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Even if a carbon tax could significantly reduce greenhouse gas emissions, should it be implemented if it would undermine the economic recovery and stall short-term growth?
Under one possible approach, all countries would agree to penalize carbon emissions at an internationally harmonized carbon tax. But let’s be realistic: Because of the huge economic and political imbalances between the industrialized and developing world, the carbon-tax approach to emissions reduction is a pipe dream.
As much as 85 percent of the projected increase in man-made global emissions of carbon dioxide will come from developing countries, as a result of growing electric power use and automobile ownership that accompany economic growth.
The United States and other advanced countries won’t sacrifice their living standards, and the developing ones aren’t going to worry about climate change while their incomes are a fraction of those in advanced nations.
The hardest hit by the tax
The hardest hit sectors of the U.S. economy from a carbon tax would be energy-intensive industries, particularly chemicals, automobile manufacturing, iron and steel, aluminum, cement, and mining and oil refining.
These large industries would be at a serious disadvantage in the world marketplace, and many companies would move production to countries without such a tax. The cost in dollars, as well as in lost jobs, from a carbon-tax would be staggering. And the cost would ultimately fall on American consumers — without necessarily generating any environmental benefits if China, India and other countries with fast-growing economies continue to pollute.
In theory, the cost of a U.S. carbon tax could be rebated to consumers. But it’s more likely that most of the money would be used to subsidize renewable energy sources such as solar and wind power.
For years now, solar and wind companies have received taxpayer-subsidized grants and federally guaranteed loans for plant construction along with requirements forcing utilities to buy back the electricity they generate at costs far above conventionally-generated electricity.
What’s more, the argument for a carbon tax unfairly discounts the hard-won gains that U.S. industries already have made in reducing carbon emissions and threatens to hinder further progress.
The fact is, the United States has cut its carbon emissions more than any other country in the world in recent years — by 9 percent since 2007.
Rather than waste our time on what is politically unattainable, why not focus on some initiatives that already are making a difference?
The revolution in natural gas production has made a reduction in emissions possible — not only in the United States but globally. Natural gas is much cleaner than coal, generating at least 50 percent less carbon per kilowatt hour. And because electricity generation produces 41 percent of the carbon that the United States emits — the largest single source — the switch from coal to gas is significant.
Thanks to advanced drilling technologies and an abundance of gas from shale deposits, natural gas has accounted for more than 80 percent of new electrical generating capacity in the United States.
The share of U.S. electricity that comes from coal is forecast to fall below 40 percent this year, its lowest level since World War II, and down from 50 percent four years ago.
By the end of this decade it is likely to be near 30 percent. Now, we need to export U.S. technology for seismic imaging, hydraulic fracturing and horizontal drilling to other countries with large shale-gas deposits. Spreading advanced energy technologies globally would lower the cost of controlling emissions substantially.
By using advances in technology, we can expand the use of natural gas, nuclear power and renewable energies and achieve a substantial reduction in carbon emissions, without resorting to a carbon tax that would hobble our economy.
Mark J. Perry is a professor of economics at the Flint campus of the University of Michigan and a scholar at the American Enterprise Institute in Washington. Write him at UM Flint, 2111 Riverfront Center, Flint, Mich. 48502-1950.
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