A Case Against a Carbon Tax For All Ideologies
By David Henderson
Earlier this week Brad Polumbo published a piece in the Washington Examiner making a case for a carbon tax. His piece, “A Conservative Case for the Carbon Tax,” Washington Examiner, July 26, 2018, covers some ground that will be familiar to many people who have followed the debate. The best case I’ve seen so far against the kind of case he makes, although it was published a few days earlier, is by Dan Mitchell. Mitchell’s piece is “The Unpalatable Consequences of a Nationwide Carbon Tax,” July 22, 2018.
I want to make two points, though, a major one that I don’t see my allies making, and a minor one specific to Polumbo’s piece.
The major one is this: Let’s say that those who fear global warming are totally correct and, furthermore, that we can estimate the cost imposed on others fairly accurately. Let’s say we judge that the social cost of carbon is $20 per ton. (You can choose any number; none of my argument hinges on the number, as you’ll see shortly.)
Setting a tax equal to $20 per ton will cause people to take that cost into account in their private decisions. That’s the point of the tax.
But what if taxing carbon is not the cheapest way to go? What if there are geo-engineering solutions that would substantially reduce the damage caused by carbon usage, and what if those solutions are incredibly cheap compared to a carbon tax? This isn’t fanciful. Robert Murphy has written about it at length for Econlib. Co-blogger Bryan Caplan, in a post that is available, makes that point succinctly, quoting later to be co-blogger Scott Sumner. Steven D. Levitt and Steven J. Dubner wrote about it extensively in Superfreakonomics. I discussed their point here. It’s conceivable that the solution could cost a few billion dollars or even just a few hundred million dollars, not the tens of billions of dollars in deadweight loss (in present value terms) that could come about due to even a modest carbon tax.
You might say, “What do you mean, deadweight loss? If the tax is correcting for a negative externality and is set carefully, there’s no deadweight loss.” That’s not true. If there’s a much cheaper alternative, e.g., geo-engineering, then the tax-induced reduction in carbon does cause a deadweight loss.
You might argue further that those who come up with a geo-engineering solution would, by reducing carbon usage, capture some benefits from a carbon tax. No, they wouldn’t. All of the geo-engineering solutions I’ve read about do so without directly addressing carbon. They take the amount of carbon usage as given and figure out how to solve the problem in other ways. They would get no payoff out of carbon tax revenues for their solution.
I think I’m making the point that James M. Buchanan and William Craig Stubblebine made in their classic 1962 article in Economica titled “Externality.” I don’t have ready access to that article. And if they didn’t make that point, the point holds nevertheless.
The minor point. Polumbo writes:
NASA reports that 97 percent of climate scientists agree that the earth’s climate is warming and that human activity is a major factor behind this change.
But follow the link and you see that the NASA is to a piece by John Cook et al: J. Cook, et al, “Consensus on consensus: a synthesis of consensus estimates on human-caused global warming,” Environmental Research Letters Vol. 11 No. 4, (13 April 2016); DOI:10.1088/1748-9326/11/4/048002
In a previous post, I pointed out what’s wrong with Cook et al’s claim and commenter Mark Bahner went above and beyond by taking Cook’s original data and showing what you can actually say based on Cook’s data. Notice also that Cook replied in the comments, unsatisfactorily.