Of the ideas batted about for cutting greenhouse gas emissions and slowing global warming, few have gotten traction as powerfully and suddenly as the notion of taxing carbon dioxide emissions. Unlike most other plans that have the word “tax” in the title, this is one that has found takers among both Republicans and Democrats, left and right.
The carbon tax meme made a big debut a month ago, when Harvard professor Gregory Mankiw, a longtime Republican economic sage and an advisor to Mitt Romney, pushed it in this New York Times piece. Then John Dingell, the Michigan Democrat who chairs the House’s Energy and Commerce Committee, floated a bill with a similar plan. Now it’s one of the econo-memes of the moment, tossed back and forth around Washington and editorial pages. That doesn’t mean it’s a good idea.
Both Mankiw, the Republican, and Dingell, the Democrat, use similar numbers for the carbon tax: Mankiw’s plan is to charge $15 per ton of carbon dioxide released into the atmosphere, Dingell’s plan calls for $50 per ton of carbon, which sounds different, but works out to about $14 per ton of CO2 released. To turn that into an everyday example, that’s about 15 cents per gallon of gas (Though you should understand that a carbon tax covers not just gasoline, but all fossil fuels, from factories to power plants. One gallon of gasoline creates about two releases enough carbon to create 20 pounds of CO2.)
Mankiw would use that revenue to reduce other taxes. Dingell–who may have less interest in getting a carbon tax passed than in using it as a cudgel against folks who want to stick the auto industry with the costs of cutting CO2–says he’d use it for federal services and social security. Either way a tax like this could cut 700 million tons from the 6 billion tons of carbon dioxide the US releases into the atmosphere every year from oil, coal and natural gas.
That sounds like a good thing to a lot of people, as it should. It’s a big drop and intuitively, it’s awfully appealing to make people pay for their own greenhouse gases. Policy makers like this kind of approach because instead of imposing a fixed mandate, it lets the market decide when its worth paying the tax and when its better to cut down on fossil fuels. That makes this a tax that even people who think of themselves as opposing “regulation” can get behind.
But as I thought about this tax, I got to wondering how a tax that comes out to 15 cents a gallon would make a big difference US energy use, and carbon emissions, when a doubling of gasoline prices hasn’t. That just didn’t seem right.
It turns out that it can. If you want to see the math behind it yourself, you can find it in Tufts economist and carbon tax advocate Gilbert Metcalf’s policy paper.
Metcalf’s did show me how a carbon tax gets us to 700 million tons of carbon reduction. But it also left me thinking it wasn’t be the best way to get there. Here’s why:
Metcalf calculates that in 2005 a carbon tax would have cut CO2 emissions by 717 million tons. But almost 90 percent of that would come from cutting the use of coal, which releases more CO2 than oil and a lot more than natural gas. A carbon tax does a lot to push companies away from burning coal in older, more heavily polluting plants in which the cost of the tax could be more than the cost of the coal itself. But it does very little to cut oil use.
Cutting almost 650 million tons of coal emissions is pretty good already. The problem, however, is that two thirds of the tax would be paid by users of oil and natural gas–together, 64 percent of our energy consumption. Those taxes, totalling more than $50 billion, would be big enough to raise prices, but not big enough to change energy behavior very much at all. Oil use, for instance, would go down by just two percent. 90 percent of the effect we’re looking for comes from just over a third of the tax! The other two thirds of the carbon tax–including that 15 cent a gallon levy on gasoline, taxes on heating oil, and taxes on natural gas fueled power plants–punishes people for energy use, but it doesn’t actually make them reduce it.
You might still think that’s still worth it for a big cut in greenhouse gas emissions. But it leads to a couple of consequences worth pondering.
One is that if the real benefit from this tax comes overwhelmingly from reducing carbon emissions from coal, and especially from the less efficient, least modernized coal-fired plants, you might ask if you can achieve that more directly. Say, by limiting the tax to coal. Or by mandating CO2 recapture systems in new plants (one European company is already building a test plant that will burn coal without releasing any carbon dioxide.
Another is that a carbon tax–remember, it adds up to about $80 billion a year–makes cutting carbon dioxide look even more expensive than it is (and no one says it’s cheap). That might not be a huge problem for Dingell, who seems to want the tax to be scary. But it’s bad news for people who really want to get it passed. It’s hard enough to tell voters that they need to pay a new gas tax, and more for their electricity. Then try explaining to them that, actually, much of that new tax they’re paying will do little to cut emissions and they need to do more.
The bottom line for me is that I can’t get behind the logic of a tax that winds up putting most of the burden on the wrong things (oil and natural gas) and the wrong people. $50 billion of overhead is too much for me. In theory, a la Mankiw, the money could be used to cut other taxes. In the real world things rarely play out that way.
There’s something of a vogue now for taxes like the carbon tax, that look a little like “user fees” and promise to solve problems through market mechanism. I’m not sure all of them are such a great idea. I might talk about that some more in my short guest-writing stay here.
I do know that carbon taxes do have some vociferous and smart proponents. If any readers think the idea has strengths or benefits I’ve overlooked, I hope they’ll speak up.