Monday, 22 August 2011

The Politics of Carbon Pricing

Barry Rabe and Christopher Borick have come out with a new paper on the politics of carbon pricing in the United States and Canada. They acknowledge the large body of work of economists that have largely concluded that carbon taxes are generally the best approach, for a number of reasons. Rabe and Borick's analysis suggests that although people would actually be willing to pay some sort of a "user fee" that scales with carbon dioxide emissions, they still do not accept the concept of a carbon tax. Whether that is because of the politics of climate change or the politics of energy taxation, they stop short of guessing, but they observe that despite the unfavorable politics of carbon taxation, people actually do pay a large variety of fees, charges, and taxes that are already embedded in fossil fuel extractions and transfers, that have the effect of a carbon tax. Moving forward, Rabe and Borick seem to be suggesting that various jurisdictions will "slouch" towards carbon taxation, essentially accomplishing by stealth what cannot be accomplished in an open political process.

I get quite cynical at times, and get discouraged about whether people deserve the democracy with which they have been endowed, and hard-won in the distant past. As a descriptive matter, Rabe and Borick may be right, but I still believe that the best way forward on pricing carbon is to be transparent. Among other benefits, a public discussion on carbon pricing and climate policy may not necessarily soar to rhetorical heights, but it will never be very good if governments do the right thing and then try to hide it from their constituents. Per my forthcoming book, I think the framing problem with carbon taxes can be overcome, and not just by renaming a carbon tax a "fee," a "charge," or something else. I think the problem that carbon taxes have, that it shares with other public finance problems, is a lack of a proper accounting in the costs and benefits of different policies. Start by making every climate policy ask what it will cost and what it will accomplish.

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