Monday, January 5, 2015

A good time for a carbon tax?

This post was inspired by a news item about Larry Summers' advocacy of a carbon tax particularly while prices are still low.  At least that is my interpretation as I only read a brief snippet.

Taxes are a dirty word in some circles and carbon taxes have their own critiques.  Following my post a few days ago  http://www.johnfdavidson.com/2015/01/the-price-of-gas-and-our-future.html on the price of gas declining it would be appropriate to suggest an effective way of dealing with it.  It won't happen anytime soon in the U.S. or Canada, but it would seem a wasted opportunity not to speculate on what could have happened.

One of the concerns of the low gas price is simply that people would consume it more and postpone efforts to find alternatives.  The Green Party has long said that rather than taxing things we want more of (such as income) it would be better to tax things we want less of.  Just as tobacco taxes can help mitigate the harmful effects of smoking, carbon taxes can be used to diminish the harmful effects of gas consumption.

Free market advocates love to let the market decide.  If consumers for any reason don't like something they don't have to buy it and the price will come down.  They assume the seller marks up the price from the cost of goods to make a profit.  What they overlook is there is an additional cost of many goods such as cleaning up the mess it causes.  In the case of tobacco our health and that of society as a whole suffers and is costly.  In the case of gas consumption it would be fair to say there are also health concerns affecting all of society, but also we would have to add the risks of climate change.

Climate change is denied by some people in power.  They have been able to stifle scientific consensus in legislation, but are gradually losing some of their credibility.  Insurance companies and military planners are not fooled and more and more consumers are seeking alternatives to fossil fuels.  All governments are concerned about deficits, but are reluctant to raise conventional taxes.  Carbon taxes do not have to be an addition to conventional taxes, but to also deal with deficits perhaps they could be justified.  There is irony in that notion, but perhaps also some leverage.  Realistically carbon taxes are more apt to be accepted if there is a lowering of other taxes.

When the real price of energy comes down (including the health concerns) carbon taxes will not generate as much tax revenue and government revenues will have to be adjusted.  Capitalists accept taxes for the expenses of running a government, but object to social engineering projects.  It all depends on how you look at social engineering projects.  Getting more consumers to switch to sustainable energy and adopt more environmentally friendly habits will help ensure our civilization survives.  If you as a voter and as a consumer agree on that goal you owe it to yourself to do what you can to make it happen.

Social engineering can certainly be abused, but perhaps the greatest concern is that money decides many issues and is controlled by too few people.  Plato in "The Republic"  tried to fix the problem by giving power to one group of people and money to another and letting the bulk of people do the necessary dirty work based on merit.  Not really been successful.  Thomas Piketty suggested an annual graduated tax on wealth.  If there is little benefit in accumulating wealth beyond a certain point it makes sense to spend it resulting in jobs or income for others.

Getting back to a carbon tax, there are many details to work out.  Getting the concept accepted might be the hardest part, but if it is to be effective the details do matter.  We don't want to punish people or businesses, but we do want them to consider alternatives.  Reluctantly I leave that to others, but hope that the decision makers are both competent and concerned for mankind.

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