Monday, June 18, 2012

Yes, carbon taxes can work in theory

I've argued a million times that some enviros shot and are shooting themselves in the foot by opposing cap-and-trade so they can get their-way-or-the-highway alternative of the carbon tax.  I'm not enjoying the highway very much.

To balance this criticism, I should say the liberal economics blog NoahOpinion is wrong to say "Carbon taxes won't work".   Had he said "carbon taxes are unlikely to be politically achievable in the short to moderate term at levels that are sufficient to change behavior, and other approaches deserve prioritization of political capital," then he'd have a worse title but better argument.  His problem though is that he mushes a political argument into what purports to be an economic analysis.

Noah briefly tries to unmush the politics but doesn't do it.  He mentions the political difficulty and then says that's not an argument that economists should use.  He says the solution is technology development, standard Breakthrough Institute stuff (thankfully minus their prioritization of nuclear uber alles).

So.  Even if you think we really can't get 90% GHG reductions with current technology, a debatable but unimportant argument given the decades that we're talking about, then anything that incentivizes a move away from carbon will assist new technological development.  Therefore a theoretical carbon tax, especially a substantial carbon tax, will provide some of that incentive that he wants.

As for his other points, coordination is difficult, but Europe is moving, Australia has a carbon tax, and other countries are making efforts.  Carbon tariffs on imports seem like an important solution to the coordination problem, although I'm not clear to what extent that raises World Trade Organization issues.  Noah says the pointy-headed intellectuals might not want tariffs, but that hardly matters politically.

His argument that carbon taxes can be revoked and therefore have little effect is another political argument.  If you assume the political strength exists to get them started, my guess is that worsening climate impacts over time will only reinforce that resolve.  Finally his argument that a small reduction does almost nothing is a misstatement of his previous argument about temporary reductions.  If he wants to make a scientific argument instead, go to it then.

It all comes down to politics.  I'm happy to support a carbon tax, but will also support cap-and-trade that seems to get a lot farther politically.  It passed the full House of Representatives in 2010 and versions have passed Senate committees.  If Noah's ideal technological support legislation had reached similar levels before being stopped, then I'm sure he'd call that substantial support, not something that "went nowhere fast".

Of course, cap-and-trade and carbon taxes will go nowhere on the national level barring a natural disaster for at least a few years.  Support for technology is fine, but it shouldn't be viewed as the only possibility on an indefinite basis.

UPDATE:  I should have mentioned that I generally like the other posts at Noah's blog, but of course I have to complain about the one where I don't like the free ice cream.