An editorial in the New York Times got me thinking about why a carbon tax is a better way to fight global warming and climate change than either cap–and–trade or efficiency regulations.
Here are several reasons I can think of:
- Carbon taxes always provide an incentive to pollute less and use less energy. Even if you cut carbon emissions by half, you still are paying taxes for the carbon you do emit, and therefore still have an incentive to eliminate it. Compare this with efficiency regulations, where someone has no incentive to reduce energy use once the regulation is met. In addition, all too often regulations are designed by businesses themselves, so as to prevent competition (rent seeking). Also compare this with cap–and–trade, where a source of carbon credits may well allow heavy polluters to continue, just because they have deep pockets. A lot of money will not allow someone to avoid paying a carbon tax.
- Carbon taxes drive both individuals and companies to use less energy. Cap–and–trade is usually done by businesses, and efficiency regulations only impact new products (unless old ones are mandated to be destroyed).
- According to the editorial, a carbon tax is far cheaper than efficiency standards once a global view of costs is taken into account.
- Carbon taxes (especially those on fuel) make people drive less and live in denser environments. On a per capita basis, cities are more energy–efficient than suburbs. For example, recycling and public transit are more feasible in densely–populated areas. And people who drive less are less sedentary and therefore healthier.
- It is possible that cap–and–trade and efficiency standards alone will not do enough to mitigate climate change.
- A carbon tax is easier to offset as part of a green tax shift than other methods. It can even lead to lower tax levels overall, such as here in British Columbia (cite).
- Efficiency improvements are subject to the rebound effect, where the decreased cost of using a resource partially offsets gains from using it more efficiently. A carbon tax does not generate perverse incentives.
- A carbon tax is easier to adjust. If too many pollution permits are issued, cap–and–trade will not have much of an effect since it is harder to eliminate privately–owned pollution permits.
- Many countries that export oil are rentier states, which means that they earn most of their revenue from natural resource royalties. Those royalties pay for oppressive paramilitary forces that enforce authoritarianism in those countries. A carbon tax will eventually reduce revenues received by those countries, improving freedom there and those countries’ human rights situations.
Hence, for all of the above reasons, a carbon tax is the way to go. My preferred offset is to payroll taxes. But such has virtually no chance of being enacted in the United States (a better chance in Canada [I hope]), due to the extreme polarization and total irrationality (and far worse!) of a number of politicians there. And since climate change is a major danger, Christian conservatism’s climate change denialism makes it, in the long run, the world’s most dangerous ideology.
