In this installment of this occasional series, we hear from Shi-Ling Hsu, author of The Case for a Carbon Tax.
Q. In the book, you make a clear case for why a carbon tax is the best policy solution to climate change. What makes it superior to other policies?A carbon tax is just the simplest and least intrusive instrument for reducing carbon dioxide emissions, and potentially other greenhouse gas emissions as well. It can be easily incorporated in an existing tax collection infrastructure, it is simple to calculate and easy to monitor. The theoretical case for cap-and-trade is similar to that of a carbon tax, but the reality of setting up a cap-and-trade program is much more complicated. Just deciding how to allocate emissions permits has proven to be an enormously trying exercise, as the political logrolling leading up to the Waxman-Markey bill illustrated. A carbon tax is also the best and most fundamental base instrument on which other climate policies might build. We could implement a small carbon tax right now and think about what else might be done later.
Q. Other than reducing greenhouse gas emissions, what are some of the unforeseen benefits of a carbon tax?Right now, the most obvious benefit of a carbon tax is that it raises revenues and could contribute to a deficit reduction plan. Taxing carbon is a lot more productive than taxing income. Once the Tea Party line of no-new-taxes falls away (as it must), a carbon tax ought to surface as one of the least obnoxious ways of raising revenues. But a carbon tax will yield benefits in terms of inducing innovation that other instruments will not. Cap-and-trade and command-and-control type regulation (such as that under the Clean Air Act) requires a determination of which emitters will be covered under the program; that is difficult. The default seems to be that only those emitting at least 25,000 tons of CO2-equivalent should be covered. We can learn a lot from sources that emit a lot less than that, which comprise over 80% of the manufacturing facilities in the US.
Q. If a carbon tax is clearly the best policy choice, why aren’t more politicians and their constituents in favor of it?It's completely superficial. A carbon tax has the word "tax" in it. It's been suggested to me on more than one occasion that it should be labeled a carbon "fee," not only because it would be more sellable, but because it does accurately express the idea that emitting carbon is using a resource – the atmosphere – that should require payment. I don't disagree with that, but in the end, a political battle will be fought, and a debate should be had, over what taxes we will tolerate. Politicians don't like the prospect of that, no matter what their party affiliation. A more feel-good policy might involve government programs to push along some technologies that might reduce emissions. But just throwing money at a problem will, as we have learned in the past, work much less often than it will fail. The problem is that politicians don't have any incentive for policies to actually work. What we have to have is a discussion of how effective and costly different climate policies are. Avoiding that discussion is not going to mollify critics of climate action anyway, so we might as well be honest about what it will take to reduce greenhouse gas emissions.
Australians rally against the carbon tax in 2011. Photo by qian, used under Creative Commons licensing.