Over the summer, the Institute for Energy Research (IER) hosted a conference entitled, “A U.S. Carbon Tax: The Rest of the Story.” We picked experts from both academia and policy analysis to demonstrate that the American public has been getting a very biased perspective on the case for a carbon tax. Even if we accept at face value the official position of the U.N.’s Intergovernmental Panel on Climate Change (IPCC) on the natural physical science of greenhouse gas emissions and climate change, the economic science doesn’t automatically point to a U.S. carbon tax the way its proponents would have us believe.
I have already posted about my own presentation on the panel (concerning some surprising facts about the “social cost of carbon”), and also on the talk given by Dr. Ross McKitrick, on the alleged “double dividend” of carbon taxes. Now, in the present post, I’ll walk through the presentation by Dr. Kenneth Green, the Senior Director of the Centre for Natural Resources at the Fraser Institute.
As Green explains in his presentation, he originally supported some version of a carbon tax (with caveats), because he thought it could be coupled with other policy reforms to yield a more efficient approach than the status quo. However, Green eventually became disillusioned with the enterprise, realizing that the loudest proponents of a carbon tax had no intentions of rolling back other interventions. He came to realize that proponents of the free market had no business supporting a carbon tax.
Green’s Presentation With Highlights
Below is the video for Green’s presentation, or the YouTube link is here. Underneath the video I highlight key moments from his talk.
- 2:00 – 4:00 Green explains that in 2007 he and his colleagues looked at the impact of a $15/ton carbon tax. They thought it would be a better policy than cap-and-trade, let alone more explicitly command-and-control regulations, especially if the revenues were used to offset other taxes. They weren’t “for” a carbon tax, but thought it was better than some popular alternatives.
- 4:00 – 5:00 Green said he noticed that the groups inviting him to present in favor of a carbon tax, never ever supported the other elements in his case. They didn’t want to roll back other regulations, or calibrate the carbon tax to the economically “optimal” point.
- 4:55 Green says that in 2011 he wrote a mea culpa, admitting that his “friends in the free market movement were right,” and that a carbon tax would be a step on the path of “carbon seduction.”
- 5:55 Green explains that a tax on carbon, is not really a tax on “bads,” because it applies to a major source of inputs in the economy.
- 7:15 Green says that to test the sincerity of a “market” supporter of a carbon tax, ask if the person would agree to throw out the CAFE standards once a carbon tax is in place. No environmental advocate would ever agree to this, even though in theory the carbon tax should replace all of the other regulations.
- 8:45 Green points out that if we “fix” the regressivity of a carbon tax by refunding money to poorer households, then it partially defeats the purpose: It is supposed to alter behavior by changing the relative price of carbon intensive activities.
- 10:15 Green says he has never seen a policymaker seriously propose a textbook carbon tax in the U.S. Political considerations always make the proposal deviate from the “optimal” configuration.
- 11:00 – 11:30 Green says that even the relatively sensible tax imposed in British Columbia, had only a “shelf life” of five years before environmentalists wanted to double the rate and decouple the revenues from tax neutrality. In other words, they wanted to take the money to spend on their own pet projects, which was not part of how the BC carbon tax was originally sold to citizens.
- 12:20 – 13:00 Green walked through examples of U.S. “trust funds” that have been looted for other purposes. In other words, we can see in practice that a “dedicated” environmental fund from a carbon tax would eventually be raided for general revenue purposes.
- 13:00 – 14:00 Green explains that unilateral U.S. action would not significantly affect the trajectory of global climate change, even according to the standard models.
- 14:00 – 15:00 Green warns conservatives that environmentalists do not want “efficient” pricing of carbon. In particular, he reminds us that Alberta has a carbon tax, and that certainly didn’t stop environmentalists from opposing the Keystone Pipeline in the most sweeping terms. So it is simply not true, Green emphasizes, that by going along with a carbon tax, conservative champions of the market can “take the issue off the table.”
Conclusion
Ken Green is a fan of markets who originally thought that a carbon tax could be implemented as part of a “market solution” that would protect the environment while enhancing conventional economic growth. After seeing the actual realities of the academic and political arenas when it comes to energy and climate policies, Green admitted he was wrong—a courageous move that not many people take in such circles. Green now argues that a carbon tax would only make the energy sector more inefficient, and (unless other major countries joined the effort) would not significantly affect climate change. In light of the campaign to paint a carbon tax as a “market solution,” Green’s personal odyssey is very instructive.
