Here's the deal on carbon taxes. They make the costs of burning carbon more like the planet values it. Serious people have done major studies that show pretty conclusively that the only way to get people to reduce their energy consumption is to raise its price. But here's the problem. It doesn't much matter why you raise taxes, everyone gets in line to spend the additional revenue. Now IF carbon taxes would go into a fund dedicated exclusively to building the infrastructure necessary to reduce carbon emissions, the idea would be pretty good. But even such a fund has potential for a lot of leaks. Superfund—the program that was supposed to address the most toxic chemical dumping sites put roughly 15% of their funds into actual remediation and 85% into renting offices and giving each other Powerpoint presentations.
Then there is the problem that taxation is just another way of sucking purchasing power out of the economy. I would prefer to see the efforts to reduce carbon emissions come from pure economic stimulus. After all, every time a buck goes into capturing our energy income from the sun and replaces a buck now being spent on the planet's stored energy capital, the society grows richer. In other words, if such a project were properly run, it would be self-financing in a real economic sense. In such a scenario, carbon taxes would be reduced to merely regulating demand.
A Modest Carbon Tax Could Solve A Lot Of ProblemsLucas Kawa | Nov. 14, 2012
The Brookings Institution’s Remaking Federalism | Renewing the Economy series includes a call for a carbon tax, an issue that is heating up after spending election season on the backburner
Brookings proposes a $20/ton fee on carbon emissions which increases by 4% per year. The MIT Joint Program on the Science and Policy of Global Change projects that this tax would raise revenues by $150 billion a year over ten years while significantly reducing emissions.
Revenues from the tax would be put towards clean energy R&D, deficit reduction, and tax cuts – particularly for low-income households, which would be most affected by a carbon tax.
Matt Yglesias would like to see more revenue raised to help the economy in the short term:
You could do a lot to boost the short-term labor market without upsetting the deficit scolds by doing short-term carbon taxation and offsetting it with lower payroll taxes. The only real constraint on this ought to be political feasibility. It's true that a $30 per ton initial price is politically infeasible, but it's also true that a $20 per ton initial price is infeasible. As long as we're just writing white papers we may as well aim for the stars.
Interestingly enough, the $150 billion of increased tax revenues per year is also equal to the maximum amount the Congressional Research Service determined could be raised through limiting and eliminating tax deductions.
Perhaps a carbon tax might serve as a point of compromise as Fiscal Cliff negotiations progress. more