The following is an opinion contribution and reflects the author’s views alone.
In today’s polarized politics, few liberals would expect a Republican to care about the environment. However people often forget that conservatism and conservation have a tightly woven past. The Environmental Protection Agency owes a debt of thanks to President Nixon; the Climate Stewardship Acts of 2003 that promoted a carbon regulating cap-and-trade system were pushed for by Senator John McCain, and the Republican Party’s Platform in 2000 explicitly voiced the need for science-based, result-oriented environmental policy. Conservative conservationists are not an oddity of nature. Why is it then that so few conservative politicians today are closely aligned with environmentalist movements?
The answer is a pragmatic one. Many green programs are focused on improving the quality of the environment, but often neglect the social and economic costs of doing so. Few conservatives would argue that one should not take care of the environment; it is logical, however, and even commendable, to take into account the consequences of doing so. It is vital that our nation’s environmental policies take the big picture into consideration.
Unfortunately, the best scientific estimates paint a bleak picture of the state of today’s environment. Many argue that one of the most pressing challenges facing our society is that of global warming. Historical data shows a disconcertingly close correlation between the atmospheric concentration of carbon dioxide and temperature levels worldwide. The recently released IPCC Report estimates that human carbon emissions have caused global temperatures to rise by 1? compared to the pre-industrial era, and that this is likely to reach 1.5? between 2030 and 2052. The sea-level rise associated with such a temperature increase will significantly harm coastal communities (in particular large coastal cities like New York City and Miami), which face property damage and likely evacuations. In addition, the most accurate climate models show that higher temperatures are also expected to cause increased extreme weather events such as hurricanes, reduced crop yields, and increased rates of disease, all of which would hurt our nation both economically and socially. Although these models have high levels of uncertainty (which is often not stressed by climate activists), they remain our best predictors of the consequences of failing to curb greenhouse gas emissions.
It seems obvious that we have a moral duty to do what we can to mitigate climate change. The responsible course of action is to change our behavior now to reduce the burden placed on our children. As a society, we should and ought to prioritize long-term solutions over short-term quick fixes; however blindly focusing on future well-being without considering the effect on the present is hardly a wise solution. We should strive towards cost-efficient, practical policies that minimize carbon emissions, without disproportionately destabilizing employment, energy supply and the economy.
An important question we should ask ourselves is, if carbon emissions have negative effects on society, then why hasn’t the free market system responded to limit them? Most economists agree that free markets tend to be the most simple and efficient system to regulate production; however, even the most ardent supporter of free markets will acknowledge that there are situations in which they fail to yield efficient, or desirable, outcomes. One example of this is a negative externality: this is when producing or consuming a good has negative external impacts that are neither paid for by the producer nor by the consumer. A rational, profit-maximizing company in a competitive market should, in theory, produce an efficient amount of the good; however with a negative externality, the company does not bear the true social cost of production, and consequently will sell a greater quantity of the good and at a lower price than is socially optimal. Carbon emissions are a perfect example of such a negative externality, which explains why the free market has produced too large a quantity of carbon emissions at too low a price.
How then can one resolve the inefficiency caused by a negative externality? An economist’s standard remedy is to impose a Pigouvian tax, which is a tax scaled to reflect the true social cost of the product. Such a tax reduces demand and increases the price closer to the socially optimal levels. In the case of carbon emissions, numerous economists and environmentalists alike have voiced support for a carbon tax, which is essentially a Pigouvian tax on carbon emissions. A carbon tax would increase the cost of carbon-intensive fuels relative to that of cleaner ones, thus reducing demand for fossil fuels and incentivizing renewables, and is likely to reduce carbon emissions in the long-run. The revenue from such a tax could be used for numerous purposes: it could be returned to households as a dividend or as a tax rebate, or used to replace other taxes, or implemented as an additional source of revenue for the government.
There are several features which make a carbon tax more attractive than other environmental solutions like cap and trade or regulations. First of all, it is relatively simple to implement: it requires few administrative costs and regulatory constraints, and still offers companies the ability to determine how much carbon to produce according to ordinary market mechanisms. Why implement complex rules when simple solutions can work just as well, or possibly better? Secondly, a carbon tax doesn’t excessively penalize or villainize fossil fuels: instead of banning them or significantly restricting their usage, the tax represents the social cost of carbon, and simply corrects for uncounted costs. Of course, estimating this optimal tax rate may well be impossible; however, we can get a close estimate. Finally, because carbon taxes strategically adjust the price instead of fixing the quantity, carbon taxes allow more flexibility and thus are more in line with a free market system. This prevents year-to-year supply shocks from having an undue effect on the market.
One common concern about implementing a carbon tax is its effect on consumer prices. In effect, because fuel is a relatively inelastic good, companies can shift much of their tax burden onto consumers by raising fuel prices. Although it might be more fair for people to pay the true social cost of what they are consuming, a fuel price increase would significantly impact a large number of households: quite understandably, no one is yearning for higher prices. One possible solution to mitigate this in the short-run is to redistribute the tax revenue as a rebate to households to help them adapt to the slightly higher prices.
Another important consideration is the effect on employment. Many people are rightfully concerned that a carbon tax would harm fossil-fuel-intensive industries and cause them to lay off workers, thus increasing unemployment. Fortunately, most studies conclude that a carbon tax would have a negligible effect on employment. A 2014 REMI study of a national carbon fee-and-dividend tax projected that implementing such a policy could actually create 2.1 million additional jobs by 2025, while simultaneously reducing carbon emissions by 33%. In practice, the employment impact of carbon taxes implemented in British Columbia, Denmark and Ireland has been either neutral or slightly positive. Despite this positive outlook, emerging industries should be developed and supported in tandem with a carbon tax to provide an appealing alternative to any potentially affected workers.
The argument against a carbon tax I find most compelling is that taking action to combat climate change will only be effective if other nations follow suit. In other words, should the United States institute a carbon tax but other nations fail to take comparable measures, our efforts would be wasted. Here I lay down my economist’s hat, and instead turn to a simple, moral argument: that the United States ought to play its part in tackling the world’s problems. How can we expect nations like China or India to take extensive action to combat climate change when we refuse to do so ourselves? Indeed, the US is responsible for a disproportionate 15% of the world’s carbon emissions from fuel combustion, despite representing less than 5% of the world’s population.
Instead of waiting for other nations to take the lead, the United States should seize the reins of opportunity as it has in the past. When Europe was in ruins after the Second World War, the Marshall Plan’s aid enabled an entire continent to rebuild itself, and solidified an international alliance that has lasted over half a century. When the World Health Organization was taken by surprise during the 2014 Ebola Outbreak in West Africa, the CDC provided its medical expertise to contain what almost became a global health catastrophe. A similar leadership vacuum exists in the fight against climate change; the US is a pivotal world player, capable of efficiently instigating positive change, and should step up to the challenge as we have numerous times in the past.
A carbon tax is a socially, fiscally, and morally responsible policy I think our country should implement. Doing so is likely to inspire other nations to take similar actions, and would fulfill our basic duty towards future generations of Americans.
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Overall, the advantages of a carbon tax are that it is a simple and pragmatic market-based mechanism to correct the price of carbon and thus reduce a market failure. The subsequent reduced carbon emissions would reduce the potential impacts of global warming on future generations, and cement the United States as a leader in responsible environmental management.
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