Though I don’t share David Frum and Matt Yglesias’s enthusiasm for a carbon tax, they remind us of why the idea isn’t about to fade away.
Frum offers the following as part of his case for a carbon tax:
Higher prices since 2006 have again changed behaviour. Americans are driving fewer miles. They are retiring more cars than they buy. They are opting again for smaller, fuel-efficient vehicles. They are buying smaller homes, with a new emphasis on central city living. The recession has of course intensified all these trends.
They won’t become ingrained, however, until and unless Americans accept that oil prices will remain high indefinitely. Which, in turn, means until and unless the United States adopts some system of standby energy taxes or carbon taxes.
My own view is that encouraging the embrace of pay-as-you-drive automobile insurance would deliver the same benefits (a) while reducing costs rather than raising them for the vast majority of motorists and (b) without creating a large new revenue source. Suffice it to say, some will consider (b) a disadvantage. I’d caution environmentalists to recognize, per Monica Prasad, that creating a new carbon-based revenue source might undermine efforts to reduce carbon emissions:
How do you get them to change? First, you prevent policy makers from turning the tax into a cash cow. Carbon tax discussions always seem to devolve into gleeful suggestions for ways to spend the revenue. Reduce the income tax? Give the money to low-income consumers? Use it to pay for health care? Everyone seems to forget that the amount of revenue is directly tied to the amount of pollution that is still going on.
And of course our feelings about (b) will reflect our larger beliefs concerning whether we should emphasize large federal revenue increases as a share of GDP over the business cycle or greater spending and organizational discipline in government in our efforts to achieve fiscal sustainability.