The Problem with a Carbon Tax
Fuel is a luxury, sometimes. And sometimes it is a necessity.
If we rely entirely on a "price" on carbon, and carbon remains fungible, what happens?
Well, in a sense we already know. We in the US have encouraged the use of farmland to produce corn to produce ethanol. This notoriously contributes to the rise in prices of the coarsest, meanest foods (as does climate disruption). This in turn means that the poorest people in the poorest countries starve because, and to the extent that, the market in the US "prefers" driving "safer" and more comfortable and enjoyable large vehicles. The market for large vehicles as opposed to vehicles is unambiguously a luxury market. A tenth of what a typical Yukon driver spends for gasoline (i.e., the agriculture-based component) is more than the poorest Haitian or Egyptian can afford for food. (Leaving aside the fact that corn ethanol is not a real biofuel in that its EROEI is arguably less than 1. That's a topic for a different time and place.)
The "free market" is distorted in this case, but the ethanol vs food story still delivers an important moral.
Suppose we found a farmland biofuel that really did have a positive energy return and a significant profit. It's not in the cards as far as we can tell, but that turns out to be a good thing. Because if it were possible, here is what the free market would do. All suitable farmland would be converted to fuel until food prices rose to the point where food becomes equally profitable to grow as fuel. And more people would starve.
Now, we can mitigate the free market with charity or international aid. There is no sign that charities allocate funds in a globally optimal way, of course. So the demands on international food aid go up, as they have. Perhaps these demands remain small enough that the international community will step up to the plate. Under the present circumstances of widespread political incompetence, perhaps not. Americans seem totally uninformed about the present Somali famine, for instance, but even if they were, the congress is too busy destroying our own country to bother with poor people.
What causes the problem is the huge difference in available money between the Yukon owner and the gruel subsistence family. The Yukon owner, having access to capital and perhaps having some abstract skills, can outbid the starving people for a luxury even though the starving people's desire and willingness to work for the resource is much greater (it being a matter of survival). The Yukon owner is kept innocent. There isn't a picture of the Somali child that you are starving to death at the gas pump. Fifty dollars a tank doesn't slow the well-off SUV owner.
OK, the corn ethanol thing is insane, just another symptom of the bizarre state of US governance, a meaningless capitulation to the special status somehow acquired by Iowa.
The carbon tax has a similar problem, though. Suppose we raise prices, with a revenue-neutral tax, as Hansen sensibly suggests, on fossil carbon enough to start limiting demand, with the intention of gradually turning the screw until fossil carbon goes away. Who cuts back?
I became aware of this problem when my wife told an anecdote of going on a hundred mile photography field trip with a woman she knew slightly through a photography club. Irene showed up to their rendezvous in an early model Prius, and her companion showed up in an RV motor home. Guess which vehicle they ended up traveling in?
It turned out that the other woman was in the RV business. Inevitably the price of gasoline came up in conversation. The RV vendor was unconcerned. "My customers can afford gasoline," she said.
The person who is going to be forced to cut back is the person who needs the fuel to heat their house, or to visit their customer. People living on narrow margins in an energy-intensive infrastructure get squeezed. People who revel in their capacity for waste will not.
I still think a tax is the best way to proceed, but a simple tax may not work. I'd much rather hit the motor home traveler (who was offered a seat in a Prius, mind you) much harder. Somehow the price has to be progressive in the early stages. Making matters even more difficult, as if they weren't difficult enough already.
Yes, the urban poor, who can resort to busses and who have less heating and cooling bills, can adapt. So the burden will fall exactly on the people who are most suspicious and hostile in the first place. Bother.
The people forced to adapt by price mechanisms are not going to be the people who should adapt first.
This is sort of ironic, isn't it? The free market solution works best if the distribution of wealth is roughly even. The more the difference between the rich and the poor, the more price mechanisms are unfair ways to adjust collective behavior.
Libertarianism leads to concentration of wealth, which leads to regulation. Or at least would, if people were sane. In a world where so many people outsource their thinking to Rupert Murdoch, who knows what in hell happens.
Other Posts by Michael Tobis
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