Category Archives: carbon tax

The Major Challenges Facing the United States

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As I frequently remind my readers I am a fiscal conservative and a social moderate. I usually write about particular economic and fiscal problems facing our country.  But every now and then I like to step back and view our overall situation at one time.  The last time I did this was here.
Let’s take another look:

  • The economy is puttering along at 2% annual growth with a relatively low unemployment rate of 4.3% and a good indication that faster growth, up to 2.5% annually, is right around the corner, see here and here.  The economy, at least, is headed in the right direction.
  • Foreign policy. Long term our biggest problem is China, which has four times as many people as we do and is growing economically three times as fast. China will soon surpass us in both economic and military strength. Our best insurance for this inevitable day is to have lots of democratic friends around the world.
  • Global warming is real and getting worse. Our best strategy for dealing with it is a revenue neutral carbon tax, rather than depending on ad hoc regulations like the Clean Power Plan and ever increasing auto emission standards. If the U.S. demonstrates its seriousness with a carbon tax, it is likely that the U.S. and China (which is highly polluted) could work together to establish world-wide carbon emission standards.
  • National debt, currently 77% of GDP (for the public debt on which we pay interest), is predicted by the CBO to keep getting steadily worse (see chart)  without major changes in current policy. Right now our approximately $14.3 trillion public debt is almost “free” money because interest rates are so low. But sooner or later interest rates will return to more normal levels and, when this happens, interest payments on the debt will rise by hundreds of billions of dollars per year. This will inevitably lead to a severe fiscal crisis, far worse than the Financial Crisis of 2008.

Conclusion. I am relatively optimistic that we can maintain good relations with China and will have the good sense to better control carbon emissions. But our debt problem is politically very difficult to address because it will require spending curtailments.  How do we successfully address such a huge problem?

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Why the U.S. Should Adopt a (Revenue Neutral) Carbon Tax

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As I have discussed previously, the evidence for global warming is overwhelming.  I had hoped that President Trump would publicly recognize this scientific reality and decide to stay in the Paris Climate Agreement.  Nevertheless, it will take more than three years for the U.S. to completely withdraw.
But in or out of the Paris Agreement, the best way for the U.S. to show leadership on this critical issue is to adopt a (revenue neutral) carbon tax.  The American Enterprise Institute has just issued a comprehensive report  on the desirability and feasibility of doing this.


Here is the gist of the AEI argument:

  • $40 per ton is often taken to be the social cost of carbon in the atmosphere. A carbon tax at this level would raise the cost of gasoline by 36 cents per gallon.
  • A carbon tax is a consumption tax. Taxing consumption rather than income promotes economic growth. The revenue neutral offset would likely be an income tax such as the payroll tax or corporate income tax.
  • A carbon tax need not disadvantage the U.S. globally since a border adjustment tax could be imposed on imports from countries without a carbon price regime.
  • Replacing arbitrary regulations. The primary carbon-reduction regulations currently in effect are the 1) Corporate Average Fuel Economy (CAFE) standards for vehicles and 2) Clean Power Plan which limits power-sector carbon emissions at the state level. Leaving carbon abatement decisions to carbon producers is far more efficient than leaving it up to regulators.
  • Growing public acceptance. 84% of registered voters, including 72% of Republicans, support actions to accelerate the development and use of clean energy. Even 49% of conservative Republicans say that “Americans will make major changes to their way of life to address climate change.”

Conclusion. For the U.S. to adopt a carbon tax would be an even stronger statement of world leadership than participating in the Paris Agreement.

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Keeping Global Warming in Perspective

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The evidence for man-made global warming is now overwhelming. For example:

  • The extent of artic summer sea ice is steadily shrinking.
  • The world’s oceans are getting warmer.
  • Spring in the U.S. is coming sooner each year on average.

The three biggest carbon emitters in the world are China, the U.S. and India in that order. But what is also true, and not sufficiently well appreciated, is that carbon emissions in the U.S. are dropping while they are still increasing in China and India:

  • In the 2015 Paris climate agreement, China pledged that it would start reducing carbon emissions by 2030 but, in the meantime, is still continuing to open coal burning power plants.
  • In the U.S. carbon emissions have been steadily decreasing since 2000 (see chart).
  • In India the economy is growing at 7% per year and 240 million people still lack electric power. This means that carbon emissions from coal burning are likely to double in the years ahead.

Coal use in the U.S. will continue to drop with or without enforcement of the Obama era Clean Power Plan because natural gas is now so plentiful and so much less expensive than coal. The best way for the U.S. to continue showing leadership in combatting global warming is for it to adopt a revenue-neutral carbon tax.  This would let the market sort out which type of energy is the cleanest and most efficient in meeting our country’s growing energy needs.  In fact a carbon tax might even be beneficial for the coal industry by creating a strong incentive to develop carbon capture and storage technology.
Conclusion. Most Americans now agree that global warming is real and that this presents a huge threat to human civilization.  It is likely that a revenue-neutral carbon tax will be adopted by our country in the near future.

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Is A Carbon Tax Practical?

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The evidence for global warming is overwhelming and largely beyond dispute.  On the other hand, our industrialized world is highly dependent on the fossil fuels which produce it. This is what makes global warming such a hot political potato.
Capture9Yesterday the New York Times columnist Eduardo Porter described a carbon tax which has been implemented in British Columbia and has gained wide political acceptance.  Its general features are:

  • It was introduced in 2008 by the Liberal Party which is actually quite conservative. It survived a challenge by the left-leaning New Democratic Party in 2009.
  • The economy in British Columbia grew faster than its neighbors even as its greenhouse gas emissions declined.
  • The tax rose from $10 (Canadian) per ton of carbon dioxide in 2008 to $30 (Canadian) in 2012. It raised the cost of a gallon of gasoline by 19 cents (U.S.)
  • Despite the price increases, voters warmed to the tax. In 2015 only 32% of British Columbians opposed it, down from 47% in 2009.
  • Every single carbon tax dollar is returned to families and businesses through a variety of tax breaks.

British Columbia’s experience shows that a carbon tax can work in practice. Here are a couple of reasons why such a tax should appeal to a broad political cross spectrum in the U.S.

  • A properly calibrated carbon price in the United States could effectively replace all the climate-related regulations businesses hate so much, including renewable fuel mandates and President Obama’s Clean Power Plan.
  • A carbon tax could become part of a broad fiscal overhaul, using the revenue, for example, to offset cuts in payroll taxes.

Conclusion. The rapidly changing climate and weather patterns caused by global warming are a threat to human civilization. Reasonable measures can be taken to mitigate the effects with minimal economic disruption.  As the world’s strongest economy and leading superpower, the U.S. should be providing more leadership towards addressing this very serious problem.

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The Close Connection between Fossil Fuels and Economic Growth

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One of my favorite economics journalists, Eduardo Porter, has a column which appears each Wednesday in The New York Times.  His column this week, “Imagining a World Without Growth,” shows that economic growth took off consistently around the world only about 200 years ago and that two things powered it: innovation and lots of carbon-based energy from fossil fuels.
Capture0The United Nations climate conference, meeting this week in Paris, is asking all countries to greatly cut back on their use of fossil fuels.  Mr. Porter, in an earlier column, described what severe cutbacks in fossil-fuel energy could look like:

  • In order to meet the consensus goal of keeping the earth’s atmospheric temperature from rising more than 2 degrees C from preindustrial times (and we’re half way there already), CO2 emissions will have to fall to at most 1.6 tons per year for every person on earth by 2050. This is less than 1/10 of the present U.S. average and less than 1/3 of the present world average.
  • Within about 15 years every car sold in the U.S. will have to be electric. By midcentury more than half of the U.S. economy will run on electricity. Up to 60% of power will have to come from nuclear sources.
  • To meet these ambitious goals the U.S. will have to decarbonize its energy supply at an average pace of 4% per year for the next 40 years. This is 10 times faster than the Energy Information Administration’s current plan.
  • This is not achievable by going after low-hanging fruit such as replacing coal with natural gas in power plants. Rather, for example, carbon capture and storage will have to become widely available starting within about 10 years.

Meeting the goal of limiting the average world-wide temperature increase to 2 degrees C will thus require a severe regimen of regulatory actions which will have negative economic consequences.  In fact it is difficult to image how such a strict regimen could ever be put in place or enforced without much public dissatisfaction.
We thus have two options for dealing with global warming.  We can ignore it at our peril or we can introduce a market mechanism to change people’s fundamental behavior and attitude about energy use.  What market mechanism?  A (revenue neutral) carbon tax, of course!  How else?

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Creating a Carbon-Free World

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Tomorrow the United Nations climate conference opens in Paris.  According to Peter Thiel, the venture capitalist, “We can talk about a carbon-free world, or we can create one.” Continues Mr. Thiel, “The single most important action we can take is thawing a nuclear energy policy that keeps our technology frozen in time.”
CaptureConsider:

  • Wind and solar together provide less than 2% of the world’s energy and they aren’t growing anywhere near fast enough to replace fossil fuels.
  • China’s coal consumption is growing at 2.6% per year and India’s at 5%. In India there are 300 million people without access to electricity. The Paris plan wants India to be satisfied with a .6 metric ton of oil equivalent per person, when a minimum of at least four tons per person is needed for the development of an advanced nation.
  • Safety fears about nuclear power are overblown. The 1979 accident at Three Mile Island caused no significant amount of radiation to be released. The 1986 Chernobyl disaster was caused by a faulty design and operator incompetence. Fewer than 50 people were killed by released radiation compared with 13,000 killed every year by smoke from coal-fired power plants. The 2011 Fukushima disaster resulted in no deaths from radiation.
  • A new generation of American nuclear scientists has produced designs for better reactors which have the potential to overcome the biggest obstacle to the success of nuclear power: high cost.

I hear many people say that the U.S. needs to provide leadership in getting the world to stop using fossil fuels.  A carbon tax would provide an economic incentive to either move away from fossil fuels or clean them up.  But even a revenue neutral carbon tax would face strong political resistance. Climate change activists should consider supporting nuclear energy development as perhaps the most viable alternative to fossil fuels.

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The Evidence for Rapid Climate Change

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My last post, “Why We Badly Need a Revenue Neutral Carbon Tax” makes the case for combatting global warming with a sensible free market mechanism such as a carbon tax rather than a hodge-podge of arbitrary national and state regulatory actions. Since many of the Facebook responders to this post deny the reality of global warming in the first place, I have decided to present the overwhelming evidence for its existence.
When ninety-seven percent of climate scientists worldwide agree that climate change is real and they have assembled a massive amount of measurement data to back up this claim, I think we have to take them seriously. For example:

  • The Global Surface Temperature is Rising. Global average temperature has risen 1.4 F since the early 20th century as shown in the chart just below which also shows the close correlation with carbon-dioxide concentration.
    Capture2
  • The Sea Level is Rising. It has risen at an average rate of 1.7 mm/year over the last 100 years and at the rate of 3.5 mm/year since 1993 which is equivalent to one inch every seven years.
  • Global Upper Ocean Heat Content is Rising. The top 700 meters have warmed by .3F since 1969. Thermal expansion of the ocean water as it warms contributes to the sea level rise.
  • Glacier Volume is Shrinking Worldwide. Just Greenland and Antartica alone have lost at 150 cubic kilometers of ice annually in recent years.
  • Declining Artic Sea Ice. Both the extent and thickness of artic sea ice has declined rapidly over the last several decades (see chart below).
    Capture1I accept the reality of the scientific evidence for global warming but I am certainly no “alarmist” in terms of what our response should be towards addressing it. It will be many, many years before renewable energy sources like wind and solar are able to make a substantial dent in worldwide energy needs.
    The best thing to do in the meantime is to attempt to decrease carbon dioxide emissions from fossil fuels through carbon capture and storage. A carbon tax would create a huge economic incentive for the coal and oil industry to solve this problem. If and when they figure it out, it is likely that the technology involved would rapidly spread around the world.
    This would represent a real solution to a very serious problem.

Why We Badly Need a Revenue Neutral Carbon Tax

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A large and steadily growing majority of Americans believe that global warming, caused by the burning of fossil fuels, is a serious problem which must be addressed. What remains is to figure out how to do this with the least possible amount of economic damage to ourselves and others.
Capture1Consider that:

  • Energy consumption will increase 56% worldwide by 2040, overwhelmingly with the use of fossil fuels. Biofuels are a very inefficient source of energy and wind energy isn’t much better. Solar energy is dropping in price but is still much more expensive than natural gas.
  • The Environmental Protection Agency has just issued its Final Rule for a Clean Power Plan to reduce carbon emission levels in 2030 by 32% below 2005 levels.
  • California is now considering drastic legislation requiring a 50% reduction in petroleum use by 2030 which is likely to do much damage to the California economy.
  • In 2008 the Canadian province British Columbia introduced a revenue neutral carbon tax which has succeeded in reducing carbon emissions without damaging the BC economy.
  • The advocacy group, Washington Carbon, is trying to put a carbon tax on the Washington State 2016 ballot. Initiative Measure 732 would institute a tax on fossil fuels of $25 per ton of carbon dioxide. According to the Seattle Times many environmentalists are opposed to this initiative because it would be revenue neutral!

Conclusion: humanity is faced with the very serious problem of global warming and the response so far is chaotic and totally inadequate. The developing world is rapidly increasing its use of fossil fuels while the EPA is trying to put the brakes on our own use. Meanwhile states (and Canadian provinces) are establishing their own individual energy policies.
Isn’t it clear that what is needed is a conceptually simple unified approach to create incentives for all of us to cut back on carbon dioxide emissions? Isn’t it also clear that the best way to do this is with a national carbon tax?
It is up to the U.S. and other developed countries to take the lead in doing this. Once we are clearly doing what is needed, then and only then can we begin to lean on less developed countries to follow our example.

 

 

What Is the Best Way to Cope with Climate Change?

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The Intergovernmental Panel on Climate Change has just issued it’s latest and most definitive assessment about the extent of global warming.  The earth’s average temperature has increased by .85 degrees centigrade since 1880 and is on track to increase to 2 degrees centigrade in a relatively short time span.  Such a major climate change will have severe repercussions for human life.
CaptureThere is much evidence for the IPCC’s gloomy prognosis.  Most convincing for me is that the extent of the summer artic ice cap is steadily shrinking, as demonstrated in the above chart.
The Environmental Protection Agency is attempting to decrease carbon emissions by regulation but there is a limit to what can be accomplished in this way:

  • The EPA’s goal is a 30% reduction in carbon emissions from 2005 levels by 2030. But the only way that this can possibly be achieved is by substituting the use of natural gas for coal, which reduces carbon emissions by 50%
  • The current low cost of natural gas is making nuclear power less economically viable even though nuclear power has no carbon footprint at all.
  • In addition to creating such constraints, this approach also has led the EPA to set complicated and arbitrary goals on carbon emissions for each state individually.

In other words, by employing onerous regulations the EPA will only, at best, be able to achieve a 30% reduction in carbon emissions by 2030. Of course, this is better than nothing but it is not nearly enough to significantly slow down global warming.  Even if European countries succeed in meeting similar targets as the ones set for the U.S., this leaves out the largest carbon emitter of all, namely China, as well as the rest of the developing world. Since it is impractical to eliminate the use of fossil fuels altogether, or even come close to doing so, the emphasis should be on limiting carbon emissions.  In other words, we should create incentives for carbon “sequestration,” i.e. the capture and storage of carbon when burning fossil fuels.   The way to do this is with a tax on the release of carbon into the atmosphere.  Such a carbon tax would provide a huge incentive for energy and power companies to develop the best possible sequestration techniques. With an economic incentive to do so, U.S. technological ingenuity will quickly develop effective methods for carbon sequestration.  Once discovered and perfected, their use would rapidly spread around the world. Climate change is real and we need an effective way to address it.  A carbon tax is the best way to get the job done.

Why We Need a Carbon Tax VI. Because of China!

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Over the past two months I have posted several blogs about the seriousness of global warming and demonstrated that the best way to address it is with a carbon tax of about $20 per ton of CO2 released into the atmosphere.  Here is a summary of my argument:

  • The reality of global warming can hardly be questioned. For example, the extent of summer ice in the arctic ocean is shrinking rapidly.
  • Expecting the Environmental Protection Agency to be able to administer an effective program by giving each state a target for CO2 emissions reductions is cumbersome and arbitrary.
  • The current EPA program of trying to reduce carbon emissions by 30% over the next 15 years will set up an economic incentive to substitute natural gas for coal and slow down the further development of nuclear energy and renewable energy sources such as wind and solar power. This is because natural gas is plentiful and inexpensive. But the burning of natural gas still releases half as much CO2 as coal and so will continue to contribute to global warming.

CaptureIn yesterday’s New York Times, the reporter Eduardo Porter in “China’s Hurdle to Fast Action on Carbon” calculates that even under conservative growth assumptions, China will almost double its carbon emissions between now and 2040.  And this doesn’t even consider all of the other developing nations which also will increase their use of inexpensive energy sources in order to increase their standards of living.
In other words, even if the EPA is able to force a big switch from coal to natural gas in the U.S., any such reduction in carbon emissions will be dwarfed by increases from other countries.
A carbon tax on CO2 emissions will not only give a big boost to all non-fossil fuels, it will also unleash American ingenuity to figure out how to accomplish carbon sequestration in the use of fossil fuels.  This will enable the U.S. to achieve a much greater reduction than 30% in carbon emissions over the next 15 years and beyond.  Furthermore the new technology which we develop to do this will be immediately available for use around the world.
With such a program the U.S. would actually be demonstrating how to effectively attack global warming instead of just advocating for it!