Tyler Cowen has a Bloomberg piece on carbon taxes. I agree almost entirely with Tyler on this issue, but I’d like to frame things a bit differently. Consider this remark: And one striking result from Tuesday’s election is that voters in Washington state, a Democratic stronghold, soundly rejected a proposed carbon tax by a margin of 56 to 44 percent. This raises the prospect that the carbon tax may be dead as a policy for the time being, including at the state level. That seems reasonable, particularly given that global warming is the most “external” of all externalities. The benefits of a state level carbon tax would almost entirely accrue to the 99.9% of humans who do not live in the state of Washington. Even at the national level, carbon taxes are a hard sell.
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Tyler Cowen has a Bloomberg piece on carbon taxes. I agree almost entirely with Tyler on this issue, but I’d like to frame things a bit differently. Consider this remark:
And one striking result from Tuesday’s election is that voters in Washington state, a Democratic stronghold, soundly rejected a proposed carbon tax by a margin of 56 to 44 percent. This raises the prospect that the carbon tax may be dead as a policy for the time being, including at the state level.
That seems reasonable, particularly given that global warming is the most “external” of all externalities. The benefits of a state level carbon tax would almost entirely accrue to the 99.9% of humans who do not live in the state of Washington. Even at the national level, carbon taxes are a hard sell.
If I wanted to play the devil’s advocate, however, I could point to another referendum conducted on Tuesday, in a state very much like Washington. Colorado voters rejected a progressive income tax by a similar margin (54.5% to 45.5%). Can we conclude that state level progressive income taxes are politically infeasible? No, many states already have them, including many “red states”.
A better argument is that it’s really hard to get voters to approve any new taxes at all. So I think Tyler’s right in that sense, but then we need to look more deeply at the implications of this problem. Here’s Tyler:
Economists should not give up our analytical arguments for a carbon tax. But maybe it’s time for a change in tactics. These new approaches might start with the notion that we can address climate change without transferring more money from voters to politicians.
One solution would be to offset the carbon tax with an equally large reduction in even less popular taxes. That’s not easy to do, and in fairness an earlier attempt along those lines (in 2016) also failed. But even there, the proponents were trying to solve too many problems at once, with some of the money going to a boost in the EITC, which doesn’t motivate the average voter.
In the past, I’ve advocated carbon taxes combined with cuts in precisely those taxes that the GOP hates the most. Democrats would not be thrilled with that option, but if they really believe global warming to be the threat that they claim it is, then they should swallow their objections and go with this sort of compromise. Even if global warming is not a problem, there are obviously much worse taxes than a carbon tax. I believe that a proposal that is strongly supported by both environmental groups and a state-level Republican Party can succeed with the voters. Unfortunately, Washington state is actually not an ideal place for this idea, as they lack the specific tax that the GOP hates the most (income taxes.)
I think that Tyler’s right in arguing that global warming won’t be addressed until the politics are more favorable. In my view that will require:
1. More actual warming—so that the severity of the problem is clearer.
2. Technological gains that make the costs of abatement lower.
3. Demographic changes—young people are more tuned into this issue.
4. Global growth that makes citizens in places like China more willing to spend money on the problem.
5. A global shift back toward neoliberalism, and away from the right wing nationalism that is currently sweeping the globe.
PS. A brief comment on Bob Murphy’s new article, linked to by David Henderson. It’s true that the Nordhaus model calls for a fairly modest carbon tax. But it’s also worth noting:
1. The model suggests the tax should grow over time, and expectations of that growth is one of the factors that would motivate investment in cleaner energy. Without that carbon tax, technological progress will be slower.
2. The optimal carbon tax in Nordhaus models has rapidly grown over time, as Bob acknowledges. That means that critics of Nordhaus’ earlier proposals, who claimed that he underestimated the seriousness of the problem, have turned out to be correct. The warming of 3.5 degrees centigrade now viewed as optimal (that’s 6.3 degrees Fahrenheit), still seems absolutely horrific to me (especially for animal life, coral, etc., but also for fragile places like Bangladesh.) I predict that future versions of the Nordhaus model will show further sharp increases in the estimated optimal carbon tax.
To summarize, there’s almost no risk of the world doing too much on climate change. Given the politics, all the risk is in the other direction.
PPS. In earlier eras, animal life could have adjusted to climate change. But humans have now “fenced off” so much of the planet that animals are basically stuck on “islands”, and find it increasingly hard to adjust to environmental stress. The same is true for humans. People in Bangladesh are no longer free to migrate to a warmer Siberia, as they could have 10,000 years ago. If you favor doing nothing about global warming, then you should also favor open borders. This doesn’t mean I agree with those who predict doom—I think they underestimate the ability of humans to cope. But we should do more. Put me down as being a moderate on this issue.