Go Carbon Tax

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I thought of an opinion on pending legislation that I would like to record in the public archive of the Internet. The specific legislation is the American Clean Energy and Security Act and its primary purpose is to introduce a cap-and-trade system for carbon emissions in America. The opinion I have is that this is a poor excuse for a bill and that a carbon tax would be a vastly superior solution to the climate crisis.

 

I suppose I should make a gesture towards defending this position, since it seems most people would say that a tax is a simpler and more straightforward way to price the externality of carbon emissions, but that a cap-and-trade system is theoretically equivalent and politically much more palatable. This argument was recently delivered by Paul Krugman, for example, in a particularly cogent article warning progressives not to make “the perfect the enemy of the good.”

My response is to consider the reason that a cap-and-trade system is more politically palatable than a carbon tax.  As Krugman points out, one such reason is that the proposed cap-and-trade program initially gives permits for free, “in effect, transfer[ring] wealth from taxpayers to industry”. This minor flaw is an example of a general pattern: cap-and-trade is much more complex than a carbon tax and therefore much more susceptible to loopholes, lobbying, and other forms of interference by industry. As Chris Bowers notes, the current legislation is very likely to continue to be weakened and co-opted before it even passes. So, even though an Platonic ideal of a cap-and-trade program is completely economically equivalent to a carbon tax, industry prefers cap-and-trade because it’s more complicated and therefore easier to corrupt.

 My second point is discussed online much less frequently, but is perhaps even more important. Cap-and-trade is far, far, less evocative than a carbon tax. At the moment, nobody even knows what it means, but if and when it becomes law, people will start to form opinions. And the natural narrative around cap-and-trade is that it’s a byzantine series of oppressive government regulations imposed on business. I imagine a cap-and-trade enforcement agency will be seen as kind of like the IRS: a vast and bloated bureaucracy, loathed and feared by everyone, that takes away people’s earnings for ostensibly high-minded reasons. The steady downwards march of the total number of emissions permits will be fought at every step with the same tactics, and probably the same success, as the battles that erupt whenever government haplessly tries to raise taxes. In other words, a cap-and-trade system looks, even to me, like an unpleasant and unwelcome government intrusion into private business.

A carbon tax, on the other hand, builds around itself a much simpler narrative. The battle to impose one will be incredibly fierce, as are all battles over tax increases, but the idea is simple and the argument is straightforward. Carbon emissions are currently an unpriced externality, a form of pollution that imposes a cost on society, and it’s society’s right and duty to recoup that cost from the people or corporations who put it there. That’s the whole argument, and ideally, it primes people to see the issue as a societal issue and a community issue pitting ordinary people against polluters, while cap-and-trade primes people to see this regulation as government interference in the business affairs of its citizens. Since neither measure is enough alone to stop climate change, and further legislation is almost certainly going to be necessary, I would fight for a carbon tax that builds support for itself over time by reinforcing progressive frames, rather than submit to pressure for a cap-and-trade system that breeds resentment and reinforces right-wing anti-government frames.

Some readers might doubt that people’s beliefs about climate policy are so malleable that simple framing can affect them. I refer such skeptics to the fivethirtyeight.com treatment of a paper that finds a significant correlation between the current weather and people’s current belief or disblief in the science behind global warming. If today’s weather can matter, then so can a decade or two of framing based on direct experience with climate legislation.

If we assume, then, that global warming won’t be solved this year, but that legislation that passes this year will lay the foundation for future climate policy, then it’s not fair to say that opposing cap-and-trade is making the perfect the enemy of the good. Rather, since they’re both first steps, fighting for a carbon tax instead of cap-and-trade is investing short-term political capital for a long-term political (and environmental) gain.

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