This post is by Sheryl Canter, an Online Writer and Editorial Manager at Environmental Defense Fund.
Here’s the quote of the week, from a New York Times Op-Ed piece:
Denmark, Finland, Norway and Sweden have had carbon taxes in place since the 1990s, but the tax has not led to large declines in emissions in most of these countries – in the case of Norway, emissions have actually increased by 43 percent per capita.
This observation reinforces what we’ve been saying all along about why a carbon tax isn’t the right approach. A tax doesn’t guarantee lower emissions; a cap does.
8 Comments
I would not be so fast to “guarantee” reductions under caps.
1) Look at the fiasco in setting caps (issuing permits) for carbon in Europe.
2) Consider spillovers between industries, regions and countries as businesses arbitrage between cap systems
3) Remember than output may have been even higher without the taxes. What are the increases in emissions/capita in the US? Germany? Mexico? China?
4) Try raising taxes if outputs are still too high. That system is already in place.
If I remember correctly, a Washington Post story about a year ago had a sentence that said total CO2 emissions for the US actually declined in 2006 from 2005 (I don’t know their source), due mainly to the then-high $3 per gallon gas, making people drive less. Maybe there could be a combination of increasing the federal gasoline tax to force less driving plus a carbon cap. I bet that if gasoline were $10/gallon, emissions would drop considerably – but then, the economy would tank also.
I hope the right decisions are made because all the carbon cap permits, etc, sure sounds confusing to me and many people. They could be open to various scams if not done correctly.
“3) Remember than output may have been even higher without the taxes. What are the increases in emissions/capita in the US? Germany? Mexico? China?
4) Try raising taxes if outputs are still too high. That system is already in place.”
This highlights one of the issus with taxes – you have to guess at what level of tax wil crate enough of a reduction. As you indicate we don’t even know if emissions were affected at all by curret taxes in Scandinavia, so how do we know what level of tax will be appropriate going forwards? If we try another level for a few years and find we taxed too much the economy suffers unnecessarily and tax-fraud skyrockets. If we tax too little and we lose another few precious years of GHG reductions. Even if we magically get it just right that doens’t mean that the level is right for the NEXT few years. We have to guess all over again – and the market has to guess at what our guess is going to be so they know what to invest in or not…..a nightmare is created.
Some people had a problem with climate science models being ‘too complex’ – but they are nothing to models of the economy, and unfortunatley models of the economy simply don’t work. They produce conflicting forecasts that are wrong, and can’t even be used to explain what’s gone on in the past. Some of the best informed economists in the world think the most famous and poular economist of the last 40 years (Greenspan) was a hero, others think he did too little too late and actully caused our booms (irrational exuberance) and current bust. THey simply don’t know.
A tax assumes that we understand economics, and we don’t.
A cap, however, simply feeds the ‘externality’ back into the market – there is scientifically acceptable level of CO2 concentration in the atmosphere. We need to stay below that level. If it costs a lot, so be it, it is cheaper than alternative. If it costs a little, that’s great, if it saves us money even better.
So just cap the emissions and let the market work it out.
Quentin
P.S. When throwing things (like CO2) away remember that there is no such place as ‘away’.
I like that quote about ‘When throwing things (like CO2) away remember that there is no such place as ‘away’. Very true. We certainly can’t beam CO2 into Space, can we? All we can do is sequester it somewhere, or just stop putting so much in the air and let nature take it away naturally in a hundred years or so. Planting a few billion trees would help, too.
Since each human exhales about 1 pound of CO2 a day (is the right, by the way?), that amounts to 6.5 Billion pounds of CO2 a day we exhale. I vote to ban exercise to keep our CO2 exhalations to a mininum….(my tougue WAY in cheek – just a little try at sarcasim, sorry)
@quentinp,
We certainly *do* understand economics at this level: Price goes up and we use less. That “law of demand” is something that every person (and most animals) deal with on a daily basis.
When I said “What are the increases in emissions/capita in the US? Germany? Mexico? China?”, I was not saying it was unknown or unknowable — just that I did not know it.
Caps do *not* feed externalities back in the market if there is leakage, e.g., cap on SO2 in US moves industry to Mexico (just hypothetical, the lit. on pollution havens is controversial).
So just use a combination of tax and cap and the market will work it out :)
For anyone interested, here are two very clealy laid out posts from Nat Keohane, an economist here at Environmental Defense Fund, that explain why a cap rather than a tax is the right tool for the job:
CBO Report: The Real Story
Phone Calls from the Congressional Budget Office
He did this in the context of responding to a Congressional Budget Office study. His original post got the director of the Congressional Budget Office a bit riled up, so he posted a follow-up that lays out the argument for a cap versus a tax in more detail.
“We certainly *do* understand economics at this level: Price goes up and we use less. That “law of demand” is something that every person (and most animals) deal with on a daily basis.”
While we may know the very basic idea that increasing price decreases consumption we don’t know enough (as you illustrate in you earlier post) about the price elasticities of domestic heating energy, gasoline, electricity used for commercial lighting, diesel for long distance trucking etc etc etc to know how much of a price change is required to get the reduction we need. Since we know the reduction we need then let’s just start with that.
If there is leakage then the cap doesn’t work fully, as you say. In the same way a tax will be avoided by some. I think the scale of problem is comparable to each wa forwards and terefore can’t be sued to choose between them.
Quentin
The IRS e-flie system is now open, most W-2s and 1099s will be in mail in the next couple of weeks. Is everybody ready for tax time?