global climate-change mitigation regime would look like if one took economics seriously. You would start, he says, with the cheapest way of reducing carbon emissions (not the dearest), meaning gas, especially abundant shale gas. Gas produces less than half as much carbon per unit of energy as coal and about 50% less than oil. But the French government wants to ban shale-gas production. 

Second, you would introduce a carbon tax, rather than (as now) a carbon price. These sound similar, being different ways of embodying in the price of a good the real cost of the carbon it takes to make. Actually, a tax is better. To see the difference, consider an extremely toxic substance such as mercury. Even a small amount in a river can do immense damage, so this is a case for strict permits, which should be tradable to encourage efficiency. You want fixed amounts and a variable price. Carbon is different. A small amount extra makes little odds. But miscalculating the cost of reducing emissions, as the world is doing, is expensive. In this case it would be better to fix a price (ie, a tax) and let the quantities vary. Third, Mr Helm argues, some of the money that goes on renewables would be better spent on future clean technologies such as carbon capture, energy storage and electric vehicles. 

This prescription is unrealistic. Europeans are too committed to their regulatory approach to change now. But Americans, Chinese and Indians would learn a lot from Mr Helm about cutting carbon emissions rationally. And all readers will get a cogent account of how self-defeating current global climate-change policies are turning out to be.

Carbon tax politics

"We would never propose a carbon tax, and have no intention of proposing one." -- Jay Carney, White House spokesman, Nov. 15.

Chris Mooney here argues that's a good thing, that the Obama administration's focus in the near term should be on regulatory efforts that don't require legislation, and that carbon pricing should be pushed off into the future. This strikes me as an example of the kind of stubborn partisan cohesiveness Mooney rightly decries when conservatives do it. At a moment when a carbon tax is gaining momentum, the idea that Obama should push it off (till when?) is very hard to reconcile with the urgency of the issue. Surely, the re-elected president can push regulatory efforts while also working on a carbon pricing solution that, as it happens, is also relevant to the imminent fiscal cliff. And when exactly would Obama have more political capital than he does in the aftermath of winning 332 electoral votes? Never.

UPDATE 1:17 PM: Via Instapundit, more evidence that the people who voted for Obama because of climate concerns have been had.

Tax reform redux

Recently I put forward my own proposal for tax reform. As Romney's 47% remarks have put taxes front and center in the campaign, here it is again.

My idea, in a nutshell, is replace the income tax with the progressive consumption tax known as the X tax, and replace the payroll tax with a carbon tax. Call it the X+C plan.

Subsequent discussion at David Frum's blog underscored some of the difficulties of achieving this politically. Many commenters there were wary of the X tax as a potential windfall for the rich (though it's designed to maintain the progressivity of the income tax) and moreover the idea of an X tax is hard to understand and explain (and on that I say mea culpa, as I have had difficulty explaining it and find some of the technicalities hard going myself).

It may be that another, more comprehensible, form of progressive consumption tax would be more politically viable, but it still seems to me that the general direction I sketched out is a good one. Of course, it would need to be championed by a politician who can explain these matters well, and there aren't many of those around.

Carbon tax opposition

Everything about the Fox News segment above is lamentable, from the graphics at its outset ("Regulation Nation" with a rubber stamp voiding "jobs") through the end of Steve Doocy's interview with Rep. Fred Upton (R-Mich.). Doocy explains that a carbon tax involves taxing "things that go up in the air" and is "crazy." Upton manages to mis-describe a carbon tax as the same thing the Democrats failed to pass in 2010, thus conflating it with a cap-and-trade system; he vows to stop this "mole" from rearing its head ever again, cheerfully ignoring his own past contention that everything should be on the table for reducing carbon emissions. No viewer who watches this comes away with any better sense of what's involved, what the choices and tradeoffs actually are. It's all just "crazy" and deeply stupid.

Carbon tax bargain

Virginia Postrel writes that "There's No Such Thing as a Free Carbon Cap":

It's infuriating how all three presidential candidates prattle on about the need to fight global warming while also complaining about the high price of gasoline. The candidates treat CO2 emissions as a social issue like gay marriage, with no economic ramifications. In the real world, barring a massive buildup of nuclear plants, reducing carbon dioxide emissions means consuming less energy and that means raising prices a lot, either directly with a tax or indirectly with a cap-and-trade permitting system. (Alternatively, the government could just ration energy, but fortunately we aren't going in that direction.) The last thing you'd want to do is reduce gas taxes during the summer, as John McCain has proposed. That would just encourage people to burn more gas on extra vacation trips--as any straight talker would admit.

Agreed. However, if a carbon tax is (partly) compensated by tax cuts elsewhere, and spurs technological developments that could help lower energy prices over time, then although not free it would still be something of a bargain.

What about climate change?

Those of us who are Republicans and who also believe that climate change presents serious risks that need to be addressed--see my posts here, here, here and here--have had little cause for enthusiasm about the Republican Party on this issue in recent years. Romney, among the primary candidates, was the second-least-bad (Huntsman, also less than perfect, was the least bad). With the selection of Paul Ryan, Romney has added to the ticket someone whose climate record is worse than his own.

Against this, it is important to remember the fecklessness of the Obama administration on climate change. Failing to pass a cap-and-trade bill, and then mentioning the subject as little as possible, is not a good record either. Yes, the Democrats at least don't declare global warming a hoax and prattle on about "Climategate." But when you get to the question of how much carbon emissions would actually be different depending on who wins the election, there's no clear answer, as far as I can see.

Maybe a Romney administration would follow the advice of longtime Romney advisor Greg Mankiw and impose a carbon tax. Or maybe the Obama administration would get some carbon trading set up that replicates the flaws already evident in carbon trading overseas. Results are what matter.

Furthermore, in weighing the respective merits (or lack thereof) of the candidates, I give some weight to  the spectrum of opinion among their supporters. On the Republican side, that includes every shade of denialism and evasion. On the Democratic side, there are those who think the answer is, say, a worldwide "war footing,"with a command economy deliberately set up to depress living standards. The policy emphasis I would want to see--a carbon tax coupled with broader tax reform; and a federal focus on relevant R&D spending rather than Solyndra-like attempts to subsidize corporate operations--is not
on either side's policy agenda currently.

So, bottom line, if I were voting on the basis of climate policy alone, I'd vote for the Democrats. But that's not the case. On the other hand, although I've said I'll vote for Romney, I've also said it's possible I'll change my mind. Watching what the candidates say on climate will be a factor on that score.

China's carbon tax: the video

Recommended viewing, as China enacts a carbon tax.


And remember the Obama administration is on record as opposing a carbon tax in the U.S.

Some more analysis here.

Shultz, climate and why Breitbart.com can't handle the truth

George Shultz has been a voice of reason within the Republican Party on climate policy. The following two paragraphs, from a Washington Post op-ed of his last year, "A Reagan Approach to Climate Change," sum up his approach (click to enlarge):

This is just one of many places in which Shultz advocated a carbon tax, with the caveat that the money should be returned to taxpayers. Now, one reaction on the right to this kind of thinking has been the "everyone makes a mistake once in a while, even George Shultz"-type dismissal given by (now thankfully former) presidential candidate Chris Christie a few months ago. Another reaction is to simply deny that Shultz has said what he's said. That's the tack taken at Breitbart.com today, in a piece by Chriss W. Street titled "Jerry Brown Tries to Flog a New Carbon Tax." Excerpt:

Notice that there's a link to something or another Laffer said, but nothing substantiating the statement that Shultz has "never backed a new carbon tax." That's because it's demonstrably false.

There's a lot wrong on the right these days, and I would put climate science denialism high on that list. But an unwillingness even to face readily evident facts about who disagrees with you is a sure sign your position is in serious intellectual trouble.

UPDATE: Aaron Huertas points out that Breitbart.com's Laffer link leads to something not by Laffer.

Carbon tax vote

Via Greg Mankiw, I see you can vote for a carbon tax. As of this writing, the carbon tax is winning. Maybe my plan is politically viable after all.

Carbon tax in debate

As I write this, Bill Richardson and Barack Obama are on a New Hampshire stage agreeing that we don't need a carbon tax (and arguing for cap-and-trade instead). Hillary Clinton has just added some vagueness about energy efficiency. Yet cap-and-trade has had a distinctly mixed record where it's been tried, and--unlike a carbon tax--offers only weak incentives to reduce emissions lower than the cap. There's an opportunity here for Republicans to point out that these Democrats are being soft on global warming and on energy independence.

Carbon tax momentum

A carbon tax--which has been a cause célèbre of this blog since its earliest days--is getting new political momentum. May it keep moving forward. May it come coupled with tax cuts elsewhere, at least as a significant part of its revenue allocation. That will make it politically palatable and prevent it from unduly burdening the economy. May it be described truthfully as a tax, without any verbal subterfuge.

Carbon taxation for skeptics [with small update]

Sometimes, an opinion piece is notable not just for its opinion but for the lengths to which the author will go to convince a particular audience of that opinion. Case in point: Irwin Stelzer's "Let's Tax Carbon," in the Weekly Standard. I strongly agree with the basic position (tax carbon and cut taxes on other things), which is one of the issues on which my centrist zig veered from the conservatives' zag in recent years. But I'd part company from Stelzer's rhetoric at moments like this:

Conservatives can maintain their skepticism about global climate change, but that does not mean that a bit of prudential action might not be appropriate should it turn out that carbon emissions are indeed having a negative effect on climate.

Me: Conservative identity has become so beholden to "skepticism about global climate change" that it's apparently now necessary to tell conservatives they can keep that set of beliefs even while trying to convince them to act as if they didn't hold them. If you like your skepticism, you can keep your skepticism. But I'm a pragmatist and not complaining. I hope Stelzer's approach is convincing.

UPDATE 7/17: Stelzer and the Standard double down, denying a carbon tax even has anything to do with climate change.

Not capping carbon

An insightful TCS article by Kenneth Green on "How Not to Address Climate Change," i.e., with a cap-and-trade system. I don't agree, though, with his closing that a carbon tax should be "modest" and "revenue-neutral." The tax should be substantial enough to provide real incentives away from carbon (and should increase over time, so as to avoid shocks and spur innovations), and while the tax should be used to enable tax cuts elsewhere, it should also play a role in addressing the country's long-term fiscal meltdown.

White House 101

My review of Lawrence Lindsey's What A President Should Know: An Insider's View on How to Succeed in the Oval Office is up at the New York Post.

There are various points I didn't have space to discuss in the review. Just a few:

1. Lindsey wants to use the end-2010 expiration of the Bush tax cuts as a moment for broad tax reform. He likes the idea of a VAT combined with a flat tax on income above a high threshold. Lindsey makes tax simplification a high priority, noting that he had trouble doing his own taxes last year even though “I have a PhD from Harvard that is related to this sort of stuff.”

2. He writes favorably about a carbon tax, and emphasizes letting the market choose among non-carbon energy sources like nuclear, solar or ethanol. “Note that this is the opposite of our current discombobulated policy,” he writes, “which subsidizes everything from oil to corn.”

3. There's a passage about a White House aide--whom Lindsey doesn't identify but says was staffer at the National Security Council and key witness before the 9/11 Commission--who (besides showing up with a gun after 9/11) did the following, according to Lindsey:

He attempted to use the event as a way of gaining bureaucratic power. He circulated a draft executive order for the president that contained a provision delegating to himself the president's wartime authorities to take control of the communications infrastructure, including the Internet, during a crisis. He also tried to give himself the same title as Karl Rove. It was just one document in a period of massive organizational change, but one of my staffers caught it and lined up other agencies to join us in trying to block his efforts. Later he attacked the NEC, the Office of Management and Budget, and the Office of Science and Technology Policy as being part of an Axis of Evil for blocking his power grab.

Interesting.

Carbon contest

Jeff Flake, one of the most libertarian-leaning Republicans in Congress, is pressing a good idea: "Republican lawmakers back carbon tax (yes, that's right)." It would involve cutting payroll taxes simultaneously.

Before long, we may be seeing a political confrontation between legislators who want to reduce carbon emissions as efficiently as possible with a carbon tax, and those who want to reward their political contributors as efficiently as possible with a cap-and-trade system.

McCainomics

An interesting New York Times piece on John McCain's economics. Excerpt:

He also said that he would consider resuscitating the work of a bipartisan tax-reform commission, appointed by Mr. Bush, whose 2005 report on simplifying the tax code was largely ignored by the administration. Using the process that has been used to close military bases, Mr. McCain said he would ask Congress to vote yes or no on an entire tax-simplification program.

Greg Mankiw writes:

If you had an up-or-down vote on either of the two reform plans described in the report compared to the status quo, the proposed reform would, I predict, get the votes of more than 90 percent of economists. I have no idea how it would do in Congress.

Tax simplification is a crucial issue. I say this not only because I happen to be a recently married first-time homeowner with several part-time jobs who's now looking at a tottering pile of paperwork. Tax simplification is needed to reduce deadweight costs that hinder the economy.

Mankiw, by the way, has been a Romney advisor but would make an excellent addition to a McCain administration. For one thing, he could explain to the new president that a carbon tax is more efficient, and less subject to interest-group manipulation, than a cap-and-trade system.

Tax deal analysis

What do I think of the tax deal? Better than just letting the tax cuts expire in an ailing economy. But the long-run U.S. economic future requires a more through revamp of the tax system than anything in prospect now. Neither party has any stomach for a VAT or carbon tax currently, even as part of a package that would reduce or eliminate the income tax. Nor do the parties have much interest in needed entitlement reforms or discretionary spending cuts. Meanwhile, many Republicans want to radically reform the monetary system, an area where the measures contemplated would be counterproductive in the extreme. So the current deal is better than nothing and may have the benefit of keeping politicians distracted from matters where they could do real harm.

Fixing America: how to [updated]

In the Sept. issue of Research magazine, I offer whoever wins the presidential election some advice on what to do next: take "A Bold New Direction," by focusing on radical tax reform.

Opening:

On Jan. 21, 2013, either a re-elected President Barack Obama or a newly elected President Mitt Romney will be celebrating his Inauguration. In either case, as the champagne corks pop, this much is certain: He’ll have plenty of problems.

The economy, of course, will be troubled. Even if there are signs of an upturn in early 2013—and there may well not be—this will be occurring against a backdrop of longstanding poor growth and high unemployment. Much improvement will be needed over recent baselines to create a widespread sense of recovery, let alone prosperity.

I go on to advise scrapping the income tax and payroll tax in favor of an X tax and carbon tax (call it the X+C plan). Whole thing here.

UPDATE: Some notice here. See also here and here.

Cooling, but misstated, consensus

Will Wilkinson in The Economist writes about global warming not proceeding as fast as expected: "A Cooling Consensus." Excerpt:

We have not been awash in arguments for adaptation precisely because the consensus pertained to now-troubled estimates of climate sensitivity. The moralising stridency of so many arguments for cap-and-trade, carbon taxes, and global emissions treaties was founded on the idea that there is a consensus about how much warming there would be if carbon emissions continue on trend. The rather heated debates we have had about the likely economic and social damage of carbon emissions have been based on that idea that there is something like a scientific consensus about the range of warming we can expect. If that consensus is now falling apart, as it seems it may be, that is, for good or ill, a very big deal. 

Me: The key consensus was, and is, that global warming is happening; is anthropogenic; and carries serious risks. Often, this has been expressed in terms of projected temperature ranges. It is not the case that we know how much warming there will be, and it is not the case that carbon taxes or other measures would only make sense if we did know. A great virtue of carbon pricing, in fact, is that it can be adjusted as new information comes in about the extent and effects of warming.

Wilkinson is right* that some people have overstated the certainty of disaster if we don't keep atmospheric carbon to certain levels (e.g., "Global Warming's Terrifying New Math"). But for years we've been hearing from the other side of the "debate" that global warming is not happening, not anthropogenic or nothing to worry about (hey, good for plants, even). Two of those propositions are false, and the third is still dubious. If, as many scientists believe, the oceans are absorbing much of the warming, with the result being rising sea levels, then a do-nothing policy is still dangerous. I'll add that the case for a carbon tax is not solely dependent on global warming but also draws on other environmental, fiscal and national-security considerations. Having said all that, you'll never hear me argue against adaptation as part of the strategy. Given the politics involved, we'll need it.

* UPDATE 1:23 PM: Rereading what I wrote, I'd amend the last paragraph to take out the opening words "Wilkinson is right that..." as the subsequent point, though relevant, is not something Wilkinson asserted.

UPDATE 6/23: These posts by Greg Laden make good explanatory points:
--"The Ocean is the Dog. Atmospheric Temperature is the Tail."
--"Why you sound so stupid when you say 'global warming has stopped'."

Some carbon tax links

A new Congressional Budget Office report favoring a carbon tax.

A dissenting view here.

A warning that green taxes could "irk the right."

Carbon tax

You won't hear candidates calling for a carbon tax this election season. But the intellectual groundwork for future political support is well in progress. Here's an interview with economist Kenneth Rogoff and a comment from former Bush economic advisor Greg Mankiw.

Carbon suggestion for Gary Johnson

Here's Gary Johnson backtracking on his seeming support of a carbon tax or fee, in an interview by Nick Gillespie at Reason:

Me: If Johnson is really open to ideas, he should consider the carbon fee and dividend proposal put forward by the Citizen's Climate Lobby. It is guided by the principle stated by one prominent supporter, George Shultz, that "It's not a tax if the government doesn't keep the money," as the revenues would be sent back to households as checks. It would deal with the international aspect by using border adjustments, which are import fees on products from countries that don't have carbon pricing. It is a proposal that has been around for several years, and it would be nice if people running for president of the United States actually knew something about it.

McCain vs carbon

I like John McCain for various reasons, including that he wants to move away from fossil fuels:

Mike Goldfarb: Some people are perplexed by your rhetoric on global warming. Is this one of those ‘no surrender’ issues, or is there room for discussion?

McCain: There’s always room for discussion. But I don’t know how any conservative can not support cap and trade. We did it with acid rain. The Europeans are putting it into effect. It’s a capitalist process that encourages green technologies. If we’re wrong, all we’ve done is adopt green technologies, in an effort to give our kids a greener planet.

As far as ANWR is concerned, I don’t want to drill in the Grand Canyon, and I don’t want to drill in the Everglades. This is one of the most pristine and beautiful parts of the world.

Goldfarb: Carbon tax?

McCain: In all due respect, that’s a regressive tax that hits the poorest. That’s a gas tax. I notice the richest people in Washington live in Georgetown and can walk to work. The poorest are the ones who have to live out the furthest away from their work.

That's not exactly the answer I'd like. On the other hand, it's better than nothing, which is what the other Republican candidates offer on this issue. And it's no worse than the Democrats.

Climate "poison"

The following stands out as an example of gaseous hyperbole:

Picking your poison [Drew Thornley]
One of the comments from the Heartland climate change conference that stood out to me came from Vladimir Putin’s former chief economic advisor Andrei Illarionov, now an adjunct scholar at the Cato Institute.

During the question/answer portion of a panel that discussed cap-and-trade vs. carbon taxes, Illarionov rhetorically asked: if given the choice, would you rather be hanged or shot at the hands at Stalin. His answer: Neither! Whether killed in private (the hidden tax of cap-and-trade) or in public (the direct carbon tax), either way, you’re dead.

Illarionov’s point was that, no matter how you slice it, regulating CO2 is lethal to an economy. Instead of weighing the pros and cons of cap-and-trade versus carbon taxes, opt for neither.

Good plan -- stop thinking about pros and cons, or evidence, or the bias of the quoted source, or simple good taste. Just throw out some overstated rhetoric and a ludicrous Stalin analogy and call it a day.

Carbon pricing opportunity

At MIT Technology Review: "Europe's Carbon Trading Problems May Influence U.S. Climate Policy."

There's an opportunity here that Republican politicians are missing: to point out that the Democratic Party's favored climate strategy, cap and trade, has been a failure internationally. In fact, it was a failure that resulted from trying to take a sound idea (which worked well enough on localized problems such as acid rain) and apply it to a global problem for which it was ill-suited. Of course, to make the most of this opportunity, the GOP politicians would have to be willing to (a) acknowledge that global warming is a problem and (b) present their own solution, in particular a carbon tax. (Of course, the rhetoric of recent years of cap and trade being "cap and tax" has generated public confusion about the distinction.)

Welch on Frum

Matt Welch on David Frum:

Republicans should cave on new spending and regulations, says Frum, in exchange for tax cuts.

I'm traveling right now, and I don't have my copy of Comeback on hand. But I read it closely and reviewed it here. And Welch's statement is wrong. First, Frum is highly critical of the Bush administration's spending. Second, Frum wants such competition-enhancing regulatory reforms as the lifting of state rules that prevent people from buying health insurance across state lines. Third, Frum wants Republicans to stop emphasizing tax cuts, and to embrace a carbon tax.

I understand the exigencies of magazine product differentiation. But if you're going to crusade against neocons, at least know what you're talking about.

The climate-foreign policy nexus [updated]

Here's some dreary news:

Levels of heat-trapping carbon dioxide in the atmosphere rose at a record-shattering pace last year, a new report shows, a surge that surprised scientists and spurred fears of an accelerated warming of the planet in decades to come. 

Concentrations of nearly all the major greenhouse gases reached historic highs in 2013, reflecting ever-rising emissions from automobiles and smokestacks but also, scientists believe, a diminishing ability of the world’s oceans and plant life to soak up the excess carbon put into the atmosphere by humans, according to data released early Tuesday by the United Nations’ meteorological advisory body.

Such information gets only a fraction of the attention it deserves, in no small part because many people have convinced themselves there's no problem. Amid the current international turmoil, climate change will probably get even less attention than it typically does. There is a tragic irony there, in that foreign policy problems and environmental problems are not unrelated; on the contrary, they are intimately connected by the nexus of fossil fuels.

Civilization's heavy reliance on fossil fuels is a key contributor to climate change, through the mechanism of the greenhouse effect--and at the same time is a key contributor to geopolitical trouble, through the mechanism of revenues to trouble-causing states and terrorist groups. Putin's Russia and socialist Venezuela are buoyed by fossil fuel revenues, as are numerous bad actors in the Middle East. (Fossil fuels also cause environmental and geopolitical problems in other ways, ranging from oil spills to the need to keep supply lines open by policing the Persian Gulf with aircraft carriers.)

Reducing fossil fuel reliance would make sense even if there were no climate change problem; and is an imperative given the climate issue. Lamentably, recognition of the interrelated nature of these problems is scant across the political spectrum. On the right, objection to supposed "alarmism" about the climate blinds many to fossil fuels' relevance to national-security threats that are otherwise perceived as pressing. On the left, environmental alarm is intense, but expressing concerns about fossil fuel revenues to malefactors tends to be avoided as so much saber-rattling. (The concern that climate change itself is a national security threat gets play instead, and while it is valid, it is by and large a longer-term consideration than what enemies are doing with fossil fuel revenues right now.)

Occasionally, there are hints of some concordance between "national security hawks" and "climate hawks," as they have been dubbed, but the friction of divergent world views has prevented anything like a meaningful coalition from developing. Such a coalition might press for a carbon tax and stepped-up renewable energy research, citing the full range of reasons such things make sense (including fiscal ones). Thirteen years after 9/11 and facing a new Middle East war, even as carbon continues to build up in the atmosphere and oceans, it's high time for such a coalition to take shape.

UPDATE: An interesting piece: "The Republican Party's Secret Stance on Climate Change."

UPDATE 9/10: Just came across this from a few days ago: “I don’t think we really want a commander-in-chief who’s battling climate change instead of terrorism.”-- Rand Paul. Note to self: Never vote for Rand Paul. UPDATE: All the more reason.