Nice survey of the conundrum, Jesse.
Let me point out for all that Resources for the Future and the Petersen Institute for International Economics have hosted interesting workshops/seminars where multiple analysts have chewed over the carbon pricing problems.
A summary of a workshop "Fiscal Reform and Climate Protection: Considering a U.S. Carbon Tax"sponsored by RFF and PIIE (no recordings unfortunately) is here: http://j.mp/1w90Zho.
This page has access to a report by RFF on The Role of a Carbon Tax in Tax Reform and Deficit Reduction as well as audio and video (link was broken today but may be restored) of a seminar discussing it: http://j.mp/UqRuLG.
What I take away from these protracted discussions, along with Jesse's present assessment, is that pricing carbon via tax or otherwise is one of those academic nostrums that seems to make eminent sense in theory but that has little to no feasibility in the real, contemporary world.
I confess, BTW, that I have not been immune to propounding such idealized fixes myself. In the 1970s, my paper proposing a renewable resources trust fund, financed via a tax on fossil fuels as well as other nonrenewable resources, was a finalist for the Mitchell Prize. (Lost out to John Holdren.) It was later published in a book: http://j.mp/1qcCXxY
My young brain was still partly saturated in those days with the welfare economics I had studied extensively in graduate school. Live and learn, as they say.
One thing I learned, particularly from subsequent experience working in/for government, is that internalizing externalities is far easier said than done.
In this particular instance, the case for pricing carbon stands on shaky legs, even before considering dynamic political resistance.
For one thing, it presumes that the "social cost of carbon" -- on climate -- can be known and measured. Without getting into an exhaustive deconstruction of the substantial, inherent uncertainties in climate science and models, the fact is that measuring the tangible impacts of carbon -- that is, GHG and other industrial effluents, some which are not even carbon -- is extemely difficult and unreliable. Projecting climate trends and therefore impacts into the future is even more unreliable, and effectively impossible at the granular regional or local levels at which tangible effects would have to be assessed.
Related to those uncertainties is the dilemma of iatrogrenic illness. That is the treatment that winds up doing more harm than the disease it aimed to cure.
A carbon tax by itself solves nothing, nor is it intended to. Its rationale is to skew markets so that alternative, "carbon-free" energy sources achieve price parity or superiority to conventional fossil fuel options. Those alternatives are in effect medications that proponents think the body politic needs to take to "cure" the disease of AGW. The carbon tax is sort of a sugar coating aimed to make the medicine more palatable -- by making the candy, food, etc. people now are ingesting taste worse.
But there is, in reality, little clinical experience to "prove" that those recommended medications are both safe and effective. Indeed, as Miller, Cloete, and others have demonstrated repeatedly in this forum, the efficacy of many of those prescribed treatments is not so clear, while they come with their own negative side effects, or "externalities."
Related to that is the possibility that the cure for one malady may actually increase the patient's vulnerability to another, equally or more debilitating one. In economic terms, this might be construed as opportunity costs. This is not merely a hypothetical problem.
Consider, by analogy, the chemotherapy treatment that effectively destroys cancer tumors, but so damages the immune system that the patient is crippled or killed by infectious disease. That the consequences may be unintended does not make them more tolerable.
Actually, the Copenhagen Consensus Centre has sponsored multiple analyses by leading economists to remind the public and politicians that budget priorities come with opportunity costs -- a fiscal version of iatrogenic illness. Starting with the reality that governments/economies have only limited discretionary funds to invest in solving a multiplicity of problems, the CCC analyses have assessed what the relative benefits and costs would be of a fixed amount of money -- say, $70 billion -- allocated among several alternative programs aimed at improving social welfare.
Among other things, these analyses have shown that "climate protection" schemes aimed at inducing lower GHG emissions have much higher costs and yield much lower benefits than do several other ways of making the world better off. In particular, they show it is (or would be) more cost-effective to invest in solving problems associated with AGW "externalities" directly -- e.g., by reducing the incidence of malaria by providing mosquito nets and also investing in vaccine development in the near term -- than by curtailing global warming decades in the future, thereby marginally curbing the conjectured spread of malaria or other "social costs" much later rather than ameliorating such problems now.
Putting all that aside, we come to the imposing problems of implementing the proposed internalization scheme. In Jesse's assessment (among others) the supposed "willingness to pay" already seems far too small compared to the behavior-changing prices required. I suggest that the survey data used to gauge such willingness likely overstate it considerably. The simple reason, as sages through the ages have noted, is that "talk is cheap." Social scientists know, actually, that survey respondents will commonly say things they think are socially/politically acceptable that they don't really mean. New Year resolutions, not to mention marital vows, are among the many intentions people express that more or less exceed subsequent behavioral implementation.
Some hope to finesse that barrier by proposing a revenue-neutral tax that would either be refunded or reallocated to yield no increase in the overall tax burden. But the political palatability of that scheme hinges on the public's trust that that promise would be kept, that it's not a bait-and-switch finagle or other kind of manipulative deception, and moreover that the initiative will yield the promised benefits.
But those assumptions don't conform to the harsh political context that exists today. Consider that we recently observed the 50th anniversary of the passing of the landmark Civil Rights Act during Lyndon Johnson's administration. At that time, surveys showed that some 70% of the American public trusted government to do the right thing most of the time. In the course of the subsequent Vietnam War, that degree of public trust eroded down to around 30%. Today, expressed public trust not only in government but many other institutions is at historic lows. And not just in the US but most of the world as well.
The endemic cynicism resonates with the old joke about the three biggest lies: (1) That was my wife. (2) The check is in the mail. (3) I'm from the government and I'm here to help you.
Moreover, recent Pew Trust survey research shows that the political polarization that has calcified government into gridlock is intensifying in the US: Voters are migrating toward more rigid, intransigent Left and Right ideological positions. This ominously recalls Yeats: "Things fall apart, the center cannot hold."
Finally, while I am sincerely looking forward to the next parts of Jesse's essay, and his proposals, we need to consider whether it is realistic to expect the US federal government to do anything about much of anything for the foreseeable future. It really seems not.
Nor is that just personal pessimism. It is the view that seems to have taken hold among the most passionate, committed political activists. Tuesday's Washington Post reported this:
Code Pink activists have gone through the cost-benefit analysis and determined that making a scene outside of the Capitol isn’t worth it. Congress, it seems, has gotten so pathetic that even the protesters aren’t bothering to show up.
There is more here: http://j.mp/1kej2QE