Carbon Taxes
By Randall Holcombe • Tuesday November 27, 2012 2:26 PM PDT • 8 Comments
One suggestion for dealing with greenhouse gas emissions is to implement a revenue-neutral tax on carbon emissions. If we implemented a carbon tax and cut income taxes by the same amount, we would be reducing taxes on something we want (income) and increasing taxes on something we don’t (air pollution).
As good as it sounds, I’m skeptical of the merits of carbon taxes, even if our CO2 emissions cause global warming. Fossil fuels have been the energy source behind the remarkable economic progress we have had since the beginning of the Industrial Revolution. Taxing that energy source will lower economic growth. Reducing income taxes should increase economic growth, but the issue is more complex than just which tax would, in theory, be the least detrimental to growth. Here are six reasons for my skepticism on carbon taxes.
1. Fossil fuels have powered the Industrial Revolution. Let’s say that the Earth is 2-3 degrees warmer today than it would have been had the Industrial Revolution never occurred. Is that amount of warming worth it? Would you rather live in today’s world, or have the standard of living of people in 1750 and an Earth 2-3 degrees cooler? If that is the cost of the remarkable economic progress that has resulted from the Industrial Revolution, most people would gladly accept the warming.
2. Carbon taxes would slow economic growth not only because they would make the power that fuels it more costly, but also because carbon taxes are unlikely to be revenue-neutral, even when their advocates propose it. Look at the VAT in the EU, which was proposed as a revenue-neutral tax reform, and sparked a substantial growth of government across the EU countries. Look at the federal income tax, which started as a progressive tax with a top marginal tax rate of 7%. A carbon tax would not be implemented by an omniscient benevolent government that would produce the “optimal” policy, but by a democratic process that is laced with special interest politics and cronyism. A new revenue source, even if intended by its architects to be revenue-neutral, ultimately would lead to bigger government, placing even more of a burden on the productive capacity of the economy.
3. If we are concerned about our children and grandchildren, then combining the first two points, would we make future generations better off by leaving them a world that is slightly cooler, but also poorer?
4. We should weigh the benefits as well as the costs of global warming. What if the people arguing that human use of fossil fuels is warming the planet are right? CO2, which is often viewed as a pollutant, is necessary for plant growth, and a higher concentration of CO2 in the atmosphere will mean healthier plants. A warmer climate will mean a longer growing season, so we can better feed our population. It would open up land to crops that currently is too far north. People in some places would surely be made worse off from a warmer planet, but people in other places — Siberia, Canada — would be better off. People are mobile, and populations would shift as climate change made some places more desirable relative to others. Global warming would bring with it benefits as well as costs.
5. There are benefits to waiting to deal with global warming, if it is a problem. One is that technology will develop so that it will become cheaper to reduce greenhouse gas emissions in the future. For example Air Fuel Synthesis is a company that takes CO2 from the air and hydrogen from water to make oil. I don’t know whether this is the winning technology, but over time more technological advances like this will occur, making it more cost-effective to deal with greenhouse gas emissions. Also over time, people get wealthier (if we don’t kill the goose that lays the golden eggs), and are willing to pay for “green” energy. People in wealthier countries are choosing to spend their own money to buy solar panels to generate electricity, and to engage in other “green” activity without any government mandates telling them they have to. If it is desirable to do something to mitigate greenhouse gas emissions, there are some benefits to doing something later rather than now.
6. Carbon taxes could increase the emissions of greenhouse gasses. If the US implemented carbon taxes unilaterally, that would raise the cost of manufacturing in the US, which would push manufacturing to other countries (like China) where manufacturing produces higher emissions than in the relatively clean US. The shift in manufacturing from low emissions countries to high emissions countries would result in more greenhouse gas emissions.
People who are skeptical about global warming will, of course, see no reason for carbon taxes, but the six points above make the argument that people who think global warming is real and man-made have good reason to question the desirability of carbon taxes.
Tags: Budget and Tax Policy, Economics, Energy, Environment, Global Warming, Natural Resources, Politics, Taxation 
Carbon dioxide does not cause global warming. The greenhouse effect does not apply to planet earth. The greenhouse effect only occurs when there is an inside and an outside, and the inside air can capture solar rays that otherwise would strike the outside. With a planet, all solar rays that do not warm CO2 or water vapor in the air end up warming the surface. Planetary temperatures are not changed when there are more “greenhouse” gases to absorb solar energy: they soon transfer their warmth to the surface. These well-known facts show that anthropogenic global warming is the greatest hoax in history.
MingoV | Nov 27, 2012 | Reply
http://www.ncdc.noaa.gov/paleo/globalwarming/temperature-change.html
Look at the graph in the above link. Based on ice core samples, and confirmed by other sources, there’s an unmistakable relationship between CO2 levels in the atmosphere and global temperatures. Do we think it’s just a coincidence that the polar ice caps are melting, that we’re posting record temperatures and that we’re experiencing an increase in major storm systems like Sandy, just at the same time that as a population we are emitting more CO2 than ever before? Please.
This is exactly the sort of problem we need not only government but cooperation between governments to solve. There’s no “free market” solution. Free markets look for short-term gains. Fixing this is going to hurt, and damage the economy short term, but a lot less than a few Sandys every year.
Glenn | Nov 29, 2012 | Reply
Thanks for the comments, MingoV and Glenn. Recognizing that “global warming” is controversial and politically charged, many supporters of a carbon tax are arguing that it is a good option even if there is no global warming. And, the six points in my post question the desirability of carbon taxes, even if there is global warming caused by human use of fossil fuels.
So, you can debate the global warming issue, but note that I specifically side-stepped it in my post, giving arguments that apply regardless of whether there is global warming.
Randall Holcombe | Nov 29, 2012 | Reply
...but note that I specifically side-stepped it in my post, giving arguments that apply regardless of whether there is global warming..
And I thought you did a good job of it, Randall.
Fred Mangels | Nov 29, 2012 | Reply
Glenn, in your wisdom of climate change,ask yourself this,when we have one atmosphere,why is the south pole ice cap increasing.As Randall says the carbon tax is a bad idea.As bad as the carbon credit hoax that has made Al Gore millions.
Bill Hall | Nov 29, 2012 | Reply
Taxes are the not the answer; they are the harbinger of despair and destitution. All taxes for any purpose must be opposed. If foolish leaders who proffer tax schemes think taxes are so great, let them tax themselves 110% first.
DoktorThomas™ | Nov 29, 2012 | Reply
You are absolutely correct. This is the greatest hoax in the long history of planet earth!
Sam Skeptical | Nov 30, 2012 | Reply
burning fossil fuels, why do they keep calling it that? I didn’t know oil was fossilized. if it is fossilized it would be like hard right? anyway yes it pollutes but co2 is not one of the pollutes, if your not careful they will start taxing your use of oxygen, which comes from plants absorbing co2. yes technology is improving, I am just wondering if gov actually helped clean up the air or if the people actually got corp to clean up their act after all profit oreinted people do not care about your enviroment, they don[‘t usually live where htey pollute, I don’t believe corp are any better then gov, in policing themselves, gov is needed to police corp. but gov get into trouble when they work with corp instead of policing them. without gov then corp would just run wild (many corp are so powerful maybe more powerful then some gov and whole nations combined) humans are what they are and will abuse power when given the chance. gov are not much better but when they act right is balances the powers of massive corporations. of course even that is going down the drain as they do right less and less. co2 taxes are just another name for wealth transfer, keep the slave class poor enough they have to work until they drop from exhaustion or death which ever comes first, keep that slave class also very large to keep wages and benefits down. push all liablities onto those slaves too making htem feel guilty for not wanting to share their wealth with the less fortuant slave who are precisly poor due to corporations and gov run wild. global warming would be a god send, a warmer earth is a more human friendly earth, not a colder one, warmer air holds more moistures puts rain in more places and less severe storms, cold and hot air causes storms if that contrast is less severe/extreme i would think the storms would be less severe too if the cold air is not to cold and then the hot air hits it less rain and wind would be produced. wouldn’t it? I would think increased plant growth would be a benefit too as co2 is converted to oxygen which animals breath, that would increase energy production inside us and make us more enrgetic? and the plants absorb it and produces food for us, and increases their resistant to pests right? plants would stay green, hence absorbing co2 longer as the winters are shorter and warmer, because now when winter is here in ohio there are no plants absorbing anything, but if they stayed green all year they would be continual absorbing co2 is that right? so when will greed stop producing wealth stealing policy in gov? when will people actually start to do right? probably never not until gods war against the wicked happens at armegeddon.
roberta | Dec 6, 2012 | Reply