Economist Demotes Economics in CO2 Tax Debate

“‘Whether to do something or nothing’ is quite a retreat from the basic economic principle of realistically comparing costs and benefits. Washington States’ carbon tax proposal is all cost and no benefit. New administrative programs and higher across-the-board energy prices cannot be balanced by virtue signalling.”

“One can only hope that economists would put their game face on and do real analysis–and tell their funders that the right answer is better than the politically correct wrong answer.”

A recent letter-to-the-editor in the Wall Street Journal, “Debating Washington Carbon Tax Initiative,” made a number of points that invite further consideration. The subtitle of the piece was: “The real question in front of Washington voters is whether to do something, or nothing, about the risks of climate change.”

The letter by PhD economist Noah Kaufman of Columbia University’s Center on Global Energy Policy is parsed in red; my comments are indented.

Your editorial “Washington’s Carbon Tax: Take Two” (Oct. 22) points out that some emissions sources are exempted by Washington’s carbon-fee ballot initiative and asks: For those worried about climate change, why tolerate exceptions?

Energy intensive and trade-exposed businesses were excluded because they might have fled the state and brought their emissions elsewhere.

Comment: Short of a federal tax, any state that imposes a carbon tax penalizes its businesses and citizens versus other states that do not have such a levy. A “border adjustment” to penalize free-rider states (akin to a tariff at the international border) is not permissible under the interstate commerce clause. This makes non-federal tax schemes problematic in terms of equity and fairness considerations out of the gate–and one can only imagine what future revisions will add to the complexity of the program.

And there are more exemptions ….

Imposing the carbon fee on the state’s coal plant that is shutting down by 2025 would have violated a previous commitment to the owners of the plant, its workers, and the surrounding community.

Comment: This carve-out to protect “the owners of the plant, its workers, and the surrounding community” suggests just how negative the carbon tax is for citizens and the economy as a whole.
Finally, for dispersed sources of emissions, such as emissions from agricultural lands, a carbon fee isn’t the right policy tool because monitoring and enforcement would be overly burdensome.
Comment: Think lobbyists, not save-the-world environmentalists and politicians. Again, note the winners and losers of Washington State’s tax–and for what (read on)?
It is correct that like any other serious policy that reduces greenhouse gas emissions, a carbon tax would raise energy costs and, by itself, have only minimal effects on global emissions.
Comment: This begs the question: what are the costs relative to the benefits. In fact, a carbon tax significantly increases energy prices for consumers who have little-to-no option to opt out or otherwise avoid the pain. Lower-income consumers are hurt the most. And the effects on global emissions are not “minimal” but infinitesimal.
And the effect on global climate change? Don’t even ask–Resources for the Future, which provides a calculator of carbon taxes on energy costs, does not even dare compute the effect on global warming or associated sea level rise.
But state-level policy can spur action in other states and at the federal level and thus lead to larger emissions reductions.
Comment: This “momentum” argument begs the question of whether what is being pursued is even worth pursuing. In the Trump era, where the Paris Agreement is being shaken to its roots. US-side action will prove futile in the years and decades ahead.
Meanwhile, the debate will shift to negative emissions and adaptation as the “problem” becomes more intractable.
Economists have long supported carbon taxes as the most cost-effective way to reduce emissions.
Comment: Emissions as in “pollution”? Is carbon dioxide a pollutant? The relative merits between carbon taxes, cap-and-trade, and command-and-control mean little is the regulatory program is uncalled for and the political choice is not either/or but more of everything. “Greater speed to the wrong destination is not a virtue.”
When they vote on Initiative 1631, the real question in front of Washington voters is whether to do something, or nothing, about the risks of climate change.
Comment: “Whether to do something or nothing” is quite a retreat from the basic economic principle of realistically comparing costs and benefits. Washington States’ carbon tax proposal is all cost and no benefit. New administrative programs and higher across-the-board energy prices cannot be balanced by virtue signalling.
One can only hope that economists would put their game face on and do real analysis–and tell their funders that the right answer is better than the politically correct wrong answer.

The post Economist Demotes Economics in CO2 Tax Debate appeared first on Master Resource.

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November 1, 2018 at 01:14AM

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