by Eric Kramer
The Case for Carbon Taxes, Part II: Political Sustainability
In a prior post, I argued that carbon taxes are not vulnerable to political subversion by hostile courts and regulators, and that this is an important advantage of carbon taxes over traditional regulation based on mandates, and also an advantage over subsidies. Once they are passed, carbon taxes can work more or less on auto-pilot to drive a clean energy transition, unless they are affirmatively repealed by Congress. In this post I consider whether carbon taxes are likely to sustain the support they need to remain in place. There is certainly no guarantee of this; any ambitious climate policy is likely to remain controversial. However, there are reasons to be optimistic that a carbon tax will not provoke a self-defeating backlash, and mandates and subsidies will also encounter political headwinds.
When it comes to political viability, it is natural to think that subsidies are the best policy, mandates are second-best, and carbon taxes rate poorly.
Subsidies are politically popular – at least if they are funded through deficit spending – because the benefits to voters are clear and they seem to reward people for virtuous behavior (like buying an electric vehicle), but the costs of deficit spending are indirect and hidden from view. Subsidies do not force anyone to do something that they would rather not do, like convert from natural gas to electric heat, or purchase an electric vehicle. They are all carrot, no stick. (This advantage of subsidies is entirely dependent on deficit financing. Telling people that we will give them a $10,000 tax credit to use on the purchase of an electric vehicle at some point over the next ten years is not particularly appealing if we also tell them that their taxes will go up $1,000 per year to pay for it.)