I don’t actually favor the “citizen dividend” side of a carbon tax

The carbon tax idea makes perfect sense to me, and I have endorsed the proposal for some time, but why return the revenue to citizens in the form of dividends?  It strikes me as economists thinking they know what makes good politics, something which economists are rarely good at.  Arguably it makes the policy seem less important, and mainly about the dividend, in a slightly cynical, Chavez-like sort of way.  Furthermore, it tries to make a carbon tax a free lunch, which it is not, no matter how great the longer-term gains.  I don’t believe in economists tricking people, even though I will admit tricking people can be useful.  The tricking is somebody else’s job!  Finally, if the carbon tax is revenue-neutral, just sending money to everyone (in what proportions?) doesn’t give them anything in return as measured by real resources.  Maybe it would give Jay Powell a slight headache, however, since he and others at the Fed would have to decide whether and how to do an offset, or not.

We economists are in any case not in charge, so let’s push for what is actually best.  I would suggest using the revenue to either help solve the problem at hand (climate change, or whatever connected problems might be relevant), or simply to pay down the debt.

Comments

I think nationally this is correct, but as it appears this will be implemented first by states I think that a household-income-neutral strategy may be the only *political* way forward.

The carbon tax is what solves the problem at hand, spending a bunch of money on boondoggles isn't going to help its just going to make people resentful and it's going to make right-wingers resist fiercely.

"just sending money to everyone (in what proportions?) doesn’t give them anything in return as measured by real resources. Maybe it would give Jay Powell a slight headache, however, since he and others at the Fed would have to decide whether and how to do an offset, or not."

This seems like complete gibberish. Can anyone else decipher this? Obviously this would distribute real resources away from the carbon-polluting to the carbon-conserving and there would be absolutely nothing to "offset"- right?

Agreed. This seems like basic economics.

You might be like HW Bush and see Tyler and 99% of today's economists preaching voodoo economics.

On the one hand, they preach the laffer curve.

Then with the same hand waving, they argue taxes at any level cut whatever activity is taxed so much that there is no activity at all,, and no tax revenue at all.

Then with the same hand waving, they argue cutting tax rates will increase activity so much revenue will increase, especially when the rate is cut to zero.

An effective carbon tax will generate zero tax revenue because tanstaafl economics substitution will replace all burning of carbon with paying workers to build capital that produces energy at a cost less than paying taxes and paying workers to burn capital.

After all, fossil carbon is capital. The fossil fuel industry is based on burning capital, based on profiting from capital losses.

If 100 acres of land has a billion dollars of coal or oil beneath it, 25 years of mining and selling fossil fuels for a billion dollars will not resultt in the fair market price of the land increasing by a billion dollars over the 25 years. Milton Friedman wrote maby articles about the oil depletion allowance, the gas depletion allowance, the coal depletion allowance, which ended up requiring a gravel and sand depletion allowance, which meant that land bought for say $1000 an acre could generate $100,000 in tax deductions to account for land value depreciation from mining.

Once Friedman convinced law makers to change the drill baby drill tax dodge schemes of the 50s and 60s, US oil and gas production started falling in the lower 48 for the next almost 40 years. This demonstrates the role of tax dodges in business investment. Higher tax rates and deductions for paying workers results in more paying of workers and no long term change in tax revenue. Friedman was explicit in wanting tax law changes to cut the paying of workers, and no change in tax revenue.

The tax dodge of paying workers was slashed in the 70s. The tax rates were cut in the 80s. The paying of workers was cut substantially driving up unemployment and cutting wages. In response, negative tax rates or tax gifts have been added to tax codes to get businesses and individuals to pay workers with IRS subsidies.

Even conservatives call for goernment to give money to everyone to pay workers bdcause businesses paying workers is too costly to the employer, and to the retailer! Any retailer whose customers are the typical worker, the free markert cuts the sales revenue the business needs to pay workers whose wages he and all other businesses have cut to increase profits to increase supply, as taught by Reagan and all conseratives since. Thus government must put money in consumer pockets to spend so businesses don't need to bear the cost of high worker consumer spending.

Since Reagan, wages are the worst way to redistribute wealth. The oppossite of FDR clearly explained policy of paying more workers more wages to grow the economy, production and consumption, and make everyone wealthier.

Reagan argued that increasing profits would increase supply, and in invisible hand would magically create consumers with money, not employers paying wages, nor government putting money in the pockets of consumers.

But hey, a carbon tax wiill generate tax revenue by magic, even as burning carbon ends, because the invisible voodoo hand will pay the carbon tax after businesses and consumers stop doing the taxed activity.

The left is absolutely correct that the carbon tax will work. It will destroy the middle class and elevate the elites. So, indeed, why give any of the graft back???

I am not totally in love with the idea, but it is an improvement over the status quo.

Everybody shops for cars, everybody pays carbon tax at the pump, everybody gets dividends. What happens over time? I would say some people want to avoid being the one who pays everyone else's dividends, and so they rein in carbon consumption.

There are certainly better uses for a carbon tax, tree planting, or whatever. But in this case I see no reason to make the perfect the enemy of the good.

I'm gonna use my carbon tax refund to shop for dat Ford F-150 V-10 truck I've got my eye on and could not otherwise afford, instead biking to work.

It might be a bit of a behavioral econ test, but I think most people would regret that after a couple V-10 fill-ups.

BTW, I heard that there is a new electric motorcycle that will do 150 MPH for $13k.

$13000 seems a little steep just to see a motorcycle go fast, but I'd be willing to give it $10 to watch.

You are the consumer who will spend $25,000 or more for one that goes slow?

I bought my first motor scooter slightly used for $150, new it was under $200, and my second used bike for $500, which was $795 new, so when looking at the equivalent made with Chinese parts, maybe assembled in Mexico and the US, the new price shocks me. About $2000-3000 and $8000-10,000.

But the cheap used hog then is now a status symbol of a $40,000+ Made in the USA Harley whether used or new. Or at least was when my boomer peers were very rich and remembering the good parts of Easy Rider.

$13,000 is on par for a high performance gas burning bike, as opposed to oil burning bike, eg worn two cycle...

But the 100% Made in USA bicycle has gone from $150 when I was a kid to $1500 to $3000 when made in the US with imported brake, gearing, tubes, and tires, generally Euro brands manufactured in Asia.

Inflation is no joke. I'm 71 looking back over almost 60 years of working and buying.

Revenue neutrality is a nice constraint to prevent politicians from wasting that money.
Economists shouldn't be allowed to trick and politicians shouldn't be allowed to spend. Period.

What I was going to say as well. However... how do we adjust the existing tax regime to offset the new carbon tax revenues??? Where are the economists when you need them?

You see a carbon tax an an evil plot to trick paying more woorkers higher wages generating more FICA tax revenue which pays old people no llonger able to work money to paying workers to work buy buying and consuming stuff made by workers?

You want fewer workers and fewer consumers by slashing wages and jobs so more people are forced to slash living costs by becoming homesless and hungry, then dying much younger from exposure. You want more of the political economics that creates the left behind rural and rust belt Trump voters who are opposed to the welfare they get from wealthy coastal liberal elites. And voters stupid enough to believe Trump will pay them a trillion dollars more to work building infrastructure without any taxes or debt.

It doesn't take a village, it takes a crisis. Such is the American way - I suppose we aren't exactly "village" people (i.e., a community). When will the government shutdown end? With a crisis. When will global warming be addressed? With a crisis. Discounting the future may explain the American way: we live for the here and now. Thus, low levels of saving and investment, refusal to address global warming, the list is long.

I agree it may require a salient crisis, for the voters to support a CO2 tax.

By the way, when he says pay down the debt, I think Tyler missed one neat trick.

Of course the dividend should be taxable!

I'm not sure double taxation would sell.

People do not now consider taxes on lottery winnings to be "double taxation."

And I just checked, Alaska's resource dividend is taxable at the federal level.

"And I just checked, Alaska's resource dividend is taxable at the federal level."
Exactly. If the state taxed it, there would be push back. I'm sure Alaska legislators have eyed it in lean times.
This would be more like the Oregon kicker, anyway.

The state applies what amounts to a tax to provide compensation to individuals whose welfare payments are decreased because they receive the dividend.

Most people don't consider the lottery a tax.
If this were sold as "It's a tax, but don't worry, you get it back" and then the dividend were taxed, I believe there would be backlash.

By the way, the neat trick also makes an equal payout into a progressive one. The dividends for poor, or retired, people would be taxed very lightly. Higher for high earners.

Smuggling redistribution in through the back door of environmentalism? I believe I've seen this fish before, yes? Like four posts ago, when you were accusing everyone of being irrationally paranoid about this very prospect. Nincompoop.

Even the base suggestion, without my improvement, is redistribution, if you choose to view it that way. Tyler takes more long airplane flights than poor people, so Tyler's carbon tax flows toward poor people.

As far as "double taxation," sure some people will try to sell that, but to borrow from mulp, I think most will accept that there is no free lunch.

A dividend is income.

You're not fit to polish mulp's boots.

Translation: "you're right, and I hate that."

I was right, yes.

Redistribution from the polluting to the conserving, yes. It's facile to translate that into progressive redistribution. That's like saying the federal income tax is designed to redistribute money from whites to blacks.

Taxation of the dividend would be idiotic and would not happen. Maybe they could tax it and then refund the receipts from the tax and then tax that refund, too.

Do you feel the same way about Social Security payments being taxable?

Your payroll tax that funds SS is withheld 'pre-tax' from your pay. So that's not double taxation the way paying after tax dollars for carbon is.

If double taxation as in eliminating state and local deductions is okay with the GOP, then double taxation indeeds sells well. At least, the Dems tax you once!

Bad post. Making carbon more expensive in a way that does not hurt most people is not a trick. Making policy that is good for the planet popular too is a good thing.

Well, they've fooled you, for one.

Bad response. If you mean I've been fooled into overlooking overall economic cost which will impinge upon us all. If not, bad response for concealing what you do mean.

If you want less of something, you have to make it more expensive. I'm not sure cycling money around does that.

Agree. I guess it would make it legitimately more expensive to drive a Corvette or something, but taxing people for their use of fossil fuels and then giving the money right back...this is not going to save the polar bears.

Cycling money around from people who pollute to people who conserve is not going to encourage conservation??????????????????????????????????????

The proposal on the table doesn't target the dividend: the revenues collected “should be returned directly to U.S. citizens through equal lump-sum rebates.”
http://www.thefiscaltimes.com/2019/01/17/Economists-Its-Time-Carbon-Tax-Pays-Dividends

Everybody uses carbon in some measure, though, so a significant chunk of these revenues are not going to involve cycling money from one group to another; it's just going to take your money and giving it back to you a few months later. The effects are going to be at the margin, only, which isn't nothing, but we've only got like four years left to save the planet or something, from what they tell me.

>The carbon tax idea makes perfect sense to me

That's because you are a fundamentally silly person.

Your pants are too tight.

TPM, you and prior are going to have to battle for Tyler's hand. You are both besotted.

Did your Hillary Derangement Syndrome morph into Tyler Derangement Syndrome? TDS is an STD for your brain.

Politics are coercion and deceit.

Similarly, NY Gov. Cuomo wants to push dope on NY kids to pay for NYC subways. And, by 2040, he wants all (what?) 20 million New Yorkers to fill their energy needs from sunbeams, unicorn farts, and zephyrs. Brilliant! Brilliant!!!

The Crisis: middle class and low-to-moderate income people revolt against ruinous climate change policies. See French "yellow vests."

You people don't give a shit about what you do to ordinary people. However, you need to gull them (give back some of the tax) and hope and pray they don't prematurely explode.

Economics are [fill in the blank].

I would suggest using the revenue to either help solve the problem at hand (climate change,

Why was it ever assumed that climate would remain static for an extended period of time, geologically speaking? It never has in the past, why should it in the future?

As an aside, one current theory is that the global insect die-off is happening because global temperature change has never happened this fast before.

Never this fast.

Less than 8000 years ago, a moment in geologic terms, an ice sheet a mile thick covered much of the what's now the US Upper Midwest and central Canada. Homo sapiens lived on its southern fringe. Maybe that's "normality" and we should endeavor to return the planet to that climate.

Here is the article I saw, you can judge for yourself.

https://www.popsci.com/temperature-rise-insect-populations

And yet you don’t support a paradigm shift to all nuclear power.

This is akin to repubs screaming about the wall but E-Verify is off limits.

It’s indicative of an emotional reaction, not an intellectual one.

Never this fast?

"The Chicxulub impact 65 million years ago, which caused the mass extinction at the Cretaceous-Paleogene boundary, also initiated a long period of strong global warming. ...Immediately after the asteroid strike, temperatures increased by ∼5°C and remained high for about 100,000 years. These results are relevant to current climate projections, because the Chicxulub impact perturbed Earth systems on time scales even shorter than the current rate of change." (http://science.sciencemag.org/content/360/6396/1467)

Nature doesn't give a hoot about the Earth's current ecosystem. Only an anti-science yahoo would oppose creative destruction.

Not too sure about 'never'. How about a bunch of times?

https://en.wikipedia.org/wiki/Global_temperature_record#/media/File:EPICA_temperature_plot.svg

#1 A carbon tax will not be effective at reducing "climate change".

#2 Said tax will lead to readjustment in the marketplace to avoid it, further reducing efficacy.

#3 No new source of government revenue ever created has been used to pay down debt.

#4 New sources of government revenue for the purpose of "solving problems"....are you kidding me?

#5 In the case of carbon production "citizen dividends", you could argue that these have caused more problems (for most) than they have solved. The dividend is a bad idea, but so is the tax to begin with.

#6 Something like this should never be at or implemented at the federal level. Ever.

#2: um, that's the whole point of the tax. So the marketplace adjusts to avoid it by....burning less carbon

#5: Citation needed, if you want to argue that

#6: Does not follow

#2 No ,they will burn different types of carbon, in different ways, elsewhere. They will examine the letter of law in an effort to subvert its spirit. Also Tyler was talking about "revenue" for said taxes and their uses, for which revenue would be diminished thereby "reducing efficacy." If the money generated was mandated to be pumped bag in to "carbon mitigation" it would be even less so as tax avoidance strategies would be two-edged blade for both the original purpose and the proposed benefit of the taxation.

#5 Several nations (Kuwait, Saudi) and one state (Alaska) provide a bonus to their citizens off certain applicable taxes derived from the exploration and sale of oil. This has created (especially in ME) a host of dependency issues, productivity and labor-force issues that have created massive political problems, as well as stifling innovation and diversification of their economies away from fossil fuels. Any dividend back to the citizenry, for or against carbon, is a bad idea.

#6 Just like Alaska's carbon dividend, this is a states-rights issue. I do not trust the Feds on this, or the ability of wall street or OPEC to play with it (as a national issue).

Follow on to #2...

No one, no where, no how, never is going to stop burning carbon. Not even less carbon. I really fail to see how people miss this. The entire planet runs on it. The infrastructure to pull it out of the ground even at market prices has been around for almost 100 years now. The technology is developed. Billions of man-hours of expertise and know-how exist for it. Even at $7/gallon in some countries it's still affordable. Even in countries where it's cheaper than water it's still used at the same rates. Something new & improved (electric vehicles, en-masse) would still need to burn huge quantities of it for it make a dent.

For once and for all, CARBON IS KING.

There is one, only one real way to claim the thrown. Technological innovation. Another game-changer must be found that can do the same thing better at a price tag someone's willing to throw a multi-trillion dollar bet at.

Regulation, taxation, incentivization are a raindrop in the ocean if you're talking about actually solving this problem. The only way you beat carbon is you find its replacement.

Making carbon cost more incentivizes and subsidizes finding its replacement. And using the market not government fiat. That's kind of Econ 101.

In fact we already have lots of money trying to do just that, and if we internalize the climate change cost of carbon those technologies will get a boost.

"using carbon to pay for it's replacement"

This has worked out so well thus far. Tesla's can't live without EV credits and the USA is on the cusp of becoming the biggest oil producer on earth since 70 years ago.

That's one hell of an incentive.

You're right we should probably just give up.

Again no. We need 2 things.

First, we need to find and finance the next wunderkind/s (our generation's Einstein) that's going to come up with a way to create a sustainable fusion reaction and quite literally shower him/her/them with money and sex slaves.

Second, we need to find and finance the methods for burning carbon more efficiently that we have in our pockets and at our disposal by omission now instead of burning less carbon by commission. The efficiency needs to be a market-based solution that functions as an afterthought with a market-based price tag that acts equally in the same fashion. In other words, don't burn less carbon, someone else will simply burn what you don't. Burn more carbon more efficiently, especially if it means doing so means the people who can't get less of it to burn it less efficiently.

*Especially if it means burning more carbon more efficiently at market rates means there is less carbon to burn inefficiently at any rate.

First Tabarrok complains about civil forfeiture and municipal fines, then you complain about proposals to prevent various sorts of levies from being used as revenue sources as opposed to being used as implements to alter cost calculations.

I would suggest using the revenue to either help solve the problem at hand (climate change, or whatever connected problems might be relevant),

IOW, mo' jobs for faculty twits.

Just to be clear, rename "citizen's dividend" as "Approved Bribe".

There are of course many opportunities to expand this class of activities, even beyond the basic "its a bad idea but I'm getting bribed enough to overlook it") vote buying envisioned here.

For example, perhaps CA could pay, excuse me, bribe, the local residents who oppose building homeless shelters in their neighborhoods (Venice Beach?) with a "good neighbor dividend".

That would be very UNCLEAR, because people who pollute more than average would LOSE money and people who conserve would MAKE money.

@Engineer: ever heard of Ronald Coase?

“a slightly cynical, Chavez-like sort of way”

No way. Chavez would keep that revenue in order to buy votes by giving away bags of food to those on his side.

I totally favor this type of solution, which is like the one I suggested in a letter published by FT to fight the pollution in Mexico.
https://teawithft.blogspot.com/2016/05/mexico-needs-carbon-and-petrol-tax.html

To reduce reliance on fossil fuels will require both more expensive fossil fuels and (relatively) less expensive alternatives. That means a twofold approach: policies that increase the cost of fossil fuels, such as the carbon tax, and policies that reduce the cost of alternatives, such as investment in alternative fuel technology. The former alone won't work because the industry is awash with money and has been successful at keeping the price of fossil fuels low through investment in technology. The public, however, resists change when it comes to switching from fossil fuels to alternatives. I suggest that's because it isn't be sold well to the public. Consider autonomous cars. People support this new technology, or seem to; otherwise, investors wouldn't be putting so much capital in the technology. What the public ignores, because they aren't being informed and don't want to know, is that autonomous cars won't be able to share the same right of way with non-autonomous vehicles, so the public will have to either give up their non-autonomous cars (not likely) or pay for a separate right of way for the autonomous cars. Once the public comes to that realization, we will be so far along with autonomous cars that the momentum will push us through to whatever it takes to safely implement their use. Of course, it helps that the companies which are developing autonomous cars are in the advertising business and can sell sand in the desert.

"Finally, if the carbon tax is revenue-neutral, just sending money to everyone (in what proportions?) doesn’t give them anything in return as measured by real resources."

I assume Tyler implicitly intends that 'anything' be followed by 'on average' above since under any scheme some will get more than they pay and some will pay more than they get.

If the above sentence is meant to be so qualified, are there any examples of revenue-neutral tax proposals that give everyone something in return as measured by real resources?

If not, can the above argument not be used against all revenue neutral tax proposals?

but what if the point of the dividend is to restrict government access to revenue, that a direct payment to people is a better spending of resources than the average government spending?

+1 I've seen Tyler support direct payment in the effective altruism context, seems like it should generalize to government.

I agree. The money should be paid out for removal of co2 from the air might allow us to reach no net co2 going into the air pretty cheaply. Enhanced weathering, biochar and deep ocean iron fertilization might turn out to be quite inexpensive and cheaper than abatement .
Keep the focus on the goal less co2 in air.

I believe that the money should be spent on CO2-free energy sources that can be used to recharge electric cars overnight.

Such as nuclear. In the California law encouraging local power utilities to use carbon-free sources, they count nuclear power plants as if they were coal plants. Not kidding about this one.

-dk

Given what has happened every other time we have attempted to directly control some aspect of the biosphere, I have grave misgivings as to how much cheaper those methods will turn out to be.

Question: What temperature should the Earth be? And how do you determine it?

I'm not following Tyler's logic. The idea is carbon is an externality. Why wouldn't the charge for producing it pay people effected by the externality? "there are better things to spend money on" doesn't fly, as that reasoning could apply to any program, or indeed private transaction.

In fact, I would like to see more deterrent taxes paid out to the citizenry. If all speeding tickets were collected, and once a year the speeding ticket fund sent a check to everyone who didn't get a speeding ticket that year, rather than directly paying police salaries, I think traffic stops would be based on public safety, not revenue generation as they are now.

+1

But taxable :-)

Nailed. Economists agree with you, silently, but publicly violate the sound rule of economics, the opposite of what Tyler thinks. His hidden message is simple, as long as my people get a brake in the deal'. Every economists who signed the recent carbon tax pledge has the hidden plan, get tax money to their own people, and subsidize their energy use.

Shorter Tyler, "I'm convinced there's a climate problem, and we need to do something to save the planet for rich people, but frankly I'd rather we all die if it means poor people might somehow benefit as well".

Alternately: "The use of carbon is going to exterminate all life on Earth. I strongly support all methods to cut carbon use, as long as I still get to take plane trips whenever I want, and taxpayers never get their money back."

In Calfornia we use the gas tax t subsidize the energy inefficient public sector, and most pubic sector expenses are inflation ajdjusted. TRhsu the carbon tax becomes a more global warming ax as money the tax money ends up fueling ever more inefficient energy use until collapse.
The proper two sided trade this to had the money to folks, inversely proportional top energy use. If you prove you are a low energy user, then you are a victim of global warming and need be compensated. This is how economists really think about it.

It's always fun when we get to the point in the cycle when people on the right start complaining about the modifications to environmental policies that have been done at the insistence of the right to get their support.

The rebate idea was introduced because everyone on the right accuses anyone who is concerned about global warming of being an evil socialist who just wants to raise taxes. So any carbon tax has to be revenue neutral, but now that just shows how unserious those who care about global warming are.

Just like fuel efficiency standards became a carbon tax which became cap-and-trade which became a carbon tax again. At every stage liars like Cowen attack the specific policy as the wrong way to solve the problem while claiming they care about the issue in general. There's no form of action on climate which will satisfy conservatives or libertarians.

Cynical but probably correct

The problem for conservatives and libertarians is that because climate change is championed by the left, and most scientists and economists lean to the left, all the solutions we are being offered are left-wing solutions. And we generally don't believe they work.

If the government announced tomorrow that climate change required an adoption of nuclear power and announced a regulatory review to make it easier to build nuclear plants, you would easily get a decent percentage of conservatives and libertarians on board immediately.

But when nuclear power, the only technology remotely capable of making a significant dent in CO2 emissions globally is purposefully kept off the table in favor of blue sky 'green economy' plans that involve nationalization of energy, heavy taxes and regulations, and wholly unrealistic plans to scrap fossil fuels for renewables in short time frames, it starts to sound a lot like typical left-wing statism being offered as the 'solution'.

People like Alexandria Ocasio-Cortez trying to mix climate change mitigation and 'social justice', or the idiot scientists at the IPCC who said that solving climate change is incompatible with capitalism are making it easier to believe that climate change is as much about elevating the left as it is about lowering carbon. That's going to make it much harder to get conservatives on board, and it's why carbon taxes need to be revenue neutral.

If you want more free market solutions, here are a few:

1. Institution of prizes for private firms to come up with energy efficient alternatives to high energy manufacturing.

2. The government could offer to buy CO2 for sequestration at a fixed price, and let the private market figure out how to recover it. A carbon tax could be used to fund such a program.

3. Sweeping reforms to the legal regime that throttles nuclear power. For example, allowing a standardized design to be built in multiple locations with only site choice being subjected to further regulations, and passing a law limiting the amount of time people have to file injunctions and such, so that power plant owners don't have to worry about endless frivolous lawsuits or injunctions that shut them down for years after being 70% complete. This is largely why nuclear power is so expensive in the U.S.

In the meantime, despite global warming activists constantly claiming that we have only a few years to act, they stridently cling to solar and wind power as being the only acceptable alternatives to fossil fuel, despite the fact that any engineer with a lick of sense knows that those two sources are wholly inadequate for our power needs, and transitioning the entire world to low density power is a job that would take many decades.

We have been pushing solar power hard now for 20 years. Germany has the most expensive power of any major nation in Europe because of its hard push for solar power. And in all that time, we have increased solar's share of our global power needs to... about 1%. In that time, global power needs have increased by much, much more.

If you want to reduce carbon in the atmosphere faster than that, it has to be all hands on deck. Solar, wind, nuclear, sequestration, efficiency, geo-engineering... All of it needs to be done. But the literal backbone of a carbon free future has to be nuclear power, because none of the other methods will deliver baseload power, or be buildable in less than many decades.

At least you are a conservative/libertarian who agrees there's a problem. If more of that crowd would stop with the partisan resistance to even considering solutions like yours....we could consider solutions like yours.

And yes, +1 to nuclear power.

"You don't like the specific, limited options I offer, therefore you don't take the problem seriously" is hardly a valid argument.

Further, have you ever worked on a renewable energy construction project? I have. I can tell you--from nearly a decade of experience--that it's not the Right who threatens to shut down such projects. It's the Left. See any EIR/EIS (and if you don't know what those acronyms stand for, you need to educate yourself, as this is basic stuff in this discussion).

I have no idea where you got the idea that I was blaming the right. Of course it's the left that's been shutting down nuclear power.

As for my 'specific, limited options', they include:

"If you want to reduce carbon in the atmosphere faster than that, it has to be all hands on deck. Solar, wind, nuclear, sequestration, efficiency, geo-engineering... All of it needs to be done. "

Can't get more specific than 'everything'. No, wait. That's not how it goes...

Was it Colorado or Oregon where the liberals just killed a carbon tax because it was going to be revenue neutral? When there was no graft attached they lost interest. (Not unile the dreamers, heard of them lately? Not since Trump offered them a path to citizenship).

TC says: I would suggest using the revenue to either help solve the problem at hand (climate change, or whatever connected problems might be relevant)...

But I thought the idea of a carbon tax is that the tax itself is the solution. So there should be no good use of the money to "solve the problem". For example, the tax is supposed to incentivize use of low-carbon energy sources, to the proper degree. To use the revenue to also subsidize such energy sources undermines the whole rationale, which is that government shouldn't be deciding to what degree we should switch to such energy sources, and certainly not to which ones.

So the carbon tax should either replace other taxes, or have its revenues directed to monetary compensation for the most-affected people (assuming such could be identified, which is doubtful). Distributing it as a dividend is sub-optimal, since other taxes then need to be retained. (I'm assuming the carbon tax revenue won't exceed the amount needed for general government expenditures.)

I think there are a few levels of calculated for a carbon tax. A high one would, as you say, drive out CO2 from the marketplace (causing large disruptions along the way). A low one would tilt consumption (and rely on parallel efforts to actually balance the CO2 books).

A mild tax, returned to consumers, would only have a mild effect. If you aren't also funding electric vehicles and solar panels, you would need a higher tax to make it work.

But as I say up top, any additional carbon tax would be an incremental improvement on the status quo. Demand curves, am I right?

Wouldn’t it make most sense to institute a carbon tax then use whatever revenue generated to lower the payroll tax. Seems this would incentivize job creation as well as hours worked. Would benefit workers more so then upper income earners. People would also see benefits very quickly to blunt some of the negative reaction seen in countries like France.

I agree.

It is amazing how little discussion there is about payroll taxes. Then again, maybe not. Consider: a payroll tax is a hidden tax that burdens people who have relatively little political power. So while it would make enormous sense to use carbon taxes to reduce payroll taxes, it will never happen.

Sad!

What if we just exempt fossil fuel companies from all antitrust laws, so that they have an incentive to produce less on their own?

Then, we can put sanctions on all other oil producers instead of just Iran and Venezuela so that none of them can export either, further constricting global supply.

Thus we get lower fossil fuel emissions without any taxes, the fossil fuel industry will be thrilled, and the people can be placated with various flag-waving about foreign oil producers are threatening our national security.

Money is fungible and there is an art to taxation.

And there is no free lunch. Either in the sense that you can't do painless reduction to carbon emissions, or in the sense than any specific plan is going to be less than ideal.

I thought the whole point of a carbon tax was to internalize the costs of climate change. If so, the money should go into an fund that compensate people for climate-change related losses. If you just write checks to everyone equally what is the point?

The point is to reduce carbon pollution. You didn't understand that?

That's a stupid goal, as it is independent of whether and to what extent "carbon pollution" has costs. How do you know when carbon pollution has been sufficiently reduced? When do you stop taxing it? If you tie it to actual costs, then it will stop when there is an equilibrium between the benefits of reduced pollution and the cost of the tax.

"If you tie it to actual costs, then it will stop when there is an equilibrium between the benefits of reduced pollution and the cost of the tax."

Okay, but that does not preclude a citizen dividend and it also does not require the money go into a fund to compensate people for climate change-related losses, so you seem to have vitiated your initial comment.

This is how Germany's gas tax works, but in reverse. First, motorists pay the tax at the pump and then they get it back through the commuter tax break at the end of the year, which is allocated depending on the distance between your home and work place. The effect is that only foreigners and non-workers (pensioners, students...) pay the full gas tax.

Do even people who increase their commute distance after the law initially passed get the commuter tax break?

Yes. Incidentally you also get it if you commute by bike.

But I thought Coase has debunked Pigovian taxes years ago?

Pigouvian taxes are not neccesarily the best solution if there can be coasean negotiated agreements between parties. But this is not viable for carbon. It is possible that some sort of new tech that filters out carbon and stores it could be cheaper than a tax and that would be a coasean solution, but no such tech is on the horizon yet.

Taxing carbon makes new tech like carbon sequestration more competitive.

I was very dissapointed in the proposal and am not signing (not that anybody cares about my view). The tax interaction effect literature is clear that the welfare gains are far greater if the revenue is used to defray income/capital taxes. I worry that this lit understates the problem, I think an energy tax could multiply the distortion of the income taxes precisely in the income range where there are already very high marginal tax rates (EITC phaseout, SS taxes etc.). Don't know if somebody is looking at this but they should. A carbon tax has to be very carefully designed so as not to hit the people that have been screwed by other trends in the economy. Needs to be a lot of thinking about which taxes should be defrayed.

Right... we don't need economists tricking people in this process - we already have politicians for that. They've become experts at it.

The act of charging a tax & giving the revenue back to the public does make some sense tho' but I also question how to distribute. Moreover, how do you prevent the $$$ from being used for carbon producing activities. It's common to see people who have purchased hybrid cars (with tax rebates) actually driving more than ever.

The unfortunate issue is that the more $$$ the politicians get the more waste of $$$ there will be. It's inevitable, almost like evolution except that rather than improvement of the species the evidence shows that we are carelessly risking our demise.

I'm an engineer. I have personally been involved in swinging the US national grid up and down (it was a big oppsie but the blame missed me somehow). There is a carbon free tech that could carry our burdens for us. It's called a light water reactor. There are two theoretically possible techs that could also do it, called thorium and fusion reactors. If you want to stop people from using carbon based tech and are not proposing spending serious funds on one of the three replacement techs mentioned above then you are proposing a serious lowering of human standards of living (like dividing them in half). Which is a position that is easy to take from the top of the pecking order. If you are using a computing device to read this you are on the top of the pecking order. The people on the bottom get to starve to death for your better world... as a person who is against genocide I would love an explanation of this position. Preferably one that is able to accommodate a rigorous understanding of EROI. If you are not conversant with the frankly hilariously-large-shortcomings of non-nuclear carbon replacement techs then you have a lot of homework to do, come back when you are ready.

My only addition to this excellent comment is that if you want to discuss climate change, you need to be well-versed in paleoclimateology, including Neotoma middens, forams, diatoms, stable isotopic geochemistry, paleothermometers of all kinds, palynology, oceanography, glacial geology, GCMs, etc. If you don't know what delta-C13 and delta-O18 measure, don't know what OIS-11 is, or what left- vs right-coiled forams have to do with this discussion, you're too ignorant of climatology to participate in any meaningful way. I do not intend this as an insult; not know that stuff and discussing climatology is akin to trying to tell people how to play football and going "Wait, what's this 'quarterback' you keep talking about?"

Please note that none of this is aimed at Neutron Star. Having worked on a few power projects I fully agree with his assessment. He's discussing something entirely separate from climate change.

+1. And almost every engineer I talk to believes the same thing. So we now have politicians and economists pushing one technology, and engineers, the people who actually have to build the stuff, telling them it won't work. As usual, the engineers get ignored - especially by those in the 'science-based community'.

I'm surprised no one has mentioned Peter Barnes' excellent book Who Owns The Sky? Which as far as I know is the origin of the tax-and-dividend scheme. It establishes a moral argument for the dividend: the sky should belong to all people as a commons, this we feel should be true intuitively, and also because the atmosphere's capacity for absorbing safe amounts of pollution (even carbon) has an effect on all of us equally through global warming. Our airwaves and other national assets should be treated by the law in the same way, under the authority of public trust which collects taxes from those who would use any commons... this is the way we "sell" the sky and our other mutual assets to which we have a right, like our national parks.

As far as we, the citizens of the United States, have an obligation to protect our commons, the sky, we should set the tax up to do so on polluters that threaten it. We must regulate what we share in common, and which we need to enjoy life, liberty, and the pursuit of happiness.

It makes for good politics, too, and accomplishes some poverty alleviation which is a goal of the left, as dividends have greater utility for the poor than for the rich. The argument as established for Barnes also works well for paying down the debt, because the national debt also belongs to all citizens equally, yet giving each a direct dividend is much more visible. And as you've been arguing, Mr. Cowen, the debt isn't anything to fear as long as it's cheap, right? Why is carbon tax revenue better suited for paying it off? I'm saying this as a guy who sees the strength of the economists' argument for deficit spending yet would still feel more comfortable with a balanced budget amendment of some kind in the constitution.

Clean air is a commons, and the citizen's dividend is a recognition of that.

If this money is diverted to the government, it is in effect a hidden per-head tax. Very few politicians would ever be able to legislate a poll tax openly. Thankfully, some economists see if for what it is.
This is related to Peter Barnes' work, but tries to solve the resource curse by treating minerals as a shared inheritance.
https://medium.com/@thefutureweneed/what-is-the-future-we-need-8ae3de8d55a3

Both in British Columbia and Norway the carbon tax efforts had little effect. Does anyone else know of a real-world working example that was a success?

You can add Alberta, Germany, and Australia to your list.

As it turns out, the demand for energy is relatively inelastic. Who would have guessed?

Also, tell me why the effect of locally imposed carbon taxes will result in anything other than a demand shift to locations which don't have the tax? Consumer energy of course will not do that, but manufacturing? Energy-intensive manufacturing is simply going to move to where energy is the cheapest. Today, that also happens to be the places with reputations for being very 'dirty'. A nice unintended side effect. If you move high energy manufacturing to a place with lower overall energy efficiency but even cheaper energy, you could actually increase the carbon footprint of goods while taxing carbon - unless you are willing to risk wars or global economic downturns by implementing carbon tariffs in some sort of global tariff mechanism.

But counties like Russia and China are not going to go gently into that good night. Russia can't survive without fossil fuel exports, and China needs all the energy it can get and doesn't much care what other countries think about that. So ultimately, carbon taxes imposed in the west only would result in cheaper oil and gas for those still using it, which will result in a giant wealth transfer to the non-compliant states. Which in turn will act as a big incentive to remain non-compliant.

Manufacturing and construction together account for about 20% of CO2 worldwide output. The vast majority of this is electricity generation.

You want a competitive manufacturing industry? Carbon tax won’t affect it with nuclear power.

Just what we need: subsidies for NYC and SF citizens.

As an economist, you can say that eliminating part of tax Z ( like a payroll tax ) with a carbon added tax (handle the import-export like a VAT), effectively swapping an economically detrimental tax for another detrimental tax can be a positive or negative economic stimulus.

Distributing cash also has a positive stimulus effect (remember the helicopter drop of cash) which needs to be weighed against the impact of the carbon tax.

Looking at half an issue like you are suggesting is just wrong. Even if you spend the tax on anything dumb decision, that spending is part of the analysis that economists must do, to be honest.

How does it try to make it a free lunch? Regardless of whether there is a carbon dividend or not, you still have the same marginal incentive to avoid the carbon tax

Correcting for negative externalizes is free lunch.

If the tax is optimal (which is obviously impossible), you don't need to do anything else.

Then the question is, what to do with the rest of the money? Why wouldn't splitting it among everyone in equal proportions be the best option? You really think congress is going to do anything better with it?

The carbon (energy) tax interacts with other taxes in the system income, payroll, and capital gains. It multiplies the distortions caused by the other taxes. A whole literature says this is a large, first-order welfare effect. So its not a simple free lunch issue.

Yoram Bauman tried to introduce a revenue-neutral carbon tax in Washington in 2016. It failed because social justice groups wanted a payout for supporting it to reinvest in communities of color.

These opponents floated a not-even-remotely-revenue-neutral ballot measure in 2018. It was defeated.

At what point do we admit that people don't care about climate change - at least not enough to pay the price of delaying it?

You have a selection problem there. Washington voters are very different from voters at large, even if we only look at the US on a national level. Progressives in Washington state thought they were more powerful than they really are; unfortunately they have to contend with some very wealthy corporations and their lobbying machines. The revenue-neutral proposal was thought at the time as the big-R Republican plan. It would have been a smarter political decision to write the ballot measure so as to give all environmental conservation groups involved a slice of the pie. Perhaps that's how it'll be passed in 2020.

As a counterpoint and an aside, 70% of the voters my own state Arizona also defeated Prop 127, which would have simply mandated that power utilities here acquire 50% of electricity from renewable sources by 2030. As it is, they're due to accomplish a 15% mix by 2025. I would have thought that Prop 127 would be very popular, seeing as AZ is one of the best states in the country for generating and storing solar energy, and its very cheap to build in as well. Yet much of the conservative blowback I saw in the media pointed out that Prop 127 was overly ambitious, would increase electricity prices, drive out business, and that it was foolish that it didn't include nuclear power and hydropower as applicable to the 50% goal. APS went out and misled (either the media or) the public by saying they'd have to shut down the Palo Verde nuclear plant. Even with this defeat, if the proposition had been more conciliatory and even-handed when it comes to reducing emissions, my guess is that Arizonans would have likely approved it.

Well, I'm an avid hiker and camper, and I know many rivers in the Valley of the Sun and the rest of the state. I would put my body on the line to prevent the damming of my favorite summer conservation area, Fossil Creek outside of Cottonwood if it came down to that. I do think there is a good reason to hold off on building new hydropower, especially in a desert environment like ours. I'd sooner have a nuclear plant built nearby if it could help decarbonize our energy system in my state, but that's just a matter of personal preference and commitment to the protection of the remaining active ecosystems. In 2020, if the environmental lobby in AZ could establish a gradually lowering cap-and-dividend on carbon emissions, I think it would bring all parties to the table in a way that Prop 127 couldn't. It's the pragmatic option, and you have to tie it to carbon emissions, dividends, public investment in new technologies, and protection for communities at risk to climate change all at the same time. Say 25%-50% of the funds generated would be used for these other causes, and the other part would be delivered as an instant biannual rebate to tax-paying citizens with a bank account. That kind of mixed plan seems like the only way forward.

It's nice that after decades of "wisdom" from economists that a carbon credit trading system is "the best" way to go, the last couple of years has turned this completely around. I've been for a tax on CO2 (as opposed to carbon) for decades, even when it was a minority opinion. Now that C-tax is "the best", I'm wondering why the sudden shift? Could it be that capital has had time to move into more lucrative positions?

The carbon tax is the equivalent of a Catholic indulgence for the rich and a ball and chain for the poor and working class.

It means high fuel costs for driving to work, transporting children, high electricity bills etc. Nothing but suffering.

Meanwhile, the wealthy can easily afford all their international flights and fuel burning mansions.

We need a yellow vest movement, but one with gubs.

With a citizen dividend the poor/working class would come out ahead

No. The poor/working will never come out ahead.

You are either lying or delusional or both.

Citizens dividend is an extension of the idea that the people can spend money better than the government. I imagine most libertarians and socialists for that matter would be on board with this.

The economics are pretty straightforward. If an offset is needed, use the revenues to reduce the worst, most distorting taxes now collected. Better yet, if deficits can be reduced or future unfunded obligations paid down without encouraging still more deficit spending, send the revenues there.

Will politics permit any of this to happen? Based on where we are and how we got here, it doesn't look good.

Australia's carbon price came as a package with lowered tax rates, and increased pensions and other government benefits. Then, when Australia's Federal Coalition government gained power they scrapped it while leaving the tax cuts and increases in place. They increased the tax on gasoline and diesel but it wasn't enough to make up for the loss of revenue.

This was followed by rather bizarre attempts to cut benefits for poorer Australians that seemed strange from the point of view of getting reelected. But, I guess they thought the lower income half of the population had to give back what they had to let them keep in order to be elected.

"I would suggest using the revenue to either help solve the problem at hand (climate change, or whatever connected problems might be relevant), or simply to pay down the debt."

Those are better than the dividend idea but the best idea, which I believe is the one that most economists advocate, is to accompany the carbon tax with tax cuts elsewhere. The reduction in deadweight loss will be non-trivial. These could be cuts in income tax, SS tax, whatever. At the state level they could be cuts in sales taxes or property taxes.

It's one of the clearest win-win fiscal changes imaginable, which is why economists on both the left and the right are in favor of it (meaning a carbon tax offset by tax cuts elsewhere).

A revenue neutral tax can be raised much higher than one in which government redistributes the money. The most preferable tax at all (especially because you can't figure out who to 'compensate' for global warming without it becoming a political food-fight) is a tax that is as targeted as CO2 emissions as possible while affecting everything else as little as possible.

By taxing CO2 selectively and then rebating the money evenly across the population, you could tolerate a significant carbon tax because the money stays in the economy and is spent efficiently.

If you use the money to 'stimulate' the economy through investing in new government buildings and hiring more government employees as ,province is doing, there's a limit to how much tax you can collect before you have some people in yellow vests looking your way.

Ack. Sorry for the typos.

"It strikes me as economists thinking they know what makes good politics" -- but it's worth considering the evidence, which is that the only significant carbon tax in North America was passed at least partially because of revenue recycling. That was in British Columbia, Canada. In this case, the politics *were* better because of revenue recycling (in particular, the private sector said they would not oppose the carbon tax if it did not increase the size of the BC government). You can read more here, https://climatefootnotes.com/2017/09/18/carbon-prices-bc/ and follow the citations to Harrison's paper on how that tax was passed, for more information.

*Pareto improvements are less resisted than Kaldor-Hicks ones
*Carbon tax is regressive. Dividends make them less so.

Carbon dividends don't make a lot of sense, and the Baker Institute at Rice found that they don't, at least from a GDP persepective. While there's something attractive about just using it to reduce the deficit, Baker found that the economy would see a clear benefit from using it to cut payroll taxes. It also seems that that if one sector of of the economy gets hit with a tax, it makes sense to restore confidence more broadly by cutting taxes somewhere else.

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