Half-baked carbon tax is merely a vice tax offering no recovery from addiction

Half-baked carbon tax is merely a vice tax offering no recovery from addiction
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It doesn’t take a Ph.D. to understand global warming; it’s simple common sense.

Air keeps energy (heat) from escaping. You know this when you put a comforter or down jacket on. It’s not the feathers keeping you warm, it’s the air they trap (the fluffiness).

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This is why Venus is hotter at night than Mercury is during the day. Not only is Venus’s atmosphere thick, it’s composed of mostly CO2, which is a "greenhouse gas" (GHG) because it retains the Sun’s energy more than other gases, such as nitrogen, do.

 

Sure, there’s a technical aspect to global warming. Understanding the science behind warming is critical to crafting workable solutions. Predictive models can help us understand the changes that occur when different policy levers are pulled. But, an over-reliance on parts-per-million and predictive models can lead us astray. The complication of the problem and the possible solutions leads some to resist individual sector solutions in search of a single catch-all solution that solves everything without anyone having to “pick winners and losers.”

This leads people away from the core of climate policy: It’s a moral imperative. Society is going to have to spend trillions of dollars to deal with the damages already caused by unconstrained burning of fossil fuels.

As Cap and Trade was the chosen elixir a decade ago, much of the talk now concerns a carbon tax of some type. Setting aside the politics for a moment, is a carbon tax good policy? Good tax policy raises money to do the things we need as a society in the least burdensome, or disruptive, way possible. Taxing activity that imposes a cost on society — like cigarettes, alcohol, or pollution — is attractive because it can benefit us both by raising needed revenue and acting as a disincentive for imposing costs on all of us.

But, a high cigarette tax, for example, is tough on people who have a physical addiction. So unless you are going to provide people with a way to break their addiction, you end up with an unfair and unsustainable vice tax with no treatment for the vice.

Similarly, the United States has built an energy system that treats the atmosphere as an open sewer where energy prices don’t reflect social costs, and those bills are deferred to the next generation.

As a result, most people can’t respond to a gas tax by moving closer to work or to charges on their electricity bill by switching to low-carbon power — it’s just like taxing the addicted smoker.

Consumers don’t control what their utility burns to generate electricity, or pick the carbon content of their fuel.

In the U.S., energy markets are almost never “free markets” in the way they’re described in economics texts, meaning the signals a carbon tax is supposed to send would be muted.

In transportation for example, a $25 per-ton tax would roughly equal 25 cents-per-gallon to consumers.

This fee per-gallon, however, would only be visible to them after they’ve already made the most important purchasing decision in buying the car — from a carmaker that has no incentive to reduce its margins by building high-tech cars. 

In the end, you’d have to levy a very high tax to see real effects. It’d be much less painful to help people break the addiction to carbon by giving them alternatives.

This points to the larger issue with nearly all carbon tax proposals: What’s being traded away? In most cases to date, carbon taxes are proposed as an exchange for suspending other mechanisms. This risks going backward by removing the very policies that are driving technological progress in sectors such as transportation in exchange for an uncertain incentive.

If you trade away such policies as the fuel economy standards and the renewable fuel standard, you will slow the inadequate progress we are making towards decarbonization both in vehicle technology and low-carbon liquid fuels. 

This trade-off is a problem even if you believe electrification is the answer for most cars, we’ll still need carbon-free fuels for aviation (and probably shipping) and we’ve barely started that transition.

Effective carbon policy must be comprehensive across many sectors while being targeted enough to drive technology choice in each sector — while being sustainable enough to justify long term investments. We can’t just punish people today for their addiction to a system built to ignore the costs of carbon. A solution has to pave the way for a transition to a fully decarbonized economy. That’s a tall order for a single policy such as a carbon tax.

While a reasonable carbon tax is generally good tax policy (particularly if it replaces a more burdensome tax), because it raises revenue from something that is ultimately costing society, it’s an incomplete climate policy on its own.

To be sure, a carbon tax can be constructed in a way to make a difference in the power sector, where fossil fuels are already losing the battle to cleaner forms of generation. 

Pulling this lever could expedite the closure of dirty coal plants and make natural gas less competitive with cleaner power when new plants are needed. That’s a good thing, and it should be pursued. But if we’re serious about really solving the whole problem, we need to let go of our hang-ups.

A sustainable carbon tax is probably good tax policy, and might be a useful part of an effective climate policy, but it’s not the magic bullet that will save us all.

Mike Carr is executive director of New Energy America. He previously served as principal deputy assistant secretary for Energy Efficiency and Renewable Energy, and as senior counsel on the Senate Energy and Natural Resources Committee.