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.


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