Though of late, I’ve been slapped around for this by some extreme libertarians who think doing anything other than shouting “no!” makes one a “climate alarmist” or an “efficiency engineer for Leviathan,” I still see several benefits to a revenue-neutral carbon tax. Last summer, AEI published a paper on this by me and two colleagues .
If the modest estimates of non-amplified GHG-driven global warming are correct (and I think they probably are), then we are likely to see another 1.3 degrees (Centigrade) of warming per 100 years of intensive fossil fuel use. We’re also likely to see half a pH unit of ocean acidification, and perhaps 18 cm/100 years of sea level rise from thermal expansion of sea water. Those changes will cause some secondary changes to the environment that will benefit some, but likely harm others. Mitigating greenhouse gas emissions, even at the margin, would reduce those harms. As a biologist/environmental scientist by training, I do think it’s wise to be cautious about how we push the environment around: it does have ways of pushing back that are not always immediately apparent, and I share the value of what seems to be the majority of the public in the developed world, that would choose a somewhat lighter environmental footprint if the cost is modest.
It is better for a government to raise revenues by taxing consumption (or social “bads”) than by taxing productive endeavors. A revenue-neutral carbon tax is a large step in that direction because carbon-based energy are a primary input to such a huge part of manufactured goods. If done right, the reduction in economically distorting taxes would create greater economic productivity on net.
Evasion of cap-and-trade
At present, the light at the end of the tunnel is the headlight attached to the cap-and-train locomotive. Every presidential candidate has embraced cap-and-trade. From a classical liberal perspective, cap-and-trade is one of the worst policies conceivable. In my opinion, cap-and-trade will not be stopped by waving one’s hands and shouting No! No! No! It will only be avoided if we offer up an alternative option that embraces some of the values of those driving the train — in this case, the value of reducing carbon emissions. Otherwise, the cap-and-trade train is going to run right over those favoring superior policy.
At present, the regulatory state is spreading like a cancer into all elements of people’s lives in the name of controlling carbon emissions. Once a carbon price is in place, however, the primary justification for all those regulations is ended, and we can crusade against energy subsidies, fuel-economy standards, appliance-efficiency standards, housing-efficiency standards, lightbulb standards, and more. Take for example the ban on incandescent lightbulbs: Once a carbon tax is in place, the answer to things like this will be “we’re paying for the environmental footprint with the carbon tax, so leave the bulbs alone. Or, when it comes to fuel economy standards, we can argue that the incentive for people to “right-size” their car choice is already in the system, and fuel-efficiency “standards” aren’t needed to offset climate harms.
That is a vastly more positive agenda than the current “just say no” mentality of many in the classical liberal movement, and I personally think it’s one that would make us so much more effective in pushing back against the expansion of government — that it would do more good than whatever conceivable harm might come from inflating the costs of carbon-based energy.