The Case for Carbon Taxes, Part I: Political Subversion
by Eric Kramer
The Case for Carbon Taxes, Part I: Political Subversion
Economists support carbon taxes on efficiency grounds. By putting a price on carbon dioxide emissions, a carbon tax creates a strong incentive for people reduce their carbon footprint. They can do this by switching to clean technologies or simply by reducing their use of fossil fuels – by driving less or turning down the air conditioning, for example. Other policies can also be used to get people to reduce their use of fossil fuels, but carbon taxes allow people to reduce their carbon footprint in the least costly way. Given that decarbonizing the economy will be a large and expensive undertaking, keeping costs as low as possible is clearly important.
Economists have made some headway persuading policymakers that carbon taxes should be a central part of any plan to limit global warming, but many people remain quite skeptical. The most important doubts revolve around the political sustainability of carbon taxes. Carbon taxes appear to be politically vulnerable because they directly and visibly lead to higher energy prices, and spending on energy is a major item in the budgets of most families.
I will discuss the politics of carbon taxes in two posts. In this post I make a simple political argument for carbon taxes: carbon taxes are clearly constitutional and can function effectively even if most Republicans remain opposed to action on climate change and gain control of the executive branch. In contrast, the main alternatives to carbon taxes, mandates and subsidies, are highly vulnerable to political subversion by Congress and conservative courts and regulators. This point alone is sufficient to justify including a carbon tax in any plan to avoid the worst effects of climate change. In the next post I will argue that carbon taxes with per capita rebates will tend to generate their own support over time as people make investments that only pay off if the tax remains in place. This does not ensure that a carbon tax will be politically sustainable – any ambitious climate policy will remain controversial for years – but it gives policymakers and activists another reason to support carbon taxation.
The point of carbon taxes is to get households and firms to adopt clean technologies and to reduce their use of fossil fuels during the transition to an economy based on clean energy. There are two alternative policy tools that can be used for these purposes – regulatory mandates and subsidies. Mandates require firms or consumers to use technologies that reduce carbon pollution. Examples include green building codes for new construction, renewable portfolio standards that require utilities to reduce their use of coal, oil, and gas, and fuel economy standards for automobiles. Subsidies reduce the cost of green technologies to encourage their use. Subsidies for electric vehicles and rooftop solar are familiar examples.
There are serious problems with mandates and subsidies from a pure efficiency point of view. But carbon taxes have another important advantage: they are much less vulnerable to subversion by interest groups, hostile regulators, and conservative courts than mandates and subsidies. The ability of carbon taxes to operate effectively in a hostile political environment is a decisive reason to include carbon taxes in any climate legislation.
Conventional regulation relies on a creaky, time-consuming process of notice-and-comment rulemaking that favors the status quo and is poorly suited to leading an economy-wide transition to clean energy. To create a fuel efficiency standard for automakers or a renewable portfolio standard for utilities using the existing notice-and-comment process, environmental agencies need to solicit input, study various options in detail, formulate and propose detailed rules, and respond to voluminous comments from interested parties. The need to analyze multiple solutions and to develop an evidentiary record that can withstand judicial review predictably ties regulators up in knots for years. Once a final rule is adopted, opponents of regulation can delay enforcement by challenging the legal and factual justification for the rule in court. Courts often require agencies to consider additional factors, and to go through the notice-and-comment process again.
These familiar problems make it unlikely that regulations created through the notice-and-comment process could decarbonize the United States economy in a timely way even in the absence of active opposition from the courts and the executive branch. But active opposition by judges and regulators is almost certain and will make the problem far worse.
Delays caused by standard administrative procedures increase the likelihood that a Republican administration will come to power before a rule proposed by Democrats has been finalized and implemented. Once they take power, Republicans can easily subvert the rulemaking process or block implementation and enforcement of climate rules. This is exactly what happened to the fuel efficiency and coal-fired power plant rules formulated during the Obama administration when Donald Trump assumed office.
In addition to the problem of subversion by the executive branch, there is good reason to think that the conservative justices on the Supreme Court will make the regulatory process even more difficult to use in the future than it has been in the past. The conservative majority on the Supreme Court is clearly hostile to the current system of administrative rulemaking, and they have many tools at their disposal to make the process unworkable. Conservative judicial activists can interpret an ambiguous statute in a way that prevents regulatory action, or they can interpret statutes literally in the face of obvious drafting errors instead of interpreting climate legislation in a way consistent with the goal of decarbonizing the economy. There is a real risk that the current Supreme Court will go even further and strike down regulation using the discredited “non-delegation doctrine”, which holds that Congress cannot set broad goals and delegate the formulation of detailed rules to the executive branch.
Democrats can try to minimize the opportunities for judicial subversion by writing more specific statutes and re-writing the rules of administrative procedure to reduce the status quo bias of the current system, and they can try to force timely agency action. This is certainly worth trying, but the problems with the current system can at best only be modestly reduced. Writing clearer statutes is inherently difficult; this is one reason that Congress delegates in the first place. It seems unlikely that a major piece of climate legislation authorizing regulation across the entire United States economy would be a model of legislative clarity and specificity. It is very difficult for courts to force reluctant regulators to act. Rules that reduce regulatory discretion may help prevent damage by a hostile EPA administrator, but may make it more difficult for regulators who care about the planet to formulate effective rules. Finally, there is no guarantee that a new approach to administrative procedure aimed at forcing action by regulators and limiting judicial sabotage would survive judicial scrutiny and function as intended.
Carbon taxes avoid these problems of political subversion almost completely. Carbon taxes are clearly constitutional. In addition, taxes are largely self-executing. They do not give much discretion to executive branch regulators, which minimizes the power of regulators to thwart the intent of Congress, and limits the opportunity for judicial interference. Critically, carbon taxes adjust automatically to new circumstances and technological developments. If there is a breakthrough on a new technology for generating solar power, or for storing electricity, a carbon tax will automatically encourage its use. Mandates, in contrast, need to be constantly revised to remain relevant, which gives regulators and courts new opportunities for political obstruction. Even if Democrats succeed in getting a fuel economy standard passed in 2022, they may not have control of the government when it is time to create a new standard.
To defeat a climate policy based on carbon taxes, Republicans will need to gain unified control of government and repeal them. This is certainly possible, but subversion of mandates by conservative courts or regulators is far easier than winning both houses of Congress and the presidency, and even if Republicans regain unified control of the government this does not mean that they will be able to repeal a carbon tax. Republicans captured the federal government in 2016 but were unable to repeal the Affordable Care Act. As I explain in a subsequent post, a key advantage of carbon taxes is that they tend to generate their own support over time as people make investments in reliance on the taxes.
What about subsidies? The most important drawbacks to using subsidies are economic, not political, but here we are considering political feasibility. Subsidies tend to be politically popular, at least if taxes are not raised to pay for them, since they are all carrot and no stick. And assuming that subsidies are set by Congress, they will not be vulnerable to judicial or administrative subversion. However, they will need to be periodically reauthorized by Congress, and, like mandates, they will need to be constantly revised to reflect changes in technologies. Getting legislation to revise and reauthorize subsidies through Congress may be difficult, especially once the great expense of subsidies and their perverse incentive effects become clear. And as I explain in a future post, subsidies – unlike taxes – do not generate widespread support for their own continuation.
The latest numbers from the UN say we need more or less immediate ~8% reductions in carbon emissions per year to stay within the parameters that support known civilization. I’ve long supported high carbon taxes but how does it get us there now? You’ve run past the post, there’s no rubber band. The US is bar none the highest per capita emitter on the planet aside some small weird witchcraft fearing petrol states, and has an incredible amount of low hanging emissions it could reduce, with endless cheap land to capture endless renewable sources of power.
Be serious for a hot second, it’s getting hotter by the second, and tell me how a carbon tax is going to produce those annual reductions.
A carbon tax (and any other mechanism to reduce carbon use going forward) is too little too late. The only way disaster can be mitigated is by carbon capture.
A couple of responses. First, all I say in the post is that a carbon tax should be included in any climate program that Congress considers. Obviously, any ambitious decarbonization plan will include many other provisions.
Second, and more fundamentally, I think it is important for progressives to think hard about what they can realistically get through Congress, and how any plan will function in practice. There is essentially no chance that Congress will pass a climate plan in 2020 or even 2024 that will decarbonize the United States economy by 2050. Even legislation to achieve 80% decarbonization would be an incredibly heavy lift. What we need to do is position ourselves as best we can for further successes as public opinion changes and technology improves. A carbon tax is an important part of a plan to do that. Even a modest carbon tax would shut down coal plants and create strong incentives for investment in new renewable energy sources. That will give us a base we can build on when political conditions are more favorable.
I’m glad you see the sense in a per capital rebate. I keep saying that we have to learn to
1. understand the difference between marginal and average effects
2. understand that politically, telling people you are going to punish them is politics that won’t work. If however, you tell them that you will reward them if they are good, the odds are much better that you will win support, and not just from the already committed.
3. understand that this represents the first step towards a universal basic income. We cannot make the huge structural we need to make unless we remove the fear that people have for their economic security. Sure some people will lose, but nobody will be thrown to the ground with no way back.
Missing changes after structural above.
Note that it is not just personal economic security that will be impacted, but perhaps more importantly regional economic security. Redistribution to the poor is on average also redistribution to poor regions.
yeah, what Buermann said. a carbon tax won’t get us the emissions reduction we need…neither will greenest new deal of all the green new deals on the table….moving to renewable energy front loads a carbon footprint large enough to take us over the limit…short of a complete, worldwide collapse of civilization, right now, the UN targets are out of reach…the planet is toast.
The main alternative to taxes is not mandates or subsidies, it is cap and trade, successfully used for SO2 in the US. It nearly got through Congress under Obama. But now taxes are faddishly in, even though nobody in the GOP will support them at all, and they have been a flop in places ranging from France to the state of Washington, where they were supposed to have that offset of handing out the revrenues to people.
Unfortunately this post is completely missing the real debate. I note that taxes and cap and trade are the two main policies suggested in the Paris Accords.
re: Barkley, “even though nobody in the GOP will support them at all”
24 GOP House members joined the Climate Solutions Caucus, whose sole purpose was to pass a carbon tax & dividend. All but I think two of them later voted yay for a resolution condemning carbon taxes and none of them seem to have ever been asked to explain the discrepancy.
Neither France nor Washingtons’ carbon taxes included the dividend. France made a bunch of cut outs for industry levying most of the burden on households with no rebates, choosing instead to spend it on… deficit reduction, of all things! Washington would have invested all the revenue on various environmental projects, while the numerous billionaires backing the proposal spent half what the fossil interests did promoting an easily defeated campaign for a net tax increase.
British Columbia’s carbon tax & dividend is supported by some 60+% of the population, which has only grown as the tax and dividend have grown larger, while as far as the actual results go seems to have been an unqualified success at rates I would have imagined to be too low to achieve anything (e.g. http://blogs.worldbank.org/climatechange/british-columbia-s-carbon-tax-shift-environmental-and-economic-success).
Meanwhile the EU ETS cap & trade scheme has been riddled with fraud and far too many permits and actually generated windfall profits for the polluters it was supposed to punish.
the point of my earlier impetuous comment was that the train for carbon taxes, cap and trade, and all the other well thought out ways to reduce emissions has already left the station; there are new numbers out indicating we have to reduce global emissions by more than half over the next decade..
https://www.technologyreview.com/s/614801/we-need-to-halve-emissions-by-2030-they-rose-iagain-i-in-2019
Cut global emissions by 7.6 percent every year for next decade to meet 1.5°C Paris target – UN report – — On the eve of a year in which nations are due to strengthen their Paris climate pledges, a new UN Environment Programme (UNEP) report warns that unless global greenhouse gas emissions fall by 7.6 per cent each year between 2020 and 2030, the world will miss the opportunity to get on track towards the 1.5°C temperature goal of the Paris Agreement. UNEP’s annual Emissions Gap Report says that even if all current unconditional commitments under the Paris Agreement are implemented, temperatures are expected to rise by 3.2°C, bringing even wider-ranging and more destructive climate impacts.
do you all understand what cutting emissions by half means? that means you cut your travel in half, cut your trips to the store in half, cut your heating and cooling in half, unplug your refrigerator every other day, cut your clothes washing and drying in half, use your stove and kitchen appliances half as much as you do now,, and for dealing with agricultural emissions, cut your eating in half…
for most corporations, that would also meaning cutting their production in half….is their any policy that you can imagine enacting that would cut industrial production by 7.6% for each of the next ten years?
and then get china, india, europe and everyone else to do the same…
& if that doesn’t happen, it’s out of our hands…if temperatures rise by 3.2°C, the arctic methane and CO2 emissions from melting permafrost will take over and it’s a runaway to a new climate reality unlike anything mammals have ever lived through…
I look at that 8%/year reduction target and wonder how we could do it without a mass nationalization of much of the energy economy on the order of the WWII war effort something like the GND proposes.
If one wanted to argue that it’s doable by a reordering of market incentives one could look at the transformation in the US energy supply in the last ten years, where with a relatively light touch natural gas and renewables replaced a whole lot of coal and some oil.
The government would really have to get on top of pumped hydro and dry gravity storage (I’ve looked for any US energy agency report on the latter and come up absolutely empty, except one meeting in which it was the butt of jokes about some board member’s model train set, but it’s a relatively trivial civil engineering problem, push a mass up with a motor, generate electricity with regenerative breaking on the way down), because there is no market for negative energy prices (paying somebody to store the electricity) until you’re near 100% renewables with intermittent over-supply to the grid. Maybe Mr. Market could solve the rest with at the proper price on carbon and some subsidies: Obama increased increased the federal subsidies that produced the shale fossil boom by mere billions, not tens of billions (they were already on the order of ten billion when the boom started).
The EROI of solar and wind is a fuck of a lot higher for solar and wind than it is shale oil. If we had more room to spare the market would pound the fossils into the ground with renewables anyway, but we don’t have any room to spare.
I dunno, I’ve got a day job and I’m not an economist, I subscribe to this blog to get insights, not provide them.
https://www.eia.gov/todayinenergy/detail.php?id=39092
Buermann, i’m not familiar enough with dry gravity storage to comment intelligently, but if you’re using old mine shafts or the like it seems that would be one of the few “green” things you could do without having a big upfront carbon footprint, since part of your infrastructure is already in place…pumped hydro, i’m not so sure…i’m guessing that would take a lot of diesel fuel for earth-moving equipment, a lot of CO2 emitting cement, plus more than likely manufacturing the components in fossil fuel driven facilities…
still, both of those are just for storing the energy you’ve already generated, and that’s where i’d be skeptical….say you want to cover the country with wind farms to replace coal and natural gas; how many mountains in China will have to be bulldozed and washed in sulfuric acid to get the rare earths needed for the magnets and other rare earth components of those windmills? how many shiploads of iron ore have to be mined in Brazil and transported across the ocean for the steel you’ll need? what is the carbon footprint of the coal or natural gas you need to run those steel mills and how much metallurgical coal will you need to produce that steel?…how much steel will you need to build out the grid to get your electric power from the windfarms to the cities and towns where it will be used? how much bauxite has to be mined in Australia and transported to stateside smelters to produce the aluminum you’ll need, and what’s the carbon footprint of running those smelters, which use more electricity than any other industrial process…same questions for copper ores, which usually come from Chile or Peru…and how many trainloads of materials have to be moved across country to the factories where the windmill components are assembled? and how many crackers do you have to build to produce the fiberglass you’ll need to manufacture the windmill blades, and what are you going to do with those unrecyclable blades when they wear out in 20 years…i could go on, but you get my drift..
Electric earth moving equipment already exists. Which speaks to the strange lack of perspective of the rest of the comment, since the world is already spending a trillion dollars a year investing in new fossil energy and infrastructure and with that kind of annual investment redirected into cleaner energy we’d about hit the IPCC goals. Like, the thought experiment is to back-of-the-envelop estimate how to meet projections of future energy needs in the absolutely dumbest way possible and just build it all out using present consumer grade solar tech and it works out to be something like paving over an area the size of Spain in solar at $100/m2 and that works out to $5T, or five years of the present rate of investment in fossil energy. Quadruple the number or whatever to hand-wavingly fudge for your infrastructure and storage and recycling the panels every 25 years and global net zero by 2050 is still perfectly well within the realm of the possible without even increasing the present rate of global energy investment, but we need to be building HVDC cables instead of gas pipelines and, yes, strip mining for rare earths instead of tar sands.