My Climate Plan

Apparently this is Blog Action Day for Climate.  The site encourages posts today on climate that will be aggregated, uh, somehow.  Its pretty clear they want alarmist posts and that the site is leftish in orientation (you just have to look at the issues you can check off that interest you — lots of things like “societal entrepreneurship” but nothing on individual liberty or checks on government power).  However, they did not explicitly say “no skeptics” — they just want climate posts.  So I will take the opportunity today to post a number of blasts from the past, including some old-old ones on Coyote Blog.

From the comments of this post, which wondered why Americans are so opposed to the climate bill when Europeans seem to want even more regulation.  Leaving out the difference in subservience to authority between Europeans and Americans, I wrote this in the comments:

I will just say:   Because it’s a bad bill. And not because it is unnecessary, though I would tend to argue that way, but for the same reason that people don’t like the health care bill – its a big freaking expensive mess that doesn’t even clearly solve the problem it sets out to attack. Somehow, on climate change, the House has crafted a bill that both is expensive, cumbersome, and does little to really reduce CO2 emissions. All it does successfully is subsidize a bunch of questionable schemes whose investors have good lobbyists.

If you really want to pass a bill, toss the mess in the House out. Do this:

  1. Implement a carbon tax on fuels. It would need to be high, probably in the range of dollars and not cents per gallon of gas to achieve kinds of reductions that global warming alarmists think are necessary. This is made palatable by the next step….
  2. Cut payroll taxes by an amount to offset the revenue from #1. Make the whole plan revenue neutral.
  3. Reevaluate tax levels every 4 years, and increase if necessary to hit scientifically determined targets for CO2 production.

Done. Advantages:

  1. no loopholes, no exceptions, no lobbyists, no pork. Keep the legislation under a hundred pages.
  2. Congress lets individuals decide how best to reduce Co2 by steadily increasing the price of carbon. Price signals rather than command and control or bureaucrats do the work. Most liberty-conserving solution
  3. Progressives are happy – one regressive tax increase is offset by reduction of another regressive tax
  4. Unemployed are happy – the cost of employing people goes down
  5. Conservatives are happy – no net tax increase
  6. Climate skeptics are mostly happy — the cost of the insurance policy against climate change that we suspect is unnecessary is never-the-less made very cheap. I would be willing to accept it on that basis.
  7. You lose the good feelings of having hard CO2 targets, but if there is anything European cap-and-trade experiments have taught, good feelings is all you get. Hard limits are an illusion. Raise the price of carbon based fuels, people will conserve more and seek substitutes.
  8. People will freak at higher gas prices, but if cap and trade is going to work, gas prices must rise by an equal amount. Legislators need to develop a spine and stop trying to hide the tax.
  9. Much, much easier to administer. Already is infrastructure in place to collect fuel excise taxes. The cap and trade bureaucracy would be huge, not to mention the cost to individuals and businesses of a lot of stupid new reporting requirements.
  10. Gore used to back this, before he took on the job of managing billions of investments in carbon trading firms whose net worth depends on a complex and politically manipulable cap and trade and offset schemes rather than a simple carbon tax.

Payroll taxes are basically a sales tax on labor.  I am fairly indifferent in substituting one sales tax for another, and would support this shift, particularly if it heads of much more expensive and dangerous legislation.

Update: Left out plan plank #4:  Streamline regulatory approval process for nuclear reactors.

  • stan

    While revenue neutral, it would cause wealth to shift. People who use a lot of gas get screwed, those who don’t get a big windfall. City folks get richer. Rural folks get the shaft.

  • hunter

    The Cap-n-Trade bill will be an economic Katrina to the energy producing sectors of the economy.

  • Gad Levin

    There is no global waring, just global stupidity!
    Therefore there is no need to cut CO2 emissions – no new taxes.

    Even if somebody is so blind to think that there is, it is definitely not caused by men, so again there is no need to cut Co2 emissions – no new taxes!

  • ADiff

    Actually this is one of the most intelligent approaches I’ve encountered. It uses the rationing power of the market to capture estimated externalities (however realistic and accurate they may be…or not!). The problem is it creates very little opportunity to use political influence to achieve ulterior ends, and hence would probably be unattractive to politicians dependent on favors to yield revenues (and other inputs) toward maintaining their own positions and power. Between the members of Congress, the various sponging NGO technocrats and the lobbying apparatchiks surrounding both, it’s probably just a non-starter. It does however possess the great virtue of being a useful foil to rather dramatically point out the depths of hypocrisy, band-standing and jobbery of most of the AGW advocacy community, both in and outside of government.

    It would be a mistake, however, to conclude that even optimally efficient interference in the market in pursuit of any social agenda can be done without absolute costs in economic efficiency and equity. But at least this proposal does keep those to a minimum, and has a realistic chance of actually achieving its purported social goals; unlike ‘Cap and Trade’, which amounts to nothing more or less than a government sponsored raid on the commonwealth imposing huge material costs across huge swaths of the population both here and abroad.

  • Pedro X

    Good idea.

    It will be interesting to see when the emissions trading bills probably fail by say 2015 if tax ideas like this are not adopted.

    Emissions trading was probably effective for S02 and acid rain ( although some argue against this ) but that is because there were easy ways and substitutes around. C02 is harder.

    A tax would be better. It is interesting to see the number of skeptics who advocate a similar position.

  • Good idea.

    It will be interesting to see when the emissions trading bills probably fail by say 2015 if tax ideas like this are not adopted.

    Emissions trading was probably effective for S02 and acid rain ( although some argue against this ) but that is because there were easy ways and substitutes around. C02 is harder.

    A tax would be better. It is interesting to see the number of skeptics who advocate a similar position.
    OH! You’re my new favorite blogger fyi

  • An Inquirer

    Yes, Warren, I like the idea and have been suggesting similar moves for more than a couple of years. One key tweak that I would add: replace the corporate income tax with CO2 tax. And I would add a few more advantages.
    1. Cap-and-trade favor past emitters, penalizes those who undertook efficiency improvements on their own, and creates hurdles for new entrants.
    2. Cap-and-trade creates an inviting playground for graft and political favors. We see this in Europe where the political-connected gets discounted or free emission rights, and the current proposed U.S. legislation is full of political buy-offs and paybacks.
    3. A consumption tax discourages consumption and promotes growth whereas an income tax discourages savings.
    4. Our tax system has become dysfunctional because over half of households pay no income tax or pay an inconsequential amount. The majority sees no immediate effect of tax increases.
    5. We should eliminate the corporate income tax because it is double taxation, distorts investment decisions, puts our corporations at a disadvantage in world trade, and is ultimately paid by consumers anyway. (Political note: if a CO2 tax is construed as a tax on business, then using a CO2 tax to replace the corporate income tax may be more accepted to shallow-minded MSM types. If the CO2 tax raises more funds than the corporate income tax, then reduce the payroll tax. The payroll tax is technically an insurance premium for a government sponsored pay-as-you-go system — for private businesses, that would be called a Ponzi scheme — but most people view OASDI contribution as taxes.)

  • hunter

    An Inquirer,
    You have outlined the reasons why our leaders are in such a hurry to impose cap-n-trade in the first place:
    Huge sources of revenue by imposing taxes on the air we breathe and the very act of creating wealth.
    It is precisely because cap-n-trade is so corrupt, ineffectual and amenable to graft and favoritism that our leaders want it now.

  • Jay Alt

    The plan can’t make an agreement that binds targets globally, it is far too vague. Without the prospect of a global agreement, no US legislation will be forthcoming. Such a tax could have been tried back in the 1990s to send a price signal to investors. But Congress could not tolerate the idea of even the teeny little BTU tax that Clinton proposed. No economist can tell us the necessary level of tax to achieve cutbacks, the task is beyond them. All our tax codes are riddled with exceptions and loopholes and are subject to political adjustments almost annually. Such a plan once had a chance but it was deliberately scorned and orphaned; the time for it is long since gone.

  • Frank

    I also favor a carbon tax that is returned to all citizens rather than used to grow the government. Rather than cutting payroll taxes, however, I would return the money directly to citizens. Since everyone uses energy, equal rebates should be made to every citizen; either by direct deposit (for those who sign up) or annually or quarterly through tax filings.

    Investments in the energy sector are made based on prices expected over decades. To influence investment in low-carbon energy sources, businesses need to be sure that a carbon-tax will last for much longer than 4 years. I suggest a carbon tax that gradually rises over the next 10 years and is guaranteed to remain stable over the following 10 years.

    To protect American jobs, all energy taxes used to make manufactured goods will be rebated to companies who ship their products overseas. Furthermore, all imports will be subject to an carbon tax when they enter the US. The size of the tax should depend on how much the originating country spends on carbon abatement as a fraction of their GDP. Every country could be responsible for their own plan for reducing CO2 emissions, but we should provide a level playing field so that foreign workers don’t gain an economic advantage over American workers from our carbon tax.

    How large should a carbon tax be? Several lines of thinking suggest that a tax that gradually doubles the cost of carbon fuels would be in the right ballpark: a) If the price of gasoline doubled due to an energy tax (estimate $5/gallon fuel cost and $5/gallon carbon tax in 2020), would that be enough to change your habits buying cars? If your monthly energy bill doubled, would you spend money to upgrade insulation, install CFL’s, and buy energy-efficient appliances? How much less than doubling would be enough to make you change? b) California is successfully offering 50% tax rebates on installing solar power making this energy source a financially sound investment for many. c) Any form of low-carbon energy that isn’t economically viable with a doubling of carbon cost certainly isn’t worth pursuing. d) Estimates for reducing carbon emission inside the US (rather than buying dubious “offsets” from other countries) run on the order of $50-100 per ton of carbon which is about $1.50-$3.00 per gallon of gasoline. If US citizens are going to be willing to pay such high carbon taxes, they will want to see the cost rebated directly to them (not returned in the form of reduced employment taxes).

    Stan’s comment: “The wealthy get screwed” with higher taxes could be answered with “the wealthy also create more of a CO2 problem (and a dependency of foreign oil) and they have the resources to invest in increasing their personal energy efficiency”. If the rich spend a little money, their carbon footprint could be no greater than average.

    What is the true cost? Overall, American citizens as a whole theoretically lose nothing when they pay double for energy and then have the whole carbon tax rebated to them. They actually only “lose” money when they buy a more expensive form of energy (say solar) to avoid a high carbon tax. This reduces the total funds available for rebate.