Do all serious economists favor a carbon tax?
Richard Thaler, Justin Wolfers, and Alex all consider that question on Twitter. I say no. While I personally favor such a policy, here are my reservations:
1. Other countries won’t follow suit and then we are doing something with almost zero effectiveness.
2. It may push dirty industries to less well regulated countries and make the overall problem somewhat worse.
3. There is Jim Manzi’s point that Europe has stiff carbon taxes, and is a large market, but they have not seen a major burst of innovation, just a lot of conservation and some substitution, no game changers. Denmark remains far more dependent on fossil fuels than most people realize and for all their efforts they’ve done no better than stop the growth of carbon emissions; see Robert Bryce’s Power Hungry, which is in any case a useful contrarian book for considering this topic.
4. Especially for large segments of the transportation sector, there simply aren’t plausible substitutes for carbon on the horizon.
5. A tax on energy is a sectoral tax on the relatively productive sector of the economy — making stuff — and it will shift more talent into finance and other less productive sectors.
6. Oil in particular will become so expensive in any case that a politically plausible tax won’t add much value (careful readers will note that this argument is in tension with some of those listed above).
7. A carbon tax won’t work its magic until significant parts of the energy and alternative energy sector are deregulated. No more NIMBY! But in the meantime perhaps we can’t proceed with the tax and expect to get anywhere. Had we had today’s level of regulation and litigation from the get-go, we never could have built today’s energy infrastructure, which I find a deeply troubling point.
8. A somewhat non-economic argument is to point out the regressive nature of a carbon tax.
9. Jim Hamilton’s work suggests that oil price shocks have nastier economic consequences than many people realize.
9b. A more prosperous economy may, for political and budgetary reasons, lead to more subsidies for alternative energy, and those subsidies may do more good than would the tax. Maybe we won’t adopt green energy until it’s really quite cheap, in which case let’s just focus on the subsidies.
10. The actual application of such a tax will involve lots of rent-seeking, privileges, exemptions, inefficiencies, and regulatory arbitrage.
It seems to me entirely possible that a serious economist would find those arguments hold the balance of power. In my view those points stack up against a) the problem seems to be worse than we thought at first, b) the philosophic “we are truly obliged to do something,” and c) “some taxes need to go up anyway” arguments.
I am in any case not an optimist on the issue and I consider my pessimism a more fundamental description of my views on the issue than any policy recommendation. If you study tech, you will see a bright present and also a bright future. If you study K-12 education, you will see a mixed to dismal present and a possibly bright future. If you study energy economics and the environment, you will see an OK present and a dismal future, no matter what policies we choose.