23 Jul 2012

10 reasons to create a carbon tax

Written by Jim Pierobon

The possible revival of serious talks about a U.S. carbon tax should take thought-leaders to the most recent credible analysis in a book finished earlier this year by Shi-Ling Hsu,  a professor at the University of British Columbia: The Case for a Carbon Tax.

CREDIT: Island Press

Here I cut to the chase to spotlight the 10 reasons Shi-Ling Hsu concludes a carbon tax is THE most effective mechanism to combat climate change and motivate the private sector to help solve it while raising much-needed revenue for governments with the where with all to pass one.

I take the liberty of paraphrasing to avoid speaking ‘over the heads’ of people who would benefit from reading this digest. I also include what I think are the most helpful quotes to help grasp the gravity of what Professor Usu is trying to say.

1. It’s economically efficient.  An accurate disincentive for using carbon-based fuels could mimick the increment of damage — the marginal damage — caused by each ton of carbon dioxide released into the atmosphere. “The simple genius of a carbon tax is that it aggregates disparate pieces of information, transmitting a price signal at everystage in which there is fossil fuel usage . . . no data collection is required and no model is required.”

2. It avoids creating physical capital that could actually harm the environment — e.g. coal-fired power plants. “The problem with capital is that once we have it, its high cost makes it difficult to dispose of.”

3. It doesn’t interfere with other regulatory instruments or jurisdictions. “A carbon tax would have the advantage, because of its simplicity, of forming the strongest foundation upon which other policies can stand.”

4. Government is better at reducing bad actions than increasing good good actions. Taxes work better than subsidies.

5. Incentives for innovation — price effects. It would impact emissions not only from the largest carbon sources such as power plants and industrial facilities but all carbon sources.

6. Incentives for innovation — price breadth. It focuses new products and services no matter how much money can be saved by using less electricity or electricity from a different source, e.g. renewables.

7. It’s easy to administer. There are no “offsets” as would be needed with a cap-and-trade program. “Awarding an offset for a project that purports to avoid emissions increases rather than actually reducing them is a tricky proposition.”

 8. International coordination is doable. “An international accord based on a carbon tax scheme would avoid the unfortunate appearance of China being allocated some cap amount by an external bureaucracy.” It “would not represent  . . . a binding limit to economic growth.”

9. It raises badly needed revenue. This might not be the panacea that some think it would. The tax would only raise a lot of money if it changes behavior. The less carbon emitted, the lower revenues would be. That said, there is a LOT of money to be raised by discouraging carbon emissions.

10. It avoids the risk of catastrophe. In the long-run, THIS is the ultimate measure of efficiency from a public welfare perspective.

Of all the book reviews one can find on the Web, I found this one, by Mat McDermott for Treehugger, the most helpful.

2 Comments to 10 reasons to create a carbon tax

  1. Overcast's GravatarOvercast
    July 26, 2012 at 8:57 pm | Permalink

    Well, I agree that some regulation needs to be out there – but… the big question here still falls back to a single point of failure – who determines how much to tax what?

    Not all of these technologies are ‘fair’ in how the public sees them vs. reality. Take electric cars for example – people go on about how they “don’t use fossil fuels” – but that is **totally false spin**. 60% or so of power generation in the US is coal, followed by natural gas, oil, and nuclear. We can debate those specifics as well, but even Nuclear carried a significant environmental risk (as evidenced in Chernobyl).

    You could say solar is wonderful – but what compounds are used in the solar panels today? What of the panels in the future? Is there an environmental risk for mining the substances needed to produce the tiles?

    There are many factors – do we think we can trust a single organization to make the right ‘call’ – and not be influenced by corporate dollars?

    But mostly in the end, if you can just ‘buy clean PR’ – what of those companies than can pay LOTS of tax, so long as they are making even MORE money? Can they pollute at will, provided they pay their kickback tax?

    Just some questions – I’m all for environmental stewardship, but I like to look past the surface spin too.

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