Thursday, 7 April 2011

The Impending US Government Shutdown... and Carbon Taxes?!

Of course, only "non-essential" US government personnel will be off-duty if the budget stalemate isn't resolved by COB Friday, April 8. And of course, it will be temporary. Just the same, I am glad to be living here north of the border for now.

In research published in a volume of collected works, Fiscal Challenges: An Inter-disciplinary Approach to Budget Policy (Garrett, Graddy, & Jackson, eds., Cambridge Press 2008), Jonathan Baron and Edward McCaffrey show in their chapter (The Political Psychology of Budget Deficits) that people want lower taxes, less government spending, but no reductions in the sum of spending on all specific government programs. People just want it all, and they want it to cost nothing. And politicians pander to one or the other impulse depending on which one will yield greater political support. 

How is this related to carbon taxes? On both sides of the political chasm in the budget battle there is a delusion that something can be had for nothing. Fiscal conservatives don't have the slightest idea of what the "job-killing" EPA does for them, and fiscal liberals simply have no appetite for reducing spending on anything. Similarly, when it comes to climate policy, people want something for nothing, and politicians are willing to tell them they can have it. In my forthcoming book, The Case for a Carbon Tax: Getting Past Our Hang-ups to Effective Climate Policy (Island Press, 2011), I explore why people hate carbon taxes as opposed to other, generally (not always) less effective climate policies. I conclude that at least a strong component of this has to do with the transparency of the price of carbon reduction. The more transparent the price is, the less popular a policy will be. Hence, the political popularity of "game-changing," "home-run" technologies like biofuels, nuclear energy, and carbon capture and storage, and George W. Bush's ballyhooed but failed hydrogen fuel cell initiative. Above all, government subsidies to promote these technologies clearly cost something -- but proponents and gullible (or opportunistic) legislators seize on these technologies as supposedly painless ways to make our economies less carbon-intensive economies without suffering any economic pain. 

Well, actually, we do suffer economic pain. In the same way that people delusionally want lower taxes and continuing support for specific government programs, people want to reduce greenhouse gas emissions but don't want it to cost them anything. So the idea of subsidizing wonderful and miraculous technologies that will lower emissions without cost is bound to be attractive. As a substantive matter, I challenge anyone to demonstrate to me how any specific government-subsidized project to reduce greenhouse gas emissions (I'm leaving geo-engineering measures out of this) can more effectively lower greenhouse gas concentrations, dollar-for-dollar, than a carbon tax. There is no free lunch. Lowering greenhouse gas emissions is going to cost money, and it's going to have to cost even the poorest among us, although there are things we can do in terms of income redistribution to make things easier. But shame on the sympathy entrepreneur politicians, especially in Canada, that play on the fears of people by claiming they have a way of reducing greenhouse gases that will "stick it to the corporations" but not "ordinary, hard-working people." 

Why do sympathy entrepreneurs manage to successfully play on fears of regressiveness of a carbon tax? My explanation in the book is that the way policies are framed consciously or unconsciously favor policies that are opaque with their costs. And so government subsidies and command-and-control regulation fare better, and so does cap-and-trade, although opponents of climate regulation have, not altogether inaccurately, succeeded in framing cap-and-trade as a tax. If it works, it is a tax. That's the good news, not the bad news! In terms of choosing climate policies, we have to work at framing all climate policies in terms of costs and benefits, and cost-effectiveness (dollars per ton of carbon dioxide-equivalent reduced), a little more carefully. Climate policies should be judged mostly by these criteria, whether they are obvious or not, whether these aspects are transparent or opaque. If they are opaque, then we need to work at making them less so, so that more informed decision-making can be made about climate policies.

For a working paper synopsis of some of the arguments I make in my book, see my 23-page draft paper Nine Reasons to Adopt a Carbon Tax.


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