Tuesday, April 03, 2007

'Tis Better To Trade Than Tax

After Al Gore's Congressional testimony the other day (I'm going to pretend like it was just the other day; it takes me that long to get around to blogging these days), it looks like the two leading proposals being considered in Washington for doing something about greenhouse gas emissions are either to impose a carbon tax or to create a cap-and-trade emissions exchange. Here's why I think a carbon tax is likely to derail and lose its original purpose, while cap-and-trade could actually help the environment a lot:

No doubt taxing greenhouse gas emissions would spur us all to decrease the amount of those gases we produce. But, the tax would also become a source of revenue. Especially if the carbon tax were to replace existing income taxes, as Gore proposes. Before long, ongoing government programs would come to depend on that income.

Just like any other situation where two forces oppose each other, an equilibrium would be reached: at first the carbon tax would result in some reduction in emissions, but politicians would have a strong motivation to make sure we don't cut emissions too much. If a carbon tax is enstated, don't be surprised if you flip on the TV one day and see Senators arguing that we'll have to live with global warming because cutting greenhouse gas emissions will cause cutbacks in vital social services. The original purpose of the tax, the environment, would be clouded with other concerns.

Don't think the politics can get that twisted around? Rob Reiner, on the board of First Five, a health and education program for children, funded by a cigarette tax backed by Reiner, threatened to sue the California Hospital Association because it planned to put a proposition on the ballot to increase the cigarette tax. His concern: if California's cigarette sales were hurt, First Five would lose revenue:

Michael R. Blood, Associated Press: "Director Rob Reiner threatens hospitals on ballot issue"

(By the way, I wouldn't characterize Reiner as a hypocrite for taking this position. As far as I know, he's always been about helping children, never about getting smokers to quit.)

So, what about cap-and-trade? On Science Friday the other day, Bill Chameides, chief scientist for a group called Environmental Defense did a great job of explaining the benefits:

http://www.sciencefriday.com/pages/2007/Mar/hour1_032307.html

One of the nice qualities of cap-and-trade that Chameides doesn't go into is that creating a market for greenhouse gas offsets would boost the monetary value of environmental assets. For example, an acre of preserved rainforest.

Cap-and-trade isn't a no-brainer, though. It worked well in reducing acid rain in North America, but the greenhouse gas trading in Europe set up under Kyoto hasn't met targets because the cap part of the cap-and-trade was set too high. And setting the cap too low could harm the economy: as in higher prices and unemployment.

Even if cap-and-trade succeeds, I doubt it will be a magic bullet. We're going to see some climate change. The best news I've been seeing on climate hasn't been coming from the world of politics, but from an environmental technology bulletin I've started to follow:

MIT Technology Review

There are lots of ideas out, but it's going to take some time for the great ideas to develop.

5 Comments:

At 8:25 PM, April 27, 2007, Anonymous miche said...

Don't think the politics can get that twisted around? Rob Reiner, on the board of First Five, a health and education program for children, funded by a cigarette tax backed by Reiner, threatened to sue the California Hospital Association because it planned to put a proposition on the ballot to increase the cigarette tax. His concern: if California's cigarette sales were hurt, First Five would lose revenue:



Screw it all, but if we can make $s doing so, GREAT! Or, as I said on another blog,

" What does anyone get for our tax dollar? (Or anybody else’s?) Bullshit wars, bullshit social programs, and the trampling of civil liberties. And we get such a bad return on our investment in “necessary evil” because of people (like you, I assume) who create problems so they can feel good saving other people."

See link for context.

http://www.lastfreevoice.com/2007/04/26/wealthy-convicted-felon-fugitives-given-special-treatment/#comments

 
At 6:06 PM, May 17, 2007, Anonymous Carl said...

Hmmmm, still like a carbon tax. It is a wonderful way to break the Social Security entitlement mentality. Using an indirect tax for SS means no one has tracking of what went in.

Frankly, even with government trying to maximize revenue, with a carbon tax sufficient to pay for SS, solar would become economically feasible. A carbon tax would be only a termporary stopgap for SS, but it would be a wonderful stopgap.

As a geolibertarian, I much prefer the carbon tax to the cap and trade. I see injustice in giving yesterday's polluters rent-seeking ability.

 
At 9:39 PM, May 17, 2007, Blogger Mike Laursen said...

I touched on, but forgot to talk about another advantage of cap and trade over a carbon tax. A tax would have an effect within our borders; it could have the unintended consequence of prompting American companies to do more manufacturing offshore. A cap and trade system can expand into an international trading system: so, for example, those acres of preserved rainforest in Brazil will have value in the American economy.

 
At 8:08 AM, May 18, 2007, Anonymous Carl said...

If a carbon tax was a replacement for FICA, then the effect on U.S. export of industry would be something close to a wash. What would be lost in energy costs could be gained in labor costs.

 
At 8:30 AM, May 19, 2007, Blogger Mike Laursen said...

I suppose it's all very hypothetical, anyway. I don't think there's much chance of another tax being repealed to be replaced with a carbon tax. When's the last time you ever heard of a tax program being ended?

But, what do I know. Anything could happen.

 

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