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


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


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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The Close Connection between Fossil Fuels and Economic Growth


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


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.”

  • 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


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.
  • 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


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?


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!


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!

Why We Need a Carbon Tax V. We’re Playing with Matches!


“Risk is like fire: If controlled it will help you; if uncontrolled it will rise up and destroy you.”                                                                            Theodore Roosevelt,   1858 – 1919

Just a few days ago I featured an Op Ed column in the New York Times “The Coming Climate Crash” by Henry Paulson, the former Secretary of the Treasury.  He discusses global warming as an economic issue.  The increasing number of severe storms, deeper droughts, longer fire seasons and rising sea levels it will cause will wreak tremendous economic damage on our country and the whole world as well.
CaptureA new report, “Risky Business” produced by the Risky Business Project, elaborates much further on this theme.  “The American economy is already beginning to feel the effects of climate change.  These impacts will likely grow materially over the next 5 to 25 years and affect the future performance of today’s business and investment decisions in the following areas: coastal property and infrastructure (damaged by storm surges and higher sea levels); agriculture (disrupted by higher temperatures); energy (costs will go up to provide more cooling).”
In addition to the large scale economic effects referred to above, global warming will affect each of us in a very direct way.  For example, in Omaha NE where I live, in just a few short years the current average of about 10 days per summer with a temperature over 95 degrees F, will increase to about 25 such summer days.
All of these effects are assuming that we continue on our present course of rapidly increasing CO2 build up in the atmosphere.  We do have a choice in this matter.  We can cut back but it will take a big effort to accomplish this.  The whole world needs to cut back and it is up to the U.S. to lead the way.
Republicans need to step forward on global warming.  It is highly irresponsible to say that any anti-carbon measures we take will just hurt our economy and ignore all of the harmful effects of proceeding on our present course.  It is also irresponsible to say that we can’t act unless everyone else does too.  If we are exceptional, and I agree that we are, then it is up to us to set an example for the whole world.
We need fiscal conservatives in office to address our very serious deficit and debt problems.  But fiscal conservative have to win the trust of a wider group of voters to show that they are deserving of broader support.

Why We Need a Carbon Tax IV. The Economic Risks of Climate Change


I have now posted more than 200 entries on my blog.  I have discussed a wide variety of fiscal and economic issues in the last year and one-half.  But there are really, in my opinion, just a fairly small number of basic themes in my posts, such as:

  • Eliminating deficit spending so that we can shrink our national debt over time to a substantially lower level than the current 73% of GDP.
  • Boosting our economy in order to put more people back to work as well as bringing in more tax revenue.
  • Maintaining an activist foreign policy including a sufficiently strong military force to protect our free and democratic way of life.
  • Maintaining high citizen morale by addressing other critical domestic issues such as economic mobility and increasing income inequality.
  • Addressing natural threats to our way of life such as global warming.

Capture Today’s New York Times has an excellent article on global warming “The Coming Climate Crash” from a surprising source, former Secretary of the Treasury, Henry Paulson.  He was in office when the credit bubble burst in 2008 and is therefore an expert on crisis management.  His argument is that global warming presents a strong economic threat as well as an environmental threat.  It therefore should be addressed by an effective economic policy, such as a carbon tax.  He points out that:

  • Global warming is a far more intractable problem than a credit bubble, not at all amenable to a relatively quick fix by government action.
  • A threat from nature like global warming is not an ideological issue because it affects all of us in the same way, conservatives and liberals alike.
  • A future with more severe storms, deeper droughts, longer fire seasons and rising sea levels creates huge economic risks which we ignore at our great peril.
  • A carbon tax doesn’t outlaw the use of fossil fuels but rather creates a huge economic incentive for developing carbon sequestration when fossil fuels are burned.

Government regulation of fossil fuels by the Environmental Protection Agency represents a timid and arbitrary half measure that won’t have nearly the impact of a sound economic incentive like a carbon tax.  Let’s get serious and do things the right way!