In reply to the revenue-neutral carbon tax (RNCT) naysayers from whom we’ve heard thus far:
My friend Jim Manzi — a stunningly brilliant fellow — makes some very good points in his long post over at the American Scene, and I’m aware of some of the problems he points out with the idea of a RNCT. For the record, I’m not justifying the carbon tax on Pigovian grounds, and have attacked the whole idea of Pigovian taxes in previous policy studies. I agree absolutely that there’s no way we can know exactly where to set such a tax in terms of exactly internalizing an externality, particularly not an intergenerational one. And I’ve always argued that if I were Emperor, I would engage in a robust program of resilience-building through infrastructure privatization, and the elimination of climate-related risk subsidies at all levels of government before going with any carbon-control regulations. I’ve also argued in favor of looking for downstream carbon removal through air-capture or other sequestration technologies. I’m even (with extreme doubts about feasibility) willing to look at geo-engineering as an alternative approach.
But my one paragraph explanation of why I’ve reluctantly concluded that an RNCT is a good idea at this time (since I’m not yet the Emperor) goes like this:
“The general public in the developing world has come to believe that greenhouse gases are causing climate change, and posing risks to future generations they would rather not pass on. This is a value judgment that they are entitled to make, one they can largely afford to make, and one that I’m not uncomfortable with. Their voting patterns around the world, their expressed sentiments in polls, and their willingness to pay higher energy prices for “environmental products” all show they’re sincere about this. Here in the United States, we’ve avoided federal carbon controls for a long time, though the momentum in recent years has clearly been in the direction of stronger and stronger climate policy. Now, we stand on the threshold of national climate policy implementation under what is likely to be a left-leaning administration. In that situation, I believe, there are only three types of actions legislators are likely to consider: regulation, tax, or emission trading. My research has led me to believe that the RNCT is by far the best option of the three, in terms of the good/harm ratio that such an initiative is likely to produce compared with the alternatives.”
The two reader naysayers have fairly pointed out warts on the carbon tax, though I find the argument that “we won’t get revenue-neutrality” unpersuasive. This idea that all politicians want to increase all taxes everywhere might help one caricature them, but I’m not sure it’s accurate: there is a public-pressure feedback loop. I can’t see the politicians passing a net tax increase in a recession. And, yes, there will be winners and losers, as there are with everything we do — or don’t do, for that matter.
But, as my title for this post says, I think we’re at the point where an old saying holds true: when life hands you lemons, make lemonade. For me, that’s an RNCT, warts and all.