The Most Sensible Tax of All

The authors of the article,  "The Most Sensible Tax of All" written by Yorum Bauman and Shi-Ling Hsu, speak of a tax in British Columbia that could make it more expensive to pollute. This tax is a carbon tax. The carbon tax is being used in British Colombia to lower CO2 emissions. The theory behind this tax is that paying a high price for these emissions will make it more effective to regulate the amount of pollution in the environment.
I acquiesce that a cap on CO2  emissions can be a good thing for the environment.  If the government were to set a cap on CO2 emissions, then the CO2 levels would drop and lessen the effects of global warming. The government would have to set goals that are lower than the previous year.  I also think that they will have to monitor those companies that emit CO2.  The companies that emit CO2  would need to have permits given by the government to release the CO2.  I strongly believe that the problem with these permits is the companies that have these permits could sell them to other companies.  With this cap and trade, the government would not be able to monitor all the companies that have the permits, therefore cheating has and will occur.   
However, politically friendly industries have gotten politicians to give them exceptions or free permits.  Unlike the cap and trade system for the sulfur dioxide emissions that has worked well for the coal-burning utilities where they are few and far between, they are already being monitored by the government.  According to my research, many economists feel that the cap and trade system is not the best way to reduce CO2 emissions.  They believe that a carbon tax on each ton of coal, gallon of gasoline, and barrel of oil, based on how much carbon it contains, is the best way to reduce CO2 emissions. 
In conclusion, I would like to say that I cannot disagree with the authors that it does not matter if you are a Republican, Democrat, conservative or a conservationist, we can make the British Colombian carbon tax into an American made one. 


Dave Tufte said...

Julia: 94/100, the second sentence of the third paragraph is badly edited.

In principle, I have no problem with (hydro)carbon taxes. But, here's two things to think about going forward.

First, the optimal size of a carbon tax to limit pollution in the most cost-effective way has already been estimated. Here's the thing: it's smaller than the taxes they already collect on, say, gasoline. The reason we don't have a carbon tax is not "big oil". Instead, it's big government: they'd have to 1) cut their "take" (I'm not holding my breath), and 2) stop diverting the money they do collect from taxes on fuels to pay for stuff that has nothing to do with pollution abatement. How can this be so? In short, governments figured out that they could raise a lot of money from the inelastic demand for fuels long before anyone cared much about pollution. Oh ... and don't forget that if we did get a carbon tax in line with what is efficient for pollution control, pollution would actually go up (that's why high tax developed countries are already cleaner than poorer countries).

Second, the whole idea of a carbon tax is prejudicial to begin with. When you burn a hydrocarbon, typically the more plentiful byproduct is dihydrogen monoxide rather than carbon dioxide (only a third of the byproducts of natural gas are carbon dioxide, and about 45% of the byproducts of gasoline). Further, dihydrogen monoxide is a more potent greenhouse gas than is carbon dioxide. But, here's the thing: dihydrogen monoxide is commonly known as water ... and we like water. It gets worse: a tax on carbon emissions would push us away from more carbon-rich fuels like gasoline, and towards more carbon-poor fuels like natural gas ... that "burn cleaner" by producing more of the water that's actually a bigger (but politically correct) problem.

Dave Tufte said...

FWIW: Yoram Bauman is famous for his YouTube videos where he does stand-up comedy with economic themes. Check him out.

Owen said...

The biggest problem with a CO2 tax is who does it really hurt? If you raise costs for CO2 output one of two things has to be done. First a costly investment to reduce the amount of CO2 output or second the company just pays the extra tax. What does an increase in cost do? Either the company lay off workers to compensate for the lost money. Or if say it a coal plant that provides electricity for a major city, price goes up and the tax or plant rebuild cost is passed on to the consumer.
I would argue a CO2 tax is bad for the economy, either people lose jobs, or prices go up. Neither of these alternatives seems like a good one. Especially when in the USA plants that produce CO2 emissions have already been updated to reduce CO2 output to the current US mandated levels. Taxes on businesses are never a good thing, just ask Wall Street right now. With Obama re-elected, stocks have plummeted because investors know that Obama is planning on raising taxes.
The USA used to be the top producer of goods in the world, but last century between taxes and unions our costs of manufacturing went so high that we were no longer able to compete in a global economy.

Jon said...

In the original post, Julia states that she believes the biggest problem with the CO2 permits is that companies could sell permits to each other. From the partial knowledge I have on the issue, the whole point of the cap and trade system is to be able to trade permits. Companies have their emissions capped, and then they can buy more emission allowances from companies that are not fully utilizing their quota. Perhaps Julia meant that companies can sell their permits and falsely report to the government about their dealings. I’m not sure what the regulations are on that matter and could understand if that is the “cheating” that Julia is referring to.

Dave Tufte said...

Owen: 50/50
Jon: 50/50

Owen: I don't think anyone is debating that a carbon tax would be bad. Instead, what we're trying to do is balance the costs of pollution with the costs to the economy. Neither one is fun. As to your second point, the US has shifted from producing goods to services because that's what makes us richer. Governments and unions haven't helped.

Jon: I had the same concern about Julia's post, but I kept my mouth shut. I think what she means is the the cap-and-trade systems, as put in place, have been abused. I think they are fundamentally OK, but they could be designed better.