The carbon tax is not just political; it’s ineffective, too

In a recent editorial in support of a carbon tax, The Washington Post complains that “Americans are burning record amounts of gasoline,” arguing that “one of the most glaring … flaws” of the “Environmental Protection Agency fuel-efficiency mandates” is the reality that the regulations “cannot control how much people drive or what type of vehicles people buy.”

{mosads}That the absence of such coercion is viewed casually as a “flaw” illustrates the descent of the Post editorial board into the totalitarian mindset that is the very definition of modern environmentalism. Moreover, the Post seems not to understand even the basics of the Corporate Average Fuel Economy (CAFE) standards regulating gasoline mileage for passenger cars and light trucks: They are promulgated not by the Environmental Protection Agency (EPA), but by the National Highway Traffic Safety Administration (NHTSA). Instead, the EPA measures actual fuel consumption for the auto manufacturers’ respective fleets, and promulgates regulations on various emissions, which in principle are coordinated with the NHTSA mileage regulations.

But never mind. The Post favors “a policy that [would] encourage individuals and businesses to account for the environmental impacts of driving … or doing anything else that involves fossil fuels. This policy is a steadily rising carbon tax … [that would] encourage every other piece of the economy to green up over time.”

The Post presumably has heard of the Clean Air Act and the federal and state regulations achieving national ambient air quality standards. Compliance is far from costless, so that this massive regulatory framework indeed does force “individuals and businesses to account for the environmental impacts of” using fossil fuels, at least as a first approximation. Since a carbon tax conceptually would apply to emissions of greenhouse gases (GHG) rather than such conventional effluents as carbon monoxide, the tax at least directly would have little to do with air quality as usually defined; instead, it would be an effort to reduce the (asserted) future temperature and other climate effects of increasing GHG concentrations in the atmosphere.

And so what can we say about a carbon tax and future climate phenomena? Quite a lot, actually, beginning with the perhaps-surprising observation that whatever one believes about the underlying science and evidence on climate issues, the effect of such a tax on future temperatures would be effectively zero.

Consider the Obama administration’s climate action plan, intended to reduce U.S. emissions of GHG 17 percent below 2005 levels by 2020, and let us assume that the U.S.-China Joint Announcement on Climate Change, under which the U.S. is committed to reduce its emissions an additional 10 percent by 2025, while China pledges to achieve a peak in its emissions by 2030, is meaningful. (It is not: Neither Chinese emissions in 2030 nor after that year are quantified.) The U.S. contribution to reduced global temperatures in 2100 would be about 0.03 of a degree, using the EPA’s own climate model, under assumptions that exaggerate the effectiveness of the policies. Note that the standard deviation of the temperature record is about a 0.1 of a degree, so that the U.S. effect would not be measurable against normal variation.

In the larger context, even the notional worldwide reductions in emissions supposedly to be achieved under the 2015 Paris Conference of Parties (COP)-21 “breakthrough” agreement would yield trivial temperature effects in 2100. Let us instead be really bold and assume emissions reductions far greater than those promised in Paris. If we assume that China will reduce its emissions by 20 percent by 2030 (rather than merely reach a peak), we get a temperature reduction by 2100 of 0.20 of a degree. The same effect is predicted by the EPA climate model for a 30 percent reduction by 2030 for the rest of the industrialized world. Add an impossible 20 percent cut in emissions by the rest of the developing world; that yields another 0.1 of a degree at most. So the total effect including that noted above for the U.S. would be a bit more than half of a degree.

Note that the Paris “breakthrough” reduction promises are nothing of the kind. Almost all are defined relative to “business as usual” baselines, which are driven by economic growth assumptions a decade and more in the future. If growth proves lower than assumed, the emissions promises will be fulfilled without any actual changes in underlying emissions behavior at all. Voilà!

And so the first dimension of the Post’s confusion is straightforward: The proposed tax would have only a trivial effect on temperatures — zero, as a matter of statistical significance — that is, on the assumed underlying externality, a reality that belies the common assumption that such a tax would improve the efficiency of resource allocation. Instead, the proposed tax is almost entirely a revenue device, about which more below.

There is more. The Post endorses a carbon tax as a policy that, again, would “encourage individuals and businesses to account for the environmental impacts of driving.” That suggests that the tax should be chosen so as to reflect the social cost of carbon, or, a bit more rigorously, the social costs not reflected in market prices. (Note that the Obama administration estimate of the social cost of carbon is deeply flawed analytically.) A tax too low or too high is inconsistent with the efficiency goal of such an externality (“Pigouvian“) tax.

And so the question that follows immediately is simple: Are there reasons to predict that government would choose the efficient tax even if it were known? After all, to say that uninternalized externalities result in private sector inefficiency is very different from saying that government policy will yield net improvement.

Note that fuel taxes, excise taxes on tires, and the like finance more than roads and other services the demands for which are complementary with the demand for fuel; they pay also for urban transit systems and bicycle paths and debt service and education and other such programs and special-interest boondoggles of far less interest to those paying fuel taxes. At the same time, state fuel taxes and other such fees do not cover the costs of highway spending, and federal fuel taxes and earmarked outlays do not make up the difference. This net subsidy issue is complex, but the Post’s carbon tax has nothing to do per se with that issue.

In any event, a carbon tax from a political perspective is a revenue device. Do policymakers in Congress or the executive branch have incentives to choose the tax that yields the efficient emissions level for GHG? Or is it far more likely that revenue would prove to be the driving maximand? After all, taxes are politically painful, an effect that spending on favored constituencies can salve.

And that is not all: Would the chosen tax rate maximize the present value of the revenue stream over a shorter or longer time horizon? It is not hard to predict the former, as the marginal members of the majority coalition in Congress are those most endangered in the next election; for them, greater spending in the here and now is certain to be an attractive tool for reelection purposes, and efficiency in environmental policy or resource allocation is an irrelevant abstraction.

That is why the common assumption that an emissions tax as a vehicle for achievement of reduced effluent levels would be more efficient than command-and-control regulation is far from obviously correct. Because the tax yields politically useful revenues, it is likely to be too high, especially given the short time horizons shaping congressional outcomes. At the same time, the bureaucracy is an interest group with both budget and ideological incentives to expand its regulatory authority; accordingly, regulations are likely to be too stringent unless there is a requirement that Congress approve them. Without additional revenues to sweeten the regulatory pot, the complex bargaining process that yields congressional actions would impose appropriate constraints upon the regulatory process by subjecting it to a crude “market” test, a topic for another day.

The Post gives the game away with its proposal that the carbon tax rise “steadily.” If the tax is intended to force “individuals and businesses to account for the environmental impacts of” using fossil fuels, it is not quite clear why it should rise over time. Basic climate science tells us that the radiative (temperature) effect of an additional ton of GHG falls as atmospheric concentrations of GHG rise, and those concentrations are certain to rise over the course of this century. (The radiative forcing effect is logarithmic.) This means that the tax should fall over time as GHG concentrations increase (although the ensuing distortions in investment behavior and the like would be a serious problem to be avoided with a constant tax). Amusingly, the Post, in its green ideological fervor against autos, has ignored the science while publishing op-eds accusing climate “skeptics” (actually, lukewarmers) of doing the same!

Like Sherlock Holmes’s dog that failed to bark, one searches the Post editorial in vain for a proposal to cut other taxes in exchange for the new carbon tax, so to make the system revenue neutral. Accordingly, it is easy to conclude that the environmental rationale for the Post’s proposal is a charade, intended to mask yet another attempt by the political class to justify this latest attempt to extract resources from the private sector.

And since the Post prefers that “individuals and businesses” account for the environmental effects of their consumption and production activities, let us recognize how very dirty “clean” energy actually is: Land-use both massive and ghastly in its unsightliness. Toxic metal pollution. Flicker and noise effects. The destruction of wildlife. And increases — yes, increases — in the output of conventional pollutants, due to the need to cycle conventional backup units up and down depending on wind and sunlight conditions, so as to preserve system reliability. Will the Post editorialize in favor of an environmental tax on wind and solar power? Don’t hold your breath.

That the Post’s proposal is largely political is illustrated by its use of the term “carbon,” which is political propaganda designed to cut off debate before it begins by assuming that there is something sinister about GHG. Carbon dioxide is a colorless, odorless gas a certain minimum atmospheric concentration of which is necessary for life itself. It is not “carbon,” or soot. By far the most important GHG in terms of the radiative properties of the troposphere is water vapor; does anyone call it a pollutant? Of course not; but that cannot be because ocean evaporation is a natural process. So are volcanic eruptions, but the massive amounts of toxins and particulates emitted by volcanoes are pollutants by any definition. Yet again the Post is happy to embrace intellectual confusion in pursuit of a purely political goal, an orientation endemic in the Beltway.

Zycher is the John G. Searle scholar at the American Enterprise Institute.

The views expressed by contributors are their own and not the views of The Hill.