Rational analysis favors a “carbon tax” called a “dividend” when distributed in the public interest
Article by Elizabeth Kolbert, New Yorker Magazine, November 28, 2022
What’s the matter here? Why has so little progress been made on climate change, even as the dangers have become ever more apparent?
According to one school of thought, the problem has to do with incentives. There’s a great deal of money to be made selling fossil fuels — just in the first quarter of 2022, twenty-five of the world’s largest oil-and-gas producers announced profits of close to a hundred billion dollars — and still more money to be made by burning fossil fuels to make stuff to sell, from sunglasses to steel girders.
Meanwhile, the costs of climate change can be fobbed off on someone else. To use the technical term, they are a “negative externality.” In the words of the Stern Review, a report commissioned by the British government in 2005, climate change “is the greatest and widest-ranging market failure ever seen.”
By this account, the obvious solution is to realign the incentives — to internalize the externalities. If the cost of the damage caused by a ton of CO2 was borne by the business (or individual) responsible for emitting that ton, then the business (or individual) would be motivated to cut back.
“A carbon tax offers the most cost-effective lever to reduce carbon emissions at the scale and speed that is necessary,” a 2019 statement signed by thirty-five hundred economists, including twenty-eight Nobel Prize winners, declared. Such a tax would move “the invisible hand of the marketplace to steer economic actors towards a low-carbon future.”
According to a second school of thought, the trouble runs a whole lot deeper. Our political system is dominated by corporate money in general and fossil-fuel money in particular. (Last year, the oil-and-gas industry reportedly spent a hundred and twenty million dollars lobbying Washington, and it probably spent a great deal more via front groups.)
It’s therefore naïve to imagine that policies that cut into fossil-fuel profits will be enacted. And even if they were, they wouldn’t solve the essential problem, which is that the “invisible hand” always grasps for more. If it’s not more oil, it will be more lithium to build batteries, and if it’s not more lithium it will be more cobalt, mined from the bottom of the sea.
“When it comes to global warming, we know that the real problem is not just fossil fuels — it is the logic of endless growth that is built into our economic system,” Jason Hickel, an economic anthropologist at the Autonomous University of Barcelona, has written.
Climate change can’t be dealt with using the tools of capitalism, because it is a product of capitalism. It can be dealt with only by throwing off capitalism in favor of something else — a system aimed not at growth but at “degrowth.”
“The difficult truth is that, to prevent climate and ecological catastrophe, we need to level down” is how the British environmental writer George Monbiot recently put it.
A third line of thought — perhaps too bleak and unpopular to be called a school — is that, if big change is hard, bigger change is even harder. How are we going to build a whole new economic system if we can’t even enact a carbon tax?
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See Also: Naomi Klein – This Changes Everything, Bioneers, November 5, 2014
Climate change as more than an “issue.” It’s a civilizational wake-up call delivered in the language of fires, floods, storms and droughts. It demands that we challenge the dominant economic policies of deregulated capitalism and endless resource extraction. Climate change is also the most powerful weapon in the fight for equality and social justice, and real solutions are emerging from the rubble of our failing systems.
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ECONOMISTS’ STATEMENT ON CARBON DIVIDENDS, January 16, 2019
Global climate change is a serious problem calling for immediate national action. Guided by sound economic principles, we are united in the following policy recommendations.
I. A carbon tax offers the most cost-effective lever to reduce carbon emissions at the scale and speed that is necessary. By correcting a well-known market failure, a carbon tax will send a powerful price signal that harnesses the invisible hand of the marketplace to steer economic actors towards a low-carbon future.
II. A carbon tax should increase every year until emissions reductions goals are met and be revenue neutral to avoid debates over the size of government. A consistently rising carbon price will encourage technological innovation and large-scale infrastructure development. It will also accelerate the diffusion of carbon-efficient goods and services.
III. A sufficiently robust and gradually rising carbon tax will replace the need for various carbon regulations that are less efficient. Substituting a price signal for cumbersome regulations will promote economic growth and provide the regulatory certainty companies need for long- term investment in clean-energy alternatives.
IV. To prevent carbon leakage and to protect U.S. competitiveness, a border carbon adjustment system should be established. This system would enhance the competitiveness of American firms that are more energy-efficient than their global competitors. It would also create an incentive for other nations to adopt similar carbon pricing.
V. To maximize the fairness and political viability of a rising carbon tax, all the revenue should be returned directly to U.S. citizens through equal lump-sum rebates. The majority of American families, including the most vulnerable, will benefit financially by receiving more in “carbon dividends” than they pay in increased energy prices.
ORIGINAL CO-SIGNATORIES INCLUDE:
28Nobel Laureate Economists
4Former Chairs of the Federal Reserve
15Former Chairs of the Council of Economic Advisers
SOURCE: https://www.econstatement.org/