Q.E.D.

Powerful editorial in the New York Times from the Pigoufather:

Among policy wonks like me, there is a broad consensus. The scientists tell us that world temperatures are rising because humans are emitting carbon into the atmosphere. Basic economics tells us that when you tax something, you normally get less of it. So if we want to reduce global emissions of carbon, we need a global carbon tax. Q.E.D.

Tax global warming

Kitchen Linker loves this idea to impose high carbon taxes to the extent there is evidence for anthropogenic global warming, quoted via EconLog, as the original source is behind a paywall, so they don't get linked into the kitchen:

climate models predict that, if greenhouse gases are driving climate change, there will be a unique fingerprint in the form of a strong warming trend in the tropical troposphere, the region of the atmosphere up to 15 kilometres in altitude, over the tropics, from 20 degrees North to 20 degrees South. The Intergovernmental Panel on Climate Change (IPCC) states that this will be an early and strong signal of anthropogenic warming. Climate changes due to solar variability or other natural factors will not yield this pattern: only sustained greenhouse warming will do it.

...Suppose each country implements something called the T3 tax, whose U.S. dollar rate is set equal to 20 times the three-year moving average of the RSS and UAH estimates of the mean tropical tropospheric temperature anomaly, assessed per tonne of carbon dioxide, updated annually. Based on current data, the tax would be US$4.70 per ton...

This tax rate is low, and would yield very little emissions abatement. Global-warming skeptics and opponents of greenhouse-abatement policy will like that. But would global-warming activists? They should -- because according to them, the tax will climb rapidly in the years ahead.

The IPCC predicts a warming rate in the tropical troposphere of about double that at the surface, implying about 0.2C to 1.2C per decade in the tropical troposphere under greenhouse-forcing scenarios. That implies the tax will climb by $4 to $24 per tonne per decade, a much more aggressive schedule of emission fee increases than most current proposals.

Really neat idea, but Kitchen Linker still supports high carbon taxes, now, for two reasons: 1) prevention better than cure and 2) a carbon tax would be a big improvement over production taxes even if global warming did not exist.

European commissioning smarts

Greg Mankiw points out that the European Commission is considering doing the right thing for the environment and its torpid economy:

The Commission will on 28 March present ideas for “green taxes” to save energy and cut greenhouse gas emissions. It says that such an ‘ecological tax reform’ could increase the bloc’s competitiveness by shifting the burden away from labour taxes.

Could the EU lead down the smart path?

Convenient Truth

Jonathan Rausch makes the obvious point that a carbon tax is the best way to deal with global warming and has good side effects:

Just as conveniently, the most efficient way to get started is also the simplest, albeit not the easiest politically: tax carbon emissions. "At around $30 per ton of CO2 over a 25-year horizon, experts seem to think this is the kind of price that will encourage the kind of technologies that are necessary," says Billy Pizer, an environmental economist at Resources for the Future, a Washington think tank. That would translate into an additional 27 cents or so on a gallon of gasoline and about a 20 percent increase in residential electricity bills (more like 34 percent for industrial users). Unpleasant, but hardly radical. Perfectly do-able, in fact.

Fortuitously, a carbon tax could also reduce the U.S. budget deficit and the geopolitical leverage of sinister "petrocracies" such as Iran, Russia, and Venezuela. Policy prescriptions don't come any more convenient than that.

Branson's billions putting brains to work for the earth

Richard Branson's investments in biofuels were welcome but not exciting, as biofuels are marginal at best (and environmental suicide via politics at worst).

With the Virgin Earth Challenge (and some instruction from Al Gore?), Branson's money is working smarter. Very very cool.

The Virgin Earth Challenge is a prize of $25m for whoever can demonstrate to the judges' satisfaction a commercially viable design which results in the removal of anthropogenic, atmospheric greenhouse gases so as to contribute materially to the stability of Earth’s climate.

Truth too inconvenient

The Washington Post has some excellent columnists. Robert Samuelson says:

What we really need is a more urgent program of research and development, focusing on nuclear power, electric batteries, alternative fuels and the capture of carbon dioxide. Naturally, there's no guarantee that socially acceptable and cost-competitive technologies will result. But without them, global warming is more or less on automatic pilot. Only new technologies would enable countries -- rich and poor -- to reconcile the immediate imperative of economic growth with the potential hazards of climate change.

Meanwhile, we could temper our energy appetite. I've argued before for a high oil tax to prod Americans to buy more fuel-efficient vehicles. The main aim would be to limit insecure oil imports, but it would also check CO2 emissions. Similarly, we might be better off shifting some of the tax burden from wages and profits to a broader tax on energy or carbon. That would favor more fuel-efficient light bulbs, appliances and industrial processes.

It's a debate we ought to have -- but probably won't. Any realistic response would be costly, uncertain and no doubt unpopular. That's one truth too inconvenient for almost anyone to admit.

Kitchen Linker is 100% for a realistic response.

Gas prices change habits

Kitchen Linker says, duh. San Francisco Chronicle, SALES SLOW FOR HYBRIDS: Gas prices fall, so does federal tax credit. Just evidence that increased gas prices change long term behavior, which is what is needed for a long term solution to global warming. A pigouvian tax of course can push this change along nicely, and replace destructive taxes on labor and capital.

Rational energy tax, what would it look like?

Good longish article:

Our national energy tax policy is misguided in at least three ways. First, a policy to promote energy independence through reduced oil imports is based on a fundamental misunderstanding of how energy markets function. A policy that attempts to establish energy independence by promoting domestic fossil fuel production is especially misguided. Second, our policy relies heavily on energy subsidies, most of which are socially wasteful, inefficient, and driven by political rather than energy considerations. Third, current energy taxes are deficient on a number of levels.

The article is from the AEI, a conservative think tank. They use different language, but the policy ends up matching Al Gore's proposal. Also from the AEI article:

Second, we should implement a green tax swap. A green tax swap uses revenue from environmentally motivated taxes to lower other taxes in a revenue-neutral reform. For example, Congress could reduce reliance on oil and other polluting sources of energy by implementing a carbon tax. The revenue could be used to finance corporate tax reform or reductions in the payroll tax. [12] Consider a tax of $15 per metric ton of carbon dioxide--a tax rate comparable to the current carbon price in the European Emissions Trading System. Focusing only on carbon [13] and assuming a short-term reduction in carbon emissions of 10 percent in response to the tax, a $15-per-ton tax rate would collect nearly $80 billion a year, an amount that represents 28 percent of all corporate taxes collected in the United States in 2005. Assuming the carbon tax was fully passed forward into consumer prices, it would raise the price of gasoline by 13 cents a gallon, the cost of electricity generated by natural gas by 0.6 cents per kWh, and the cost of electricity generated by coal by 1.4 cents per kWh.

Or Congress could raise the gasoline tax, index it for inflation, and return the additional revenue through a tax reduction. A gasoline tax increase is less efficient than a carbon tax at reducing carbon emissions. [14] Accepting the references cited above at face value, however, the gasoline tax increase would move us in the direction of the optimal Pigouvian tax on motor fuels, taking into account other pollution externalities as well as congestion and accident externalities. [15]

Next we should eliminate the gas guzzler tax loophole for SUVs and light trucks. Congress might also consider augmenting the gas guzzler tax by shifting to a feebate approach whereby low-mileage vehicles are taxed at increasing rates, as under the current gas guzzler tax, and fuel-efficient vehicles receive a tax subsidy. That could be structured to be revenue neutral.

Bravo!

Pigou means less planning

NoPigouClub:

But here's Jaccard's big claim: He supports Pigovian taxes because they involve "no role for planners." We'll have more on this untruth in later postings, but let's begin with one question: Who sets the price--i.e. the tax?

and

And then another question: What do we do with the money collected through the Pigovian tax? Let's get the Ministry of the Environment and the Department of Industry...but, hey, no planners, please.

Unless all NoPigouClub members are anarchists, they will admit that taxes need to be collected. The level of energy tax should not be set by the EPA or Commerce Department, but by Congress ... just as Income and other taxes are now set, mostly according to what Congress thinks it can get away with and how much is needed to cover spending minus borrowing. There is no additional planning, just a shift from one sort of taxes to another.

And the shift is better if you care about the environment, the economy, or simply distrust planners.

Why?

1. Taxes on income and capital suppress positive externalities (ex: economic growth).
2. Pigouvian taxes substitute for regulation and prohibition of greenhouse gas and other pollutant emissions.
3. (Redundant, but Kitchen Linker must drive home the point) Without pigouvian taxes, we will continue to have damaging tax on labor and capital AND extremely inefficient and politically determined non-solutions to our environmental problems (ex: the SugarCorn mafia)

Come to grips with reality NoPigou and switch clubs!

SugarCorn Mafia

Bring it to justice. James Surowiecki in the New Yorker:

Our current policy is absurd even by Washington standards: Congress is paying billions in subsidies to get us to use more ethanol, while keeping in place tariffs and quotas that guarantee that we’ll use less. And while most of the time tariffs just mean higher prices and reduced competition, in the case of ethanol the negative effects are considerably greater, leaving us saddled with an inferior and less energy-efficient technology and as dependent as ever on oil-producing countries. Because of the ethanol tariffs, we’re imposing taxes on fuel from countries that are friendly to the U.S., but no tax at all on fuel from countries that are among our most vehement opponents. Congressmen justify the barriers to foreign ethanol with talk of “energy security.” But how is the U.S. more secure when it has to import oil from Venezuela rather than ethanol from Brazil? These tariffs are bad economic policy, bad energy policy, and bad foreign policy. Talk about your Domino effect.

Of course ethanol from tropical sugar, not eight times less efficient midwestern corn, could be an important component of reducing greenhouse gas emissions. Time to congress with Congress.

Dealing with (climate) change

Thought provoking post by James Annan, not a climate change skeptic: Is (climate) change bad?

Good to think about because change is happening and frankly, dealing with it is more than half the battle at this point.

Tax waste not capital

Tyler Cowen in US News and World Report:

Phase out all forms of capital income taxation, including the corporate income tax, and replace them with a carbon tax, including a gasoline tax. "Savings and investment boost economic growth, but when it comes to energy, global warming threatens as a major problem and our dependence on Middle Eastern oil damages our foreign policy."

Kitchen Linker prefers Al Gore's proposal to tax waste not work but either or a combination is critical.

NoPigou then what?

Greg Mankiw points out Join the Nopigou Club in Canada's National Post, which basically says pigouvian taxes are central planning, thus they are bad. Kitchen Linker understands this, but the alternative is much more central planning -- direct controls and prohibitions on greenhouse gas production and subsidy of things like ethanol -- all of which are inefficient, to say the least -- better to tax than prohibit.

The NoPigou Club has a blog. Hopefully they'll address the "if not pigouvian tax, then what?" issue.

Greenspan goes green

Alan Greenspan quoted in the New York Times:

In late September, as he spoke to a group of business executives in Massachusetts, a question was posed as to whether he’d like to see an increase in the federal gasoline tax, which has stood at 18.4 cents a gallon since 1993. “Yes, I would,” Mr. Greenspan responded with atypical clarity. “That’s the way to get consumption down. It’s a national security issue.”

The article also gives publicity to Greg Mankiw's Pigou Club. Excellent!

Taxing planes

That is plane trips tax the environment. "Jane Galt" says:

If you take just two cross country and two overseas trips a year . . . not a big number for today's more mobile young adults . . . you're consuming as much carbon as you would by driving a huge gas-guzzling SUV 12,000 miles a year.

So Kitchen Linker says,

• Discourage low-value plane trips with a pigouvian tax.
• Stop subsidizing airlines. There are many subsidies, see a recent New York Times story about a smaller one.
• Lead the way with "only travel when strictly necessary" policies, replace travel with tele-, video-, and "second life" meetings.

On the other hand, air tavel has been getting much more efficient, which surprised me a little bit.

Green Party of Canada joins Pigou Club

The Green Party of Canada has joined the Pigou Club, according to the Toronto Star:

Canadians should pay a carbon tax on gasoline and other fossil fuels in return for lower income and other personal taxes, the Green party says.

The shift in the tax burden — designed to ensure federal revenues don't increase — would cut consumption of fuels that cause climate change and help Canada to achieve its Kyoto Protocol target, Green Leader Elizabeth May said yesterday.

Even conservative economists have concluded "a carbon tax ... is the single most effective way" to cut greenhouse gas emissions and promote a strong economy, May told reporters.

The heaviest tax would be imposed on fuel with the highest carbon content — coal. The levy would be lower on cleaner fuels, such as natural gas. It wouldn't be punitive: "It's not intended to change driving habits," she said. It might raise the cost of gasoline and heating fuels by cents a litre.

I don't get the not intended to change driving habits part, but good for the Greens.

Dangerous conflation of global warming and peak oil

Clinton to Start $1 Billion Renewable Energy Fund, quote from WaPo:

"The Earth is warming at an alarming rate, we are running out of fossil fuels, and it is long past time for us to take action to correct these problems," Clinton said.

I applaud these efforts, but ain't the symmetry ... ironic, dreamlike, unlikely, ??? Actually there is no symmetry and the above is a gross oversimplification -- we're nowhere near to running out of coal or low quality oil sources (tar sands and shale), each of which is worse for the environment and global warming in particular than high grade crude that we are slowly running out of. So yes, efforts like Clinton's and Branson's are desperately needed, but they undersell the case!

WaPo closes (Bill) Clinton's quote:

"This is also a tremendous opportunity and there are countless good new jobs to be created in the field of green energy."

Ever the politician.

Tax waste not work

Wow, apparently Al Gore wants to replace the payroll tax with a carbon tax. If he runs for president and makes this a centerpiece of his campaign ... I am going all-out for Gore! This is the best thing that could possibly be done for the environment and the economy.

Everyone else, jump on this bandwagon. Read about the Pigou Club.

Billion Biofuel Branson

Bully for Branson. The article reads like most of the expected $3 billion (highly unknown, based on future Virgin profits) will be spent on developing biofuels. That sounds unexciting, but looks like they're going for big improvements.

The first investment was made in Cilion, a new California company building ethanol refineries that Virgin officials said burn far less fossil fuel than conventional biofuel operations.

However I think people are confusing not using fossil fuels and not producing greenhouse gasses:

“But the only way global warming is going to be beaten is to invest in new fuels that can actually replace fossil fuels.”

Uh, biofuels still produce greenhouse gasses. That's why I'm more excited by solar, windpower and other zero-emission technologies.

But airplanes aren't going to fly on electricity anytime soon, so Branson can be forgiven for being conservative. IATA has some cool figures on airplane fuel efficiency:

• New aircraft are 70% more fuel efficient than 40 years ago and 20% better than 10 years ago.
• The industry is aiming for a further 50% fuel efficiency improvement by 2020.
• Modern aircraft achieve fuel efficiencies of 3.5 litres per 100 passenger km.
• The A380 and B787 are aiming for 3 litres per 100 passenger km – better than a compact car!

I had no idea airplanes had improved so much. Sounds like another good investment would be to retire old planes ASAP. Maybe big airlines will lobby to force retirement, as new airlines using old planes are cutting into big airlines' profits.

Giant offshore windpower

Gizmag and Science Blog write about a really cool idea: giant floating wind turbines located offshore. Advantages:

• Bigger is much better for wind power, and these can be huge.
• More wind is much better for wind power, and there's lots more wind on open sea than on land.
• They are not fixed, so can be towed to where power is needed.
• They would be far enough offshore that nobody can see them from shore.
• All of the usual wind power benefits (relatively cheap, no pollution, no greenhouse gas, no peak oilfossil fuel, not controlled by klepetro-states...)

This idea needs to be implemented ... full force!