A group of impeccably conservative economists recently proposed a significant global warming proposal. It involves a tax on carbon emissions, offset by the elimination of every other subsidy, regulation or rule affecting carbon. There is much to admire in this proposal, but also much to fret. I begin with weighing in on global warming and the precautionary principle of public policy.Like all but a few dozen Hoosiers I cannot really judge the science on global warming. Both sides are culpable for the extreme politicization of the issue, and there's been more than enough scientific misconduct to fill several books. Still, even if there's a small probability that global warming is caused by human activity, it warrants intervention. This tax proposal is a platform for actually dealing with the problem.
This tax would increase the cost of driving, heating and cooling homes, and anything else requiring the use of energy. In that way it would reduce the use of fossil fuels and promote the substitution of clean energy. The initial proposal is fairly simple, would reduce huge bureaucratic and regulatory costs, and importantly, would return the revenues to taxpayers. At its highest, the carbon tax dividend would be a few thousand dollars per household each year.
This isn't the free lunch that some commentators have suggested. There will be financial winners and losers, and anyone who uses a lot of energy or works in an industry who does will suffer. The costs will be concentrated in places that produce fossil fuels and make or transport goods. This will mean many net losers in the Midwest.This plan can do many things, but the one thing if won’t do is reduce carbon emissions. And in that respect, it is just like all the other policies to trim the world's carbon footprint. Here's why.
A US carbon reduction plan could surely reduce fossil fuel use in the US, but I’d wager that China, Brazil, India and Russia might not adopt the same policies. After all, relative to the US, these nations are living in 1905, 1935, 1870 and 1947 respectively. Clearly, they won't adopt policies that slow their growth, and a tax on energy will do that. So, emissions from the rest of the world will grow under this new proposal, no matter how high our carbon tax might be. But, this sort of intellectual dissonance is the great hallmark of global warming policy.
No nation takes global warming seriously. The best evidence for this is the intellectual chicanery of US policies. For example, the big cost of global warming seems to be rising oceans and the costs to public and private infrastructure on the coasts. Environmentalists and their elected agents readily attack coal and oil production, while ignoring the rapid development of coastal regions. I mean really, it is so much easier to beat up West Virginia than to drive up the price of that vacation bungalow on Cape Cod.
Likewise, hypocrisy exists within energy subsidies. After all, despite a $10,000 or so federal subsidy for each car, a Tesla still runs on coal. Still, this sort of proposal might offer a change from three decades of folly on global warming policy. But this change won’t necessarily be better, just different.
Michael J. Hicks is the director of the Center for Business and Economic Research and professor of economics in the Miller College of Business at Ball State University.