Carbon Taxes Should Be a Nonstarter for Conservatives

Support for a carbon tax has become de rigueur in some conservative circles, an honest attempt to reduce carbon emissions and slow the increase in global temperatures. But trendy policy is often not good policy. So even if we accept global warming as fact, the idea of a carbon tax creates more problems than it solves.

Our economy is built on carbon. Carbon-related energy sources currently produce 85 percent of the energy we consume in the United States. And although it is convenient to want to stick it to some cartoonish eco-villain out of a Captain Planet episode, the reality is that carbon taxes hurt the most vulnerable among us.

As with other consumption-based taxes, the burden of carbon taxes falls heavily on lower-income households who spend a greater proportion of their income on things like heating oil for their houses, electricity for their appliances, and gas for their cars, all of which would become dramatically more expensive as costs are pushed down to consumers. In fact, a 2012 report by the American Enterprise Institute and Brookings Institution found that the burden of carbon taxes is five times higher for the lowest income decile than on the highest.

And as Oren Cass explains in National Affairs there is also a moral element to consider:

While less frequently subjected to formal analysis, one might presume it is the struggling family rather than the wealthy one that is likely to turn the thermostat down in response to rising energy prices. One might also presume it is a drive to visit the grandparents in Dayton that is more likely to be forgone than a private flight to Davos. Free-market analyses rarely account for these costs because the price system and a reliance on expressed preferences are regarded as the best mechanism for allocating scarce goods. But here the scarcity is artificially imposed by government, in pursuit of objectives its proponents concede it will not achieve. Under those conditions, shrugging off the fact that the poor are the “least-cost avoiders” and thus should be the ones to cut back on energy use is a morally questionable proposition.

Those questions become even more difficult to answer when you consider the challenge in quantifying the benefit of carbon taxes. For instance, advocates for climate change intervention have coalesced around the idea that global warming must be limited to no more than 2°C. However, the estimates of a carbon tax’s impact on temperatures show that it is nigh impossible to come close to this figure.

If the United States were able to pass a carbon tax that reduced greenhouse gas emissions by 80 percent by 2050, the resulting moderation in temperature is about 0.11°C according to a climate model emulator developed by the Environmental Protection Agency.

Even that number may be dramatically overstated due to the problem of “leakage.” This is a case in which carbon emitters make the economic decision to move to countries with weaker environmental standards and less efficient means of production. In other words, carbon producers flee the relatively stringent regulations of the United States for the lax laws of China, creating more overall pollution and fewer American jobs than there otherwise would have been.

The negative economic effects extend beyond lost jobs and lower GDP, the carbon tax would also mean dramatically higher compliance costs. According to research by economist William Nordhaus (who coincidentally supports carbon taxes), even if the countries representing 75 percent of the world’s emissions jointly agreed to a program to reduce emissions the compliance costs would be 70 percent higher than if everyone participated. Costs would be 250 percent higher if a program was passed covering 50 percent of the world’s emissions. That means the United States is having to sacrifice increasing amounts of productivity in order to achieve the agreed-upon target.

Even if society collectively comes to the conclusion that the minuscule climate benefit of a carbon tax outweighs the significant negative impacts on employment and output, there is the problem of implementation. Proponents of the tax argue that the revenue could be redistributed to the poor to offset its regressivity or to families with children to serve as an investment in the future. But how?

After all, taxpayers invariably respond to incentives and the fundamental purpose of the tax is to discincentivize the creation of carbon. That necessarily means that the tax base will progressively smaller, necessitating that the tax rate get progressively larger in order to produce the same amount of revenue. At some point that system breaks down, and when it does a sizable revenue stream vanishes. Disappearing revenue, especially when it is returned as a dividend to taxpayers, is a recipe for a political crisis that will lead to new or larger tax burdens elsewhere. That’s the imminent risk of creating a brand new tax where one didn’t exist before, especially one built on the shifting sand of carbon emissions.

Given the inherent problems of a carbon tax, both in outcome and implementation, why is this idea even on the table? Why are we treating a regressive tax that is bad for the economy and doesn’t impact the climate as a serious policy idea? There doesn’t appear to be answers to these basic questions. Instead, some conservatives seem to be falling into the trap of thinking that this issue necessitates doing something and, well, a carbon tax is something. We can and should hold ourselves to a higher standard.