While I’m usually not a fan of economists (life ain’t that simple) I do subscribe to their theory that the cost of things influences human behavior. The difficult part is finding that trigger cost point that makes a difference. One example is recent U.S. history on gasoline prices. When imported oil prices surged a while back and gas prices reached more than $3/gallon, many thought that gasoline consumption would dip because of the increased price. If it did it was hard to notice. Seems like the U.S. ‘breakpoint’ is closer to $4/gallon, and even then I’m not sure. But at some point…. Now it’s true that U.S. gasoline consumption recently has begun to dip, and some of this may be due to higher prices, but my instinct tells me that the dip mostly reflects more fuel efficient cars in the fleet.
Now what does the above have to do with a carbon tax? For those familiar with my earlier blog on CAFE Standards you will recall that way back in 1975, just after the Arab oil embargo, I would have favored a gradual but long-term increase in the federal gasoline tax as a way to reduce gasoline consumption and oil imports. This was not to be because of Congressional resistance, and so we ended up with fuel economy standards for cars and light duty trucks.
In today’s world not only are we still concerned about reducing oil imports, we are also concerned about reducing carbon emissions from combustion of carbon-rich fossil fuels. Hence my return to support for the use of a price mechanism to influence human behavior, in this case a gradually increasing tax on carbon emissions throughout our economy.
I prefer a steadily increasing and long-term carbon tax to a cap-and-trade system for several reasons: I believe a cap-and-trade system is more vulnerable to ‘gaming’ and a steadily increasing and predictable tax provides more certainty to the private sector in its planning and investment activities. I also believe that the revenues from a carbon tax can be redistributed in a way to alleviate inequities arising from the tax (gasoline taxes have more relative impact on low-income vs higher-income citizens), facilitate critical long-term national investments in infrastucture, education and research, as well as to reduce other taxes such as corporate and income taxes. This latter possibility could provide the basis of an agreement between Republicans and Democrats to finally address global warming and climate change as part of a larger effort at tax reform. Recent hints at discussions of such an agreement are encouraging.