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Is the Carbon Tax Seance Over? (A reality check for a trumped-up ‘conservative’ cause)

When asked if a carbon tax was preferable to EPA regulations on greenhouse gases, David Kreutzer, a research fellow with the Heritage Foundation who sat on yesterday’s panel, described the question as a trap.

It’s like asking me what’s the most humane way to execute innocent people …. When conservatives talk about a carbon tax, the headline says, “Conservative supports carbon tax,” So I’m not going to be drawn into this fantasy world where we speculate on what might happen when we know it won’t, when it gives people ammo to misrepresent what I said.

So no, a carbon tax is not preferable to EPA regulations.

- Evan Lehmann, “Conservatives Attack Each Other Over Carbon Tax Plans,” ClimateWire, July 18, 2013.

“[Ken] Green delighted his mostly conservative audience by comparing a carbon tax to a vampire who must be staked, beheaded and sprinkled over water — ‘preferably holy water’.”

- Jean Chemnick, “Panel Urges Conservatives to ‘Just Say No’ to Carbon Tax,” Energy & Environment Daily, July 18, 2013.

Last week, the Institute for Energy Research (IER) held a panel event in Washington, “A U.S. Carbon Tax: The Rest of the Story,” featuring four critics of such a levy:

Robert Murphy, Senior Economist, Institute for Energy Research

Ross McKitrick, Professor of Economics at the University of Guelph, Ontario;

Kenneth Green, Senior Director of Energy and Natural Resource Studies at the Fraser Institute; and

David Kreutzer, Research Fellow in Energy Economics and Climate Change, Heritage Foundation.

Opening Comments

I moderated the panel for IER (I am founder and CEO of the organization). My comments attempted to put the current tax debate in perspective:

Today’s debate is the third try for a major energy tax related to the issue of climate change. The first was the Clinton BTU tax debate, which died in 1993 after several years of debate. (Note: The BTU tax began as a carbon tax and got quite polluted in the real world).

The second energy/climate tax debate was the federal cap-and-trade legislation that died in 2007. Try three for a climate tax has one major difference from the first two: It has far less political support and prospects than the earlier two from the White House to Congress to Wall Street to Main Street.

But if it be said that we are beating a dead horse today, there is a séance going on to bring a carbon tax to life. And it is one particular piece of that debate that we will challenge today on theoretical and empirical grounds: That a carbon tax can somehow be nonpolitical—and it can produce economic benefits on its own.

You have heard about a carbon tax being a “win-win”—a “double dividend” for both the environment and the economy…. A tax on “bads” rather than “goods.

Now, we do know by simple math that a unilateral U.S. carbon tax will not have a discernible effect on global climate. As one pundit put it, nature will not notice a U.S. carbon tax. [Chip Knappenberger has calculated that a tenth of a degree of anthropogenic warming would be avoided 50 or 100 years out—if you believe the high-sensitivity climate models.]

But the economy will notice a carbon tax—and everyone in the economy as producers and consumers. A carbon tax is an energy tax since more than 80 percent of American energy today is carbon-based.

We had a packed room and a large Internet audience. And the panelists did not disappoint.

Bob Murphy exposed the social cost of carbon as subjective and varying–and even as positive rather than negative as climate alarmists/activists are determined to portray. (His testimony the next day before a Senate subcommittee elaborated on his points.)

Ross McKitrick explained how the tax interaction effect did not make a carbon tax a trade for taxing ‘goods’. Ken Green explained how the idea of a revenue neutral, nonpolitical tax was fantasy–and how he came to reject a theoretical CO2 levy with such realization.

And Kruetzer, as the lead quotation above made clear, was not going to be party to any dialogue for a carbon tax being preferable to anything…. Bravo! Also in question & answer, Ken Green made his views on the carbon tax very clear. But how the media tried and tried to get a crack to show that there was “conservative” support for a carbon tax, even asking Green in a private conversation the same question and getting a “might.”

See, conservatives are “fighting” over a carbon tax, right? … Not really….

R Street/ E&EI Pushback

Basically, two “conservative” groups are getting a lot of ink (and big bucks) for their support for a carbon tax to somehow get Republican politicians to go along. One is R Street, the breakaway group from the Heartland Institute. The other is Energy and Enterprise Initiative, founded by discredited former (ousted) Republican congressman Bob Inglis of South Carolina (he lost 27%-73%) . As IER president Tom Pyle stated to a reporter after the event:

“I feel like they’ve been given an exorbitant amount of weight in terms of their voice in the conservative movement by the media,” Pyle said after the event. “So there’s this perception that there’s a groundswell of conservative support for a carbon tax, and it’s just not true. It’s the same couple, few people that keep popping up in the same articles,” he added.

Following up on the two groups, E&E News quoted Andrew Moylan of R Street as urging a “Republican” strategy of embracing a carbon tax as an alternative to Obama’s “expensive and opaque regulatory regime.”

Alex Bozmoski of the Energy and Enterprise Initiative complained about the IER panel’s approach: “Their [anti-carbon-tax] plan is just to fight having a plan.” In double-speak that would make any propagandist feel in company, Bozmoski added:

Honestly, that’s not where conservative Americans stand. Washington will catch up to the silent majority. I think there will be a courageous batch of conservative leaders who are remembered as the ones that positioned American free enterprise to deliver an answer to climate change.

No, government planning should be frontally challenged with the solid intellectual case that there should be no government plan with the climate as with the economy itself. And no, “conservative Americans” are not interested in a major new qualitative tax, period.

Conclusion

A carbon tax is problematic in theory and application. It is a political nonstarter. It is a feeder lane on the road to climate serfdom. And as a result of IER’s conference, it now has less of a place to hide.

4 comments

1 JohnInMA { 07.22.13 at 6:35 am }

Is the idea that “the economy will notice a carbon tax—and everyone in the economy as producers and consumers” true? Perhaps it depends on the rate of the economic impact of such a tax. An analogy could be monetary policy as hinted here. After a century of fiddling and ‘experimenting’ (by The Fed), the purchasing power of the U.S. dollar has been significantly eroded. But have people really ‘noticed’, for the most part? Or do they protest only in certain times, such as a recession? It’s no reason to support such a costly tax. But to those who have already decided the tax to be a good idea, this could be their ‘out’ in a political sense. Make it gradual enough (and progressive enough?) that most people won’t notice. Or care. And certainly a cornerstone of many carbon tax proposals is to redistribute some of the revenue to alleviate damage to lower income, to whatever degree. So, to those who see no real limits to policy mechanisms (those who see a federal role in everything), there are at least two levers to lay hands on. Rebates for the most negatively affected and deliberate ‘adjustments’ to the tax to minimize short-term impact. Both are probably key to elections.

Also, are you making an ad hominem attack on Inglis? On the first read I simply wondered how his election loss related to his credibility concerning his organization’s position. Perhaps the “discredited” description applies to some specific refutation of his or the group’s analyses. Or did his constituents react to something energy related in opposing his reelection? It’s not clear. Just a small point.

2 rbradley { 07.22.13 at 7:31 am }

JohnInMA:

Thanks for the comment. The tax rates most talked about are $15 and $25 per ton of CO2, which would be noticeable. Theoretically, the tax could start very small and not be noticeable, but the point is that a penny a ton is too much and $100 a ton is not enough given the dynamics of intervention (it grows) and the alleged problem.

Realism is important–that is why our side is not letting the tax proponents have their assumption of revenue neutrality and rebates and such. What ruins such a tax is that it is a qualitative change–a new tax.

Inglis was roundly defeated as a ‘conservative,’ and he attributes it to the climate change issue more than anything else.

3 Jardinero1 { 07.22.13 at 9:38 am }

1. The primary purpose of taxation, is not to modify behavior, but to provide revenue to the state. This concept is lost in the conversation about taxes.

2. The science is not settled, that taxes are an effective way, to control behavior. There is little real world data which shows that taxes modify behavior in knowable, predictable ways and much real world data that taxes create unknowable unintended consequences. Every tax has unintended consequences which, by definition, cannot be known until after the fact. How can you measure the efficacy of a proposal if you don’t even know the consequences?

4 JohnInMA { 07.22.13 at 12:59 pm }

Jardiner01 – most of the arguments I have heard in support of carbon pricing, in its various forms, rely more on revenue than behavior modification. However, most trading schemes so far were designed to limit emissions by capping the values allowed. Wildly escalating carbon prices would result, theoretically, when those limits are passed. In that sense, changes in behavior are likely. At least utilities and power producers would react, especially if their cost recovery is hindered by regulators (a likely scenario).

But, even academic presentations I’ve seen about “climate change” approaches typically get around to highlighting the monetary benefits. Three years ago, one PhD level engineer presenting on energy technology to address emissions – all in reaction to various regulating schemes, cap and trade included – offered two or three slides discussing the numerous potential benefits of using portions of the revenues to benefit the poor. In other words, it was another massive cash pool for ‘social engineering.’ Directly compensating those who were negatively affected, say for one example by rising sea levels, was only one monetary benefit. He listed many others that some may call a redistributionist’s dream.

So, to me, collecting and using all the revenues for projects aplenty seems to be baked into the cake beyond just policy. It’s baked into technical arguments to some degree, also.

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