The efficiency of a carbon tax: Broadly accepted and broadly wrong

Article Highlights

  • In short: A carbon tax, whether imposed by the United States unilaterally or by the industrialized world, would have virtually no effect on temperatures over the course of this century.

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  • A carbon tax or other such intervention — regardless of one’s view of the underlying climatology — would be all cost and effectively no benefit.

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The standard assumption about the superior efficiency of a carbon tax relative to bans and energy consumption standards is deeply problematic for both scientific and political reasons.

Making an argument broadly accepted among economists, Sita Slavov, my colleague at the American Enterprise Institute, recently wrote that a carbon tax “set to reflect the spillover costs of carbon emissions” would be a policy more efficient than such interventions as light-bulb bans and energy consumption standards for appliances, sometimes called “command-and-control” policies. The tax would allow consumers to reduce the emission of greenhouse gases (GHG) attendant upon their energy consumption patterns in ways that minimize the costs of doing so. Bans and performance standards, on the other hand, allow for far less flexibility, and thus would achieve a given GHG reduction at a cost higher than necessary.

This standard argument is deeply problematic for reasons both scientific and political. Science first: Let us defer the issues raised by the poor predictive record of the Intergovernmental Panel on Climate Change climate models, the fierce debate in the climate and atmospheric journals about the direction and magnitude of feedback effects, and the problems inherent in the temperature record. Instead, assume that the models’ predictions about temperatures and weather anomalies in 2050 and 2100 — even the most apocalyptic — are correct. The following table shows the amount of warming averted by 2100 were GHG emissions to be reduced by, respectively, the United States and the industrialized world (the OECD90: North America, Western Europe, Australia, New Zealand, and Japan) under the highest temperature sensitivity assumption used by IPCC (a doubling of GHG concentrations would cause an increase of 4.5 degrees Celsius). The model used here is the MAGICC/SCENGEN climate simulator developed at the National Center for Atmospheric Research, and used by both IPCC and the Environmental Protection Agency.

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Benjamin
Zycher

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