A colleague from the American Enterprise Institute hosted a well-attended event on Earth Day last week, promoting an edited volume in which a number of authors advocate the implementation of a “carbon” tax. That tax is assumed to be, first, an efficient substitute for the emerging framework of regulations aimed at constraining the emissions of greenhouse gases (GHG), and, second, part of a “revenue-neutral” tax shift away from the taxation of capital, one that would yield a net increase in aggregate economic growth.
I will have much more to say about the essays in the book at a later time. For now, I present here three observations on the analytic arguments and verbiage that were presented at the event.
1. Tax efficiency and benefit/cost analysis.
One of the central proposals offered at the event was for a carbon tax of $30 per ton, rising at 4 percent per year in real terms (above inflation). That $30 per ton is essentially the same as the Obama administration calculation of $32 per ton as the “social cost of carbon,” a figure used to justify the Clean Power Plan and other GHG regulatory proposals. As an aside, the social cost of carbon calculation is an exercise in bureaucratic arithmetic shameless even by Beltway standards: it conflates domestic and global policy effects, it confuses the purported climate and GDP effects of GHG emissions, it fails to adhere to OMB requirements in terms of the choice among discount rates, and it is one part of a regulatory effort to count four times the same particulate reductions as the central benefit of four separate regulatory efforts. But let us put that aside.
The participants in the event stressed repeatedly the virtues of economic efficiency as a criterion generally and as the central characteristic of a carbon tax; and so it is appropriate to ask whether the proposed tax would pass a straightforward benefit/cost test under any set of reasonable assumptions. Again, the proposed tax quantitatively is very close to the assumed “shadow price” of GHG emissions, that is, the “social cost of carbon.” If we apply the same climate model used by the EPA, we can calculate under standard assumptions the future temperature effect of the Obama GHG policies, which again would be roughly the same as that of the proposed carbon tax. (Actually, GHG emissions under the tax would be higher if indeed it engenders stronger growth, a topic for a different day.) The following table summarizes those predicted effects, under the highest previous IPCC assumption (4.5 °C for a doubling of GHG concentrations) about the climate sensitivity of the atmosphere with respect to GHG concentrations (IPCC now assumes 3°C).
The effect of the US policy would be twenty-five one-thousandths of a degree, and expansion of similar policies to China and the rest of the industrialized world would increase that to barely more than four tenths of a degree. That trivial temperature effect explains why the EPA has never taken a position, whether in published form or in congressional testimony, on just what would be achieved with its GHG proposals, as doing so would be embarrassing. So: Is there a plausible benefit/cost test that would justify the costs required to implement this policy? It would have been useful to hear the participants in the event address that question.
It is not enough to assert that the carbon tax — combined with a reduction in a purportedly inefficient (capital) tax and/or the GHG regulatory framework — would yield an increase in economic growth. The tax/GDP models yielding that prediction essentially are tautological: If we substitute an efficient tax for an inefficient one, we will observe stronger growth. That shunts aside the central public choice question: How is it that the same political bargaining process yielding a messy, supposedly inefficient combination of capital taxes and GHG regulations somehow will opt for a “clean” carbon tax? Really? Moreover, the event participants uniformly agreed that in addition to the reduction in capital taxes, some part of the revenues from the carbon tax would have to be used to compensate lower-income individuals for the increase in energy costs. What about workers and others in energy-intensive sectors? And others whose interests are relevant politically? How long will it be before “revenue-neutrality” is a faint memory, replaced with a political bargain in which, say, 300 percent of the carbon revenues are spent? Note in this context that the outcome of the congressional bargaining process would be very different from that emerging from an EPA regulatory process far less constrained by a political need to compensate the losers. The net effect would be a large resource shift from the private sector to the government, an outcome not likely to prove salutary in terms of the efficiency of resource use.
2. What is the actual evidence on the effects of GHG emissions?
The participants seem to have accepted the common argument that the effects of anthropogenic increases in GHG concentrations already are both observable and serious. So it would have been useful to have seen some evidence in support of that assertion. The reality is that the evidence published by government agencies, by research bodies funded by government agencies, and in the peer-reviewed literature does not support that common argument. The temperature record is ambiguous, as is the correlation of GHG concentrations and the rate of sea-level increases. The Arctic and Antarctic sea ice covers do not differ by a statistically significant amount from the respective 1981-2010 averages; the former is near the bottom of the relevant confidence interval, and the latter is near the respective top. Tornado counts and intensities are in a long-term decline. The frequency and accumulated energy of tropical cyclones are near their lowest levels since satellite measurements began in the early 1970s. US wildfires are not correlated with the temperature record or with increases in GHG concentrations. The Palmer Drought Severity Index shows no trend since 1895. Over the last century, flooding in the US has not been correlated with increased GHG concentrations. World per capita food production has increased and undernourishment has decreased, both more or less monotonically, since 1993.
And so it would have been useful for the participants to have offered one piece of evidence — just one — in support of the premise that the effects of anthropogenic climate change now are visible and significantly adverse. The often-heard assertion that “2014 was the planet’s warmest year on record” and that “14 of the 15 hottest years on record have all fallen in the first 15 years of this century” is far less informative than many seem to assume, as it ignores issues of statistical significance, it ignores the divergence between the surface and satellite temperature records — the latter tell a very different story — and it ignores the fact that the earth has been warming in fits and starts since the end of the little ice age around 1850. How much of that is anthropogenic? No one knows.
3. “Carbon Pollution”
The phrase “carbon pollution,” heard frequently at the event and more generally, is, frankly, political propaganda, designed to end debate before it begins by assuming the answer to the underlying policy question. Carbon dioxide is not “carbon” and it is not a pollutant, as a minimum atmospheric concentration of it is necessary for life itself. By far the most important GHG in terms of the radiative properties of the atmosphere is water vapor. Do the participants in the event view water vapor as a “pollutant”? Presumably not; but why? Is it because ocean evaporation is a natural process? So are volcanic eruptions, but it is very clear that the massive amounts of particulates and toxins emitted by volcanoes indeed are pollutants. The event participants would be well advised to use the term “greenhouse gases,” as it is accurate scientifically but does not assume the answer to the central questions.
I hope that the participants in the event held at AEI, and any others interested in doing so, will address these questions and suggestions as part of a long-term process of discussion and debate in pursuit of sounder public policies.
Benjamin Zycher is the John G. Searle scholar at the American Enterprise Institute.
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