July 24, 2012

Can Carbon Taxes Help Cool Our Ever-Warming Planet?

Should the U.S. pass a carbon tax? Carl Pope, former executive director of the Sierra Club, sure thinks so.

His TakePart.com op-ed piece (below), “Winning the Carbon Tax Debate,” provides a solid argument.

I’m with him. Even if you don’t believe in man-made climate change, you can’t deny that a carbon tax would help reduce carbon emissions. And lowered carbon emissions will help keep our air and water clean and safe.

Serious—and less serious, but surprising—conservatives and Republicans are beginning to suggest that a tax on carbon might be on the table next year as part of comprehensive tax reform. Carbon taxes fit conservative tax theory: they hit consumption, not savings or investments; are market-perfecting, instead of distorting; and are easy to collect.

So it might be a real chance. That makes this a learning moment for the climate movement. Can we remember that carbon taxes are a tool, not a panacea, a step towards low carbon economics and not its essence, and a part of a political strategy, not a magic elixir that substitutes for strategy?

Or, as we did with cap and trade, will we invest this modest opportunity with pixie dust-like qualities that obscure the unavoidable trade-offs and risks?

A carbon tax—even a modest one—would be progress.

It would generate revenues, and if climate advocates can bring power to the negotiating table, those revenues in part might be devoted to other aspects of energy innovation, like paying for renewable power incentives.

It would send a market signal to investors—meaningful in the electricity sector, where a $20 per ton levy means a significant $0.02 advantage for renewable over coal power. But $20 per ton is a trivial $0.20 on a gallon of gasoline or diesel, certainly not enough to move investor or consumer behavior. This is one reason why you can also make a case for an additional levy on oil, higher perhaps on imports, to provide a real incentive for efficient, electric or bio-fuelled vehicle purchasers.

It would put in place one important piece of an eventual, global, harmonized carbon fee, as economist Jeffrey Sachs has proposed—the best idea thus far for eventually sending the bill for climate disruption and repair to those who properly owe it: fossil fuel consumers.

But like any pricing mechanism on carbon, a tax doesn’t resolve the myriad advantages which lock-in fossil fuel wastage, ranging from distribution monopolies for oil companies to lender indifference when approving mortgages—the stuff that constitutes the left-hand, already profitable side, of the McKinsey carbon abatement cost curves.

The increased cost of jet fuel as oil rose from $40 to $100 per barrel amounted to an effective tax of $150 per ton on carbon. Studies by Brighter Planet show that a typical airline, using the same planes and fuels, can cut their fuel bills and carbon emissions at least by a third through operational and routing reforms. But the long-run up in jet fuel prices produced virtually zero in the way of such changes. Fuel price is easy to exaggerate as a force for reform. Institutional inertia, sunk costs, split incentives and infrastructure lock-in are far more important in the energy sector than economists concede—or would like us to recognize.

It would also be an important symbol.

A statement that yes, the threat of climate disruption is real, that carbon is harmful and not beneficial, and that something will need to be done. It’s symbolic importance is probably the biggest barrier to having it happen—the hard-right has come out swinging at the notion of some kind of deal being cut around a carbon tax, with denialist central, the Heartland Institute, proclaiming: “Carbon dioxide is not a negative externality, it is a measure of energy use…the source of prosperity, innovation, and opportunity. The emerging consensus of scientists and economists is that CO2’s effects are either too small to be noticeable or will produce net benefits, not harms.”

But while symbolic victories score very highly in the hot-house of the policy world, they have less long-term impact on the public than we tend to think. Few Americans, for example, could even tell you that every month they pay a tax on their telephone bill to guarantee universal access for all Americans—even though that tax is prominently listed on their phone bill.

So the biggest danger for the climate movement in a carbon tax debate is that we will let the symbolism trump the substance, and instead of bringing power to the negotiating table to insist on a tax package that moves us forwards closer to a low-carbon future, we will roll-over as we did on cap-and-trade and say “any carbon tax means our support for a tax package.”

It’s the strategy we craft and the negotiating power we wield that will make the carbon tax debate a meaningful step forward—or a serious setback—in our quest to cool our warming world.

Should the United States pass a carbon tax? Let us know your thoughts for, against, indifferent in comments.

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