The climate change debate began in ernest in the Senate yesterday afternoon. Few are questioning the science anymore; the earth is warming. The question is how best to control carbon emissions to reduce future global warming?
We economists usually recommend a carbon tax as the best way to go as Andrew eloquently explained on NPR last night. We like that fact that the tax is explicit, not hidden, that it is efficient, minimizing collateral damage to the economy, and that it is effective, raising the price of greenhouse gas emissions and encouraging alternatives.
I kid my friends that "I formulated three carbon taxes for Bob Dole back in the early 1980's that are still in his filing cabinet." I'd be very surprised if the former Senate Finance Chair really kept them, but the fact that they were formulated at all shows that Senate leaders, then as now, were fully aware of of the advantages of a carbon tax. That none of those proposals saw the light of day is conclusive evidence that:
Political leaders don't want
- an explicit tax with their name on it;
- an efficient tax that hurts their supporters; and
- an effective tax may not encourage the alternatives they support.
They prefer a hidden tax, which is why they are considering a cap-and-trade system of carbon allowances instead of a direct carbon tax.
They prefer a less efficient tax, which reduces the impact on the worst greenhouse gas emitters and spreads it around on others.
They prefer a less effective tax, which allows them to pick which alternatives to support and to pick which impacted Americans to compensate.
President Bush listed the objections quite well yesterday in his veto threat against the Lieberman-Warner cap-and-trade bill, S.3036, that the Senate is now debating. It would hurt consumers, shrink the economy, impose regulatory costs, implement a tax and spend system, expand entitlement spending, create new bureaucracies, create trade conflicts, and fail to achieve the bill's stated greenhouse gas emission goals.
The Congressionial Budget Office "score" of the revenue and outlay effects of S.3036 identifies it's $901.6 b. tax increase, $836.1 b. spending increase, and $65.5 b. deficit reduction over the next 10 years.
There is only one thing that most senators agree upon in this debate: S.3036 will not pass this year. The bill will be debated for however long Senate Majority Leader Harry Reid (D-NV) allows, and then it will be shelved until next year. That's when we may enact a bill because all three presidential candidates have endorsed one version or another of carbon cap-and-trade.
Our political leaders will be watching the public and private reaction to this debate very carefully for signs of what changes they will need to make next year.
The primary change will be to water the bill down. No one wants to take credit for raising gas prices by 53 cents and electricity prices by 44% by 2030 or to cut GDP by $2.8 trillion by 2050. The path to reduced greenhouse gas emissions in next year's bill will be slower than that which is proposed now.
The only hope for more rapid greenhouse gas emissions reductions than our political leaders are prepared to administer could come from two sources:
- As Andrew suggested, each of us can reduce our carbon footprint;
- New technology may substantitally reduce the cost of reducing greenhouse gas emissions IF WE KEEP CARBON PRICES HIGH.
Conservation is greatly underestimated as a solution to greenhouse gas emissions. If we all get serious about reducing our carbon footprint, it can have a big impact.
Finally, looking back on the energy crisis of the 1970's and early 1980's, the biggest mistake we made was to allow energy prices to drop after the crisis. That killed most investments in alternative energy sources. I would propose an energy tax that would kick in to keep those prices at least at $80 a barrel of oil and its equivalent for other energy sources, so alternative energy investments would not risk being wiped out by declining prices as occurred before.
Great post, Pete.
the biggest mistake we made was to allow energy prices to drop
Re: the biggest mistake we made was to allow energy prices to drop after the crisis, what would US growth rates have looked like during the 1980s and 1990s with higher energy costs (More like Europe's, I imagine)? At a lower level of growth, would the Soviet Union have fallen at the same time...or at all?
What would the human cost of slower growth have been for 20+ years? What benefit would we have now?
Re: Conservation is greatly underestimated as a solution to greenhouse gas emissions., how can conservation which - charitably - might reduce our energy use by 10 or 15% - have any real impact in a world where China and India are bringing 2 billion people up to the middle class over the next 50 years?
Carbon Tax: How Much, How Soon?
TJIC makes good points.
On lower growth, the question is when is lower short-run growth a good trade-off for increased longer-term growth? If we ignore global warming, longer-term growth will plummet when the ocean rises over our major coastal cities. At some point, lower short-run growth becomes worth it, but it will be almost impossible to determine the optimal switch point in advance.
Yes, our high growth, high defense sending, and low tax strategy under President Reagan worked quite well in speeding up the decline of the Soviet Union.
Yes, China and India are adding to greenhouse gas emissions much faster than we can offset with conservation.
I always say regarding by 11 years of Capitol Hill policy experience, I never worked on an issue where the proposed solution wasn't overconstrained. To enact anything requires relaxing some of the constraints. It's often the case that short-run considerations outweigh those in the long-run. You get into lots of discussions over second-best solutions.
I don't stay up nights worrying that we might do too much to stop global warming. I do worry about doing too little, too late.
From Russia, with love
At a lower level of growth, would the Soviet Union have fallen at the same time...or at all?
Russian GDP has been growing at about 7 percent annually since Bush v. Gore. We're now importing twice as much oil from Russia as from Kuwait.
Their new flag is nicer, I guess.
Growing Russian economy
And note that as the Russian GDP grows by 7 percent each year they must keep more of their oil at home to feed their own growing economy. The same is true for places like Venezuela, Mexico, Indonesia, etc, etc. There will be less oil for them to export to nice SUV driving people like us.
Reducing our personal carbon footprints is already happening . . . it is no longer a feel-good-nice thing to do -- it is a necessity.
CO2 controls not needed, but Congress will prefer cap and trade
I remain unconvinced that earth is experiencing carbon dioxide-induced global warming. But, if the people and the politicians buy into the IPCC brainwashing, then there will be pressure to reduce fossil fuel use. Congress will favor a cap and trade plan, not just because it is a hidden tax, but because it is so easy to corrupt. With cap and trade, there will be a proliferation of sham low CO2-producing businesses that will be partly owned by congressmen or that will employ the relatives and friends of congressmen, and that will be protected by said congressmen. No other system will allow such enrichment of congressmen, so it will be hard to enact a direct carbon tax.
CO2 controls not needed, but Congress will prefer cap and trade
I remain unconvinced that earth is experiencing carbon dioxide-induced global warming. But, if the people and the politicians buy into the IPCC brainwashing, then there will be pressure to reduce fossil fuel use. Congress will favor a cap and trade plan, not just because it is a hidden tax, but because it is so easy to corrupt. With cap and trade, there will be a proliferation of sham low CO2-producing businesses that will be partly owned by congressmen or that will employ the relatives and friends of congressmen, and that will be protected by said congressmen. No other system will allow such enrichment of congressmen, so it will be hard to enact a direct carbon tax.
Carbon, Carbon Everywhere
Sorry, not another budget wonk.
Came across your posting on economist's view and tracked it back here.
Just started my own blog on energy things and where the future might be. You can read mu comments on carbon taxes on EV.
Having said all of that the real issue is that the US needs reliable energy supplies that have cost ;levers we can operate on out own. An artificial carbon tax for an imaginary problem only works if you trust the Congress with making that new energy world happen. Not a path I would take from my experience.
Many things will be needed starting with conservation and more drilling and more coal. Sorry, that is the real world - the one with the blue sky. Oh yes, nuclear too. BUT -- those should be used as transitional steps to geting to other things. It will be very interesting all those steps in between.
It will also be very interesting to see what Obama actually does when he is elected. Remember: he is a ruthless politician not a cute speech maker from Chicago underneath. He beat Hillary AND Bill. Might be a show there too.
Very helpful, thanks!!
Very helpful, thanks!!
it seems so redundant to
it seems so redundant to have to explicitly define it as an array.
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